All over the world, central bankers have hinted that the great 10-year period of very low interest rates is coming to an end and all over the world, millennials are complaining that they can’t make a decent crust. Are these developments linked? If so, what does it mean?
Since 2007, interest rates have been slashed and pushed below zero to avoid mass bankruptcy and to refloat balance sheets that were crushed by the crash. Now that economies are motoring along, central bankers want to raise rates.
But there’s one problem: inflation, which usually builds as the economy picks up, is nowhere to be seen.
The good news is that the absence of inflation around the western world might be the new normal — meaning interest rates will stay relatively low. This is good news for the highly leveraged.
But if the reason inflation is not re-emerging is because wages are not rising as they should be, then we have a problem. This problem is particularly acute for the so-called millennial generation — people born in the 1980s and early 90s. I prefer to call them, at least in Ireland, the Pope’s Children.
Wasn’t this the generation that was supposed to be liberated by the white heat of technology? What if the dream is over? And what if technology is the reason? If this generation is suffering from lower wages and job insecurity, we all have a dilemma.
Let’s tease out the conundrum and the link between technology, the rest of the economy, and the Pope’s Children in particular.
Although economics can sometimes seem remote, economics is about you, and the reason global interest rates and wages could stay low, even as the economy expands, might come down to you, the way you live today and the way you use technology.
If, like me, you sometimes admit to binge-watching Netflix, take heart. I realize that there’s something unsettling about finding yourself at home in bed, under the duvet, Pringles in one hand, remote in the other, overdosing on ‘House of Cards’.
As you try to come to terms with where you have ended up, take some comfort in the fact that a significant chunk of the reasonably well-balanced population is equally addicted. At all hours of the night, many of us are gorging on Netflix, checking emails, responding to Whatsapp groups, booking an Uber or buying something on Amazon.
If technology is taking over your world, what does it mean for the global economy and for our way of thinking about the world?
At the beginning of every year, when my students sit down in front of me at Trinity College in Dublin, I can’t stress enough the importance of not only what they’ll learn in textbooks, but what they see happening in the world around them. As the world changes, our understanding of the economy should change too. But sometimes it doesn’t because of intellectual inertia.
Regularly, economists — and in particular policymakers — display a form of “groupthink” and seem wedded to old models about how the world works that appear to be impervious to the changes that are taking place in the real world. As the global economy is growing and unemployment is falling, central bankers’ default position is that inflation must be around the corner — but what if it’s not?
What if policy makers in their ivory towers wedded to old ideas do not appreciate that millennial technological change and the likes of Whatsapp, Uber, Amazon and Netflix, is driving deflation not inflation?
To understand why central bankers might be misreading what is going on, it’s crucial to understand the traditional model that central bankers use to weigh up what is going on in the economy.
Central bankers believe in the Phillips Curve. The Phillips Curve is the traditional relationship between inflation and unemployment. Every religion has a creed — a set of core beliefs — and the creed of all central bankers is the Phillips Curve.
The mantra goes like this: as unemployment falls, more and more firms want to employ more and more workers, but there are fewer and fewer workers available. So wages rise. The worker knows that if his boss doesn’t give him a rise, he can go across the road to the guy with the “vacancies” sign in the window and get paid more. This process triggers wage inflation.
At some point, the economy runs out of workers and wages rise. Traditionally, it was thought that point was an unemployment rate of between 5pc and 6pc.
While higher wages give more income to workers, they constitute higher costs to employers and ultimately less profit. Because companies traditionally work on a fixed profit margin basis, as the employer’s costs go up, the company simply increases retail prices to sustain profit margin. And, because everyone is getting a pay rise, they have more income. This increased income allows the market to absorb the increases in prices as everyone has more money.
Therefore, the traditional mantra of central banking is based on two crucial beliefs: first, the ability of the worker to push up wages when unemployment is falling (or at least falls to a certain level), and second, the subsequent ability of the employer to pass on the increased costs in higher prices.
However, the relationship between unemployment and inflation appears to be breaking down, or at least shifting. Unemployment is falling but general wages are not rising. Could technology be the reason?
All this new technology we are using forces us to reconsider a competing economic theory called “creative destruction”, which may now be the most useful way to look at our new Amazon-inspired world.
The Austrian economist Joseph Schumpeter came up with the term “creative destruction” to explain the natural process whereby recessions and human ingenuity create innovations and these innovations produce “disruptive technologies”. Such disruptive technologies like Uber, Amazon, Whatsapp, Google maps or Netflix, destroy old industries, slash prices and change the ground rules. Schumpeter argued that these forces are so strong they drive down inflation permanently.
In terms of Uber, Whatsapp and Amazon, these new technologies are driving down prices undermining the old fixed margin business. Taxis, retailers, telecom companies and all sorts of companies can no longer add margin to their price to make up for increased costs.
Wages are being pushed down too because everywhere the “middleman” is being squeezed out. Interestingly, in a services economy like ours, the vast majority of employees are “middlemen”, taking a cut on a product or idea somewhere between when it is produced and when it is finally sold to the customer. But the “gig economy” destroys that because technology destroys the middleman. The “gig economy” is only millennial shorthand for the elimination of the middleman!
Before you start rejoicing, appreciate that in fact we are all the middleman.
The middleman is human value added. It’s what most of us do. If that is eliminated by technology, wages are forced downwards. This is precisely what is happening to the millennials.
Millennialism and all its attendant technologies are actually devouring these technologies’ greatest adherents — the millennials themselves.
As an automation engineer engaged in machine design I am always asked the same question; “after you have put us all out of work what will we all do?” When my collegues and myself were busy putting the “hoi polloi” out of work we did not hear a peep from the media: but now algorithms are targeting the middle class professions we hear all the wailing and gnashing of teeth. In Britain and Ireland the people engaged in engineering/sciences are drawn from the very demographic whom they in the past have been targeting for mechanisation: so there has always been… Read more »
Terry, . Personally, I found ur disclosures about the noble efforts by engineers such as urself to, what I perceive is sequential “the avoiding of”, & failing that ; “the preventing of”, & failing that ; “the mitigation of” THE NEGATIVE IMPACT OF TECHNOLOGY ON SOCIETY very stimulating. . Ref. “There is hardly a university that does not have a department dedicated to mitigating the impact on society of technology.” . . Thus, I ask initially : . 1. Are such departments recognisable by names synonymous with this dedication to mitigation ? . 2. If, “Yes” to 1. above, what… Read more »
“But there’s one problem: inflation, which usually builds as the economy picks up, is nowhere to be seen.” Inflation is hiding in plain sight. http://www.shadowstats.com/alternate_data/inflation-charts Looking at the second graph one will see that inflation is currently around 9% per annum. All kinds of changes have been made to the calculations that produce the inflation rate have been used since the start of the time period in 1981. Some items have been removed, such as food and energy. Others have had increases in pricing reduced due to hedonic adjustments. The reasons are several but may be because the government benefits… Read more »
“But there’s one problem: inflation, which usually builds as the economy picks up, is nowhere to be seen.” Inflation is hiding in plain sight. http://www.shadowstats.com/alternate_data/inflation-charts Looking at the second graph one will see that inflation is currently around 9% per annum. All kinds of changes have been made to the calculations that produce the inflation rate have been used since the start of the time period in 1981. Some items have been removed, such as food and energy. Others have had increases in pricing reduced due to hedonic adjustments. The reasons are several but may be because the government benefits… Read more »
RUSSIAN SUMMER beckoning for Russia . RUSSIAN WINTER beckoning for : . USA … Pseudo Economists who refuse to discuss : A] Private Central Banking is Scam B] Fractional Reserve Banking is Scam C] The only currency in circulation should be MONEY [ i.e. Gold, & Silver too ] . HEADING ; US Sanctions Push Russia Closer to Abandoning the Dollar — Deputy FM Sergei Ryabkov . SUB-HEADING ; Russia’s deputy foreign minister says US sanctions will compel Moscow to seek alternatives to the dollar-based reserve currency system . THE ARTICLE ; Russian Deputy Foreign Minister Sergei Ryabkov gave a… Read more »
@David McWilliams CORRECT – THIS IS WHAT THE “ELITE” PREDICT . . . STAGE 1 -> MORE JOBS TO AUTOMATION = LESS EMPLOYED -> LESS EMPLOYED = LESS DISPOSABLE INCOME -> LESS INCOME TAX FOR STATES -> POWERLESS GOVERNMENTS -> LESS SALES FOR AMAZON -> LESS AD REVENUE FOR FACEBOOK => WHY ADVERTISE WHEN NOBODY CAN BUY? => PHONE REVENUE CRASH -> MORE JOB INSECURITY -> MORE STRIKES -> MORE AUTOMATION => LESS EMPLOYED . . . STAGE 2 -> MORE CRIME -> MORE MIGRATION FOR SHRINKING PIES -> AUTONOMOUS POLICE FORCE -> AUTONOMOUS HEALTH SYSTEM . . . STAGE… Read more »
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Hi All, This article is so dreadful I have decided like I did once before to leave the blog and not post here again. This time I won’t be back. The article in one sense cements a decision I made a few years ago to leave Ireland as soon as my three young kids were old enough and secure enough to understand that daddy is more than just the person providing them with a secure home environment but must provide economic sustenance also. I will be going to the UK shortly to renew a career put on hold by recession,… Read more »
Full-Scale WW 3 coming !
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Henry Makow? @HenryMakow
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Q-Why did rump reverse course on Russia & adopt an irrational hostility ?
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A-World War III which will pit Iran, Russia & China vs the West.
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https://twitter.com/HenryMakow/status/891877930955141120
But Michael nobody, not even David, knows what will happen but history does rhyme. The industrial revolution did result, ultimately, in new and different jobs but there was a lot of havoc and wars during that time. Change is very very swift now, unlike the industrial revolution period, and people are not able to keep up with rapid change. You say you are going back to the UK to a job that was interrupted by the recession: I don’t think your children will ever have that luxury. In my view that is why we must look at protecting people either… Read more »
Inflation has gone into fixed assets , mostly property.
No mystery.
SO MUCH FOR THE SANCTITY OF LIFE ! . PRE-BORN BABIES, & NEWLY-BORN BABIES, BEING “DEVOURED BY THE ABORTIONISTS WITH TECHNOLOGY” FOR CUSTOMERS . HEADING ; Babies may have been born alive for body parts harvesting : Congressional Report . . Jul 14, 2016 . . EXCERPT ; Abortion workers might have delivered babies alive and then killed them in order to harvest their body parts, the House Select Panel on Infant Lives revealed in an interim report on the one-year anniversary of the release of the Center for Medical Progress videos. The interim report outlined the progress the Panel… Read more »
David, You should probably get caught up with the work of Geoffrey West on the topic of innovation and crisis (if you haven’t already). He’s a physicist, who defected to biology for a while and now writes about growth, innovation, scaling, and the pace of life in cities (where pace is analogous to biological metabolic rate). The central idea is that people don’t really change, and this often leads to crisis. Innovation, and its potential to disrupt, averts the catastrophic consequences of the crisis: essentially (and this is my reading of it) it kicks the can down the road by… Read more »
Terry Wogan would have out-performed any of the modern Irish PM’s. He would have screwed them all.
Where is the immortal Brian O’Nolan when we need him? But he did not write in a vacuum: there were other contemporary writers such as Michael Wharton of Peter Simple fame: Joel Mervis who penned “The Passing Show” in the Johannesburg Sunday Times for 50 years and mystified many: “I am sitting in Prmzl. Drinking slivovitz, waiting for a war to break out. It is a question of zinc. Gives Ossip Broz Skopl Topl a klep in noz.” And of course the immortal Mr Justice Cocklecarrot himself J B Morton of “Beachcomber” fame in the Daily Express. But they were… Read more »
Another reason, why Millenials are not able to cause inflation – because their savings are predominantly low. Most of the are not getting payrises, at near even the “official” inflation measures. There is a centralizing influence in the knowledge economy. Zuckerburg, Brin, and the other winners are richer, and rich faster than any other previous techno-business magnates. Two factors are at play here. Monetary policy. Fiscal policy. The paradox of good intentions. Monetary policy is concentrating wealth in the hands of the asset holders, the spculators, and thosw who have access to low finance. Fiscal policy is sucking money off… Read more »
Banking crash 2.0 is around the corner. Buy Bitcoin or even better Litecoin. Insulate yourself from politicians and central bankers by holding your own cash. If your cash is in a bank then they own it, not you. In 2008 we asked for a solution to the banking problem and the universe delivered it. Blockchain technology will set you free. All centralised power is about to be de-centralised, whether you… or they… like it or not. This includes political/corporate/social entities. I am excited about the future. Actual freedom is a realistic prospect. How will Google track your every move when… Read more »
“Since 2007, interest rates have been slashed and pushed below zero to avoid mass bankruptcy and to refloat balance sheets that were crushed by the crash….” This is a statement that indicates interest rates are manipulated rather than left to natural market forces. “Rates have been slashed and pushed below zero. ” Really! Who did the slashing and pushing? Why did they do it? Who gave them the power and control to be able to manipulate such rates? As such this indicates a controlled economy. Do the the manipulators have a 5 year plan, or is it just a lust… Read more »
“However, the relationship between unemployment and inflation appears to be breaking down, or at least shifting. Unemployment is falling but general wages are not rising.” How many times do we point out that unemployment is not falling. In the US 45 million are on food stamps. A donation from the state to mitigate lost wages. https://www.thebalance.com/what-is-the-real-unemployment-rate-3306198 http://www.shadowstats.com/alternate_data/unemployment-charts So no matter what the real unemployment rate is we are quoted the official rate of less than 5% otherwise known as full employment!! The real rate appears to be at least 10% and likely as high as 23%. It the latter figure… Read more »
..“the ‘Phillips curve’ relationship between unemployment and inflation has long been a dubious proposition”.
http://www.zerohedge.com/news/2017-07-31/phillips-curveball
Peter
Since 2007, we have seen several policy being mandated as compulsory. 1. Money printing 2. Manipulation of the Labour market, to make sure that the money does not end up going to the workers, but instead stays in the asset market. 3. Deliberate interventionism in the asset markets to drive up valuations, and make balance sheets look healthy. 4. Relentless agression from the debtors towards the creditors. 5. Rigging of the residential property markets in most Wester countries. 6. Increased public borrowing. 7. Increased stealth taxes. 8. Increased measures to control economic output to favour the preferred interests. 9. Interest… Read more »
David, Thank you for the economics commentary provided in the previous decade. It was very much spot on at the time. And thanks for the other useful analysis you provided at various times, since then. You did have the courage to state the obvious at a time when the media narrative was deiberately misleading. Economics as a professional study area has been pulverized by those in positions of power and wealth, and turned into a tool for their advancement. And all under the guise of it being “in the best interests of society at large”. This has been evident in… Read more »
Hi Dathi. I comtemplated not posting this bed time story for you because the reality of the insignt might be so hard hitting chances are someone like your self will dismiss it out of hand. But fuck me since I am pulling off the blog I have nothing to lose so here goes. You referencing ass holes like Michael O’Leary over the years makes me want to vomit. Here it is; my view on the real reason the young German fella flying the German wings aircraft mashed it and the passengers into a cliff face in the Alps. Remember dathi… Read more »
While “Male Fashion Models” continue to be paid much less than “Female Fashion Models”, it is worth considering this illumination ;
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Andrew Joyce?
@AJOccidental
14h14 hours ago
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TWEET ;
Forget your anti-…tic conspiracy theories, these 2 … women were the highest paid females at the BBC because of their stunning looks.
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https://twitter.com/HenryMakow?ref_src=twsrc%5Etfw&ref_url=https%3A%2F%2Fwww.henrymakow.com%2F
“In like Flynn are the entrepeneurs” ;
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HEADING ;
‘Sex Robot’ Brothels Gaining Popularity in Europe
by Charlie Nash
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31 Jul 20171
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The world’s first sex robot brothel is currently in talks to expand globally, while an Austrian brothel has claimed that its own sex doll is now more popular with clients than real women.
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http://www.breitbart.com/tech/2017/07/31/worlds-first-sex-robot-brothel-talks-expand/?utm_source=newsletter&utm_medium=email&utm_term=daily&utm_content=links&utm_campaign=20170731
REFUSING TO SUPPORT CLERGY & RELIGIOUS OF ANY RELIGION BECAUSE OF CHILD ABUSE [ e.g. Sexual ] BY MANY OF THESE OFFICERS OF EACH RELIGION ? . WELL THEN, HOW ABOUT REFUSING TO SUPPORT “NETFLIX” & ALL THE OTHER SOFTWARE ENTERTAINMENT FROM HOLL-WEIRD / HOLLYWOOD BECAUSE THEY ARE EVEN WORSE ? . . HEADING ; Brad Pitt: . ‘Elite Hollywood Pedophiles Control America’ . . SUB-HEADING [ 1 of 2 ] ; Movie star speaks out against pedophilia rings . By: Jay Greenberg . 26th June 2017 . . SUB-HEADING [ 2 of 2 ] ; Movie star Brad Pitt… Read more »
FYI – Bitcoin
https://lofi.phys.org/news/2017-07-threat-bitcoin.html
Don’t know what the above means but maybe Adam, our resident ‘Bitcoin’ expert, could explain.
ww 3 is already happening ; But, not full-scale yet. . AND, VERY SOPHISTICATED TECHNOLOGY BEING USED BY PUPPET MASTER IZZY + THEIR PROXIES USA, UK, FRANCE, … AGAINST WHAT IS REALLY AN INNOCENT & VIRTUOUS SYRIA . . Ref. Syria zone of WW 3 ; “Ancient” Syria ADJACENT TO Land of Canann, & later Ancient Israel, & later Ancient Palestine –> “Recent” Syria ADJACENT Modern Palestine –> “Present” Israel ADJACENT TO “Present” Israel + Gaza Strip + West Bank — & designated by Zionism to be –> Part of GREATER ISRAEL . . ………………………………………………………….. . HEADING ; Assad Destroys… Read more »
GET ACTUAL GOLD INTO UR PHYSICAL POSSESSION AS SOON AS POSSIBLE !
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ESPECIALLY BECAUSE WE ARE ABOUT TO ENTER FULL-SCALE WW 3
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HEADING ;
Xi’s show of force declares China’s battle readiness to the world
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By wmw_admin
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July 31, 2017
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Choi Chi-yuk, South China Morning Post
July 30, 2017
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http://www.thetruthseeker.co.uk/?p=155479
[…] Millennials’ wages devoured by their own beloved technologies (DavidMCWilliams.ie) […]
[…] Millennials’ wages devoured by their own beloved technologies (DavidMCWilliams.ie) […]
[…] Millennials’ wages devoured by their own beloved technologies (DavidMCWilliams.ie) […]
[…] Millennials’ wages devoured by their own beloved technologies (DavidMCWilliams.ie) […]
Just for you Dath; !00% failure rate if economists in their economic forecasts; https://www.goldmoney.com/research/goldmoney-insights/why-economists-cannot-forecast-recessions Now dathi even though it’s 100% failure rate that’s not the bad bit. Take the apes in Fail eireann for example. Give them 3 options for economic forecast. Same as now, slow down to less than now, pick up to better than now. At least some of them will pick the right answer. Now our highly educated fraternity in all matter economics get it slam sunk 100% wrong. Why? Because the grounding they get in university sets their world view at complete variance to economic reality.… Read more »
[…] Millennials’ wages devoured by their own beloved technologies (DavidMCWilliams.ie) […]
[…] Millennials’ wages devoured by their own beloved technologies (DavidMCWilliams.ie) […]
Greenspan: Soaring Inflation Will Pop Bond Market Bubble
http://www.newsmax.com/Finance/InvestingAnalysis/greenspan-stocks-bonds-bubble/2017/08/01/id/804972/?ns_mail_uid=102706694&ns_mail_job=1744812_08012017&s=al&dkt_nbr=010502r554bs
In other news I’m reading:
‘No One Would Listen’ by Harry Markopolos, about his pursuit of Bernie Madoff.
Anyone read it? Great read.
“People sometimes ask why I’m so interested in gold, given that I am not a gold dealer, mining executive or financial adviser and when I’m not even trying to sell people a subscription newsletter? The answer is twofold. First, I believe that the world needs to return to the gold standard for a number of reasons too numerous to cite here. Second, from a legal standpoint, gold is the most obvious example of a corrupted market. Most rational people know it is heavily manipulated but no one ever does anything about it. Unlike manipulators in stocks, bonds and most commodities,… Read more »
[…] Millennials’ wages devoured by their own beloved technologies (DavidMCWilliams.ie) […]
http://www.breitbart.com/london/2017/07/30/european-union-commences-legal-action-nation-poland/
Hi, As I was unable to post on David McWilliams’ blog, I’m replying to Deco’s comment from last week: 1. Smolensk crash. “Russia gained nothing from the Smolensk crash” This might be considered as Russia’s gains following the crash: – Elimination of the Polish Army’s high command (in this and similar plane crash prior to Smolensk crash) – New president Bronislaw Komorowski (replacing president Lech Kaczynski) with roots in the old KGB (via his links with the Soviet Army-controlled military intelligence), who he took power the same day, before even it was officially confirmed that President Kaczynski was dead (which,… Read more »
As today it is (was) the anniversary of the forgotten Warsaw Uprising (no “Schindler’s List” movie about it as of yet), this is a 1min video about it:
https://www.youtube.com/watch?v=OhbstXu-tb8
[…] Millennials’ wages devoured by their own beloved technologies (DavidMCWilliams.ie) […]
OFF-TOPIC
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BUT, SUCH AS THIS IS WORTH MENTIONING & BOOKMARKING EVEN IN THIS DISCUSSION ;
ALTHOUGH, AS EVER WITH HISTORY BEING SCRIBED BY THE STATUS QUE, BE SKEPTICAL !
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http://theirishrevolution.ie/
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e.g.
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http://theirishrevolution.ie/cork-spy-files/#.WYGRdYSlY8o
[…] Millennials’ wages devoured by their own beloved technologies (DavidMCWilliams.ie) […]
ECHOING ; “TRUMP IS JUST A PERFORMER ; NOT A DECISION-MAKER” . Ditto MEHOLE ; IMPLEMENTING POLICY OF “Grand Orient Lodge of Freemasonry” rather than “Scottish Right Lodge of Freemasonry” . Ditto Enda / Edna ; So booo … ooring that I still unsure which . Ditto Adolf Hitler . . THAT IS NOT TO SAY THAT ANY OF THE ABOVE IS NOT SOCIOPATHIC OR DOES NOT EXECUTE VENOM ON MINNOWS THEY ENCOUNTER. . BUT, WE MUST LOOK AT “PUPPET MASTERS” . . Yet another interesting article from the great Henry Makow based on evidence that he is circumspect about… Read more »
Terry Here’s an old one I prepared earlier, when Mary Mac was in the Park. Parklife (or Let The Girl Live The Dream) “Áras” is a verbal condition, it’s a girl with a mission, otherwise known as… Parklife A manifestation of alienation from the affairs of the nation is also known as… Parklife Brian’s got brewer’s droop, he’s terrified of Morning Ireland so he’s looking for another bench to kip on… Parklife Who’s that gut-lord marching?(Oh, it’s you again, Taoiseach) You want to cut down on your porklife, mate. Get some exercise! Parklife All the people, So many people, And… Read more »
And more doggerel I posted here in times gone by: September 2010 What need you, being come to sense, But grumble at the final bill You spent the euros and the cents It could come to half a mill. You bought the gaffs, the mercs, the phones, For men were born to spend not save. The dream is over, dead and gone, It lies with Anglo in the grave. Yet they were of a different kind, The names that stilled your childish play, They have gone about the world like wind, But little thought have they to pay For all… Read more »
an economist who may know what he is talking about
“On the economy, Dr. Roberts, who was an Assistant Treasury Secretary in the Reagan Administration and holds a PhD in economics, says, “There is no economy there. The markets are rigged. The Fed has a huge trading desk, and they can trade anything.”
http://usawatchdog.com/conspiracy-to-remove-trump-at-all-costs-paul-craig-roberts/