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Newt encounters a different kind of Tea Party, writes Laurie Penny

"To my astonishment, the audience applauds. Gingrich is in a spot."

"To my astonishment, the audience applauds. Gingrich is in a spot."

"You're from Britain? You want to watch out," says the man with the Newt 2012 sticker plastered across his paunch. "If you don't do something soon, your country will be under Sharia law. And that won't be any good for you, miss. You know what I'm saying."

I have come to a meeting of the Staten Island Tea Party, where Newt Gingrich, currently the front-runner in the Republican presidential debate, is about to give a campaign speech.

My new friend, Kevin Coach, is a retired police officer in his early sixties. He was a supporter of Herman Cain, but as the former pizza-chain mogul's presidential bid recently collapsed in a welter of sexual assault allegations, Kevin has switched allegiance . "Anyone but Mitt Romney," he says.

We need to talk about Kevin, and the five hundred other overwhelmingly white, middle-aged Americans who have gathered to hear Gingrich speak today.

This man --  a former cop with fists like ham hocks that he thumps on his knees for emphasis, a libertarian blogger, a Tea Partier and, finally, a person wearing a baseball hat without a shred of irony -- is everything that people like me are supposed to loathe. But I don't.

When he informs me about the practical dangers of the burqa -- "no side vision. Those women are constantly getting run down by cars" -- he flashes a grandfatherly smile, and I suspect that the safety of young women on the roads of a notional Islamic Caliphate of Britain is, on some level, a genuine concern for him.

The basic emotional language Kevin Coach is speaking is one of fear, and I believe that this fear comes from a place that is chillingly familiar.

Suddenly, it's time for the Gingrich show.

The presidential hopeful takes the stage, surrounded by an entourage of security personnel, well-wishers from central casting and a terrifying fem-bot of a wife who is here to promote a children's book she has written about American exceptionalism, which stars Ellis the baby elephant on a journey of neoliberal indoctrination. The book is available in the lobby.

There is a call to stand, and the pledge of allegiance is chanted with hands on hearts and the veterans in the audience applauded with that peculiarly American cultish credence that is somehow less, rather than more, frightening when it's happening all around you rather than on the television.

We take our seats, and it takes Newt Gingrich -- a man with the aspect of a toad with expensive dental work and whose forced exit as Speaker in 1998, under a cloud of corruption, followed midterm election defeat-- roughly three minutes to lose the interest of half the audience.

The people gathered here are less rapt by Gingrich's clunky, high-school-debate-champ, pro-market propaganda than they are by praise for the idea of America as an "exceptional nation", which draws the largest cheer of the afternoon.

Stand-up fights nearly break out at two separate points in the speech, the first when a group of infiltrators from the Occupy movement stand up and attempt to disrupt the proceedings by shouting "Mic check!". As they are evicted, thick-necked men seated all around me stand and pump their fists in the air, chanting "Newt! Newt! Newt!"

This Tea Party gathering is a jumpy, anxious crowd, teetering between violence and implosion. It is a crowd that wants its prejudices pandered to, a crowd that is worried about jobs, a crowd that has allowed itself to be convinced of a wholescale, unfair confiscation of privilege from white, middle-aged, middle-class Americans; a crowd whose members want to believe that they are still special and powerful, as if they ever were.

It is not a crowd of monsters. If it were, it would be easy to dismiss. It is a crowd of frightened, angry human beings watching their lives get steadily worse, and that is a far scarier prospect.

These people could come from any state in America. They are parents and grandparents and teachers and small business owners, the core of the Republican vote, and they are swallowing hard lumps of rhetoric about dissolving the welfare state and cutting taxes for the rich washed down with bland Obama-bashing that always steers far enough away from overt racism to avoid headlines.

This is how the trick is done. This is how -- with the Eurozone is in crisis, with rioting and protest in the streets of major cities across the world and the Durban climate talks likely to signal the end of even the limited climate concessions offered by the Kyoto protocol -- a friend of big business like Gingrich persuades white-collar workers to vote in their millions to protect banks and corporations from regulation.

The trick, however, is wearing thin. During the question-and-answer session, a middle-aged man in a fleece jacket takes the microphone and tells the crowd, struggling to stop his soft voice from breaking, that he is at risk of having his home foreclosed, that he is fighting a bank that wants to take everything from him and his family. He wants to know, should Gingrich become president, "What would you do regarding the financial crisis and making the banks pay?"

To my astonishment, the audience applauds. Gingrich is in a spot. This man has obviously not been listening to the preceding hour of gentle tubthumping about giving banks even more freedom to do whatever the hell they like with public money. The candidate gives a mitigated statement in support of small, local banks, and the audience cheers.

"I'd just like to say," says the questioner, quietly repeating the mantra of the Occupy movement, "that I am one of the 99 per cent, and I appreciate this dialogue."

It's a dialogue of desperation and hope that answers the same concerns shared by many of the ordinary Americans gathered here, without resorting to co-optable xenophobia or cheap cultural prejudice. It's a dialogue that gets to the heart of injustice in the developed world.

And it's a dialogue with which, soon enough, even the Republican Party may find itself forced to engage.

Laurie Penny is a contributing editor to the New Statesman. She is the author of five books, most recently Unspeakable Things.

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?