This week I appeared on Newsnight with Gillian Tett of the FT and Louise Cooper of BGC Partners. We discussed our graphs of 2011 (see mine below) and wider questions around the global financial crisis this year – and how ecnomists and policy makers need to respond.

Watch the show on iPlayer for the next 5 days here. Our discussion begins at 33 mins.

Image: acknowledgements to the BBC.

The Autumn Statement reveals but one thing: the Chancellor and his advisers are both ill-advised and dangerously ill-prepared for the forthcoming prolonged Depression. (And if you think I exaggerate, let me remind you that 20 years after the Japanese debt bubble burst, Tokyo house prices are still falling, and the stock market is worth 60% less than 20 years ago. And the Japanese economy was in a healthier state then, than the UK is today, thanks to an export surplus.)

Today’s penalising of the innocent – public sector workers, pensioners and those hundreds of thousands of young people entering the labour market  - is a result of a deeply flawed economic analysis by the Chancellor of the causes of the global financial crisis.

No depression will be averted;  no government borrowing will be reduced; no economic recovery can be hoped for, until the cause of the crisis is correctly analysed and then addressed with appropriate policies.

For me an interesting angle on the day was the difference in emphasis between the official Treasury Autumn Statement, and the Chancellor’s speech. The latter was far more ideological of course; but the Treasury Statement does indicate some grasp of the scale of the crisis. The very first paragraph of the full Statement (on page 11) reads:

“The UK economy is recovering from the biggest financial crisis in generations. Prior to the crisis, underlying competitiveness fell and economic growth was driven by unsustainable levels of debt, with the UK seeing the greatest expansion in debt of all the world’s major economies over the last decade. As a result, the UK experienced the deepest recession of any major economy except Japan and the Government inherited a budget deficit forecast to be the largest in the G20.” (My emphasis.)

So the Treasury does get it. The country that enthusiastically hosts the biggest global banks in the world; that celebrates “London ..as the world’s pre-eminent financial centre” (to quote the Chancellor today) witnessed “the greatest expansion in debt of all the world’s major economies over the last decade” – and as a consequence, the public finances worsened.

From these simple facts much analysis flows.

The most important is this: Britain (and the Eurozone) are not facing a sovereign debt crisis. We are not facing a crisis of the public finances. Instead: we are facing the biggest ever crisis of the private financial system.

Why? Because the “greatest expansion in debt of all the world’s economies” is not going to be paid back.

“The greatest expansion of debt in all the world’s economies” must first be written off, ‘de-leveraged’ or paid down.

As this process grinds relentlessly forward, the banks that lent “the greatest expansion of debt in all the world’s economies” face bankruptcy – if not now, in the near future.

That is the crisis we all face. The bankruptcy of the global private banking system - based in our backyard.

The mobilising of finance for the Eurozone is to bail out private banks that engaged “in the greatest expansion of debt.”  Although you would not believe this from media reporting, its purpose is not to bail out sovereign governments. The stubborn refusal of German politicians (with whom I have some sympathy) to agree to further taxpayer-backed bailouts of the private finance sector means that private banks face imminent bankruptcy.

Which is the why the Polish Foreign Minister warns of an impending “crisis of apocalyptic proportions“.

Given this terrifying prospect, what do our Treasury mandarins and British Chancellor recommend?

First, that we make it easier for employers to sack people, and thereby increase unemployment and cut wages – making it harder for those employees to pay back debts.

Second that we cut public sector wages of those in employment – with which some of those private debts may have been paid back. Third, that we penalise future pensioners. For why? And fourth, that we try and rescue 200,000, but sacrifice hundreds of thousands more young people on the dustheap of unemployment. That policy alone will cut the nation’s income; income that could help the banks put balance sheets back in the black.

The Chancellor’s speech reminded me of the parent that knows his child is hiding behind the curtain, but instead looks under the sofa, inside the box, behind the dresser – everywhere except where the solution lies. A silly, but in his case, dangerous game.

The fact is that the solution does not lie with cuts in public spending; with austerity. We have had only eighteen months of synchronised austerity across Europe and already the British and world economy teeters on the brink.

The failure is not that austerity was not implemented; the failure is austerity.

Private money markets are not asking for deeper austerity. They are asking for a revival of economic activity. They are begging for governments to draw back from the policies that have caused output, investment and employment to fall off a cliff.

But that is hard for governments such as ours, gripped as they are by an antiquated and flawed economic orthodoxy. As David Graeber  explains so well in his book “Debt: the first five thousand years.” orthodox economists – believe it or not – do not understand the nature of money and credit. An unfortunate weakness for a profession majoring on the economy.

Nor can their jaundiced Scrooge-like minds accept that prosperity is caused by employment. Not by rich, ‘light-touch’ regulated bankers.

They find it hard to grasp that money/credit – that is not generated by savings, but begins life at the Bank of England – can provide a bridge to employment. But only if it is managed carefully, and not outsourced to the reckless greed, and fraudulent behaviour of bankers and their friends in government. (See today’s story about Hank Paulson’s “inside jobs” with Wall St.)

Orthodox economists like those in the Treasury and the Conservative party cannot grasp one simple but vital truth. Employment can generate the income needed to a) repay debt b) pay tax revenues to lower the budget deficit and c) restore both general prosperity and a sense of national well-being. All of which might be of some help to the private finance sector.

Instead our policy and decision-makers are playing petulant, disgracefully irresponsible games with all our futures. And missing the biggest crisis of all: the imminent bankruptcy of the private finance sector.

George Osborne was presumably aiming at himself and his friends, when he vowed “to speak truth to power and wealth” at the Tory party conference this week, but dare he speak economic truth to the rest of us? – simultaneously published on Left Foot Forward >

On the narrowest of bases, he might still claim he spoke “truth” to the weak and powerless when in the House of Commons debate on the economy on August 11th he made this challenge:

“Those who spent the whole of the past year telling us to follow the American example, with yet more fiscal stimulus, need to answer this simple question: why has the US economy grown more slowly than the UK economy so far this year?”

It was a ‘brave’ claim when he made it, and it’s looking even ‘braver’ – and more disingenuous – now.

Following very recent revisions to US and UK data on GDP for the first half of 2011, the position is as follows, broken down into different quarters:

UK growth:

Q1    +0.4%   (revised down from the previous +0.5)

Q2    +0.1%   (revised down from the previous +0.2)

Total: +0.5%

US growth:

Q1   +0.1%

Q2   +0.325% (revised up from 0.25%)

Total: +0.425%

So by the triumphant margin of 0.075%, taking the period in total isolation, Osborne just scrapes home. But this ignores the fact the UK quarter 1 figure of +0.4% followed the disastrous Q4 figure of -0.5%, compared to US Q4 growth of more than +0.5%.

Without this Q4 quirk, his tenuous case would collapse.

For when we compare the US and UK over the last three quarters (including Q4 2010), we find that the US grew by 1%, whilst the UK grew not at all. A difference of one per cent in favour of the US economy.

And over the 12 months to the end of June, i.e. the lifespan of the coalition government, the US rate of growth is likewise 1.0% greater than in the UK (US 1.6%, UK 0.6%).

Taking the last 18 months, we get the following medium-term picture:

US:

2010                        +3.0%

2011 first half         +0.4%

18 months               +3.4%

UK:

2010                        +1.4%

2011 first half         +0.5%

18 months               +1.9%

In other words, the US economy has grown by 1.0% more than the UK over the last 12 months, and 1.5% more over the last 18 months, to end June 2011.

The US has many problems, but it has applied some meaningful, if now fading, stimulus.

So if George Osborne really does wish to speak truth, to power and wealth, and to the rest of us, let him own up – it is simply not true the UK’s austerity-based economy has grown faster than the USA’s. On the contrary, coalition government policies have led us deeper and deeper into the mire of unemployment, bankruptcies and economic stagnation.

Published in the Guardian Cif alongside responses from Jonathon Freedland and Sheila Lawlor:

Ed Balls said sorry for Labour’s record on ultra-light-touch financial regulation, and that must be acknowledged.

But apologies are just not enough. He and Ed Miliband must stop attacking his electoral base, “hardworking families”, many of whom are trades unionists.

As Balls recognises, unless urgent action is taken, this may be the gravest economic crisis in history – given the global integration of finance and the growth of world population.

So Balls must go further.

First, he must declare loudly and forcefully that Labour will never again be captive to neoliberal central bankers like Alan Greenspan; or private bankers like Sir Fred Goodwin of RSB.

Labour must never again be seen to be in the pockets of the finance sector.

Balls and Miliband must give the Labour party back to its electoral base, to its members.

They must both distance themselves from Labour leaders that profit from links to the global finance sector.

Second, Balls must stop talking about the deficit; about “tough decisions on tax and spending” – the last thing the economy needs. It is private debt – 469% of British GDP and six times the public debt – that is the real crisis facing Britons. It is debt-deflation, and debt-deleveraging, and collapsing private investment that pose the gravest threat to us all.

Given this, there is an urgent need for government spending on environmentally sound projects to generate economic activity – jobs, the income, the savings that will help protect us from Armageddon.

Until he does, his apologies will count for nothing but special pleading.

Read the original article on Cif here >

Wall Street plummeted as concerns over European debt and the US economic downturn spurred a broad sell-off. Photograph: Shen Hong/Xinhua Press/Corbis

Read my article from Guardian Cif, Friday 19th August:

As bank shares and stock markets plummet, and investors flock to the safety of government bonds; as obstinate EU leaders crucify their countries in a futile struggle to defend today’s equivalent of the gold standard; as British and American politicians adopt austerity policies and drive their economies closer to the cliffs of depression; and as most professional economists stand aloof from the escalating crisis – what lies ahead for ordinary punters like you and me?

First, let’s take look at the big political picture. This crisis is already sharpening the divide between left and right in both the EU and the United States. Studying a precedent – the implosion of the 1920s credit bubble in 1929 – we note that four years after that crisis erupted, the political divide sharpened decisively. The United States and Britain moved to the left. Germany chose a different path. After 1930, Germany’s Centre party under Chancellor Brüning adopted austerity policies that resulted in cuts in welfare benefits and wages, while credit was tightened. At the same time the German government engaged in wildly excessive borrowing from the liberalised international capital markets. The ground was laid for the rise of fascism.

Four years after the “debtonation” of August 2007, our political classes in both the EU and the US have consciously declined to restrain out-of-control finance sectors or to fix broken, effectively insolvent banks. Instead, central bankers deployed taxpayer-backed resources (quantitative easing) to finance, guarantee and bail out bankers who then went on a wild, speculative spending spree.

At the same time, politicians imposed austerity on the more socially useful and productive sectors of the economy, both public and private. In both the EU and US these economic strategies have angered the populace and emboldened the right; in particular the far right. Looking ahead through the political lenses of austerity, street rioting and Tea Party obstructionism, the signs are ominous.

And then there is the impact on our own living standards. For comparisons and precedent, we need only look at Japan. Our politicians and central bankers have not learned from Japan’s crisis, which preceded our own. We are, therefore, destined to follow Japan’s disastrous record of lost decades of economic activity. As in Japan, so here: a broken banking system, crushed by the weight of unpayable debts on its balance sheet, fails to lend to businesses at affordable rates. Pretty soon this constrains investment. First-time buyers can’t get affordable loans or overdrafts, placing downward pressure on property prices.

A fall in investment is compounded by government policies for austerity – rises in VAT, and cuts in public spending. These policies trigger a rise in unemployment. Rising unemployment causes people to snap their purses shut, placing even further downward pressure on prices, profits, wages and employment. The downward spiral is then hard to arrest.

Property prices across Japan have continued to slide uninterrupted for nearly two decades. Hard though it may be for us to accept, it is not impossible to imagine UK property prices falling for the next two decades.

Just as here, Japan’s politicians and central bankers exaggerated the risks of inflation, reflecting the concerns of bankers and creditors – who fear inflation will erode the value of their outstanding loans. And so they were slow to a) use monetary policy to help the broader economy recover, and b) to restructure banks. The primary Keynesian tools for reversing the Great Depression were an aggressive monetary policy combined with extensive restructuring of the banking system.

While Keynes is largely defined (by his enemies) as a fiscal activist, he was first and foremost a monetary economist. In other words, he believed that if governments and central bankers would only fix the money system – by lowering rates of interest for all borrowers (not just the banks); by injecting QE into productive, socially useful projects; and by restructuring the banking system – the rest of the economy could be helped to recover.

Because our politicians and central bankers have so firmly rejected these lessons, prospects don’t look good for us at all. Instead, we would do well to echo Frank Zappa’s realism: “I mean to say that every day/Is just another rotten mess/And when it’s gonna change, my friend/Is anybody’s guess.”

Aviva has brought together a collection of prominent thinkers to provoke renewed debate and fresh ideas about future prosperity and creating a culture of sustainable savings. The group, names the ‘Future Prosperity Panel‘, published their report ‘Big picture thinking – Towards sustainable savings’.

My article is called ‘Savings and the alchemy of credit’ and is published alongside valuable work from Alain De Botton, Simon Tay, Paweł Świeboda and Diane Coyle.

Read a summary of my essay on the Aviva site and watch a video interview with me here… >

(Photo: REUTERS / Yiorgos Karahalis )
A Greek riot policeman stands in front of graffiti written on the wall of a bank during violent demonstrations over austerity measures in Athens, May 5, 2010. Greece faced a day of violent protests and a nationwide strike by civil servants outraged by the announcement of draconian austeristy measures.

Dear readers….Recovering from ‘flu and a trip down to Hay on Wye…Thought you might be interested in this piece I have written for Prime.

“We should note recent developments in political economy, that – while understated – are, we hope, of significance. Last week, the OECD published their latest World Economic Outlook, which features chapters on each developed economy as well as an assessment of the world economy as a whole.

The report is schizophrenic. It clumsily offers an outlook of excessive optimism; makes a selective assessment of ‘risks’; but continues adherence to an economic policy doctrine that is clearly making OECD economists very uncomfortable.

While the OECD report contains the expected justifications and support for the ‘austerity’ approach, nevertheless the organisation’s ‘cold feet’ are becoming apparent, even before the full extent of austerity programmes has begun to impact. There is no better example of this unease than their approach to the UK.

The report commends UK policymakers for their “current fiscal consolidation (which) strikes the right balance and should continue.”  At the same time, OECD economists hedge their bets by urging the UK government to embark on “higher infrastructure spending (that) would lower the short-term negative growth effects of consolidation without affecting its pace.”   At a press conference last week, the OECD chief economist warned that the UK should be prepared to cool austerity in the wake of weaker growth.

In parallel, President Obama was reported as disappointing the expectations of UK policymakers by failing to endorse the Government’s approach to economic policy. While Obama has not proved the champion of the better world that we had all hoped, – he is no FDR -  his stance is important and perhaps even brave.

In the second half of 2010 the world economy began to weaken, but this is greatly underplayed by OECD economists.  Instead they point to a perceived optimistic outlook ahead. But this outlook is thinly based. We are told that financial conditions are improving: but in the UK the latest assessments of project Merlin flatly contradict such a notion.

Source: www.telegraph.co.uk. Data: BBa / BIS / Bank of England

In the real economy, world trade has retreated substantially from the relatively rapid outturns at the start of 2010. The report recognises that this is a consequence of monetary policy tightening in emerging markets and the wearing off of stimulus packages in major economies. The retraction of earlier stimulus programmes by the US and EU is rather an understatement. Stimulus has not only been withdrawn, it has been replaced by austerity.

So what are the grounds for OECD optimism?   Especially given that their economists remain obsessed by inflation as the causa causans of all possible outcomes. Their overriding fear is that inflation will cause consumers to retrench. This threat is then used to justify tighter monetary policies – which would hurt over-indebted consumers, corporates and SMEs. But unemployment is a much more important driver of consumer behaviour. Wage earners snap their purses shut in the wake of what for many millions is the reality of, and for others the threat of, unemployment. Inflation is no doubt painful to the less well-off, but from a macroeconomic perspective ‘core inflation’ today is at low levels, no matter how much the OECD tries to play it up. Watch out as inflation falls rapidly over the next few months, in line with weakening economies.

The austerity and fierce monetary strategies embarked on by governments – already burdened by losses transmitted by the private banking crisis – have been directed by the civil servants of supra-national organisations: such as the OECD and IMF as well as the global central banking fraternity. These public employees enjoy immense influence, and as the the president of the European Central Bank, Jean-Claude Trichet indicated in a speech on 2 June, 2011 they wish to capture:

“a much deeper and authoritative say in the formation of the country’s economic policies….. A direct influence, well over and above the reinforced surveillance that is presently envisaged”

Given the ECB’s role in exacerbating the crisis in Greece (described by Nouriel Roubini as ‘throwing good money after bad – to bail out, rather than bailing in, reckless creditors….a giant Ponzi scheme”)  such “authoritative” advice  by supra-national organisations has crucified economies “in a struggle which is certain to prove futile” –  to quote Keynes.

But the OECD’s latest report hints that minds might be changing. It contains the beginnings of the admission that the world is being forced down a desperate path that has no justification in economic reason and the evidence of history. The experience of the great depression stands before us. It was only enlightened monetary policies and expansionary fiscal policy that restored the US and UK not only to health but to a position to resist reactionary forces and fascism.  The current strategy is likely to make us more vulnerable to reactionary political forces – in the EU and the US.

Some might like to celebrate the previous timid stimulus for e.g. car scrappage schemes etc, under both Alastair Darling and the Larry Summers White House.  But in the light of present events, it is clear that their approach was designed not to save society but to preserve a financial system that has palpably failed the vast majority of the citizens of the world.

We at PRIME economics have repeatedly called for something greater and more just. Perhaps the foot-shuffling of the OECD indicates recognition that imposing austerity policies at a time of global economic weakness is indeed a futile struggle – soon to be abandoned?”

Much of the news of the last few weeks -

• the financialised commodities mania;
• the disgraceful abuse by the banks of payment protection insurance;
• the mortgage fraud which led US banks to rush through foreclosures without proper process and evict people from their homes;and their  decision reported  in the WSJ to offer a miserly $5 billion to settle claims by federal and state officials of these  fraudulent mortgage-servicing practices;
• HSBC’s quarterly fall in profits,
• HSBC’s threat announced today to cut thousands of jobs

As I wrote in a blog for the Huffington Post in October last year – banking  has been turned on its head, and the system, bizarrely, has become a borrowing, not a lending machine. No-one, not politicians, not regulators, not central bankers, least of all bankers themselves – appears prepared, or has the political will and the guts –  to fix it.

Above all, the damage will not be fixed until governments implement policies that stimulate economic activity, so that companies can hire workers, and generate income for both themselves and their employees. This in turn,will generate income for banks.

Newsnight’s Jeremy Paxman posed a question to the panel, which included Lord Lamont, ex-Chancellor, and Irwin Steltzer. He asked: is George Osborne a radical Chancellor?”

Radical, according to the dictionary definition means: “desiring or advocating fundamental or drastic reforms”.

I argued that George Osborne is not a radical. Far from it.  His imposition of austerity, in my view, punishes the weak and rewards the strong. No change or reform in that. Instead the government’s central economic strategy is aimed at appeasing the financial markets, in particular the international bond markets and ratings agencies, irrespective of the implications for an already severe unemployment situation, or for the wishes of the British people. In doing so, George Osborne follows a long line of predecessors in putting the interests of finance before the interests of society as a whole. In this respect, he is no radical.

The true Conservative radical, I argued, was Anthony Barber, Edward Heath’s Chancellor of the Exchequer from 1971-74.

The relentless process of financial liberalisation that is finally unwinding in such a brutal manner across the globe, was really set in motion on Barber’s watch (although his Labour Party predecessor, Roy Jenkins, had actually done much of the preparatory legwork.) This happened as a result of a specific event: the introduction of  ‘Competition and Credit Control’ – a strategy devised in the Bank of England to remove direct controls and hence free up lending (and the price of lending) and instead use only the Bank rate to regulate the whole financial system.

Implemented at the same time as the Bretton Woods Agreement was unilaterally dismantled by President Nixon and the US Treasury, the result was one of the greatest explosions of credit in banking history. Yet despite the inevitable onset of inflation in the 1970s as a result of this revolutionary experiment, and despite the social and political upheavals caused by that inflation (repeatedly blamed by economists on workers and trades unionists), each stage of financial liberalisation was regarded as a cue for further liberalisation. Jeffrey Howe and Nigel Lawson in particular contrived to unravel particular restraints on the finance system in place since the aftermath of the Great Depression.

While George Osborne made a populist appeal in his 2011 Budget Statement, for the

“rest of the country to become advanced leaders in …advanced manufacturing, life sciences, creative industries, business services, green energy and so much more”

he continues to desire for Britain that

“the City of London (remains) the world’s leading centre for financial services. ”

The two are mutually exclusive. The rise of the financial sector has coincided exactly with the decline in manufacturing.

Turning back the clock a little we can seek out a genuine candidate for true radical: Winston Churchill. Writing in 1924 he understood that the interests of the finance sector and manufacturing/creative industries/business services were different and conflicting.

“I would rather see finance less proud and industry prouder”

he wrote then. But Churchill was persuaded by financial authorities in 1924 not to go with his instinct, and instead to return Britain to the gold standard -  at the behest of the finance sector. He was to gravely regret his decision, which proved disastrous for the British economy.

As we have repeatedly argued, the present fiscal crisis is a consequence of first the cost of rescuing and subsidising the financial sector; and second: the cost of the subsequent rise in unemployment.

To pretend this crisis is one of the public sector is not radical, it is deceitful.

To meet the crisis with austerity, is not radical: it is foolish and even reckless.

But unsurprisingly there is no shortage of foolish and reckless Chancellors. According to this yardstick, George Osborne is most like Phillip Snowden, the ill-fated Chancellor of the Exchequer in the Labour Government of 1929-31. Snowden attempted to recover from the Great Depression with a policy of austerity. As a result he not only intensified and prolonged the most severe unemployment crisis in the UK’s history, but also caused public debt to rise. Then he commissioned an actuary, Sir George May, to recommend even more severe cuts.

The Labour government imploded.

This week, the OBR’s increased estimates for public debt outcomes– despite spending cuts, or in our view, because of spending cuts – indicates that George Osborne is following the same policy path as Philip Snowden. It will be a matter of time before we discover whether his government goes so far as the 1929-31 Labour government.

Only when the policy of austerity was eventually revised by his successor Neville Chamberlain, did the economy – and the public debt – begin to recover.

The truth is most Chancellors are only radical in a counter-revolutionary sense. They erected and attempt to preserve a system based on financial authority.

The true radical Chancellors were those who first overthrew this brutal and unjust doctrine. History is replete with examples on both the Tory and Labour sides, of Chancellors who took a stand against finance. But those who did so most decisively were Hugh Dalton, Sir Stafford Cripps and Hugh Gaitskell, the Chancellors of the post-World War Two Attlee government. They nailed their colours to the mast in their paper: “Full Employment and Financial Policy” (not available on the web, sadly.) In that paper they argued that “finance should be the servant not the stupid master….” of the economy. That  “blame for unemployment lies much more with finance than with industry.”

Building on the system constructed under Keynes’s direction during World War Two (and Tory Chancellor Sir Kingsley Wood deserve an honourable mention here) the Labour Chancellors set a financial policy that underpinned a genuine economic and social miracle, the New Jerusalem as it became known.  (For more, read Douglas Coe’s piece here.) It is no coincidence that Clement Attlee is repeatedly regarded as the most successful Prime Minister in British history.

To return finally to the Newsnight studio, Norman Lamont, currently a director of the hedge fund RAB; ‘a director of a number of investment funds’ and an ex-employee of Rothschilds, challenged repeatedly the idea that the finance sector had received any special treatment. He sees finance’s pre-eminence as a natural outcome, and therefore not to be disrupted by external influence – i.e. non-market forces. Unfortunately the feature ended at that point, with only my gasps of astonishment audible.

I hope the above makes clear that nothing could be further from the truth. There is nothing natural about the rise of the finance sector. It is a sector that needed Anthony Barber’s help with ‘Competition and Credit Control’ – to be rid of the restraints and constraints that enable finance to gamble, speculate and ultimately destroy economies. They continue to demand that freedom to do as they please not just from Chancellors, but from society as a whole.

And we, as a society, have granted them that reckless freedom.

Since 1971 finance has constantly benefitted from extremely special treatment; including the most extraordinary government subsidies and guarantees. This special treatment, these subsidies and guarantees have not been granted to industry. And yet one Chancellor after another has persisted in giving preference to finance. As a result – and I write this with total conviction – the world economy and society has been degraded to an extent that most of our policy makers simply cannot recognise; in ways that are simply not visible to the many smug and complacent members of the British establishment.

As in the 1930s and 1940s, genuinely radical policies are the only possible solution to today’s crisis. Sadly, with the honourable exception of one or two politicians, including Caroline Lucas MP, there are no radicals in the House of Commons. That may just reflect the fact that society has been quiescent in a project that has made finance master to our economy.  But there are signs, including the promised numbers at the TUC’s 26^th March demonstration – that society is beginning to understand the harm done to individuals, households and firms, and to our ecosystem -  by Chancellors too timid to challenge the City of London.

So Sir James Sassoon has joined the Eton boy, Osborne, and the Barclays banker, David Laws, at the Treasury, as Commercial Secretary – a post invented and designed for him.  Sir James was vice chairman Investment Banking at UBS Warburg between1985-2002, where he specialised in privatisations. 

The capture of the Treasury by the City of London is now complete.

The war on industry and the public sector can now begin in earnest.

Their first target?  Britain’s small businesses. “The Treasury has axed Labour’s proposed credit adjudicator scheme, designed to give statutory redress to small businesses denied bank lending” according to the FT today.

So the City, after cutting off the vital artery of direct bank lending to small businesses, has now, after capturing the Treasury, cut off another……God help Britain’s struggling private small business sector – so dependent on government spending.

And let’s all wave goodbye to economic recovery. For Osborne and Law were rewarded for their crude hacking away at public spending yesterday, by a fall in sterling.

A sign that ‘the markets’ are not too dim-witted to grasp that cutting public spending will hurt the private sector, and with it, economic recovery.

As if vicious attacks on both the public and private sectors are not absorbing enough, Sassoon, David Laws and Osborne have found time and energy to destroy the reputation of Vince Cable: a man whose formidable reputation for honest, straight talking was built on a ferocious critique of the City of London.

It’s sad, and a tad distasteful watching a junior nonentity from the Liberal Democrats join with the City and the Tories in the ruination of a man that until quite recently, was perceived as a political titan.

It’s even sadder watching Vince collude in this destruction of his reputation.

Last night’s interview with Paxman was painful to watch. Cable whose department and with it his political authority, is about to be weakened by the bankers, was challenged about his sudden about-turn and support for spending cuts.

The crisis in Greece, it appears, is the explanation. It only came to his attention the day after the election, and caused his volte face, although there are few parallels between Greece and the UK, as the National Institute of Economic and Social Research has argued. According to the NIESR, comparing the UK to Greece is ‘misguided’ as Britain’s outstanding debt stock is well below 100% of GDP, while Greece’s has been at this level for 20 years. Furthermore, Greece is captive within the straitjacket of the banker-designed single currency system. Unlike the UK, its government has been stripped of control over interest rates, and the exchange rate.

Cable’s pathetic defence of the indefensible reminded me of Enoch Powell’s comment that ‘all political lives end in failure’.

Sadly that truth may come to apply to an honest, decent man that once challenged the reckless, and economically unsustainable power of the City of London.

If so, it would not be fair.

End .