The excellent PaulInLancs anticipated the Liberal Conservative coalition days ago, and also a capitalist-ruling class stitchup.  After first telling us that “politicians and rightwing commentators have fallen over themselves in their eagerness to talk up a ‘crisis’ which does not in fact exist”.

Tomorrow morning, though, that ‘crisis’ will exist.  The bond markets will plummet when trading opens, and city dealers will be wheeled out to say that ‘the market hates uncertainty’ over and over again, and that was is needed is a stable government able to reassure the markets that the deficit will not get out of hand.  This follows on the initial establishment of this narrative at 1am on Friday. The stock market will follow, and the FTSE will plummet by around 15% by 10am. By mid-morning, Tories and LibDems will be out before the cameras saying that the crisis that they had foreseen is coming and it’s coming fast, and that they are now working against the clock to reassure the markets that they will bring stable government, and deal with the deficit.  The deficit will be blamed on a failed Labour administration.

Paul later saw evidence of connivance from the ratings agencies as well.  Ed Conway gives the question some proportion (we’ll miss his output from the Telegraph when he goes off to Harvard):

The point, ultimately, is that if investors were to stop buying government bonds tomorrow (not that they would), it would mean the state would effectively have to shut down … Doesn’t this mean Britain is being held to ransom? Well, in a sense, yes. But this is nothing new. Back in the 1930s the Government only started cutting spending after it was refused a loan by JP Morgan. Moreover, the bulk of investors who might refuse to buy UK bonds are actually domestic buyers – pension fund and asset managers looking after our own (mainly retirement) money. In the 1970s it was an exodus of British money, not foreign cash, which really triggered the need for an IMF bail-out.

Of course, readers of Dillow will know that the reaction was hardly record-breaking, and Will Hutton amongst others conceded the City has behaved surprisingly well. Will’s piece ends up on this sunny note:

The people spoke; they wanted fresh faces and a fresh approach. The result, curiously, may be what they willed. The people even gave the rainbow coalition, for which I had hopes, a chance of forming had its protagonists had any energy. As the Lib Dems found to their consternation, they did not: there were too many obstacles. It is democracy in action, and it is great to witness. The financial markets, this time round at least, have a clean pair of hands. The people have spoken. Not the bond market.

Ah, if only it were that simple.  Conspiracies are stubborn things to uproot from the mind of the determined conspiracy theorist, and we have the internet.  I have done some googling (just as I did with Nick Clegg)  and have found some disturbing evidence that something sinister is happening.  Tracking the popularity of search terms:

I am not suffiently quick or subtle to work out what this adds up to.  But it scares me


15 thoughts on “Growing evidence of capitalist conspiracy behind election result

  1. If ‘the City’ did try to get the Conservatives and/or Liberal Democrats in office I suspect they ruefully are repeating the old proverb, ‘be careful what you wish for’. What with the bonus tax, banking minister and policy of new runways near London it’s not (rightly or wrongly) very City-friendly so far…

  2. Yeah – I imagine Cam & osborne now have a real chance tofrighten bankers into doing what they must – or they’ll ‘unleash the Cable’

  3. ‘ The point, ultimately, is that if investors were to stop buying government bonds tomorrow (not that they would), it would mean the state would effectively have to shut down … ‘

    The Modern Monetary Theory chartalists would say in the fiat era this is nonsense. I tend to agree with them in a fiat currency regime if the government did not issue gilts they would just continue to electronically credit accounts and the sky would not fall in. The government bond market for a sovereign issuer is really just a leftover from the gold standard era. Prof. Bill Miller regularly rails against it on his blog calling it ‘ corporate welfare ‘, which I suppose it is.

    Although without the discipline of the bond market constraining them it is doubtful whether politicians could be trusted not to spend beyond the productive capacity of the economy. Therefore, the gilt market is useful even though it is theoretically possible to live without it. Moreover, it provides an asset class for those who wish to hold them, and the risk-free rate provides a useful benchmark for all other credit rates. Not forgetting of course corporate welfare.

  4. Entertaining tho strange post (esp as I acknowledged quite happily at the time that the section of my post you quote was a bit on the whimsical side), but I’d love to know how you make those graphs so quickly.

    Really interesting comment from Richard W though about the fiat system. Will delve, but seems to be link here to the ‘debt is only money lodged with another generation’ argument from the other week.

    1. about 98% of the point of the post was entertainment, so that’s a relief (I have always wanted to have a graph with a line denoting Swivel Chairs. And I can’t help giggling at the thought of Ernst Blofeld furiously asking how to get cat hair out of his jacket)

      I can’t deny a link between certain capital interests and political outcomes. If I did not, I would not work in my post – the whole political-economy thing is what fascinates me most. And I appreciate you were being whimsical -15% on the FTSE! when it’s an international index! – so thanks for your patience.

      On the graphs thing, there is a simple answer: on Excel, I’m off the nerd-spectrum, way off. Example of my sadness: when I started night shifts, I passed the time by programming a simulation of a premier league season onto Excel. It tells you something about how long ago it was that Blackburn kept winning.

      On Richard’s point “I tend to agree with them in a fiat currency regime if the government did not issue gilts they would just continue to electronically credit accounts and the sky would not fall in. ”

      This sounds a bit like what Tim Congdon wanted QE to do.

  5. Well, to be fair, the deficit IS Labour’s fault….Brown was overspending from 2001 onwards.

    The markets never really trusted the Labour party to make the necessary cuts either, given that at some point massive cuts are going to have to happen in publci services and the welfare state – two big vote pools for the Labour party.

    As you allude to above, QE was not really used to free up credit by allowing banks to lend more, by buying lower grade assets from them. Why buy Tier 1 capital from banks, when they are simply going to have to buy the same paper back for regulatory reasons? The real reason was to “electronically credit” as you say a years budget deficit before an election, allowing Labour to offset cuts into the next administration.

  6. Don’t want to play Mr know-it-all but what did I write earlier yesterday? I quote myself:
    “why embarking on a coalition with the Tories?
    The first is, once again, the tyranny of -short-termist- markets. “They” (who are they) want(ed) a majority government, assuming this could guarantee tougher spending cuts and deficit/debt reduction, which were at least partly due to the folly of the past period, lest some forget. Anyway, the markets got it. How long will it last? The market operators don’t care (I wrote short-termist). I find it weird that someone like Vince Cable, who has written and spoken brilliant words about the crisis, swallows that coalition.”

    Then this one from Brian Gardner, a reader of The Guardian (on May 8):
    “Given the control they ‘ll exert over Clegg, Cameron (I skip Brown who’s now over and out), it’s a shame we’re denied the chance to vote for Fitch and Standard & Poor’s”

    1. um, but where do we see proof that we are victim to the shorttermist markets? They never moved much. The parties did what they wanted, and was right. The ‘markets’ only exert control over C&C because, well, they represent the money that has been lent to them. What is so sinister about that.

      I do all I can to take the mickey out of conspiracy theorists, really, I wonder why I bother sometimes 😉

  7. Posted by freethinkingeconomist on May 13, 2010 at 9:49 am

    ‘ This sounds a bit like what Tim Congdon wanted QE to do. ‘

    I think he favoured a policy of underfunding the deficit through the government borrowing direct from the banking sector rather than the gilt market.

    Tyler, QE was never about getting banks to lend more. That was allowed to become the media narrative because the Bank has an ineffectual Governor. QE, was only ever about boosting the money supply. In a normal environment the governments deficit has no effect on the money supply as it is sterilised by selling gilts. Gilt sales equals the budget deficit. Without QE, M4 in a deleveraging economy would have fallen dramatically triggering a catastrophic deleveraging of the whole financial system. The government does not need QE to fund the deficit, as Tim Congdon alluded to they can underfund by borrowing direct from the banking sector. The boost to asset prices and narrowing of spreads was entirely predictable as it was a backdoor route to recapitalising the banks without the nasty headlines.

    1. Exactly. Charles Bean was quite clear at the outset of the policy that bank lending was not necessarily the mechanism. I had a table in the Appendix of Credit where it’s due about their changing views of the mechanism at the Bank

  8. Well to be fair to Brian Gardner by proxy, there does need to be substantial reform of the Rating Agencies that seems to have got lost in all the (mostly legitimate) banker bashing.

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