Death Agony of Thatcher Deregulated
by F. William Engdahl
During the end of the 1970's into the
1980's British Conservative Prime Minister Margaret Thatcher and
the City of London financial interests who backed her, introduced
wholesale measures of privatization, state budget cuts, moves
against labor and deregulation of the financial markets. She did
so in parallel with similar moves in the USA initiated by advisers
around President Ronald Reagan. The claim was that hard medicine
was needed to curb inflation and that the bloated state bureaucracy
was a central problem. For almost three decades, Anglo-American
university economic faculties have turned to Thatcherite deregulation
of financial markets as 'the efficient way,' in the process, undoing
many of the hard-fought gains secured for personal social security,
public health care and pension security of the population. Now
the 'poster child' economy of the Thatcher Revolution, Great Britain,
is sinking like the proverbial Titanic, a testimony to the incompetence
of what is generally called Neo-liberalism or free market ideology.
As the Neo-liberal revolution began in
the economies of the USA and UK, it should not be not surprising
that the epi-center of catastrophe in the global crisis now unfolding
also lies with the economies of the USA and UK, as well as a handful
of economies, including Ireland Canada, Australia, New Zealand
and Iceland, all of which embraced the free market Thatcherite
agenda most strongly in recent years. Notably, the man who personally
implemented Thatcherite financial market reforms and deregulation
during the era of Tony Blair in Britain was Gordon Brown, then
A sample of most recent British developments
is instructive. Britain's economy is about to suffer its most
vicious slump since 1946, shrinking by a drastic 2.8 per cent
this year, according to EU latest estimates. The UK is predicted
to suffer the worst recession of any large European economy.
The consequences for the UK will include
soaring unemployment, while the economy also teeters on the brink
of full-blown deflation. Unemployment will rise by more than 900,000
people over the next 12 months, driving the jobless total to 2.55
million by the end of the year, or 8.2 per cent of the workforce,
from 5.3 per cent at present.
In parallel, the currency, the Pound,
which is not part of the Eurozone currencies, has fallen dramatically
against the Euro and even the US dollar in recent weeks over growing
fears of the collapsing UK economy and banking system. Sterling
has fallen below $1.40 to its lowest point in seven and a half
years because of concerns about the depth of Britain's banking
crisis and the Government's rising debt levels. This coming year
the UK Government's borrowing levels may exceed £118 billion,
equal to 8 per cent of GDP.
Britain will not be able to reap much
benefit from a lower pound for exports because, as part of the
Thatcher Revolution, the national economy has out-sourced, de-industrialized
and turned to a service economy where, as in the USA, finance
and banking became the motor of economic growth the past two decades.
That motor has now broken.
Public debt soaring
Fuelled by the cost of state bank bailouts,
the UK's national debt is set to rise to £1.06 trillion,
or 72 per cent of GDP, by 2010, a sharp rise of more than 70%
from present levels.
Yesterday, the Gordon Brown Government,
only three months ago hailed as the place which was taking effective
action to control the global financial meltdown, was forced to
introduce yet another new bank bailout package of measures designed
to rescue the country's banking sector. He refused to put any
ceiling on the amount that he might ultimately need, creating
great distrust in the Brussels and across the EU.
Combined, British banks have some $4.4
trillion of foreign liabilities. That is twice the size of the
British economy. UK foreign reserves are virtually nothing at
$60.6 billion. Little wonder that savvy currency traders and hedge
funds have decided the British Pound can go only one way, down.
Swap markets for CDS now price in an alarming 10% probability
of Britain having to default on state debt obligations in the
next few years as public debt explodes.
The last time England had a default on
state debt in the early 14th Century when King Edward III decided
to declare default on his then huge debts to the large Italian
banking house of Bardi & Peruzzi, taking the large bank down
with it and spreading ruin across Europe.
'... giving the kiss of life to a corpse'
The Brown Government admits it does not
know whether the second bank rescue package it just launched will
work, senior ministers admit. One minister is quoted anonymously
in the British press, 'The truth is that we can't be sure whether
it will be effective. We have to look calm to try to instil some
confidence in the system. But we don't know what will happen next.
No one can be sure that this is the end of it. We are in completely
uncharted waters. The position is changing all the time.' In brief,
the authorities have lost control in the UK.
Gordon Brown and Treasury Secretary Alistair
Darling claim the second bailout did not mean the first package
they unveiled last October had failed. That deal, they insist,
was about preventing banks from going bust; this one was about
ensuring they had the confidence to lend to businesses and the
The Government refuses to reveal how much
it would cost taxpayers. Officials dismissed talk of a £200bn
bailout, saying some measures had a low risk and figures were
still being calculated. Labour backbenchers conceded it would
be difficult to "sell" the rescue plan to an increasingly
hostile public. Not surprisingly, polls have turned dramatically
against Labour and Brown, now showing that were elections held
today, the Conservative Party would win a gain over Labour of
9% to 13 %. An astonishing 49% of all Brotins fear losing their
job this year as well.
A major impediment to swift and consequent
Government action to contain the impact of the banking crisis
has been the dominance of Thatcherite ideology as an almost religious
dogma that permeates even Labour, where Tony Blair was portrayed
as a Labour version of Thatcher. The ideological absurdity of
the situation was underscored recently when the Conservative opposition
offered broad support for yesterday's measures, even though their
concern over soaring borrowing led them to oppose the Government's
£20bn fiscal stimulus designed to keep the economy moving.
As well, it is clear, following the nationalization
last year of Northern Rock and the forced state share of 70% in
the large Royal Bank of Scotland, that a type of approach as that
used in the early 1990's Swedish banking crisis, in which the
State nationalized banks that were insolvent and unable to raise
private capital. Sweden then split the banks into 'good bank'
and 'bad bank.' In the good bank, business of lending to the real
economy continued unabated. The assets in the bad bank, largely
illiquid Swedish real estate holdings, were held by the state
until economic growth again allowed the government to sell the
assets in a healthy market. The ultimate taxpayer cost of the
Securum model were estimated to have been zero or even a tiny
profit when all costs were factored.
The ideological Labour government is stubbornly
refusing to admit the logic of the situation, and ends up 'cutting
the dog's tail off by inches.' As certain Labour MPs call for
the full nationalisation of the banks the Government says that
is not its goal. Chancellor Darling stated, 'We have a clear view
that British banks are best managed and owned commercially and
not by the Government. That remains our policy.'
John McFall, Labour chairman of the Treasury
Select Committee, who believes full nationalisation of the banks
is inevitable, asked Darling in recent House of Commons debate
if the Government would take a 100 per cent stake in the banks
if the new package did not restart lending. Vince Cable, Treasury
spokesman for the Liberal Democrats, said, 'The Government increasingly
resembles somebody who is trying to give the kiss of life to a
corpse. The Government now effectively controls one of the largest
banks in the world. It will almost certainly have to put more
money in; it may well acquire other banks.' Cable had also predicted
the bursting of the house price and personal debt bubbles - and
the nationalisation of Northern Rock.
Royal Bank of Scotland next
The same day Brown's Government announced
the second bank bailout attempt, Royal Bank of Scotland issued
a statement revealing it expects losses of £28bn for 2008,
far greater than anyone was expecting, and triggered further selloff
in all major British banks. The huge losses announced at RBS were
mainly the result of its acquisition of ABN Amro in 2007. RBS
paid a high price for ABN and yesterday admitted that the business
was worth around £20bn less than it had previously thought.
This unexpected announcement resulted in a 67 per cent fall in
Brown, in a pathetic attempt to deflect
blame, has said that he was particularly 'angry' at the record
losses racked up by the Royal Bank of Scotland, and the large
write-offs of foreign debt. Lloyds Bank is rumored to be the next
bank in need of emergency help as the economy of Britain goes
into free-fall, the tragic eulogy to Thatcherism.
Origins of the neo-liberal model
The so-called neo-liberal finance model
which was espoused by the Thatcher government after 1979 had its
origins in a decision by leading Anglo-American financial powers
and their circle that it was time to begin a wholesale clawing
back of the concessions which they had granted under, as they
saw it, duress, during the great depression of the 1930's and
in the case of Britain the postwar economic difficulties.
The origins of the effort in the United
States go back to a seminal little known book by a scion of the
vastly wealthy Rockefeller family, the late John D. Rockefeller
III, titled The Second American Revolution. There, amid soporific
rhetoric about creation of a 'humanistic capitalism' he calls
for drastic reduction in the role and size of government in the
economy. That theme was then propagated through the efficient
propaganda apparatus of the Rockefeller imperium, aided by the
economist guru of the Rockefellers' University of Chicago, Milton
Amid the misnamed 'stagflation' sluggish
growth high inflation era of the late 1970's into the 1980's,
that propaganda machine, conveniently ignoring the pivotal role
of the manipulated oil shocks, shocks incidentally manipulated
and brought about by the same Rockefeller family, as I detail
in A Century of War: Anglo-American Oil Politics, blamed all ills
on 'big government.' Rockefeller protégé, Paul Volcker
of Chase Manhattan Bank was sent to Jimmy Carter on orders of
David Rockefeller, to 'wring inflation out of the system' in October
1979, the same general time Thatcher's Bank of England imposed
its own form of economic 'shock therapy.'
True economic causality was obscured and
reams of press copy from the Friedmanite free market camp, during
the Reagan and Thatcher era claimed that the 'defeat of inflation'
had been due to the ruthless discipline of Volcker and Thatcher.
That was, we were told, again and again, the reason why the market
should be unfettered from government regulation, freed to the
devices of its own unbounded innovative genius. The results of
that unfettered 'humanistic capitalism' or what Alan Greenspan
approvingly called the 'revolution in finance' is now bringing
both meccas of neo-liberalism, the United States and Great Britain
to economic ruin. Somewhere between this and Stalin's Soviet central
planning there lies a better way.
F. William Engdahl is author of A Century
of War: Anglo-American Oil Politics and the New World Order (Pluto
Press) and Seeds of Destruction: The Hidden Agenda of Genetic
Manipulation (www.globalresearch.ca). The present article is adapted
from his forthcoming book, due in summer 2009, Power of Money:
The Rise and Decline of the American Century. He may be contacted
through his website, www.engdahl.oilgeopolitics.net.