Why do the People of the UK Accept Financial Repression?

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It is amusing yet disturbing to see that the UKs media fails to mention the public debt of the UK but refers only to GDP and inflation figures, the ‘everything is awesome’ meme. Both of these numbers are manipulated but asking how the GDP deflator number is derived, what the actual number is and why does it increase GDP and lower inflation? This would be the start of a discussion.

When governments find themselves in a situation where they cannot pay off their accrued debt, they have a number of plays open to them. They will not relinquish power without a good scrap.

1.The first play is hyperinflation and this destroys the currency but also the debt, not ideal if you wish to remain in control.

2. The second is default, also known as the Argentinian option but this eventually leads to the destruction of the currency.

3. The third option is austerity, which is parroted by the political parties as necessary but if we have had austerity for 5 years why has public debt gone up by 80% since the coalition came to power? Currently standing at £1.4 Trillion with £1 billion per week being used to fund interest payments on the debt, £52 billion per year and rising. Austerity is a lie, it’s never worked but we’re all in this together, well most of us as you will see. As public debt has increased so much, interest rates are not going to rise, it’s counterintuitive and illogical for government to do so, they have another option.

4. The fourth and my personal favourite is financial repression, sounds like fun which it is. Repression hits both savers and wage earners, if inflation is higher than interest rates then savers lose out. If inflation is higher than wage increases, the wage earner loses out. If both of these scenarios play out, savers and wage earners lose out and those that hold the debt benefit. Continue reading

Precious Metals In 2014

Yet another great article by Alisdair Macleod and courtesy of Goldmoney.com:

“Now the New Year reviving old desires
The thoughtful Soul to Solitude retires”
Rubaiyat of Omar Khayyam

It’s that time of year again; when we must turn our thoughts to the dangers and opportunities of the coming year. They are considerable and multi-faceted, but instead of being drawn into the futility of making forecasts I will only offer readers the barest of basics and focus on the corruption of currencies. My conclusion is the overwhelming danger is of currency destruction and that gold is central to their downfall.

As we enter 2014 mainstream economists relying on inaccurate statistics, many of which are not even relevant to a true understanding of our economic condition, seem convinced that the crises of recent years are now laid to rest. They swallow the line that unemployment is dropping to six or seven per cent, and that price inflation is subdued; but a deeper examination, unsubtly exposed by the work of John Williams of Shadowstats.com, shows these statistics to be false.

If we objectively assess the state of the labour markets in most welfare-driven economies the truth conforms to a continuing slump; and if we take a realistic view of price increases, including capital assets, price inflation may even be in double figures. The corruption of price inflation statistics in turn makes a mockery of GDP numbers, which realistically adjusted for price inflation are contracting.

This gloomy conclusion should come as no surprise to thoughtful souls in any era. These conditions are the logical outcome of the corruption of currencies. I have no doubt that if in 1920-23 the Weimar Republic used today’s statistical methodology government economists would be peddling the same conclusions as those of today. The error is to believe that expansion of money quantities is a cure-all for economic ills, and ignore the fact that it is actually a tax on the vast majority of people reducing both their earnings and savings.

This is the effect of unsound money, and with this in mind I devised a new monetary statistic in 2013 to quantify the drift away from sound money towards an increasing possibility of monetary collapse. The Fiat Money Quantity (FMQ) is constructed by taking account of all the steps by which gold, as proxy for sound money, has been absorbed over the last 170 years from private ownership by commercial banks and then subsequently by central banks, all rights of gold ownership being replaced by currency notes and deposits. The result for the US dollar, which as the world’s reserve currency is today’s gold’s substitute, is shown in Chart 1.

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Continue reading

The Hidden Motives Behind The Federal Reserve Taper

Courtesy of Brandon Smith of Alt Market:

“The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland; a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank… sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.” – Carroll Quigley, member of the Council on Foreign Relations

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If one wishes to truly understand the actions behind private Federal Reserve policy, one must come to terms with a fundamental reality – everything the Fed does it does for a reason, and the most apparent reasons are not always the primary reasons. If you think that the Fed simply acts on impulsive stupidity or hubris, then you haven’t a clue what is going on. If you think the Fed only does what it does in order to hide the numerous negative aspects of our current economy, then you only know half the story. If you think the Fed does not have a plan, then you are sorely mistaken… Continue reading

How the Paper Money Experiment Will End

As the monetary system slowly cannibalises itself, an article from the Mises Institute sums up the options for the UK economy. Everything but number 5 is possible. My opinion, a deflationary collapse after a portion of hyperinflation and throw in a splash of war for good measure. Courtesy of The Mises Institute:

A paper currency system contains the seeds of its own destruction. The temptation for the monopolist money producer to increase the money supply is almost irresistible. In such a system with a constantly increasing money supply and, as a consequence, constantly increasing prices, it does not make much sense to save in cash to purchase assets later. A better strategy, given this scenario, is to go into debt to purchase assets and pay back the debts later with a devalued currency. Moreover, it makes sense to purchase assets that can later be pledged as collateral to obtain further bank loans. A paper money system leads to excessive debt.

This is especially true of players that can expect that they will be bailed out with newly produced money such as big businesses, banks, and the government.

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Japanese Kamakazi QE aka Abenomics

As Japan has committed to kamakazi style quantitative easing, attempting to print itself out of economic stagnation, it is heading down a path which will lead to the Yens demise. Not only is debt to GDP 200% but the bond market is beginning the phases of crashing as confidence dictates bond yield. You cannot have a quantitative easing programme which is as big as the USA’s but have an economy 4 times smaller. Although the initial results of QE are helping exports, the countries around it will begin to reduce the value of their currencies to maintain competitiveness. This action will wipe out Japanese savings and hyperinflation will become rampant, the warning signs are here but the politicians hold steadfast on their deluded path.

For an in-depth look at what’s happening in Japan, watch this Otterwood observations, its only 23 minutes but explains the issues.

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From the Hedge:

Surging nominal imports and a miss for exports just about sums up perfectly just how the reality of Abenomics is crushing the real economy as the market goes from strength to strength on the hope that recovery is just around the corner. For the 28th month in a row Japan trade deficit has dropped YoY and its 12-month average is now at its worst ever. Energy costs are driving up imports (and adjusted for the devaluation in the JPY, the data is simply horrendous. Of course, there are green shoots – CPI is not deflating as fast as it was… and ‘some’ inflation expectations are rising (though as we noted here that is simply due to the tax expectations). Contrary to expectations held by some in the bond market, the BOJ did not comment on the sharp fluctuation in JGB yields since April as a result of monetary relaxation – on the basis, we assume, that if they don’t mention it, it never happened. The result post a nothing-burger of ‘more uncertainty’ from the BoJ, the Nikkei keeps screaming higher, JPY rallied then fell back, and JGBs are sliding higher in yield.

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5 Year Japanese Bond Yields:

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