21 Aug 2011

UK economy: think again, Mr Osborne, before it's too late

The editorial in today's Observer says that George Osborne has to admit that his strategy is doomed to failure. I took the opportunity to add a comment - something that I have been doing a lot recently. Indeed, if you are interested to see what I've been commenting on, you can look at all my comments on the Guardian/Obsever Comments page here. I've also added a link on the right of my blog.

So, as a sampler, here's what I posted today.

"I'm going to say it again. Read the first line of Bank of England's report for the BIS Triennial report, which can be found here. It states that "Net average daily turnover during April 2010 in the UK foreign exchange market was $1,854 billion per day," Assuming 250 trading days per year, let's call that $464 trillion a year or around 300 trillion pounds. That's 300 000 000 000 000 GDP. The UK is directly responsible for 37% of the world total. Congratulations.

The part of this which is actually necessary for business is almost certainly minuscule. The rest is pure speculation - and has absolutely no value whatsover. It's the result of employing the brightest and best mathematicians and scientists from our universities to come up with a fractionally better way of siphoning money out of the system and stuffing it into the pockets of traders and bankers. How tragic that they have nothing more useful to do.

I defy anyone reading this post to explain why 300 trillion pounds of foreign exchange does anything useful. Liquidity has nothing to do with it.

On the contrary, this ridiculous activity is not only totally pointless, it is actually extremely dangerous. It makes the foreign exchange markets completely unstable and allows the markets (or rather the mindless algorithms that are running on the supercompters in the City of London) to paralyse the ability of governments to implement the reforms that are so essential. Dare to even mention regulation of the financal markets, and the "markets" will make you pay.

The solution is blindingly obvious. It has been voted in by the European Parliament on the 8th of March. It is being actively pushed by Sarkozy and Merkel. But as long as George Osborne sticks to his policy of making everyone in the UK pay for the mess except those responsible, then nothing will happen.

Introducing a 0.05% Financial Transaction Tax, as proposed by many groups including the Robin Hood Tax people, Europeans for Financial Reform, plus a very large number of economists, would have one of two effects (or a combination).

Either (1) it would raise 0.05% of 300 trillion - namely 15 billion pounds of revenue for the govenment, or (2) it would slow down or maybe even completely prevent speculative trading on the foreign exchange markets. Both are highly desirable.

And if anyone from the banking sector tries to tell me that it is vital for currency transactions to be totally free of transaction charges, then they will have to explain to me why the banks charge me over 10% for changing euros into pounds or vice versa, and over 39% for cashing a cheque in dollars.

If the UK government persists in blocking such extremely sensible measures, they would not only be preventing the Eurozone countries from getting out of the current mess, they would be acting directly against the interests of the British tax payers.

It's time for the LibDems to pull the plug on George Osborne. Vincent Cable - wake up!"

No comments:

Post a Comment