Orange squash: Ron Vlaar and Andrés Guardado during the Netherlands v Mexico match, 29 June. Photo: Getty
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This is Fifa-land: colourful, attractive spectators in team shirts playing by the rules

There is a set way to behave. Team shirts and face paint have become de rigueur, while Mexican waves now interrupt the view of anybody trying to watch the football with irritating regularity. 

On Sunday, waiting for a flight to São Paulo, I watched the Netherlands’ last-16 match against Mexico at Santos Dumont Airport in Rio de Janeiro. It felt like the archetypal moment of a modern World Cup. There were people in the shirts of Uruguay, France, Belgium, Russia, Colombia and Argentina, as well as Mexicans (who presumably hadn’t counted on making it through the group) and Brazilians (many of whom seem, for the duration of the tournament, to wear the national uniform of Nike yellow at all times). There was at least one television commentary team, children, old people, men, women; the world uniting on a bland, brightly lit food court to stare at a big screen, sponsored by Budweiser. They drank Coke and ate undercooked wedges of pizza – “American pizza, Italian flavour”, the outlet boasted, whatever that means.

The scene was eerily Ballardian, although this was a lounge stripped of the sense of possibility with which J G Ballard would have imbued it. Fifa, you suspect, would like the World Cup to become something similar: safe, antiseptic, anaesthetised, with difference expressed by nothing more than colour of shirt, as everybody shells out for the global brands with which it has signed sponsorship deals.

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With the street protests here muted, the only anti-Fifa note has been struck by the nation of Uruguay and its all but uncon­ditional support of Luis Suárez after he was given a four-month ban for biting Giorgio Chiellini. In the fog of denial, Suárez ludicrously claimed he had lost his balance and fallen into the Italy defender, something that caused him “a strong pain in the teeth”.

There is a legitimate question to be asked about why football punishes biting so much more severely than flailing elbows or bad tackles, which can cause injuries far more severe than a few marks on the shoulder – and you wonder why Neymar, Kyle Beckerman and Mamadou Sakho have escaped investigation for apparent elbows in the World Cup – but having already been banned for a total of 17 games for two biting offences, Suárez can hardly claim he didn’t know how gravely the offence is considered. Equally, there seems to be something a little draconian about the four-month ban, which is not just from playing but from all “football-related activity”. That means he had to leave Uruguay’s team hotel, will not be able to train with Liverpool, his club (for now), and can’t even appear in their team photograph.

Uruguay’s manager, Óscar Tabárez, usually the most thoughtful of men, hinted at those concerns but ended up blaming the “English-speaking” media for asking a series of questions about the bite, and thus forcing Fifa to act. The chutzpah was staggering – Fifa, after all, has spent much of the past decade decrying the English-speaking media for making allegations of corruption within the organisation on an almost weekly basis. The idea that Fifa could be influenced by them is laughable – and ignores the blanket coverage given to the Suárez bite in Brazil and elsewhere.

At least Tabárez had the excuse that he was fostering a siege mentality to try to stiffen the Uruguayans’ resolve ahead of their game against Colombia, which was lost. José Mujica, the president of Uruguay, was presumably speaking from the heart when he denounced the punishment as “a fascist ban” and called Fifa “a bunch of old sons of bitches”. All of this righteous anger was somewhat undermined when, on 30 June, Suárez apologised, “having had the opportunity to regain [his] calm”. It was almost as though somebody had read the explanation for the sanction issued by Fifa, had seen the condemnation of Suárez’s lack of contrition and had recognised an apology was a necessary first step in appealing to reduce the ban. But surely Suárez, who didn’t consult Liverpool before making his statement, couldn’t have been acting under instruction from Barcelona, who are desperate to sign him, despite it all? Because if that were the case, it might make the great Uruguayan martyr seem just a little venal.

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Although there has been the occasional fracas in the stadiums – the incident in which one England fan bit the ear of another, for instance, or when Chilean fans without tickets invaded the media centre at the Maracanã and were chased by security, who were themselves chased by men with cameras, just a lingerie-clad model from being a Benny Hill sketch – this has been another tournament in which fans have become almost part of a Fifa-sanctioned backdrop. There is a set way to behave. Team shirts (great for the manufacturers) and face paint have become de rigueur, while Mexican waves, once a sign of boredom, now interrupt the view of anybody trying to watch the football with irritating regularity. It’s as if fans have become complicit in their reduction to bovinity.

Most inexplicable of all, though, is the reaction of fans who see themselves on the big screen. Even at the height of the tension in the shoot-out between Brazil and Chile, a game in which it seemed a nation was holding its breath, fans had the same Pavlovian response. As Neymar stepped up to take his penalty with the scores level, the camera focused on a pair of young women in Brazil shirts and face paint. They looked terrified, hands to cheeks. Then they caught sight of themselves on the big screen and responded as they were supposed to, smiling and waving, jumping up and down. How tense could they have been a second earlier? Which was the artificial emotion? This is Fifa-land: colourful, attractive people, behaving exactly as they’re supposed to.

This article first appeared in the 02 July 2014 issue of the New Statesman, After God Again

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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?