Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
n the early 1920, swindler Charles Ponzi devised a simple ‘get rich quick scheme’. He promised investors in his ‘fund’ that they would achieve a 50% return within 45 days of investing and a 100% return within 90 days. I suppose during the 20’s Wall Street was motoring, with stocks rapidly growing in value with no sign of abatement, until the ‘29 crash. Ponzi’s Back to the £930 billion figure which is shocking in itself. Is that the whole picture…sadly it is not?! Using the analogy of an iceberg and the US economy from Dr David Jeremiah’s excellent ‘’The Coming Economic Armageddon’’, it’s only the ‘visible’ debt that we can see. All Titanic anoraks like myself, will know that the larger part of an iceberg is below the water line, and is analogous to the ‘invisible debt’ of HM Government. The scam worked by giving the promised total potential liability of the UK may be return to early investors, by conning a shocking £5.5 trillion (visible & more funds from successive investors. invisible debt) – several fold our GDP For a while it worked very well…and and national income. You get to this the ‘Ponzi scheme’ was born. Eventually figure by adding together the visible it imploded and Ponzi was charged national debt, together with the with 80 counts of fraud and sentenced invisible national debt – the much to (a very light by today’s standards) larger element of unfunded liabilities 3½ years in gaol. On release he was and commitments made by HM deported and died penniless in 1949 in Government on our behalf. Rio de Janeiro. The Ponzi Scheme analogy has Roll forward the clock to the come from the question- why are so 2000’s, Ponzi’s record was shattered by much of these HM Government the greatest Ponzi swindler of all time commitments to us unfunded? What Bernard Madoff. Bernie made off (sorry has happened to all our taxes and I couldn’t resist that) with $ 65 billion National Insurance contributions? The of his investors funds using the same truth is that our NI contributions have simple but effective Ponzi scheme. been nothing more than we-the publicBernie was a little subtler than Charles granting HM Government an interest Ponzi offering 12-20% returns. In doing free overdraft to fund current so not only did he wipe out the life commitments (rather like the way Ponzi savings of thousands of cautious and Madoff favoured early investors at pensioners, but also caught some the expense of later investors and so notables such as CNN’s Larry King, on). There are we, all thinking that our actors Kevin Bacon,Jane Fonda, Zsa NI contributions are ring-fenced in Gabor and a number of national some sort of trust fund to cover us in ill charities; a horrendous breach of faith. health, unemployment and old age. Bernie Madoff was charged with 7 Not so. counts of fraud and in June 2009 was Our taxes have just been spent as sentenced to 150 years prison. He the Government of the day so chooses. made Wall Street insider traders like Today’s 28 million or so employed are Ivan Boesky and Michael Milken look funding those already retired as well as like rank amateurs! social welfare programmes. Those of us This is all very interesting but how is reading this will be unsurprised to find it relevant? It in some ways relates to that our children or even grandchildren my prior article in issue # 44 where we will be funding us. It’s like the squirrel discussed the UK National Debt and the not only not starting to save nuts for mess our national finances are in. What winter as the autumn draws near, but is I will try to demonstrate is that we have also eating the one’s left over from last all fallen victim to a massive Ponzi winter. scheme administered by successive HM How has this all come about? Governments. One of the biggest present and To recap in round numbers our future causes of financial instability in National Debt is £ 930 billion; around the UK will be the cost and liabilities of 60% of the UK’s GDP, and is expected our own Welfare State system. With £ to peak at some 70% of GDP. Put 4.5 trillion of commitments it is not simply Gross Domestic Product is the hard to see how and why-yet we value of all goods and services produced in a country in any given year, blithely carry on as before. The Government’s current difficulties of equating to total consumer (usually c reform of NHS purchasing budgets, are 60-70%), government and investment a case in point. The proposals do not spend, plus the value of exports, and minus the value of imports. When GDP really address the forthcoming funding falls for two successive quarters we are cataclysm, as the Coalition Government continues to dance round the said to be ‘’in recession’’. Recently the handbags. Those opposed to NHS economic slowdown has reared its purchasing reform choose to ignore the head again; GDP growth has been revised to sub 1% for this financial year facts, and their counter proposals are and few would be surprised if the third merely re-arranging the deck chairs on quarter 2011 is in fact negative for the the Titanic. The origins of the welfare state date UK. Strong growth (2-4 % p.a.) is back to the first half of the last century needed if we are ever to start paying from the 1906 Liberal Government. A down our known national debt. I Where’s all our money gone? 42 Healthcare Business April 2010 means tested old age pension was introduced-eligible for over 70’s- when male life expectancy was 49 years! Unemployment ‘insurance’ was introduced in 1911, and pensions extended to widows and orphans in 1925 (substantially increasing invisible liabilities). Beveridge really got going with reform in the 1940’s-Family Allowance (1945), National Insurance Act (1946), and National Health Act (1948). All very magnanimous gestures made on our behalf, but no-one did the maths. On the whole these reformers were well meaning and radical for their times. Memories of huge inequalities and poverty in Victorian and Edwardian England were not too distant. It-the promise of a welfare state- also won Labour a landslide at the 1945 election, after the War. The reforming politicians were also myopic; too quick to assuage their own guilt (most of the cabinet were Oxbridge types) of the plight of the working man (or woman), they set in train a monster that may cripple the working man (or women) in the future. That is what is starting to happen right now. They were also innumerate, and ignorant to drivers of macro economics, demographic trends and medical advancements. Had they not been so, surely they would have secured a ring fence in law to our money-taxes and NIC’s. Moreover, the post 1945 gestures on the welfare state were made by a bankrupt country (National Debt was 250% of GDP) following WWII, and a mentality as if we still had a great Empire…we didn’t. As early as the 1960’s, it emerged that provision for state pensions (individual pensions not cosy state sector employee indexed linked which is another huge invisible cost) and unemployment were inadequate. Many pensioners struggled to make ends meet, and no-one has ever described unemployment benefit as a hugely generous payment-the cracks were appearing in the national Ponzi scheme-solution; just throw more borrowed cash at it. The NHS only works by throwing huge unaccountable sums at it. All this sounds very familiar and is still going on today. The only difference is that the numbers are bigger. Added to this has been the systematic abuse of our generous (nonunemployment related) benefits; immobility benefits have gone up tenfold in the last 15 years. Additionally a significant sign up of PPP/PFI commitments has added some £250 billion to our invisible debt mountain. It is now realised that the maths no longer works for state sector indexed linked final salary pension schemeswhich are now closing to new employees. The biggest threat to the UK’s future financial stability is not Greece, money. The likely outcomes that may happen could be many, and most are painful:G A significant decline in the UK as an economic and world power. This has commenced as we see significant reductions in our armed forces’ capabilities and foreign policy influence. We are told it is no longer affordable. G A real risk of the UK Government defaulting on some obligations due to an inability to pay. There will be no room for further borrowing on the never. G A significant rationalisation of the NHS in terms of costs and What is the likely outcome over procurement. This is an organisation the next quarter of a century? of 1.7 million staff; that unbelievably Firstly, let’s riskily assume that HM employs only fewer people than the Government can just about meet Chinese Red Army, Wal-Mart and the most current commitments on the Indian Railways. £650 billion of all types of taxes raised G Not all of the NHS may be free at the each year, without further borrowing. point of delivery. Already we have That will involve the important seen post-code lottery of access to deliverables of (some) policing, law medicines. On-demand IVF and and order, criminal justice, (some) many cosmetic procedures have defence, (most of) foreign policy, the been withdrawn. NHS dentists are NHS, (most of) education, transport. very hard to find. With nearly 2 The likely outcomes attaching to million p.a. ‘no-shows’ for GP our iceberg rely upon a very large appointments, it is not hard to crystal ball. Even were our economy envisage consultation charges of c and the world economy were to turn £20 per visit becoming the norm (as around and we as the UK start to see has been the case for many years in sustained GDP growth of 2-4 % p.a., other EU countries such as France there is little hope that £4.5 trillion and Ireland). can be ever paid down. However, one G Significant increases in the thing is sure-as the powerhouses of retirement age to receive state the world economy changes in funded pensions. Again this is already happening with the So just how big is this Ponzi-scheme iceberg? threshold due to rise to 67 in 2036 and 68 in 2046. On the BBC’s Andrew Marr Show (9/11), Pensions Secretary Iain Duncan Smith National Debt questioned whether the threshold is (visible part) £930bn rising quickly enough (his own House National Debt of Commons pension is protected (invisible part) £4.56 trillion and generous!) £1.20 trillion state sector employees G The next generations may well have pension liability to avail of top-up commercial £1.35 trillion state public pensions insurance savings plans right from liability the time of leaving school or college. £1.33 trillion state financial intervention This will cover unemployment, (RBS, Lloyds) sickness, pensions and elderly care. £122 billion PSBR deficit 2011/2012 The cost will become a significant £260 billion PFI/PPP liabilities (full term) barrier to home ownership (already £300 billion Elderly care (unfunded the age of many first home owners projection - 20yrs) are in their mid-30’s); UK house Total =£4.56 trillion prices will collapse to affordable levels. Unemployment benefit will be capped for 1 year…as is already the case in the U.S.A. which is facing a similar issue:- U.S. visible debt of +$14 Sources: Office for National Statistics; Office for Budget Responsibility; CIPFAtrillion but also unfunded invisible Public Finances. liabilities of $120 trillion. Housing benefit may well disappear, but rents The figures speak for themselves polarity from the West to East, we should fall as house prices crash. and are staggering in proportion, and better learn to cut the cloth G UK housing benefit may well represent c £180,000 for every accordingly. Moreover politicians disappear, but rents should fall as household in the UK. In previous should be sent on maths lessons to house prices crash. generations we used to talk in terms fully appreciate the big differences of hundreds of millions and then in between 1 million, 1 billion and 1 G The reduction of availability of State billions. The reality facing the current trillion, in the management of our education as totally free at the point Iran, weapons of mass destruction, Al Qaeda, but our own national Ponzi scheme-the Welfare State, and the growth of ‘big government’, much maligned (for different reasons) by our Prime Minister. The situation would be all very fine if we were like Norway…a small population with buckets of cash. The UK has to provide for 62 million crammed into our small island, and from a deeply impaired financial condition. In the prior confidence that the State would provide for us on retirement, we as a nation have made little of our own pension savings (despite it being the most attractive investment we can make due to tax relief). The average UK private pension pot is £ 9,100 for woman and £52,000 for a man. On current annuity rates the latter higher figure, would provide an annual pension of £ 4,500. Try living on that. It is very clear our own children and grand children will pay for the deficits through crippling Norwegian level taxes, but not the public services that normally go with such a fiscal model. As the former governor of Colorado, Richard Lamm commented on the nature of government deficits: ‘‘Christmas is a time when kids tell Santa what they want and the adults pay for it. Deficits are when adults tell the government what they want and their kids pay for it’’. The next generation will pay for future generations’ pensions and social security. How long will it be before this system collapses under its gargantuan weight? and future generations is now talking in terms of trillions-previously only the domain of mathematicians and scientists. To get your mind around this (most of our pocket calculators will not have enough digit spaces), a trillion is a million million or a thousand billion – 12 zeroes are needed. A good analogy was made in World Magazine; ‘….think of it in seconds. Going back in time a 1 million seconds would take you back 12 days. One billion seconds would take you back 30 years and one trillion seconds would take you back 32,000 years. of delivery. So far the milk and the school meals have been snatched away. Text book/ fee contributions are a matter of time. Look what has happened to the tertiary education sector over the last 2 years, and from 2012 the cost of University education. G A significant increase in the UK agricultural sector both in terms of productivity and employment. This will partly be out of necessity as we are unable to sustain the significant trade deficits associated with imported food. Non-seasonal imported foods will become the exception rather than the norm. G A renaissance of the coal mining industry (we still have significant reserves) with the emergence of carbon capture power stations. To create energy security-and the fact we will be unable to afford world energy prices-the balance of our energy will be nuclear. G Vehicles may be powered by carbon capture coal hybrids…obviating the need to import some 1.7 million barrels of oil a year. G Inward immigration could become negligible as the UK may be unable to offer the opportunities and perform the commensurate public services that attract people from overseas. Outward immigration, particularly of the young and skilled to Canada, Australia and New Zealand may be significant. As this is a look forward only a few, some or all of it may happen. Things change and new events change the direction of the world on a regular basis. This would seem to be somewhat sobering Orwellian view of our economic standing. However, prior to reading this article did you know the severe extent the UK and its Government is indebted, visibly and invisibly? Do we really think as a nation we can carry on throwing tax payers’ and borrowed money around like confetti? Is it not worrying that trillions are the new numerical denominator and not billions. Try not to lose any sleep over this as little can be done by any of us in a hurry. As Charles Dickens’ Mr Micawber said (ironically whilst in a Victorian debtors prison) ‘’ Something will turn up’’, which I guess is what Bernie Madoff is probably thinking right now. Matthew Gash Director GGW Corporate Services Limited www.ggwcsl.com The Office for National Statistics only published the UK’s full debts and liabilities for the first time in July 2010. As a result much of this is new to many readers and is a real hot potato. Many think our funding time bomb it’s ‘just’ a few hundred billions, but it’s much worse than that. It threatens the Healthcare Business April 2010 43