"London Bridge Is Down"

Tyler Durden's picture

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

The French election, won overnight by Emmanuel Macron, put several segments of the French population opposite one another in a pretty fierce contest. And that contest will continue. Because Macron won’t be able to lift the French economy out of its doldrums any more than Le Pen could have, or than Trump can life the US, and the new president will have the honor of presiding over a further and deepening downturn. The French political dividing line was aptly described by Simon Kuper recently:

The ultra-nationalist writer Charles Maurras believed there were “two Frances”. The one he loved was the “pays réel”, the real country: a rural France of church clocks, traditions and native people fused with their ancestral soil. Maurras loathed the “pays légal”, the legal country: the secular republic, which he thought was run by functionaries conspiring for alien interests.


Maurras was born in 1868 and died in 1952. But if he returned on Sunday to witness the French presidential run-off, he would instantly recognise both candidates. He would cast Emmanuel Macron as the incarnation of the “legal France” and Marine Le Pen as embodying the “real” one.

Maurras may have been a questionable character, but that description is not half bad. Once enough people in the country understand the failure of ‘legal’ France, they will want ‘real’ France back. That will be true in countries all over Europe; to a large extent it already is. Marine Le Pen summed up the key issue really well a few days ago when she said of the country post election: “France will be led by a woman, me or Mrs. Merkel.”

There is only one reason the French people would ever tolerate Germany having an outsized influence in their politics and economics: that they feel they benefit from it financially. And yes, if you put it that way, it’s already quite something that they haven’t revolted more and earlier.

The generous unemployment benefits are undoubtedly part of that. But those can’t last. And since the Germans owe their influence in Paris to the EU, it’s obvious how the French will feel they can stop that influence. And then the EU will turn out to be not a peacemaker, but the opposite.

Still, as much as France is divided, and as serious as that division is, the country is a shining beacon of unity compared to the UK, where the dividing lines are as manifold as they are laced with toxins. The snap election PM Theresa May called, in just over a month, can do nothing to resolve any of it. That means the EU can do what they want in the Brexit negotiations. Which will therefore be an unparalleled disaster for May and the UK.

The EU can and will ‘have its way’ with the UK for one simple reason: the United Kingdom is anything but United. It makes no difference what the EU does to the UK, the British won’t blame them for it. They will blame each other instead. No matter what happens these days, the British always know in advance who’s to blame, and it’s never themselves; it’s always another group of Brits.

The Tories are deeply divided between pro- and anti-Brexit forces. Labour is divided along those same lines, and adds pro- and anti-Corbyn sentiments for good measure. Other parties don’t really matter much, but they have similar dividing lines as well.

Anti-Corbyn Labour MPs have convinced themselves they know better than pro-Corbyn party members. They’ve kept claiming for so long that Corbyn is unelectable it’s become a self-fulfilling prophecy. They’ll be lucky not to face the fate of their former brethren in François Hollande’s Parti Socialiste, who ended up with just 6% of the vote in the 1st round of the French elections.

PM Theresa May called the snap election for June 8 to hide some of the divisions behind, to make them appear less relevant, or even to profit from them and grab more power. But the very fact that Brexit was voted in, already makes the election nigh irrelevant.

Whoever wins, and it looks certain to be May herself. will open themselves to being scapegoated in a big way. Which won’t keep them from seeking victory, because the loser can expect the same fate. The trenches have been dug, and deeply. Governable? Don’t count on it. It feels more like 40 years later we’re back to Johnny Rotten ‘singing’ Anarchy in the UK.

If May threatens to leave the EU ‘cold’ and trigger a ‘Hard Brexit’, she will simultaneously trigger a whole lot more, and much wider, divisions in the country (or is that countries?!), and that’s even without mentioning an entire minefield of legal, and potentially constitutional, issues. The latter especially because Britain doesn’t have an actual -written- constitution.

For Brussels, it’s easy pickings, and pick they will. This week, they casually raised the UK’s cost of leaving the EU to €100 billion, from estimates varying from €40 billion to €60 billion before. Paddy Power and its equally powerful bookie ilk soon won’t be taking any bets below, say, €150 billion. In that regard, and many others, the EU will do to the UK what it is doing to Greece.

The only way to stand up against that is to show a common front. But there will be no such thing in the Divided Kingdom, not for a long time. Everyone has their favorite scapegoat, for some it’s Nigel Farage, for others David Cameron, George Osborne, Tony Blair, Jeremy Corbyn or Theresa May. And nobody is going to leave their blame trenches. They’re the only places they feel somewhat comfortable, less scared, in.

Theresa May, if the polls are to be believed -and given the divisions we might for once-, will have to sit down and negotiate with the multi-headed Hydra that is the EU, ‘strengthened’ by a major election victory, but she will find it the ultimate Pyrrhic victory, because Brussels will have a ball playing her divided ‘nation’.

Scotland can probably easily be seduced with the carrot of EU membership, but more importantly, Juncker and his people can cast doubt on the entire Brexit vote, and they will have many interested takers.

The Brexit negotiations will take at least 2 years. But it could be 3 or 4 years, who knows? May has no power over that durationm unless she walks. She won’t. And as things are drawn out, Juncker et al have all the time and opportunities they want to tell both May and the British public that Brussels has no intention of punishing them, but will have to do so anyway.

After all, Brexit is a threat to the entire European project, and all the leaders of the 27 remaining nations, as well as the vast majority of their domestic opposition parties, are behind that project, no questions asked. And the many thousands of people working their very well-paid jobs in Brussels and Strasbourg are not too critical either.

All in all, the British need to wake up and smell the roses as long as there are any left, and before they have been replaced with less savory odors. Or they will have to seriously wonder whether the Kingdom, united or not, can outlive the Queen, aka the London Bridge.

*  *  *

“London Bridge is Down” was recently revealed as the secret UK government code for the moment the Queen dies.

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Giant Meteor's picture

I say ole chap, do you have a match ?

Dame Ednas Possum's picture

Of course good sir...

My arse and your face! 

Boom boom!!!



Dame Ednas Possum's picture

Like a cream pie. 

Nyuk nyuk. 


philipat's picture

I call total Bullshit on this article written by persons either with an axe to grind or a lack of understanding of UK politics. Or both.

There may be some still semi-hidden more nefarious reasons (involving election rigging in the last election) to call the Poll now but essentially the Labour Party is in complete disarray under the "leadership" of communist Corbyn. Labour don't seem to understand that you can't win an election in a Western Libaeral democracy from anywhere other than the centre, as Le Pen just found out. Further, May was still largely operating under the mandate of Cameron and so not fully legitimate. Blair (that well known war criminal who should be in jail, but never mind for the purposes of the point to be made here) understood this very well and "New Labour won power from the centre. "Old Labour" under Corbyn will any election from the left.

For both of these reasons, may sensed an ideal opportunity to strengthen her majority (at present very small overall) and create her own mandate. Show me any politician who, faced with the same circumstances, would not have done exactly the same?

The outcome will be an enormous Conservative majority which will allow her a stronger hand in Brexit negotiations, such as they may be as the Brussels collective have already made it abundantly clear that they have no intention to negotiate in good faith. In fact, many are now wondering why waste 2 years and not just pull out now to avoid wasting 2 years in useless negotiations whicgh are likely to end in "no deal". British industry can accept a return to WTO trade rules either indefinitely or until the German car manufacturers force Brussels to make a trade deal. And if the City loses out, so be it. The UK economy is over-dependent on criminal finance and it would be an ideal opportunity to re-balance the economy anyway.

So May and the UK will be in a much stronger position with a resounding mandate from the British people to get us out of the clutches of the unelected megalomaniacs in Brussels (Not to mention Pedophiles and Drunkards)

Again, I call major Bullshit on this article.

OverTheHedge's picture

"I call total Bullshit on this article written by persons either with an axe to grind or a lack of understanding of UK politics. Or both."

I have to agree. This doesn't seem to reflect any facet of British society that I know about, although I am an ex-Brit, so might be out of touch.

1. Whilst Brits do like to play the blame game, they NEVER turn down an opportunity to wallop the Frogs, and the next two years are going to be an endless parade of Frogs in barrels for shooting purposes.

2. Scotland can whine and winge all it wants, they know that Europe will treat them like Greece, and they know that the UK will stop funding their profligate government. Given that the oil income is ever decreasing, it becomes more irrelevant. Finally, no new referendum until UK is out of eu, so utterly irrelevant. Do we see Scots rioting over being allowed to stay within eu? I don't.

3. The Labour party. Enough said.

4. The lib dems weren't even mentioned in the article, quite rightly as they are utterly irrelevant.

5. Seems to me that the Brits are actually quite united, in that the entirety of Europe is against them, backs to the wall, fight them on the beaches. If Spain tries to upset BritBot by messing with Gibraltar, all hell will break loose.

So, on balance, I believe the exact opposite of the article is the situation on the ground. Posh winebars in Knightsbridge might suggest otherwise, but London is NOT the UK.

quadraspleen's picture

I'm a current Brit and I wholeheartedly endorse your post

Ghordius's picture

as part of that "entirety of Europe" that you claim is "against (Brits)", on which beaches do you plan to fight?

a small warning from the Continent: we don't even know what the heck your government actually wants from us

you know what the most common answer to Brexit questions is, on our streets, when you ask people? a big "meh, whatever"

yes, we see you all combative. please use British beaches, we plan to use ours for tourists, this summer. thank you

SolidAssets's picture

she was a waitress in a cocktail bar now she owns a jet... http://bit.ly/2jdTzrM

quadraspleen's picture

I think you're mis-characterising the "fight" Ghordo..You assume there will be a fight over this phantom £100bn we "owe"

There will be no fight. we just won't pay it, that's all. It has no basis in legality. It's a fantasy. They're "negotiating" like Trump; i.e all noise and no substance. This will evaporate. Talk all you want about fighting on beaches. That was 85 years ago, remember?

Would you pay it?!

Ghordius's picture

that phantom number was given by the Financial Times. as an estimate. by a British newspaper

nobody is negotiating because the EU negotiating team is ready... but the UK's does not even exist, yet

that "fight" is all between British Remainers and British Leavers. I still suggest they use British beaches, and leave us out of it

sandeels's picture

Hmm...would that be the same FT that led the charge telling the world that i)that the Brits would never vote to leave and that if the unthinkable happened ii)the uk economy would inevitably fall off a cliff the day after?
I agree with the consensus, this article is drivel from a desperate contributor trying to create a story rather than comment on facts.
A shame that Tyler Durden is prepared to give this author space, giving yourself a bad name there TD.

philipat's picture

To answer your question, I think the answer is that the UK wants precisely nothing from you. And if necessary WTO trade terms will do just fine. And you won't get a penny over what is strictly committed pro rata expenditure from us either. WTO trade terms are fine for British Industry with the possible exception of The City of London which you are welcome to keep as part of the equally corrupt Brussels scam.

The indifference in Europe you express equally sums up the atmosphere in the UK (from which I recently returned after a visit) so, as I noted in an earlier post below, why make such a big fuss over nothing? What's done is done and what will be will be. The UK now has to find its own way in the big wise world. And History suggests it will be just fine.

7thGenMO's picture

Generally appreciate your perspective, but, my .02 after visiting the UK recently and spending a fair amount of time with some commoners.  They want to stop being treated like a "second class citizen" (by the EU and their own government) "in my own country".  I talked with working men who had not worked in four years because the country has been flooded with low wage workers from the former Communist bloc.  I met Polish immigrants who had a baby to be eligible to collect a generous benefit.  Outside of London, the decaying infrastructure and poverty is noticeable.  These types of conditions are why Brexit happened. 

Countries like Poland have not dealt with the corruption remaining from their former Communist governments.  Poland needs to release the files about who was spying on their relatives (such as Germany did regarding the Stasi), but, if it did so, it would be obvious that many Communist officials still hold the reigns of power.  The UK commoner wants his country to stop being the dumping ground for the poor resulting from corruption in the Communist bloc.

Note:  On my next visit to the UK, I plan to visit the Lord Nelson pub in Hastings and buy a pint for every fisherman who will now be able to fish the Channel again like his ancestors have done for 1,000 years.


Déjà view's picture

'U.K.raine'...exports of goods and services to other EU countries were worth about 12% of the value of the British economy in 2015. It’s been at around 13-15% over the past decade.
Exports from the rest of the EU to the UK were worth about 3-4% of the size of the remaining EU’s economy in 2015.

Let chips fall...where they 'May'...
N. Éire/Scotland join Captain Bligh...Fletcher Christian about to burn H.M.S. Bounty...hoping to keep her from falling into hands of Washington/Tel Aviv.

Sirius Wonderblast's picture

Yup. The article is drooling nonsense. Unless its' author thinks that every single person will at all times be in accord then it will always be possible to point to differences of opinion. Living here, I absolutely do not sense - outside perhaps of Londonistan and from the SNP (as distinct from Scots) - any dissent over the Brexit.

London is so different from the rest of the UK that in may ways, it is like somewhere else. Some areas more than others, mind you - Tower Hamlets, for instance.

May has astutely taken the opportunity to increase her majority, which looks like a shoo-in - while Labour and UKIP both are rudderless. I il say I admire Corbyn's adherence to conviction politics, and the Labour membership's support of him and his/their principles. It highlights the bankruptcy fo the parliamentary Labour Party and the slimeball politicians that make it up. Sadly, it is not enough to gain traction in an election in what is stil a largely somatised country. While folk can get BMWs and Audi's on easy terms, who wants to fight for workers (or anyone else's) rights?

Fact is, the EU has long been disliked, since its germ as the EEC really. Tampering with fairly minor matters of weigths and measures, however, was overtaken by the bombast and federalism, and feathering of nests, of the EU "elite" and their handsomely paid minions. Now we get the threats, coercion and general unmasking of the beast per Drunckard's recent bile, which serve to prove the right choice was made. Now, threaten Britons with whatever dreamed up impositions, call them threats, call tem attacks, and you will see increased unity among us. At the same time, you will see - as has been the case - the division between those such a Cluncker at the Commission, and Tusk at the Council. Perhaps Tusk, federalist as he is, seems more hope for the EU if it can trade successfully with us than if not, which would seem wise.

Once the UK is out of the EU, the impetus for Scottish break away is liley to wither rather rapidly. Whither then Sturgeon's pension?

What did anyone really expect after the way the PIIGS were treated? Now try it on with one of the big boys, you bunch of f*cking pussies. See how far you get.

The Islington set, it's pseudo-intellectual fans in the BBC and a diminishing number of Snowflake-esque Remainers may cry their eyes out about it, but get around the country and you will find a good deal of unity and a rather visceral dislike of the EU and the people like Wancker who epitomise it.


Thus far May has it right. Call the election while the EU struts around like a pigeon (all Obama-style), then when it matters just don't take the blindest bit of notce of their nonsense (Euro100bn demand included).







EddieLomax's picture

Got to agree, this is the most illinformed piece of guff I've read for a long time.

"For Brussels, it’s easy pickings, and pick they will. This week, they casually raised the UK’s cost of leaving the EU to €100 billion, from estimates varying from €40 billion to €60 billion before."

News just in, I'm hearby raising the charge for stupidity from £400 to £8000, it is apparently easy to get money off you if you truly believe we will pay anything at all?

"Paddy Power and its equally powerful bookie ilk soon won’t be taking any bets below, say, €150 billion. In that regard, and many others, the EU will do to the UK what it is doing to Greece."

Lol.  Seriously, I wouldn't take any bets below €150 billion either, afterall, why would I want to lose money when making a bet?

The conservative party has for a long time had a very large split in it.  It started in 1972 when a lot of them thought they were joining a economic agreement or getting leverage over Europe etc etc, a few realized exactly what it was.  And the split has been getting more painful since with the problem being its much harder to overturn the status quo than continue with it.

If the vote last year had been to JOIN the EU then I reckon it would have been 30 to 70% against, and that is being optimistic.


The real news is France has commited to being behind the EU tariff wall when the UK leaves the EU, that means US and other companies can sell a product at between 12% to 40% cheaper if their cost of production is cheaper and the UK has a free trade agreement with them.

For us a free trade agreement with a country like the US is a no-brainer, for the US its a unique opportunity to take over EU market share.  When Le Pen gets in in 2022 it is going to be very hard for French companies to get back in, but the economic pain will really be something to behold, maybe the French will lead the way in sweeping the Muslims out, just the lower security costs would be a compelling economic advantage. 

csmith's picture

"British industry can accept a return to WTO trade rules either indefinitely or until the German car manufacturers force Brussels to make a trade deal."


Bingo. So, the EU wants to charge us 100 billion Euro to leave? Forget it. And forget buying another Beemer or Benz while we're at it. The pain point will soon be discovered.

Yen Cross's picture

   I second that motion... Article is TOTAL statist bullshite!

malek's picture

"you can't win an election in a Western Libaeral democracy from anywhere other than the centre"

It is very telling that you put something disguised as common sense in the middle in your post,
when in reality you just uttered a declaration of moral bankruptcy, and surrendered to politics-as-usual and the Orwellian redefinition of what the "centre" constitutes.

I call bullshit on some of your thinking.

philipat's picture

Excuse me but you are mistaling an opinion for a statement of fact. In saying this I was simply stating a fact not an opinion. So I call bullshit on your critical ability and understanding of reality.

malek's picture

Nice, you contradicted yourself in your first two sentences.

So, was it a fact or an opinion?

philipat's picture

BTW, have you bumped into Sir Les Patterson recently?

Max Damage's picture

That article is an utter load of shite. We voted for a hard Brexit and that is what we will get. The bullshit demand for £100 billion has already been fucked off and so will te rest of their bullshit. Without UK money the EU is up shit creak, but fuck em. we will work hard and sort ourselves out

BigDuke6's picture

Your poles will work hard....

The Brits will put their feet up and have a cup of char

Ghordius's picture

"We voted for a hard Brexit and that is what we will get"

funny that. so on your ballot, there was not the option between "Remain" and "Leave"?

and of course that "demand" was from the EU, not an estimate from the (I quote an MP) "Japanese-owned" Financial Times? a London based newspaper?

I'll take your comment as an excellent example how wrong the author of the article is about Brits blaming other Brits instead of the EU

Max Damage's picture

We voted leave. Only pricks who want to keep their EU deals and pensions invented the words Hard Brexit and soft Brexit so quit the bullshit

Batman11's picture

Whoever gets into power has to pick up the poisoned chalice left behind by neoliberalism.

The debt fuelled ponzi scheme of the UK economy.


The power of finance was the power of debt, borrowing money from the future to make today better, but sooner or later tomorrow arrives. The Greeks loved their German luxury goods until tomorrow arrived.

The ubiquitous neoliberal housing boom was the main mechanism for getting that money from the future into today via mortgage debt.

The neoclassical economics underlying neoliberalism didn’t include debt in its models.

2008 – “How did that happen?”

They didn’t have debt in their models, and they still don’t, leaving the FED pondering how to reach escape velocity. When they recognise the problem they will stand a better chance of coming up with a solution.

The debt fuelled ponzi scheme left behind by neoliberalism will be the poisoned chalice waiting for whoever gets into power.


Batman11's picture

The FED’s models always show things should get better but they don’t:


When you don’t include the debt that is causing the problem this is what your forecasts will look like.

The IMF’s forecasts are the same:


The IMF predicted Greek GDP would have recovered by 2015 with austerity.

By 2015 it was down 27% and still falling.

The effects of debt are missing from their models.

Roll out bad ideas globally and you get one hell of a mess.

Ghost who Walks's picture

I'd like to see a model with debt in. Do you have a link?

The only ones that I have seen so far, are from Professor Steve Keen in the Minsky program.

He has shown these via youtube and other video links.

striped-pad's picture

Here's one:

Everyone has a balance sheet.  What they own, and what's owed to them are their assets.  What they owe to others are their liabilities.  The difference between assets and liabilities is net worth.

Corporations (including governments) have balance sheets too.  Take the balance sheets for all people and all corporations, and you have a macroeconomic model with no fallacy of composition.  The effect of a set of actions is the sum of the effects of the individual actions.

Production adds to net worth by creating or enhancing assets.  Consumption reduces net worth by destroying or wearing out existing assets.  Everything else is just transferring net worth between different people/corporations.

Example: QE, as with other forms of money creation, does not add to total net worth because while it creates new assets (the new money), it also creates an equal amount of new liabilities (debts of the central bank to the people with the new money).  Its effect is therefore at best neutral, but is actually more likely to transfer net worth to politically-connected people and corporations from everyone else.

Economics is actually quite straightforward once you start from this model.  Insolvency (not enough assets to pay liabilities) is the source of all financial evil because others are relying on you keeping your impossible promises, and you can't get out of insolvency by borrowing because it adds as much to your liabilities as to your assets.  The only ways out of insolvency are:

  1. (The Ideal) Produce enough to increase your net worth up to, or beyond, zero;
  2. Be given enough assets by (or taken assets from) someone else to make you solvent. (The other person's net worth decreases by the same amount); or
  3. Default on your debts (which decreases the net worth of your creditors by the same amount as you default).


When it comes to Steve Keen, I like that he takes debt seriously, but I think his model is flawed.  For example, he treats a bunch of bank notes in a bank's vault (or electronic equivalent) as significant, but they're just debts from the bank to itself and therefore entirely irrelevant.  Anyone can write IOUs to themselves as much as they want without it having any effect.  It's only if you write an IOU to someone else that it makes any difference to anyone.

philipat's picture

Steve Keen also is, below the surface, a closet Keynsian who agrees with Krugman that there is no such thing as too much Government debt. I do wish these "Keynsians would remeber the other half of Keynes" theorem, which was that during good times, Governments should SAVE. What a novel idea?

In Balance sheet terms, total net worth is also called "Equity". And equity is perhaps a better word to make your point. Nice post.

striped-pad's picture

Thanks.  I thought net worth and equity were pretty much synonymous, but I'll consider using your suggestion.

I'm not sure there's very much to do with closets in Steve Keen's Keynesianism.  He calls himself a post-Keynesian, but as you say he does seem to like government debt.  In fact he's like the MMT people in that he claims that it's vital for governments to have debt so that the rest of the economy can have net financial assets.  It's true, but also highly misleading because it is a truism.  You could equally well say that it's vital for toothpaste manufacturers to have debt so that the rest of the economy can have net financial assets.  The important thing to me, looking from a balance sheet perspective, is that whoever has debts to the rest of the economy has enough other assets to honour those debts.  This is much more likely to be true in the case of a manufacturer (a factory, machines, and stocks of already-produced goods, as well as the ability to produce more goods easily in future) than in the case of a government, which generally only eventually pays its debts to one person by taxing another person.  In reality, the rest of the economy as a whole didn't really have net financial assets - their equal liability was temporarily hidden on the government's balance sheet.


Raging Debate's picture

Stripad and Philipat - Good commentary. As for government spending the government can invest in long term projects that private business cant afford to enhance productivity. Examples are computing, Internet, super highways, fracking, jet propulsian, nuclear power, hydro electric power.

Creating debt using blanket monetary policy means no control where the flow of money/debt goes and very little chance of return sometime in the intermediate future. 

striped-pad's picture

Yes, I'm not opposed in principle to governments taking the lead in providing useful infrastructure and services, and funding them with taxation. I think it's also fine to borrow to pay for infrastructure as long as the debt is retired over a reasonable period of time, and that the people paying the taxes during this period are gaining the benefits proportional to the amount they are required to pay.

On the other hand, I am very concerned about the monopoly power of governments in providing these services to the people, and the way that lobbyists can use that to make gains at the expense of taxpayers, essentially forcing taxpayers to buy their goods and services at a price which the taxpayers would consider poor value for money. And even worse than that is a government (or anyone in fact) issuing debts which it has no intention of repaying, because a build-up of debts which can't or won't be paid, subtly undermines the whole economy by eroding trust in the promises which lubricate commerce. It is like taking chairs away in a huge game of musical chairs.

philipat's picture

Yes agreed but I think it is a question of degree? First, don't label it "Keynsianism" because it truly isn't (without the Government building surpluses during the "up" part of the busiless cycle) and, Second Government should not be indebted to the point of 100% of GDP and over as in most Western Nations. To the point that the debt can never be repaid other than in devalued paper. I also question Government's role (And I include the Fed here, even though as we know it is no more "Federal" than Fedex) in "investing" primarily in financial assets and, in the process, destroying free markets and price discovery. And why is it legal for Governments to print money out of thin air and buy productive assets (equity)? Government should stick to long-term investments in infrastructure and the like during the down cycles to stimulate the economy and "smooth" the cycles (Which was Keynes point) and not, as has become the case, to try to eliminate the cycles in an attempt to double down and paper over already bad policy outcomes.

philipat's picture

I think that the word "equity" conveys certain (actually incorrect) connotations of equality and fairness in addition to and over and above those conveyed by "Net worth", which makes it mean more to non-financial people in this context particularly. Just my take.

And Government generally don't at present repay debt by taxing others but by printing currency out of thin air to create more debt to pay down the interest on the old debt. And this trend is accelerating. OMB projects that, generally as a result of "entitlements", Government expenditures are on track to expand to over 40% of GDP by 2050, whereas revenues (a/k/a) taxes remain static at about 20% of GDP. That is definitely NOT what Keynes had in mind and I don't see how it can be sustainable, especially if other Nations re-introduce "Real Money" as a trade settlement medium.

striped-pad's picture

Yes, the whole build-up of debts without any plan for repaying them is, if my understanding is correct, guaranteed to lead to disaster, as I wrote above in the comment about musical chairs.  Debts which the debtor is unwilling or unable to repay (and which are not underwritten by someone willing and able to cover them fully, such as a solvent bank) are corrosive to society, because they destroy the trust vital to commerce, in exactly the same way as happens when someone counterfeits currency.  Like counterfeiting, it is particularly harmful because the effects are very hard to perceive at first, which allows the problem to grow to a level where it becomes traumatic to deal with.  When one dollar in a million is an IOU that can't or won't be kept, few people would be badly affected, but when one in five is a false promise, there are enormous losses to be taken, and the allocation of the losses becomes a toxic and divisive political problem.

I wrote "eventually pays its debts to one person by taxing another person" because that is how a government would actually pay its debts. Printing currency (or issuing government bonds) to pay the current bondholders is not repaying debts, but just transferring ownership of the existing debts from one creditor to another - the effect is identical to the government acting as a middle-man in the private exchange of government debt.  The government owes the same debt as before (or more if it issues bonds to pay for interest on the old bonds), and no more means of paying the debt than it had.

I didn't know the 20% and 40% projected figures - I'm more of a theorist.  I can't see how we could reach that point though.  I would expect confidence in the circulating IOUs to collapse before that point was reached.  You can't eat unkeepable IOUs or live in them.  I suppose the best you can do is use them for wallpaper or heating.

Supporting permadeficits is not something that I would accuse Keynes of - just some of his disciples.  I still think there are some serious mistakes in his analysis though (or at least how his analysis is presented in modern textbooks).  In the circular flow with households and firms, with banks as intermediaries, the whole discussion of leakages and injections ignores withdrawals (injections) and loan repayments (leakages).  I suppose that's why it's only a short-term theory - it models saving as a donation from households to banks, and investment as a donation from banks to firms.  If you look at the balance sheets, you see that deposits of cash with a bank are just households exchanging an IOU from the central bank for an IOU from the commercial bank - one form of money for another, with no change in their equity.  The money remains on the households' balance sheets, and will contribute to future demand whenever the saver decides to use it.  Injections and leakages may not be instantaneously equalised by a market for loanable funds, but they are equalised in the long run by the fact that every injection and leakage sets up a debt which leads to an equal leakage and injection respectively in the future.

I wrote about it a while ago here. I think I've moved on a little in my understanding from then, but the diagrams are still useful, I think.

JohninMK's picture

What a crazy article.

There is no divide of significance here in the UK, I'd say that an increasing majority are starting to think the same way, get us out of Europe ASAP. Just wait for the results next month, most political parties here are starting to lose relevance here.

Brussels bullying is highly counter productive, we don't react very well to it. There is no reason why we just can't take our ball (the massive trade imbalance the EU has with us) and threaten to walk away with it. Which we can, giving very short notice under the Vienna Convention rather than using Article 50. Just watch the panic over in Stuttgart and Munich then.

Ghordius's picture

do your words apply to Scotland, Northern Ireland, London and Gibraltar? just asking

JohninMK's picture

Pretty much. Not sure about Gib tho'.

I think you will be surprised at how the vote in Scotland goes. The Scots are not stupid and are well aware of the financial benefits of staying in the Union. May is from quite a different background and has a quite different impact on the electorate to Cameron. This should not be underestimated just as the virtual disappearance of the 'blue collar working' class who were the Labour Party's natural voters but who are now mainly in China.

NI is interesting as personally I think, if the Protestants rights could be protected, it would naturally be part of a united Ireland but I doubt it will happen in my lifetime. More important is the trading relationship. A much better plan would be for Ireland to leave with us and the British Isles became an economic area.

As to London, the proportion of indigenous British population seems to be falling fast as it seems that many in the world who can, move there. They just want the best for themselves and couldn't give a shit about politics. The 'view' of London is distorted by our politics and press being based there and putting out their view as if it was everyone's.

Islandcarl's picture

JohninmK - the Gibraltarians are highly patriotic (lots of Union Jack flags everywhere). They voted Remain because they knew the Spanish would seize the opportunity to be absolute ar*eholes if the Leave vote won...which as we all know, has proved to be the case (as usual). They remain strongly pro-British, even though Tony Blair tried to stitch them up behind their backs a few years ago.

I thought a Spanish union leader in Andalusia summed it up well a few weeks ago - "When you go courting a new bride to be, you go with a bouquet of flowers, not with a flowerpot to hit over her the head with"


philipat's picture

IMHO all peoples have a right to self-determination, including the people in Crimea and Eastern Ukraine, Catalunia etc in addition to those you menationed. I thyink most people in England are sick and tired of the SCots and if they want to go, they should. Of course, they might finish up with the worst of both worlds because if they leave the UK they would not automatically be a member of the EU and the Spanish would make it difficult because of their own secessionist issues? The others you meantion, and actually also the Scots out of self-interest (Their economy depends upon fiscal transfers from London) would all vote to stay with the UK. If the City of London doesn't like it and loses out with Brexit, that isn't such a bad thing. Although, the UK likely could become a kind of "Offshore Tax Haven" which would benefit the City. But if not, criminal Banking (HSBC, Barclays etc) accounts for too large a portion of the UK economy and if some re-balancing becomes essential, so be it.

EddieLomax's picture

True, but when will it end?  Timing is the one I just cannot get my head around.

At somepoint someone in the chain will say it is no longer worth their while, but if that moment is 10 years away its irrelvant to the current politicians.

Dame Ednas Possum's picture

The 'real' France just needs to stop feeding the 'legal' France. 

Then things will be corrected very quickly. 


As for the Brits... I believe the author underestimates their resilience and their shared resentment of their European cousins across the Ditch.

The EU's hard line will cause the Brits to rally together and launch a collective "FUCK YO(E)U!" 

They're not happy unless they're miserable... and that is what unites the Brits. Try challenging that as an outsider and they will surely gang up on you. 





small towel's picture

You are spot-on Dame. I usually have time for this Author's musings but this article contains less truth than a Wells Fargo employment manuel.

Ghordius's picture

rubbish, rubbish, more rubbish

of course the hard core of Brexiteers will blame the EU. regardless. what immense heap of rubbish is it to claim otherwise

blaming the EU is practically the lifeblood of the British tabloid newspapers. there is Boris Johnson that for all purposes built up a career by lying about the EU and assigning blame for whatever came to his fertile mind

if you doubt me, just read The Sun, The Telegraph, the Daily Mail and see for yourself. from straight bananas to eur coins and notes bearing deadly viruses to immigration to whatever, the EU is blamed for whatever those "journalists" can come up with

yes, Brexit showed a lot of divisions inside the United Kingdom. yes, neither Northern Ireland voted for it nor did Scotland, nor did Gibraltar

from my continental point of view, the problem will persist until the UK changes it's FPTP electoral system and starts to have a serious discussion about itself and the EU, instead of engaging in mythology