#67. The Ponzi economy, part 3


I’ve never been a believer in the macabre, and have certainly never taken witchcraft more seriously than any other folk-tale. I’m beginning to wonder about this now, though, as I watch the great and the good of the economic debate as they peer into the cauldron of the next downturn.

The people entrusted with our economic futures, you see, are sitting around a bubbling pot, wondering quite how many more bizarre ingredients they can stir into the witches’ brew before it boils over. Though (so far as I’m aware) no policymaker, central banker or economist has yet proposed adding “eye of dog” or “wool of newt” to the mix, the ingredients that they are proposing are every bit as morbidly bizarre.

You don’t have to be a pessimist to know that a recession is coming – as we shall see, the evidence for some kind of impending downturn is becoming overwhelming.

In fact, if you don’t know by now that a recession is looming, you must have been either in a coma or in Davos.

But the morbid fascination of the coming downturn lies in the range of solutions being discussed by those who, whilst anticipating a coming recession, are also aware that the traditional policy tools for countering downturns will not be available this time around.

As a result, really serious consideration is being paid to ideas that in that not-too-distant past would have been dismissed as barking mad.

The issue isn’t about prediction, then, but about preparation.

And this is where inquiry quickly turns up something pretty akin to a witches’ Sabbath.

Cue the pointy hats and the black felines.

The avowed and the disavowed – the twin problems

As I’m sure you know, there are two sorts of problem looming. The first of these is an economic downturn, conventionally called “a recession”. The second is a far more fundamental challenge, posed by excessive debt, and by a dependency on adding to this debt pile in order to sustain the illusion of “growth”.

For now, let’s start with the recession threat, because the sheer idiocy of a global economy built on ever-expanding debt isn’t discussed in polite society.

Recession risk is pretty undeniable. Growth (or what passes for “growth” in an age of Ponzi economics) is slowing markedly, even in America and Britain. Japan has started experimenting with negative interest rates as the latest twist in the monetary and fiscal kamikaze that goes by the name of “Abenomics”.

Global movements in money flag up a big part of what is happening. Reversing the trend of decades, capital is flowing out of the emerging market economies (EMEs) at an unprecedented and accelerating rate (some $740bn last year), partly reflecting sharply slower growth in China and in other EMEs. In January alone, China spent almost $100bn staving off a currency slump. Low commodity prices are cutting a swathe through resource-exporting economies without, thus far anyway, doing much to help importers.

That the spectre of deflation is haunting a world awash with newly-created money demonstrates quite how weak global demand has become.

This being so, it’s hardly surprising that the prospect of recession is rising up the economic agenda. Indeed, so obvious has this become that the possibility of a downturn seems even to have penetrated Davos, the latter-day Versailles behind whose marble walls (and mass security) today’s bewildered and beleaguered Ançien Regime desperately tries to keep reality at bay whilst discussing things that are either pure eyewash (“the fourth industrial revolution”), sheer diversion (“these canapés are tasty”) or deeply malign (“I know, why don’t we ban cash?”).

When we talk about recession, what we are really talking about is growth going into reverse. This simply means that output, generally considered as GDP adjusted for changes in prices (inflation or deflation), is getting smaller.

There are plenty of reasons why this is beginning to happen. For a start, hardly any economy of any significance is expanding now that China, previously almost the only growth-engine, is slowing rapidly. China is slowing for several reasons, but by far the most important of these is that the country’s “growth” since 2007 has really amounted to nothing more than the spending of borrowed money. Like America, Britain and many others before her, China has fallen into a trap that has resulted in “growth” (of $5trn) coming at a price of $21trn in new debt.

Debt acts as a terrible drag on growth. For a start, it tends to be channelled into building capacity that nobody needs, which in turns drives down returns on existing capacity.

Excessive debt can make people cautious, which is bad, or it can make them reckless, which is even worse. If caution takes over, activity shrinks, and prices can start falling – no bad thing, you might think, except that it makes debt grow even bigger in real terms, triggering a vicious circle.

If recklessness prevails, asset prices (including capital markets and property) can soar. Bonds and equities can correct this by slumping, but it is failure to come to grips with property price inflation that is really damaging, because it prompts people to buy property and sit on it for easy profit, rather than innovating and investing in new products and services.

This, incidentally, is one reason why only an idiot would shackle the fortunes of a country’s economy to its property market.

It also, of course, ties up potential investment in a “capital sink” rather than putting it to productive use – that is, soaring property prices both drive debt upwards and stifle creativity.

Taking Britain just as one of the more extreme examples, can you imagine what today’s infrastructure and economy might look like if, under successive governments, trillions of potential investment hadn’t been channelled into inflating property values instead?

The blight of misguided policy

Of course, nothing is so bad that politicians and central bankers cannot make it worse if they really put their minds to it. There have been grave economic failures throughout history, but policymaking since the 2008 crash takes the biscuit for sheer craven fear and incompetence.

It would be nice to think that today’s policymakers are being watched with awed respect by the shades not just of Charles Ponzi but also of John Law (who confined himself to wrecking just one national economy).

In 2008, we looked over a precipice from a mountain of debt, a mountain that had been built by lax monetary policies, ideological or self-serving deregulation, and a political preference for buying popularity.

Then, and instead of encouraging restraint, central bankers – egged on by politicians – responded to excessive debt by engaging in all sorts of gimmicks to make borrowing cheaper than at any point in history. The result was that we borrowed even more ($49trn) in the seven years after the crisis than in the seven years before it ($38trn).

Along the way, we have been inundated by “unconventional” (generally meaning “ill-thought-out”) initiatives designed to tinker with the monetary system rather than face the reality of excessive debt.

The most worrying thing of the lot is that, instead of looking at fundamentals, the powers that be are now busy creating a new set of gimmicks, thereby conforming to the Einstein maxim that insanity lies in doing the same thing over and over again and expecting the result to be different.

Losing Mr Keynes’ umbrella

What they have also done, of course, is to mislay the tools that their predecessors had used to good effect over decades.

When a downturn looms, long-proven practice has been to stimulate demand, which is done in two main ways. “Fiscal stimulus” means governments boost demand in the economy by running deficits, either by reducing taxes, by increasing public spending, or a mixture of the two. “Monetary stimulus”, meanwhile, means cutting interest rates to encourage borrowing and discourage saving, both of which increase demand.

(You don’t have to be a Keynesian to understand this, by the way. You just need basic numeracy).

Of course, when you’ve done these things, and the recession has been countered, you have to reverse them, reducing or eliminating the deficit, and putting interest rates back up again.

If you don’t do this, two consequences follow, both of which are blindingly obvious to anyone outside the policy elite.

First, the economy can overheat if too much stimulus is applied for too long. An overheating economy leads to a subsequent downturn just as certainly as the sunset is followed by the dawn.

Second, unless you restore budgetary balance and normalise interest rates, you will not be able to apply stimulus the next time you need it.

This is the tool-kit that generations of central bankers have used to counter recessions.

Today’s central bankers, assisted by governments, have lost this tool-kit, about as carelessly as an old lady might mislay an umbrella in a crowded railway-station.

Most amazingly of all, they seem to have learned nothing from all of this. If you find such behaviour hard to credit, just consider the ideas now being canvassed.

The abandonment of rational thinking

For a start, forget doing anything that might be tainted by common sense. One very distinguished economist has spoken for much of the policy establishment by saying that it would be “crazy” simply to accept the coming recession, and make the best of it.

In fact, so long as those in greatest need are taken care of, a recession can be cathartic, driving excesses out of the system and triggering the “creative destruction” from which new and better ways of doing things can result. Whisper it who dares, but we could fund a much-improved welfare safety-net just by getting the wealthy to pay tax on some of the huge gains doled out to them gratis through QE.

So, and whilst no-one would actually welcome a recession, it is surely the height of folly to go into denial over it.

Then there’s another idea which might seem sensible – to reduce debt, for which the jargon is “deleveraging”. Though this idea is certainly practicable, mainstream economists don’t favour it, mainly it because it increases the likelihood of recession.

Here, once again, is the “denial factor”, which is doing more than anything else to build a bigger and longer catastrophe. Ostriches are known for burying their heads in the sand at the first sight of trouble, and it’s become clear beyond a doubt that, for central bankers, and politicians too, doing exactly this has become a matter of instinct.

Don’t worry though, because ruling out anything sensible doesn’t leave the policy cupboard completely bare. There’s always the mad, the bad and the dangerous to fall back on.

The chamber of policy horrors

Assume, just for the moment, that you are a central banker or an economic policymaker. You have mislaid your predecessors’ perfectly effective tool-kit. You have ruled out anything which might address the fundamentals (such as managing recession, or reducing debt) because these might court short-term unpopularity. You cannot realistically (or at least ideologically) run deficits bigger than the ones you already have, and neither can you – theoretically, anyway – cut interest rates that are already at zero.

What might you do instead? Well, an increasing body of thought suggests that you can run negative interest rates. Instead of the bank paying customers a fee for the use of their money, the customer instead pays the bank for holding on to it. Switzerland, and a few other smallish and rather specialist economies, have indeed done this. The Swiss have done it for a perfectly sensible reason – they do not want their currency to soar as a consequence of safe-haven attractions, so they levy a small fee for the assurance that they provide.

Now, though, say many economists, negative interest rates can be adopted on what would amount to a global basis.

Negative interest rates are possible, we are told, and this is true, though only in strictly theoretical, technical terms. And, as the late great Yogi Berra put it, “[i]n theory there is no difference between theory and practice. In practice, there is”.

Start by imagining, if you can, the feelings of the customer who puts $1,000 dollars in the bank and sees it decline to $950 after a year of bank custodianship. If anything is guaranteed to exacerbate public contempt for the banking industry, this is surely it.

Of course, if the idea of banks helping themselves to his money doesn’t appeal, the customer might consider alternatives. He might put his money into artificially-inflated bond or equity markets, where his loss may be deferred (but is likely to prove even bigger in due course). He might put his money into property, again depending on his attitude to buying vulnerably-inflated assets. He might turn to the unlicensed “banks” which would surely proliferate. Or he might just stuff the money under the proverbial mattress. This – or buying gold – might be the most popular route for avoiding what he would see as the straight filching of his money by bankers.

The policy wonks have thought of this, of course, and many of them think that they can solve it by banning cash.

It is really, really hard to think of anything more dangerous than depriving people of access to their money, and forcing them to leave every penny of it in a banking system which – already widely perceived either as dishonest, the tool of control-freak governments, or both – may now be licensed to make regular deductions from customer accounts.

Banning cash would summon up the spectre of “bail-ins” – where banks dip into customer deposits to cover bad loan losses – in the minds of rightly-suspicious customers.

After much thought, I would even go so far as to say that a state which banned cash, or a banking system which connived in this, would have stripped itself of any vestige of legitimacy.

Then there is the idea of making QE (quantitative easing) a perpetual feature of the system. One can readily perceive the attraction of this to the official mind because, after all, about $40trn of QE has achieved nothing much so far except the enrichment of the already mega-wealthy. QE is already virtually permanent in Japan, where it forms one wing of the aeroplane of kamikaze economics.

Apart from failing to revive a moribund economy, and threatening to start a forex race to the bottom, its only real effect in Japan has been to make the central bank the sole buyer of Japanese government debt.

I don’t think I need to labour the point about governments borrowing newly-minted money from themselves.

Then there is “helicopter money”, which is fast becoming the pet project of economists who really ought to have grown out of the “kiddie in the sweetie factory” stage by now.

Of course, the money wouldn’t literally be pushed out of the cargo-doors of an old Westland Wessex – it would have to be put into everyone’s bank account, especially if owning actual cash had been made illegal. But the whole point about “helicopter money” is that it began life, not as a serious suggestion, but as a joke.

Well, the joke may be about to get even more morbid. Just think of it – the government puts money into your account, the bank then trousers some of it, and the only person who can’t get his hands on it is the customer to whom it (supposedly) belongs.

Then there’s the idea of changing official targets, dropping the targeting of inflation or growth in favour of something esoteric or irrelevant, such as nominal GDP. This calls to mind the concept of “core inflation”, which was the idea of excluding energy and food from the measurement of inflation at a time in the 1970s when the prices of both were going through the roof. One wag called this “inflation ex-inflation”, but it looks positively sane when compared with some of the gimmicks now being given serious consideration.

So here we are….

We have now reached a point that has gone far beyond the surreal. In fact, were it possible for us replace today’s policy wonks with figures from the past, we would have to disqualify the likes of Heath Robinson, Salvador Dalí and Lewis Carroll on grounds of excessive practicality, though Lady Macbeth and the witches might still get a look-in.

So here’s your choice, though sadly with the proviso that you will not be the one who gets to make it.

We can accept the likelihood of a downturn, and make the best of it, and we can start reducing debt, accepting that overvalued asset markets would thereby be subjected to the law of gravity and the fate of bubbles. Much of the debt mountain could be converted to equity and, after all, if the value of your home has to plunge, it might help if your mortgage was written down at the same time.

Instead, though, it seems far likelier that the gimmick-pedlars will be allowed to get on with completing the task of engulfing the economy in debt, undermining the credibility of money, and cutting away the waning credibility of the social and political order.

Like the witches of the Middle Ages, the gimmick-sages are already warming the pot and collecting the ingredients for “toil and trouble”. The cauldron is already bubbling away nicely, of course – and anyway, who needs “eye of dog and wool of newt” when you can ban cash, and then order banks to take money out of everyone’s locked-in account?

After all, to opt for sanity now would be to leave the witches’ cauldron incomplete – and we can’t have that, can we?

31 thoughts on “#67. The Ponzi economy, part 3

  1. Dear Tim Morgan,
    I never forget your former statement that “money is a claim on energy past, present, and future”. Debt – as I understand it – is a claim on future energy. But the fact is that the global net energy shrinks. It does not matter that we can pump the same amount of oil year after year for many years to come if you have to invest a still larger portion of energy in order to get the oil (coal/gas) out of the ground.

    “….we can start reducing debt, accepting that overvalued asset markets would thereby be subjected to the law of gravity and the fate of bubbles. Much of the debt mountain could be converted to equity and, after all, if the value of your home has to plunge, it might help if your mortgage was written down at the same time.”
    How would you convert the debt mountain to equity as there is no cheap energy to pay for it?

    • Absolutely right. Indeed, what we are seeing now in energy markets is the direct consequence of weak growth in the economy.

      I’ve always tried to present the situation as I see it, and have never argued for despair. We can use resources differently, change how we live and what we expect, and perhaps use renewables to establish a base-line that is sustainable.

      But one cannot get away from one thing – this new baseline will be lower than what we were used to in the past, when the energy cost of energy was lower.

      So the economy is likely to shrink – after all, infinite growth isn’t logical on a finite planet.

      The trouble is that we have no idea how to downsize. Our economic system assumes perpetual growth. The economic gear-box doesn’t have a reverse gear. Debt is perhaps the most obvious sign of this.

      If a person’s income falls, the sensible person adapts. But the non-sensible man tries to live just as he did before, borrowing the difference. That is the mind-set that our economy is in.

      And I have no idea how we change that mind-set……

    • I think renewables could be helpful. Pumping up water in peasants’ water reservoir in India instead of diesel motors could be an example. But even if we find a way of accumulating electric energy it is impossible to see for instance windmills as a viable solution for the base load in the electric net. I take the liberty of giving an example, but maybe my estimations are wrong because of failing logic. I very much welcome your and other readers’ comments:

      Windmills are produced in an industrial environment where the European price of electric energy in industrial plants is approx. DKK 0,50 (7 cents) per kwh. If you convert the total price of Windmill Park Anholt (Anholt Vindmøllepark) which is about 10 billion DKK (1,5 billion USD) into industrial kwh, you could buy approx. 20 billion ‘industry’ kwh instead of producing and installing the park. The nom. capacity of the wind mill park is 400 MW. Function time 25 years. Windmills produce with 50 % of capacity at most. Life time production of the wind mill park approx. 40 billion. An eroie of 2 is by far not enough taken into account that coal, oil and gas probably have had an eroie of more than 10.

  2. Tim,

    It seems that PFI settlements have done much the same as kicking bags of notes out of an old Westland Wessex. I have advocated literally doing that – and I believe in the late 50’s attempts to burn old notes in a London Power Station resulted in a load of banknotes going up the Chimney and floating onto the surrounding houses – hence taking them to Scotland for destruction and the resultant Great Train Robbery.

    So why not??

    It would get spent quite rapidly – and as I live in an area you can ‘low fly’ over – the Crab Fat do it all the time – I think its a great idea

    • I take your point about PPI, John – I’m sure it has flattered economic performance. One difference, though, is that PPI was compensation for a genuine grievance, so was paid to victims, not to everyone. It wasn’t “earned” by them, of course, but they were “entitled” to it, which is along the same lines. It wasn’t “something for nothing”.

      Most people understand money as something you “earn” (even if on the GGs), “own” thereafter, then “spend”. Break that link and it becomes an arbitrary concept, something doled out to you by the state and recorded only in a government ledger. I can’t explain this very well, but it’s a bit like “truck” or indenture – your employer “pays” you, but only in a ledger from which you must rent your home from your employer, and shop only in “the company store”.

      I suppose I’m saying that your money should be “yours”, even though its value rests on issuer credibility, and what you can do with it is circumscribed by law. That, incidentally, is also why I loathe the idea of banning cash.

      What concerns me with helicopter money is that it fits a very bad pattern. We have too much debt, so do we (a) deal with that, or (b) undermine the monetary system? Thus far we have chosen the latter, and I don’t think it’s worked – and neither have we faced up the risk involved.

      Fiat money rests on confidence alone, and confidence is a fragile thing. We tinker with it at our peril. One day, everything is fine – next day, government does something daft, and money becomes worthless.

      = =

      PS Your reference to the crab-fats takes me back a bit. As a Lt Cdr once said to me, “go ask Riff-RAF airlines” – thanks for that!

    • Steady on chaps! As one with a 20-year career in the RAF Regiment (completed some years ago, I should add), I could get offended by all this bashing of Crab Airlines. On the other hand …

      Great post as usual Tim. I am tracking your stuff, and Gail Tverberg’s too (oh and Kunstler’s stuff). Have been quieter than usual myself recently, juggling a few work balls. My general impression is that making money is getting harder by the day: which fits with your overall thesis, of course.

    • Thanks MM! Hope all is well with you?

      I’m sure you’re right about it getting harder to make money. Likewise, I’ve been pondering (just theoretically) “what would I invest in now?”, and it’s tricky, with almost every market pumped up on financial steroids. There are precious few worthwhile investments, I think. I see that even London multi-million properties are now being shorted by hedge-funds, and GO’s timing on higher BTL and 2nd home stamp duty isn’t looking too clever…..

      Experience suggests that crabs, pongos and fish-heads can co-exist most of the time – I heard the rif-raf gag in a wardroom of the Grey Funnel Line, but I was also told by 4 squadron aircrew that they were going to “come in over the back (!) of the boat (!!) and put it neatly on the floor (!!!)”. Fair’s fair!

  3. Hi Tim,
    there are ways out of the debt impasse. The one I favour is a Debt Jubilee. David Graeber and Steve Keen both see it as a way forward. My version would be for cancelling all loans derived for free from the banks. This liability money requires real resources to repay but in the end it vanishes back into thin air. The banks aren’t threatened with bankruptcy as their core assets and liabilities like customer deposits are not lost. They lose interest revenue etc, but it’s the only way to cut down the mountain of private debt we have.
    On the other side the property values would all be drastically reduced as the mortgages etc have gone and the properties will have been handed to the owners. This is in line with your comment.

    Government debt is not a problem as it’s a variation on savings accounts in the commercial banks. Your asset is the banks liability. Same for the government except we describe the government’s debts as debt but the banks’ debts as deposits..

    • To my mind debt serves several purposes: it’s repayment demonstrates credibility – (Britain couldn’t survive for long if our money proved worthless to foreign creditors, who’d lend to us or even sell to us?); it also tends to fuel work in that we strive to repay – what’s the point in working too hard if you can have every thing you ever wanted effectively for free; finally (though there are probably others) the absence of debt shows a certain presence of mind in these troubled times and that should be rewarded.

    • Hi Ejhr.

      The thing I don’t understand about debt jubilees is what about people that you don’t know have debt? The people with property, for instance, that has it’s ownership obscured? Can the government currently tell who does and doesn’t have debt easily?

      There will surely be people that will play a jubilee, who use tricks to show no debt where there is in fact a lot? I’m thinking of the very well payed accountants for the very rich for starters here.

      Also how will foreign owners of UK assets be effected? Positively or negatively?

      And lastly how will this not just create huge inflation, at least in certain assets? Will it not just allow people with debt to afford more debt and people with no debt to use the money to buy more things?

      What am I missing?

  4. “Wool of newt” ? Newts are amphibians and, like reptiles, have smooth (not slimy) skin. But insofar as it reminds you of the phrase “and pigs might fly!” with regard to our politicians, bankers and economists, then perhaps it conveys a poetic truth. 🙂

    2nd Witch:
    “Eye of newt, and toe of frog,
    Wool of bat, and tongue of dog,
    Adder’s fork, and blind-worm’s sting,
    Lizard’s leg, and howlet’s wing,–
    For a charm of powerful trouble,
    Like a hell-broth boil and bubble.”

    Macbeth (IV, i, 14-15)

    Blind-worms (a.k.a. slow worms, i.e. lizards with only vestigial stumps for legs, because they evolved away) do not sting, either, come to that.

    • Thank you for this, and you are quite right, of course.

      What I found really interesting looking into this (which I did, despite trying to rely on memory for the spells!) is how serious the witches in the play were taken. Today we think of witches as a bit of a joke, harmless fun, and children dress up as them. But in Shakespeare’s day the witch motif wasn’t in it for fun. They represented ultimate evil, denying the both divine and secular authority.

  5. Another article that confirms to me what I have suspected for a long time – the left have won and are running the show. Values of thrift, dignity, honesty, integrity and personal responsibility have been pushed aside.

    Dr Morgan’s article is just the monetary version of what Anthony Browne described in his book ‘The Retreat of Reason – political correctness and the corruption of public debate in modern Britain’. On all matters now we have truly ‘retreated from reason’ .

    Brown describes vividly how the factually correct truth has been replaced by the establishments politically correct truth. How the world has been neatly carved up into oppressors (that can do no right) and the oppressed (who can do no wrong).

    Could it be that factual truths, reason and logic that we relied on to steer the economy have been ditched and replaced by ‘truth’ of the kind that makes politicians and selected voters feel good about themselves?. Facts such as the buying of growth with debt are inconvenient so are ignored by politicians and the media alike.
    It is the modern trend towards media manipulation that seems so adept at making uncomfortable facts disappear that I find most worrying.
    Mr Cameron just needs to roll up his sleeves in a midlands factory, make a ‘power gesture’ like he has been instructed to do by his media advisor ..no need to go to the trouble of actually doing the right thing when good results can be merely staged…..

    From our own government we have seen 5 years of ‘virtue signalling’ by their refusal to reduce public spending in real or cash terms. There has been no ‘austerity’ because cutting spending has become politically incorrect – Howard flight was sacked for even suggesting NHS spending should be reduced . The spending party has to continue at all costs…

    • Ken

      If you recall my series on “corporatism”, you will understand that I’m not persuaded by “left” or “right” – they are uncomfortably similar, I feel.

      So my take on this would be that corporatists, extremists and the intolerant have the ascendancy over those of us who put the individual before the “big battalions” of state, vested interest or corporation. Like any exercise in power, this tends towards the amoral. Likewise, I tend not to go into moral issues, but real integrity lies in how we deal with others, as people; not as groups or ideals.

      I also believe that an integrity deficit is a far more serious problem than a fiscal or a trade deficit – a free market economy can only work where the market is supported by honesty.

    • Thanks Dr Tim,

      The see the rights of the individual being suppressed because of the establishments desire to create a new historic entity the ‘European’. It seems they wish to eradicate all our national feelings and make us live as a multinational community.
      Does it trouble you the desperation of the British political establishment in securing an IN vote in the forthcoming Eu referendum ?. Migrant camps in Kent really ?.

      I agree that the distinction between right and left has become blurred. I would argue that the centre ground of politics has shifted to the left…giving us a choice between largely left wing politically correct policies ( the Tories) or the hard leftism/Marxism of Mr Corbyn. Sound money and ‘living within our means’ will never find a home in either camp.

      I strongly agree with the Russain dissident political activist Vladimir Bukovsky who described the Eu as an ‘old Soviet model, presented in Western guise.”
      The European Parliament serves the same function as the Supreme Soviet of the former Soviet Union merely “rubber stamping” decisions made by a small number of unelected leaders. There are other worrying parallels – corruption, elitism, the use of propaganda, the burying of unwelcome news and the tendency to elevate ideology over practicality…

      Bukovsky argues that that a small number of leftist oligarchs in Brussels, with their allies in national parliaments, are in the process of creating a new communist-style superstate called “Europe” in which national sovereignty, and democracy, will be a thing of the past.
      Instead of the Gulag the Eu employs political correctness to suppress views that diverge from those that are pre approved. Perhaps you are wise not to venture into ‘moral issues’ – it’s a path that few now dare to tread.
      Of course not confronting difficult or uncomfortable issues only makes them worse..which seems to be where we are today – sweeping problems under the carpet on a grand scale.

    • I shall buy this book. Another Anthony – One Dr Anthony Daniels (nomme de plume Theodore Dalrymple) also writes about this decline (Life at the bottom, and Our culture – what’s left of it, are excellent)

  6. Hi Tim

    It does indeed seem that the long attempt to solve what are structural problems by monetary policy may be coming to an end with the third bubble in fifteen years reaching its apotheosis.

    Like you I don’t think things will change and that TPTB have already decided to double down on failed policies as a crash will make it easier to ask the population to make the necessary sacrifices in order to establish the basis for the next crash.

    I do, however, think it’s getting harder and harder to keep up the “trust us” storyline; folk are getting more cynical by the day and some day this will end, not well, but it will end.

    What I find quite stunning is that with all this talk of NIRP we have fecklessness transformed from a dubious lifestyle choice to a moral imperative enshrined in NIRP, an emblem of the moral corruption that these policies bring.

    • Yes Bob – I’ve been convinced all along that monetary tinkering doesn’t solve a debt problem, especially as the biggest problem isn’t the debt itself (serious though that is) but the compulsive need to go on adding it to. We are seeing a lot of signs now that things are unravelling – notably capital flows, rising credit default swaps and an early trickle of rumours about bank and borrower solvency.

      Re TPTB, when writing this piece my alternative was something about the elite, and how detatched it has become. Reading about Davos I kept being struck by similarities to 1789 in France. There is always an elite, of course, but the trick to the survival of an elite is to reform, taking the general public with you, rather than to resist, and end up like the Romanov Tsars or the Bourbon kings.

  7. Another challenging post! Interesting to see how several countries are starting to restrict the use of cash usually under the umbrella of “fraud prevention” – part of this seems to be banning or restricting the use of high denomination notes. When did you last see a £50 banknote in the UK? I think we should expect more of the like here in the future perhaps with exchange controls to prevent currency flight (something I remember growing up with in the 1960s). The problem is what do you do. Go with the flow… equities and bonds (sigh) ….or buy gold and bury it in the garden (will gold deflate with everything else).

    • Thanks. Of course, they really must think the public are idiots if they expect this to be believed. I can quite see why one might outlaw large denomination notes, which are a gift to the criminal – but, if you’re not allowed to draw £50 notes, that’s no reason to stop you drawing the same sum in tenners.

      Forex controls were the norm in Britain till the 70s – you had a limited allowance which determined what you could take, even for a holiday, which I think was £10 in the 1950s and £50 in the 1960s. (These were also the days when you could buy Playboy on a Sunday, but not a Bible). But today, of course, methods of moving money are far more sophisticated and rapid, making it pretty hard to reinvent these barriers.

      What interested me recently was China spending $100bn in January alone to shore up the RMB – so many Chinese cos have borrowed in USD that a plunging RMB could have serious knock-on effects.

  8. The cuts to Legal Aid & hikes to Court Fees are another example of the state puling out of an important role – keeping markets honest

    • Frankly, nothing like this surprises me any more, in a country which levies car-parking charges in hospitals, and levies a tax on insurance premiums.

  9. I don’t see how they wouldn’t go with NIRP, cash restrictions, and helicopter money. They are the overseers of the debt. With it they have tremendous authority/control/power over the system and over the people. To let the system crumble will be relinquishing their control and exposing to the public the years and years of absolute fraud and corruption.

    It really reminds me of John Law and Weimer. They never started out thinking to completely and utterly destroy their nation’s economy. They even professed some noble goals of eliminating hunger, poverty, creating jobs, blah blah blah. One crisis after another solved with even more money creation, they eventually led their nation to complete despair. Of course they must have known that it can’t go on forever. John Law tried to run away with a chest full of gold and silver (crazy gold bug). In weimer the perceived problem was always the lack of money (collapse in money velocity). So they answered it with even more money printing. Why didn’t they stop? Answer is they can’t. Their lies would be exposed and they will be hung. Same with our money changers today. Its a one way trip to hell.

    I seriously doubt this story would end any different from the long tortuous history of finance and banking. What is one left to do? Move to the countryside?

    • In any trade, your profits are likely to increase if demand for your product grows. Bakers would prosper if the public developed a new passion for bread. Fishmongers would make big profits if there was an upsurge in the eating of fish. If the market for your product grows, it’s good for business. What baker would want to sell less bread, or fishmonger strive to put people off fish?

      Relevance? Well, bankers’ product is debt. The more of it there is, the bigger and more profitable the industry.

    • At some point profit becomes less relevant than power. It becomes an obsession beyond just money. A psychosis that drives them to lie, cheat, and steal. I don’t see it as simply seeking profit that has taken us this path. It is a madness. An evil that drives them and blinds them. They may cover their intentions in twisted logic and moral relativism. But i do not for a minute absolve them of their deeds that may eventually lead to war and millions of death because they were merely seeking a profit.

      This did not start overnight or even with Greenspan. The con is perpetual as is evil. And these are surely evil men.

  10. Tim,
    I scanned the IFS Green Budget but found next to nix on personal debt or global debt as an underlying economic problem or our continued investment in the housing market as against productive investment .
    Surely the authors of the budget are not that blinkered ?
    Or am I missing something ….


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