A Pakistani man walks past a wall graffiti reading "Abu Bakr al-Baghdadi". Photo: Getty
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Islamic State faces a complex web of militant groups and violence in Pakistan

The signs of Islamic State moving into Pakistan are there, but what difference does this make in a nation already subject to similar horrors?

On 16 April in Karachi, Pakistan’s biggest city, an American teacher was critically wounded. Debra Lobo, 55, is married to a Pakistani and has lived in the country for around 30 years, working at a private medical college since 1996. She was sitting in her car when she was shot twice in the head by two men on motorbikes.

Terrorist attacks and shootings in Pakistan are commonplace, but attacks on foreigners are unusual. The other thing that marked this incident out was that the gunmen left a note on Lobo’s car implying affiliation with Islamic State. The note promised more ambushes of this type on Americans.

One thing that Pakistan has in no short supply is militant groups. The military is currently engaged in an operation against the Taliban in the north of the country. The main group, the Tehreek-e-Taliban Pakistan (TTP), has splintered into numerous factions after a leadership dispute. They join long-established sectarian anti-Shia groups such as Lashkar-e-Jhangvi and Sipah Sihaba Pakistan.

There have been concerns about IS establishing a foothold in the country for some months now. Back in October 2014, after the killing of British aid worker Alan Henning, TTP spokesman Shahidullah Shahid pledged the group’s support in a statement: “Oh our brothers, we are proud of you in your victories. We are with you in your happiness and your sorrow.”

The following month, in November, international news outlets quoted several high-ranking TTP officials saying that they had defected to a new branch of IS. These officials claimed that thousands of fighters had defected with them, but there has been little evidence of this in practice. If the group exists, not much is known about its size and capacity. Other Pakistani militants, previously associated with al-Qaeda, have also said that they are now operating under the banner of IS.

But Pakistani military and intelligence officials say that they have detected only scattered signs that there is a rising threat from IS militants in the country. While I was in Karachi earlier this month, a week before the shooting of Lobo, there were murmurs about the group establishing a base in the city. Residents particularly expressed concern about pro-IS graffiti. Certain areas of Karachi have become hotbeds of militancy. In some of these areas, I saw walls daubed with graffiti in support of “Daesh” (the Arabic acronym for the group). In the northern city of Peshawar, there have been reports of pro-IS leaflets being distributed. These are striking visual signs of support for the group, but do they indicate a serious cause for concern?

The brutality of IS already has a clear precedent in the TTP. When the group seized control of parts of northern Pakistan after its formation in 2007, it imposed strict social codes with harsh violence. When the TTP briefly controlled Swat in 2009, barbershops and girls’ schools were closed down. Men who shaved their beards were killed and women who broke strict rules of modesty publically flogged. Beheadings were used frequently to instil terror in the local populations. The TTP beheaded nearly all the 100 Pakistani soldiers it took hostage in 2007. The similarities are not just tactical; both IS and the TTP have a harsh sectarian agenda, viewing Shia Muslims as apostates, and both have seized territory in their localities.

Pakistan is a country inured to violence, where there is news of a bomb attack or a fatal shooting somewhere in the country every single day. More than 30,000 lives have been lost to terrorist violence since 2001. It takes major events, like the slaughter of 150 schoolchildren in Peshawar last year, to shock this traumatised population. Against this backdrop of violence and the already complex web of different militant groups – whose aims converge at some points and diverge at others – it is difficult to see what major difference the entrance of IS would make. Each year already seems to bring a worsening of atrocities. The key concern, of course, is that the arrival of a new group could exacerbate an already dire situation, and perhaps reinvigorate militant movements as the TTP struggles with internal fractures and the pressures of the military operation in Waziristan.

After the Peshawar attack, Pakistan’s prime minister Nawaz Sharif announced an end to the policy of differentiating between “good” and “bad” terrorists – negotiating with some while fighting others. From here on in, all are “bad”. This is a starting point, but it does not solve the problem that Pakistani extremism is not limited to a single group or a single geographical area. It is hidden in the corners of cities, and governed by scores of different networks that may coordinate at some times but work independently at others.

The military has announced that it will not allow IS to establish a base in Pakistan. But given its poor record on fighting the extremist threat thus far – tacitly encouraging groups which serve its foreign policy goals while proclaiming to deplore militancy – it is difficult to have much faith in this.

Samira Shackle is a freelance journalist, who tweets @samirashackle. She was formerly a staff writer for the New Statesman.

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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?