Saturday, 8 November 2008

Say no to debt serfdom

A few days before the Bank of England cut 150 basis points off the base rate, Sir Terry Leahy, the chief executive of Tesco had a breakfast meeting with Mervyn King, governor of the Bank of England. Today's guardian reported that during this cosy little discussion, Leahy "put pressure on the monetary policy committee to slash interest rates".

Leahy figured that only a rate cut would keep his deeply indebted customers coming to his supermarkets and filing up their trolleys. Leahy might have posed a rate cut in terms of the national interest, but Tescos profits mightily when consumer borrow and banks again recklessly started to expand their balance sheets.

This corrupt little tale crystallizes everything that is wrong about UK monetary policy today. Where is this so called independence of the Bank of England? The events of the last two months have exposed that particular canard.We all knew about New Labour's pressure on the MPC; today we learnt that private business interests can also pile it on and force the MPC to cut rates.

Where did this frightful dependence on interest rates come from? Why is the price of credit so central to the UK's economic welfare? Actually, it is not a hard question to answer. Many UK households live in semi-bondage, crushed by huge personal debt levels. Changes in interest rates can mean the difference between another shopping spree down at the mall or an afternoon of despair contemplating the credit card bill.

But what about savers? Why doesn't Mervyn King invite a debt-free renter for breakfast. Why can't he share a slice of toast with someone who decided to put some money away for the future rather than build up an unsustainable balance on her credit card, and then plead to the MPC for relief via a rate cut. Why can't savers lobby the Bank of England for a rate hike, just like the supermarkets and debtors, who endless pressurize the bank to cut rates.

The answer is a depressing one. There is a new almost unnoticed realignment within British politics. The debt-serfs are in the majority. On top of them, there are the banks, supermarkets, and retailers who provide the infrastructure for this system of debt oppression. Everyone has an interest in keeping the scam going; the government, the Bank of England, and even the debt-serfs themselves.

Savers are the new oppressed minority. In today's Britain, they are voiceless. They are too few to be heard. So, when the Bank of England wants to rip them off with negative real interest rates, which will see their savings eroded and their prudence punished, the government, the supermarkets and the banks are happy to help. The government will follow up with withholding tax on interest income and as savers are impoverished, the banks will be there, ready to offer credit cards and loans that will shackle them with debt.

It is so hard to say no to debt. There is absolutely no incentive to save and enormous pressure to jack it in and borrow like the rest of them. However, debt is slavery, and even if the government steals your savings, at least there is the freedom of owing nothing to the bank.


MAB said...


As a life long saver, I can really relate to this post. In the U.S., the war against savers continues with a vengeance.

Debt serfdom is loss of liberty - no way, never. "Investments" in claptrap, overpriced financial vehicles have been a sucker's bet. Greenspan and Bernanke steered people towards risk via low rates. Look how that turned out.

The slow bleed of inflation is bad, but it has been the best option - by far. Regardless of how unfair or frustrating.

Hang in there. I think savers are still the winners. Currently, we don't even get to keep all of our savings. Eventually, that will change.

There is a fundamental flaw in Bernanke and Greenspan's thinking. Low rates are certainly good for borrowers; however, low rates are bad for lenders/savers. Investors need to get paid to take on risk. In this light, low rates actually decrease the likleyhood of lending.

Anonymous said...

I see it as follows:

The Bubble Addicts = ruling elite.

The Debt Junkies = consumers.

This corrupt relationship is what has brought our country to its knees.

But fear not, such will be the economic destruction that this ideology will be repudiated.

God bless the market!

Jed said...

Just say no to debt - that is a slogan I can go along with.

Rob said...

Time to start a campaign. Set up a site and see how many people it attracts. It could do quite well. If so, there will be a voice for savers and the prudent.

Anonymous said...

People do not go to Tesco to fill up their shopping trollies with consumer goods, they go there for food. But totally agree he has no business with the MPC. On another note;
There is nothing stopping any saver from moving their savings to a bank account in a different currency... and I am surprised so few seem to have done so.
If you can't be bothered to look for a decent rate then perhaps you shouldn't complain about getting fleeced. You must have lost about 30% in real terms this year alone by the way.

Patrick Crozier said...

Savers an oppressed minority? I think you're really on to something here. It explains a lot.

Also interesting how BoE independence proved illusory - even before this crisis broke.

Man in a Shed said...

I've been trying to move my money into fixed rate bonds and looking at Zopa to cut out the middle men.

However I'm slightly reassured that Barclay's and my bank HSBC have been giving the Chancellor the finger. ( There's no other way to describe it ). Not widely reported in the pro_Labour BBC etc.

chris said...

anon 20:38

What are you talkin' about??? Tescos is full of consumer goods - TVs, DVDs, clothes, and food - you can get it all at tescos.

Anonymous said...

How can you be a debt slave when you feel no obligation to repay? You are still approaching this all wrong, as if there were a moral component to owing money. That no longer exists. The UK and the US--people and politicians--gave up being ashamed of their ways a long time ago. You can see it on the streets where I live (a highly indebted area) in the form of dog turds that the owners cannot be bothered to clean up; indeed they delight in leaving the visible evidence of their indifference. No shame. No guilt. No debt.

Anonymous said...

With debt, as with dog turds, the good people of the UK expect the government to clean up after them. There is no longer any "personal responsibility."

Mitch said...

I never shop at Tesco I use there free cashpoint then shop elsewhere.

this debt serf idea has merit because a population tied to debt is easy to keep quiet, you wont strike,protest you become like cattle in a milking shed and unless the sheeple have this pointed out they would never see it.

Rick said...

Well said!

phd said...

To anonymous on savings in different currency - I do believe Icelandic interest rates were over 7% since 2005 which enticed a lot of money over there. That has worked out splendidly for all concerned.

Mark Wadsworth said...

That headline may or may not be true, who cares, the best bit of the article was further down where they said that house prices might well fall up to 50% from their peak!!

Anonymous said...

Why would you be entiltled to be earning money that you just leave in a bank account?

Nick von Mises said...

Ok, brief explanation of financial system:

1. People work by applying their labour to capital goods, creating wealth
2. They exchange that wealth in the marketplace with money as the intermediary
3. Money not spent = wealth not yet consumed
4. That money is put on deposit in banks or invested directly in stocks or bonds
5. Banks use the deposits to make loans to businesses for capital investment
6. Productive capacity increases and thus more wealth is produced per labour hour
7. Wealth of the nation increases

That, anon 14:16, is why you would "be entiltled to be earning money that you just leave in a bank account". It is the savers who increase the wealth of the nation. Without the capital goods their savings make possible the workers would still be banging out steel with a hammer and tongs.

That's why government intervention to debase money is flagrant theft from all holders of the currency. That's why devaluation is a game that only a fool or a thief would propose.

Anonymous said...

To call New Labour a bag of shite is to complement them. They are bottom-feeders and turds. They seek only short-term, crass popularity over anything sensible. They are trash and will debase further an already scum-driven society.