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It is the savers who pay for the current economic mess

March 18, 2013 2:32 PM
By George Smid - Liberal Democrat MEP candidate for 2014 East Midlands
Originally published by East Midlands Liberal Democrats

George Smid 2The proof is here and for all to see: it is not the government, it is not the EU, it is not even the taxpayer - it is the savers. It is the savers who pay for the current financial mess - the Great Recession [a term coined by Joseph Stiglitz, Nobel prize economist].

To avoid Cyprus bankruptcy the savers with deposits in Cyprus banks will pay the Central Bank just under 7% and 10% of their saving (depending how much money they have on their account). So on Friday you had €100 thousands, Monday is closed for business, on Tuesday you will have €90 thousands. (Or just short of €47 thousands if you had only €50 thousands).

This is the first time when a direct and full confirmation was made that it is the savers who pay for the current recession. Prior to 'Cyprus Solution' the savers suffered indirectly: inflation, low interest rates, devaluation of pension funds have eaten the value of their 'nominally the same' savings. Now the nominal value is reduced directly. This should lead us to taking stock and redefine the existing paradigm.

The crude, short and generally accepted evaluation of the Great Recession is that unregulated markets issuing various derivative instruments caused 'credit crunch' and because of the lack of credit there was a collapse 'in the market'. The problem is that the socio-economic changes of the last years are so profound that using previous definitions and references does not work intellectually and, more importantly, does not work in real life.

Take the charge about 'unregulated' markets. 'Unregulated' and 'regulated' market description is meaningless. Markets are always regulated - by people activities. The 'invisible hand of the market' was never a part of Adam Smith's concept, only a vulgarisation of one of his theories. It drives me mad when I hear left or right politicians referring to 'the market' as if it was an independent entity. Markets are created by people - and not the other way around. And as anything created by people it can be done well, not so well or pretty awful. Hearing our politicians though, one would assume 'the markets' have some objective value like 'gravity' or 'energy'. How many times have we heard 'markets will or markets will not' (punish, reward, allow, like)? To which I'd like to reply: The fact that we have a functioning market in slavery does not justify slavery. By abolishing slavery you remove the 'market' from existence - it is the people who create the market. So remove the market from the equation. Or create another market to your needs. 'Market' is a tool, not objective.

The second fallacy is blaming the 'derivatives'. Have a look at any pound bank note: I Promise to Pay the Bearer On Demand The Sum of … Pounds. Have a look at previously almighty dollar: "This Note Is Legal Tender For Debts, Public and Private'. In other words the 'money' about which the politicians and some economist love to talk with a deity-like reference is already a derivative - a promissory note (i.e. debt) by another name. The fact that other derivatives (bonds, CDS) refer to money tends to confuse the matter but it is wrong to refer to money as a 'wealth' or 'assets' and base the whole philosophy on it (do you remember Thatcher and 'monetarism'?). Money is a convenient means of exchange. Change the rules of the exchange and you change to the money.

On what bases then the markets and the money work? The main 'value' of any currency or any market is 'trust'. So the solution must be to re-establish the trust. The trust in one's own future. In October last year during my husting speech I said: This crisis will not be sorted out by right wing technocrats relying on the markets and left wing bureaucrats relying on a state intervention. This crisis is about rebuilding trust: in community, in institutions, the police, the politicians. Trust in fairness, in sharing, in delivery. In short we need Liberal policies[1]. This is not between Left and Right. This is between LibDem and the rest.

When you trust in your future you will trust in your money. The trust of any currency is based on the collective responsibilities of the people. By contrast printing money is made from the centre and it can lead, as it is leading now, to redistribution of the created wealth (from the 'collective' bottom to the 'private' top) and consequently will lead to diluting this collective trust.

We have to stop policies diluting our trust: we will not build trust by printing more money (creating more debt). Imagine a heroin addict, an alcoholic or an impulsive eater trying to solve their problems by taking more heroin, alcohol or food. We would not allow it and if it was suggested we would see the stupidity of it. Why are we so blinded when it comes to 'economy' and our addiction to debt? Why do we believe that we can 'cure debt with more debt'? (The intellectual mess of these suggestions is amply illustrated by Ed Balls and far right Tories offering the same recommendation to the chancellor for the incoming Budget Statement - what an irony!)

We cannot apply the same remedy which led to the mess in the first place. Don't waste your time on 'enterprise loan', don't waste your time on supports, grants, tax cuts … etc. and other ways of redistributing 'the debt'. The savers will pay for the mess. So we should support the savers. (Instead of the bankers) The savers are not only the ones with the money at their accounts. The savers are the taxpayers given a part of their earnings to the state, the savers are pensioners (current and future), the savers are the earners, the savers are the voluntary carers for disabled people, the savers are - the bottom 90%. Cyprus has explicitly shown us that it is only the work we have done, the wealth we have created, the saving we have deposited which will pay for the 'debt crises'.

Support the savers. Pay the people. A business will not take a loan to increase production when the main problem is that nobody is buying the products. And nobody is buying because the trust in future is not there. Forget about 'soft loans'. Re-establish the trust. If the savers lose their trust their savings will move into 'non-productive' forms: gold, speculations, mattresses …

At the end a fantasy: Instead of reducing the value of the savings Cyprus would increase the value (overnight). Imagine the EU help of 10 billion Euro used 'to pay the savers' - any deposit under 100 thousands Euro would attract 10% interest, any deposit above would bring 5%. The savers would start spending …. then the enterprise might look for a loan to increase the production. It might even lead to Cyprus attracting enough money not to go bankrupt.

J George Smid is an MEP candidate and in his Manifesto ( and husting speeches ( he concerned himself with 'three Es': Energy, Environment and Economy

[1] The Liberal Democrats exist to build and safeguard a fair, free and open society, in which we seek to balance the fundamental values of liberty, equality and community, and in which no-one shall be enslaved by poverty, ignorance or conformity.