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

Peak Gold

We as a species are rapidly approaching the end of cheap and easily extractable resources. The wealth of most Westerners could get wiped out during the next decade due to commodity inflation and ridiculous political policies. Focusing on your real purchasing power is critical. As this brief documentary discusses, what is it that makes gold so special? Merely as a “tradition” as Bernanke would have us believe, or sound money for 6000 years? You decide but I would include silver as a precious monetary metal. The historical price ratio of gold to silver has been 13:1, currently it is more than 60:1 but in terms of resource availability you get 9 ounces of silver for every 1 ounce of gold found in the ground.

This 7 minute video is from Peak Resources.

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Quantitative Easing and the Purchasing Power of Fiat Currency

Quantitative easing is an unconventional monetary policy used by central banks to stimulate the economy when standard monetary and fiscal policy, such as lowering interest rates or taxes, becomes ineffective. A central bank implements quantitative easing by buying financial assets from commercial banks and other private institutions, increasing the monetary base. It sounds quite technical and its been administered by professionals so the risks must be limited…right?

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The Japanese have been pumping money into their economy, via QE since the asset bubble collapse in the 90’s. It’s led to a period of stagflation in their economy that is unprecedented but the central banks like the Fed, Bank of England and ECB continue down this path. Why? They have no other option, other than raise interest rates but by doing that the government debt would become unsustainable sooner rather than later. That’s not how these kick the can politicians and bankers work though.

So with all of this extra money being pumped into the banks, its good for the economy, right? Nope, wrong again. I can’t find evidence of this happening at the Bank of England but its happening at the Fed. Our economies are based on credit, small and medium sized businesses need loans and cashflow in order to operate but the Fed, under Ben Bernanke and his infinite wisdom has decided to pay banks not to risk their money. Section 128 of the Emergency Economic Stabilization Act of 2008 allows the Federal Reserve to pay interest on “excess reserves” that U.S. banks send to the Fed.

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Therefore the banks, especially those classified as TPTF can just send their cash to the Fed and collect the interest risk free. A brilliant piece of policy to stifle, not help the entrepreneurs and small businesses an economy relies on to get it out of a depression. You couldn’t make this up, it’s disgusting that the mainstream media are not picking up on this and holding these people accountable. It regretfully shows the system is gamed not for you or me but the few at the top.

So quantitative easing and printing fiat currency increases money supply and therefore reduces the value of said fiat. What does that mean for you and me?

For the UK the purchasing of £1 has fallen significantly through QE and inflation, this is not good for the common man

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The same for the Fed.

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And finally fiat currencies measured against gold.

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Quantitative easing is a policy to prolong the inevitable, the demise of fiat currencies. Let your friends and family know. Keep safe.