A HELP TO BUY BUY SCHEME

A Cartoon:

A woman sits behind a desk, and a couple are seated in front.

The sign above reads,

‘HELP TO BUY SCHEME’

The caption below says,

We’d like to but some food”

(Appeared New Statesman, 26th April, p7)

On of the most succinct things that has come to my attention of late was a cartoon that appeared in New Statesman on 26th April 2013. New Statesman is a weekly newspaper published here in the United Kingdom. The content is oriented to politics and to social affairs. Some might say the content tends to the left, I might concede there tends to be a left of centre balance perhaps, but I wouldn’t say all content is necessarily left of centre; the views expressed may extend to both sides of the political fulcrum.

I’m not a naturally political astute person, and I haven’t been reading New Statesman for long, but the magazine came to my attention when I spotted an edition with a cover given to the horse-meat affair. I recognised the name of the articles author, and that was enough to induce me to buy the magazine. From then on I took up with more interest.

The last twelve months in the UK have been marked by some Farmer protests. Dairy farmers have taken to protesting about the price they receive for each litre of raw milk they produce. The farmers don’t get to set the price they sell at, instead they have to accept the price offered by the party they elect to sell to. Often they sell to a process dairy, and the process dairy in turn will be contracted to supply bottled milk to the leading supermarkets. The leading supermarkets in turn now sell most of the milk that is bought by consumers.

Milk is price sensitive product. The supermarkets are all out to sell milk at the cheapest price they can. Consumers think all milk is of the same quality. They are correct in one sense, though they are totally incorrect in another; but lets leave that aside for now. Consumers don’t make a any price/quality judgement when they pick up a bottle of milk, so they judge the bottle, and the supermarket entirely upon price, and so milk equates to a loss leader item for sale, with a great deal of price rivalry between retailers in the quest to deliver value to their customers. But this quest for value now dictates the nature of transactions and dealings in the supply and process chain that is upstream of the bottle be offered for sale.

The process dairies do not get a generous price for the milk they supply to the leading retailers and they must operate on excruciating margins. This used to be OK. Much of the milk sold is now skimmed milk or semi-skimmed and that means some of the cream has been removed. Actually in a diary all the cream is removed in large centrifugal skimmers and then some cream is added back to meat the desired fat content for the type of milk. The dairies wind up with with vessels full of cream and it was the habit to export cream in bulk. Tanker loads of the stuff got shipped across to Europe. The cream price was so good it was that that generated the profits for the dairies. But in 2009 the price of cream on the open market fell markedly, and so cream could no longer subsidise the business of bottling milk.

Since the process dairies no longer receive a decent price for the milk they process they cannot pay the farmers that supply the raw milk a decent price either. Buyers sometimes announce price rises or price reductions with little notice or consultation. In 2012 several dairies reduced the price they pay to farmers. Some farmers were vocal and said plainly the price had dipped below the costs of production. It is scandalous state of affairs, indefensible really, that a producer cannot set his price and recover his costs of production, but that is where we are at.

It wasn’t, or isn’t, just the dairy farmers either, the egg-men and the bread-men have each said they face risings costs but against stagnating or declining returns and incomes. Farming Today, on BBC Radio 4, and Countryfile on BBC 1, each covered the plight of these British farmers in the course of 2012, and likely still do in 2013.

Then in 2013 along came the horse-meat scandal, in the course of which minced horse was found in products that declared they contained minced beef. In all 14 of the leading supermarkets were revealed to have offered such contaminated or adulterated burgers, or similar products, for sale. The products effected tended to belong to the value ranges.

I should think the supermarkets, the big ones and the ones we sometimes refer to as ‘the multiples’, each put the suppliers of meat products and ready meals under the same level of excruciating duress that is evident in the dairy industry. It all comes down to the relentless quest for value.

Arguably the price of some food needs to rise so that the price returned at the point of sale will meet the costs of production and process in the upstream supply chain. But consumer pockets operate on increasingly tight budgets, so price rises would not go down with them. In fact, for certain demographics incomes need to rise, then if they did they would support a rise in prices at the tills. I concede it is controversial to suggest this. However.

If a person knows how to read the signs there is something worthy of note. We are fast losing the ability within society to feed significant swathes of people with food of satisfactory quality and integrity at a price they can afford, or perceive they can afford. And under a more inclusive analysis this eventuality is not really an issue that comes down to the cost of food, it is in fact an issue that has more to do with a steady and consistent decline in incomes, either in absolute terms, of in terms adjusted for inflation, what is sometimes branded ‘real terms’.

We are in a dangerous place. The last time we trended to this point was in the 1930s, and it was most acute in Germany just pre-war. The predicament then arose because the distribution of wealth and indebtedness had attained an untenable excess, and while the need to remain concise means I cannot explain at length, we have fallen into exactly the same trap today.

The kind of money that predominates and circulates is a kind called fiat currency. Fiat currency is a kind of money that consistently plots its’ own downfall. For all the ups and downs of the economy there is a longer phase which looks to be around eighty years. A number of factors could bear upon this periodicity, though I won’t list them now.

Putting a figure upon the periodicity is not something than can be done with precision, the significance of unfolding events has to be assessed and judged in real time making judgement a dark art, but systemic banking crises of certain magnitude may mark certain turning points in the state of affairs, and so one has to look back in history to find a banking crisis whose magnitude compares with that whose nemesis befell us in 2008.

Fiat currency is a generally scarce entity whose scarcity sometimes makes it presence more apparent (he writes sounding a little ‘Irish’). Sometimes the supply of new money cannot be sustained in keeping with demand or ambitions. And you probably won’t have thought f this before, but if everyone is out to make financial gains, to save for a pension, or return a profit, the money that adds such value must come from somewhere, and it doesn’t grow on trees. To make these gains the market needs a steady stream of new money, and it doesn’t come from ‘printing’ money either; new money comes from lending. So if enthusiasm or ability to lend or to borrow goes in decline then the supply of new money is constrained. This is a case of special scarcity and it destabilises the system.

The wages of the low paid are driven down as enterprises seek to reduce the costs of production; a process called wage repression. So if we stitch things together we ought be able to see a causal chain at work, which forms part of a vicious circle.

  • Wage repression drives the consumer quest for value.
  • The consumers quest for value drives the retailers quest for value.
  • The quest for value in the supply chain drives down margins for suppliers.
  • The supermarkets and suppliers must have an eye on costs, including wage costs, and
  • each tries to reduce their wage bill – which drives wage repression, because,
  • they are each out to make gains and return profits, despite the new money needed to make such gains possible, isn’t coming to market in the way, and with the strength, it was before, so
  • enterprise can make profits, but only to the detriment of the those who do the work.
  • The self-limiting factor is extended asymmetry in the distribution of wealth and indebtedness, and when the value of money, and incomes relative to it, no longer cover the cost of life’s essentials.

You probably thought money makes you wealthy. There is a deception involved. Money makes the majority of people poorer. And it isn’t the presence of money that makes them poorer so much as it is the scarcity.

Fiat currency is always scarce in the sense that if you could sum all the assets of the world and summarise them on a balance sheet, and if you could do the same for liabilities, then you’d be in for a surprise. This total global balance sheet TGBS would balance. The only way incumbents living somewhere on the TGBS can make capital gains is for new capital to stream into the TGBS, and it’s just the nature of the beast that new capital accompanies a contemporaneous growth in liabilities.

When money ceases to cover the costs of living, like a roof over one’s head, energy to heat it, and food to place on the table, then the enthusiasm for borrowing or lending declines, and the supply of new money is girded, which makes the problems worse.

We do not have to do away with money, and we do not have to do away with the kind of money that conforms to the design and attributes of fiat currency, but we would to well to have alternative currencies in place as highly functional contingencies for the times when fiat currency becomes especially scarce. Without such contingencies we will continue to steam headlong into very difficult times.

They say a picture can speak a thousand words. In this instance a well-conceived and well-observed cartoon succinctly summarised around 1700 words. I cannot decipher the cartoonists ‘tag’. If I could I’d mention him or her by name. I wouldn’t think it would be Christine Lagarde.

Some useful resources.
Money As Debt
Lietaer.com

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