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DEMOCRATIC REPUBLICAN PARTY NEWSLETTER
For a Civic and Constitutional Republic
Issue No 95 Sunday 18 March 2012
Highlighting news stories important to the Civic Republican view, particularly those that are overlooked or little covered in the main media.
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Peter Kellow writes
And they are no longer very interested in the productive businesses, small medium and large, that form the vital drivers of our economy. Rather they bow to what they see as a far greater authority – that of global banking and multinationals.
Today and in the next newsletter, I want to talk about a process that is going on under our noses whereby the government is depriving citizens of their wealth.
This is not something that is happening by means of a sudden windfall or a highly visible tax change. It is occurring by stealth. The methods used are dressed up as something else to deceive the unwary – which includes most of the orthodox press and “opposition” politicians – but they are very real and will in the longer term reduce many of us to virtual penury.
But first some background. Click on this link to the debt clock. This page shows nations’ debts as a function of GDP in frighteningly real time, twenty-four hours a day, 365 days a year. It forms the background to the government’s strategy of robbing the nation.
You will notice that the Kingdom has a debt to GDP %age in line with France and Germany but this situation is made much worse if you look at external debt. If you take out Ireland which beats all comers with a formidable 1200% plus of external debt to GDP, the Kingdom is the clear runner up with 480% (as of the time I am writing this).
In spite of the much vaunted strategy of austerity that the coalition is ruthlessly imposing on the British people, the debt clock continues to tick remorselessly upwards. Austerity cannot work because it will lead to recession or something very near, such as we have now, and this will reduce the tax take so will be counterproductive in trying to reduce the nation’s debt burden.
If we are going to give credit to the government for knowing the truth of the matter, then we must assume that all the headline talk of the austerity measures is really a smokescreen for their real strategy to deal with the national debt. They cannot publicly enunciate this because that would be to publicly admit that they are year by year by year robbing the very people who they depend on for votes – the middle to high earners.
It is one thing for the coalition to show they are tackling the deficit by kicking the poor, the deprived and the disadvantaged, for the people that make up these groups they do not see as voting for them anyway. But to proclaim how they are screwing people with houses, savings and pensions, that is a different matter. This is why this has to be a stealth strategy not a public one. And it is done, as it only can be, with the full cooperation of that august institution, the Bank of England, and its newly knighted head, Mervyn King.
It seems highly possible that George Osborne in this week's budget will lower the 50% tax rate and so appear to be favouring high earners. If he adopts this ploy it will be to further attempt the stealthier way he plans to deprive them of their money.
There are four aspects to this strategy and I will consider just one of them in this newsletter. The others will wait for a later one. The first part is perhaps obvious to many and, in any case, is so obviously self-contradictory that it perhaps hardly can be described as stealthy. It is maybe more such a brazen statement of illogic that we tend to assume those who voice it must know something we don’t.
The Bank of England has as its remit as the “independent” (from government, that is, by the way, in case you forgot) setter of interest rates to achieve the sole objective of keeping inflation at 2%. Having touched 5%, inflation has now dropped a bit but few see this as a long term direction. In any case it is well above the target and has been for some time. So why does the Monetary Policy Committee not take the necessary action to bring inflation down? After all, rates have now been held at the historically low, 0.5%, for over three years now. Action is surely overdue.
The governor, Sir Mervyn, insists that this is unnecessary as inflation will come down anyway and he consistently produces BoE reports that predict an imminent fall in inflation. These predictions are now wearing decidedly thin as inflation remains stubbornly at over twice the target 2%. When he constantly insists there is no problem, we can quite reasonably take it that he is pulling our leg. So what is he up to?
Quite simply with inflation high and interest rates low, debtors gain and savers loose. And who is the biggest debtor of all? None other than Her Majesty’s government. So from the point of view of the government’s finances it makes perfect sense to do nothing about rising inflation and maintain interest rates at rock bottom. If this flies in the face of the logic of the MPC’s role of setting interest rates to control inflation, they can just say “don’t worry” it will all turn out well in the end. We are taking a long term view.
Or course, it won’t. There are too many factors out there to ensure inflation will continue its overall upward march. But King and his committee will sit on their hands. But the Bank is not the government, not the Treasury, and the whole idea is supposed to be that they are independent and cannot be influenced by the Treasury.
This “independence” was a sham from the start but now the collusion between the Bank and the government is too obvious to be denied by anyone. In fact the word “independent” that used to be regularly put in front of the name, Monetary Policy Committee, seems to have been quietly put to rest.
As for the savers, these are made up of people who earn enough so that they do not have to live hand to mouth as so many British citizens do. They put their surplus income mostly in ISA’s, pension funds and regular bank accounts. A few may buy equities through unit trusts or other means.
These people each year can loose 3 or 4% of their wealth and that is under the current inflation and interest rate levels. That might not sound that much but over 10 years it translates into 30 to 35% - hardly insignificant. And of course the intention of saving is to gain money not loose it.
This group definitely does not include the superrich who have the ability to zap their money around the globe, avoiding tax by the use of havens and participating in the massive profits of banks and multinationals by placing money with hedge funds and other speculative financiers. The superrich can evade any ploy by the Bank of England in partnership with the government to strip them of their wealth. And in any case they are not targeted. Why would they be? The politicians are beholden to them by virtue of their party donations and the entirely justified expectation of reward after their political careers have stalled.
In the strategy of low interest rates/high inflation, the savers in middle to high income groups do seemingly benefit in one way for the low interest rates keep asset prices such as property prices buoyed up. This the government has to attempt to do or otherwise the balance sheets of the banks, which depend on loans being properly secured, would look dreadful and could provoke another bailout.
But this government (there is every reason to think that Labour would do exactly the same if in power) is never content to leave a huge amount of wealth belonging to anyone just sitting there. They have to find a way of getting their hands on some of it. Private wealth tied up in property is no exception and I will discuss next time the targeting of this aspect of citizens’ wealth.
If you are a saver today you have every reason to be worried. The government has the power to target your hard earned wealth and undermine it to prop up failed economic policies. We all know about the Great Crisis that was caused by the banks exploiting mercilessly the freedom given to them by the neoliberal policies of successive governments from Thatcher to Brown and now the coalition.
And we know about the supposed fix of destroying public services and benefits to the needy. That is just the Tory Party, and now their hand-in-glove partners the Libdems, being true to form. But the other equally big story is how they are betraying their own voters through their eagerness to defend the power of the superrich rentier class that today determine what goes and what doesn't.
The Democratic Republican Party represents the only political counter to this situation but how exactly that is so is for another time. A subsequent newsletter will outline three other ways in which savers are being robbed and will continue to be so as a long term strategy by the government and the Bank of England.
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