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Jim Morrison had it right

So the Bank of England’s monetary policy committee, (currently about as relevant as condoms in a Nunnery) has decided that keeping interest rates at 0.5% is not stimulus enough for the sluggish economy.  Nor apparently was the £325,000,000,000 they have counterfeited thus far.  No siree bob, what this economy needs apparently is another £50,000,000,000.  Just to put the overall figure of £375B into some sort of perspective, if you assume there are about 30 million net taxpayers in the private sector who pay tax meaningfully, then that works out to an absolutely staggering twelve and a half grand each. 

 

Now Pravda or as some people still insist on calling it, the BBC tell us that this money will be used to “stimulate the economy” but of course it will do no such thing.  This will simply be used to buy government bonds (which are simply loan instruments); this holds down the interest rate artificially because bond prices are inversely proportional to interest rates.  This simply allows the criminally inept government to keep on spending money it has just conjured up out of thin air whilst loading further interest payments onto an already over-burdened exchequer.  It will need to be repaid at some point so it’s really just deferred taxation.  Remember, this is the government that is apparently going to get the deficit under control and if their aspirations are met (and they won’t be), the one Trillion national debt in 2010 will be 1.4 Trillion if the plan works.  This incidentally is what the odious Mr Balls claims is cutting “too far too fast”

 

UK sovereign bonds are becoming more and more a devalued, hideously asymmetric bet and when the light-bulb of recognition goes on in the markets, watch interest rates climb, far and fast. 

 

At that point borrowing will either be wholly unaffordable or simply not available and with interest rates still at 0.5% (and no-one sane keeping money in any of the bust banks) the only play left in the book will be more QE or a voluntary abandonment of the fiat money experiment.

 

Now I do not expect politicians to give up on absolute power (i.e. the ability to create money from nothing) ever, and only when reality is smacking them in the face will they be forced to stop QE and stop spending.  Consequently, contrary to some serious Austrian economists, I do not expect deflation.  It is true that in a depression, prices should fall, malinvestments should be liquidated and more realistic values should be ascribed by the market to previously inflated goods.  The very fact this is not happening (recession and inflation? Something very, very wrong) shows that the politicos are wedded to artificial credit creation and thus endemic inflation.  When this dragon really gets out of the bottle I suspect we will see an inflationary apocalypse quite the equal of the 1970s and possibly far, far worse.

 

So let’s be honest.  The government and the opposition (no hope with any of these clueless cunts) are not Monetarists, or Keynesians (you had to repay debt in good times according to JMK) and they certainly aren’t Austrians, mores the pity.  They are Mugabe-ists.  They fund their own government with money they print.  Total, total madness and the path to utter ruin. 

 

6 Comments

  1. John Galt says:

    They are Mugabe-ists. They fund their own government with money they print. Total, total madness and the path to utter ruin.

    Excellent – because at some point it will end and we will default and in that defaulting the artificially created money will evaporate and we will be forced to start again with a currency backed by assets as opposed to credit expansion.

    Quantitative Easing is just a polite fiction to pretend that the Government is not monetizing debt – it is, it’s just doing it by proxy via the banks.

  2. Single Acts of Tyranny says:

    If I might repay the compliment,

    “Quantitative Easing is just a polite fiction to pretend that the Government is not monetizing debt – it is, it’s just doing it by proxy via the banks”

    Very succintly put.

    There is one bright spot on the horizon. If you take the view that this ends in serious currency debasement and possible destruction of the currency, then it is possible to position yourself with fixed interest debts on assets which can be paid off at a fraction of the initial value when we are some way down the line with the debasement. So mortgages etc may once again be like my mum’s was i.e. £3,000 initial mortgage on now £250,000 asset.

    Similarly, precious metals are favoured as a non-debaseable store of value.

    Perhaps the only thing to avoid is fiat cash, earning negative real interest in a bust bank.

  3. Lynne says:

    When if the tribalists electorate finally realises that voting for clinically insane and/or criminally incompetent arseholes begets neither gold nor rose petals, we might start getting somewhere.

  4. John Galt says:

    So mortgages etc may once again be like my mum’s was i.e. £3,000 initial mortgage on now £250,000 asset.

    In theory yes, however in practice prices and incomes are forced up in a haphazard manner during hyperinflation, so there is no guarantee that you will be able to continue financing the interest payments during the hyperinflation period.

    Equally, after the hyperinflation is over the government can pass legislation to confiscate ‘unearned wealth’ as the German government did after their last bout of hyperinflation in the 1920′s.

    When Money Dies
    http://www.goldonomic.com/When%20Money%20Dies.pdf

    This wouldn’t mean loosing your home, but might mean that the mortgage on it is uprated to bring it into line.

    Or do you think a UK government wouldn’t do this?

  5. Single Acts of Tyranny says:

    “Or do you think a UK government wouldn’t do this?”

    Oh for sure, there is nothing I would put beyond the parasite class. If you use monopolistic collective violence to enforce your will as all governments do, then they are by definition amoral and capable of anything from theft of assets to enforced slavery in the military. None of this is unprecedented, indeed it’s standard practice.

    So retrospectively interefering in private contracts isn’t even a new thing to them now let alone when things get much worse.

    That said, fixing rates now (assuming they are not retrospectively tampered with by statute) gives some protection. Also Brits like their houses and the one thing that might make ‘em tolerate if not love inflation is seeing their mortgages shrink in real terms. It would be a bold politician who tampers with that. Of course if by then we are at the “government of national unity” stage then anything is possible.

  6. Jamie says:

    Forgive me but I don’t understand the logic of your argument regarding hyperinflation. Austrian economists have been predicting hyperinflation since 2009 and there has been nothing but mild (and now falling) inflation. What do you think is different now that will cause prices to spiral out of control, especially given likely anaemic growth (and probably another recession) over the next few years?

    I am not a proponent of QE as I think the cash goes into bank reserves and has no real impact on anything (apart from short term psychological), but for the same reason it is not causing hyperinflation either, in my opinion. When is “the dragon getting out of the bottle” and what will be the trigger?
    http://pragcap.com/hyperinflation-some-lessons-from-a-scenario-analysis

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