Scotland voted against uncertainty in the referendum. The people decided that the best way to protect their pensions was by voting for the Union. Oil was a “volatile” commodity, and volatility could be avoided by voting for the Union. The Union represented protection from risk and fear; and although such faith in the Union required everyone not too think too hard about how such a Union could have suffered the sudden, catastrophic destruction of its financial system in a Credit Crunch that nobody could avoid (but that nobody in authority in the Union saw coming); the last seven years have (somehow) managed to show, in spite of everything, and especially for Scots pensioners, the strength of the Union.
Of course seven years after the Crash the deficit has still only been reduced by 33%; there is still 67% to go, which at the level of historic rates of reduction achieved so far could take another fourteen years; at least if we simply ignore the fact that the reductions in government spend to achieve this (i.e. austerity) has relied on the easiest cuts to spending having already been made. The next 67% of cuts will require tougher (more painful) decisions to be made. Let us not think about that. Let us think about the optimistic forecasts the Government has made to justify their view that the deficit will be eliminated by 2018; a mere four more years of increased austerity.
Even with more cuts this target is only achievable with the help of economic growth; but pensioners knew they could vote securely for the Union because the economic recovery had begun. We were constantly reminded of every positive sign of economic growth throughout the referendum; indeed Britain was said to be the most successful country in Europe.
Unfortunately the deficit is not the only problem; think of it as a mountaineering expedition (all pitons and frostbite) that some pensioners will not live long enough even to see the summit scaled; for only such a metaphor gives an impression of the scale of the problem. Eliminating the deficit only takes us to base-camp; the real financial Annapurna has then still to be climbed. The scale of the National Debt is our Annapurna, and that distant and receding peak has been rising exponentially through the aftermath of the Crash, and will go on rising rapidly until the deficit is eliminated. Then we are left with the vast obligation of this Union’s national debt (£1.7 trillion+ perhaps ++?), not to forget the interest repayments. How we are going to do this debt repayment trick in Britain remains something of a mystery. A mystery especially if we worry how Britain will pay the interest (I will leave capital repayment schedules even more mysteriously hanging in the air; perhaps they will revolve endlessly until the end of time) when interest rates, currently at historically unprecedented low levels, return to more conventional norms. What happens then? What happens if base rates increase by 3%-4%? What happens to the London property bubble then? What happens to mortgage holders throughout Britain then? Oh, and what happens to the £1.6 trillion of British private debt? Best not to think about £3 trillion+ of debt (public + private) accumulated within the Union. Best not to think at all; or think about how the City will come to the rescue of pensioners by magically producing vast profits, just like before; presumably on the scale of the money they lost in the Crash, and passed the bill to the public purse: eh, perhaps not such a good idea. Or better, think about the economic recovery, think about all that growth from; oh, well wherever. We are going to need it.
Since the referendum Unionists have felt vindicated by the fall in oil prices; volatility demonstrated! Unfortunately oil is not the only volatility. The Footsie was 6,878 on 4th September, a recovery peak in 2014. On 21st October it stood at 6,372. The 2014 low was 6,195 – also in October. For the full Footsie trends over 2014 presented graphically see: (https://uk.finance.yahoo.com/echarts?s=%5EFTSE). Now that is volatility. The Footsie has lost -7.4% in about a month. I will draw a discreet veil over the balance of trade, for those of a genteel disposition; which suffice to say shows the UK in long term (permanent?) deficit.
Recovery? Andrew Haldane, Deputy Governor of the Bank of England recently stated in a speech (17th October), that “While still a close-run thing, the statistics now appear to favour the back foot. Recent evidence, in the UK and globally, has shifted my probability distribution towards the lower tail. Put in rather plainer English, I am gloomier”. In June he had been optimistic; in his own jolly cricketing metaphor, more towards the “front foot”.
The prospect of a rise in interest rates has been put off until the middle of next year, with Haldane’s statement sending the pound sharply down in the foreign exchanges (half a cent against the dollar). At the same time Haldane tried to illustrate the upsides; with growth “reasonably well-balanced between consumption and investment”. Unfortunately he selected the wrong point of balance; the UK remains structurally seriously unbalanced between the (high risk) financial sector and productive (I use the word very deliberately) industry. This huge problem has not been addressed at all; save by the penchant for Cameron and Osborne to make economic announcement-photo-opportunities under the backdrop of the few factories left standing in the Union’s industrial dystopia. Cameron and Osborne will run out of factories to visit before this problem is solved.
Haldane also pointed to three economic positives; low inflation, falling unemployment and rising share prices. Low inflation however, conveniently ignores the London housing bubble; and the recent volatility in the Footsie challenges his share price thesis. Indeed the fall in unemployment reflects at least as many problems in the nature of the ‘recovery’ as upside, which Haldane is obliged to recognise when he turns to the negatives; which we may also see the current Footsie volatility as simply discounting. These contradictions are the economic reality.
Haldane sees three economic negatives as presenting “a more sobering picture” of the UK economy. It is about time someone was sober about the UK economy. These three negatives are; falling real-wage growth (hence presumably the unemployment fall), zero-growth in productivity (there is nothing clever or long-lasting about the nature of this growth) and real interest rates are around zero per cent (long-term, this is unsustainable).
Haldane’s explanation of the negatives is as follows:
“These indicators clearly have an important bearing on macro-economic health: among workers, whose disposable incomes have fallen materially below their pre-crisis levels; among savers, the rates of return on whose assets have fallen materially below their pre-crisis levels and are near-zero in inflation-adjusted terms; and among companies, whose underlying efficiency has flatlined since the crisis.
Growth in real wages has been negative for all bar three of the past 74 months. The cumulative fall in real wages since their pre-recession peak is around 10%. As best we can tell, the length and depth of this fall is unprecedented since at least the mid-1800s …..This has been a jobs-rich, but pay-poor, recovery.”
A fall in real wages unprecedented since Dickens was a boy. Zero returns on savings. This is Britain in the 21st century. This is the triumph of the Union.
The Union was cheery enough about the state of the Union economy during the critical months of the referendum campaign (all cricket metaphors and growth), but now in the autumn it is back to reality; of course a sober reassessment comes only and immediately after the referendum – strange how fate works out.
I will conclude with two hopefully useful reminders to pensioners throughout Scotland, which they may care to ponder as they stir their soothing cups of cocoa at bedtime: Recovery? Security? Night, night.