Thursday, April 10, 2008

Government unveils secret weapon to fight financial bubble

Okay, so let's assume that I don't win any prizes for correctly guessing yesterday, that after heavy hint instructions from El Gordo on Monday, the Bank of England would cut interest rates today by another quarter per cent, to roll yet more fiat currency out the door thus impoverishing everyone in the world holding sterling.

Given the current headless chicken status of the British financial establishment, with no clue as to what is going on and with no clue as to what to do, Plan B was always going to be to print more money. It always is. Which is, of course, why we're in this mess.

But aside from ruining even more pensions, boosting inflation further, and pushing up yet more asset prices, this reflex action is simply going to make no difference to the problem it is trying to solve, as the Fed have found out with their own interest rate cuts.

If a bubble is imploding, let it implode. The necessary correction, though painful in the short-term, will be briefer if we allow it to happen and the subsequent recovery from the malinvestment caused by the bubble will be quicker. If we prick the bubble, we can then write off the losses we have sustained through wasteful malinvestments, liquidate what left overs we can from these malinvestments, and then put these capital savings to better use this time guided by stable unfettered prices. If you keep pushing out the bubble by inflating paper and thus increasing paper prices, we head directly full square towards a crack-up boom and eventually, as in Zimbabwe, a land filled with starving billionaires.

Just answer these questions, oh wise ones in the London business press. How much is petrol? How much are food bills? How much are poll tax bills? Are taxes going up? How is your wallet doing? How much are your mortgage payments? How well is your pension fund doing? How well is your endownment fund doing? How much are your school fees? What is your holiday going to cost this year? Have you ever heard of the Weimar republic? Have you ever heard of the 10 year depression in Japan? Have you ever heard of Robert Mugabe? Has the use of the printing press ever been a long-term solution to anyone, anywhere?

Printing more of this fiat paper rubbish is exactly the wrong way to go and I simply don't care how eminent you are in the finance department of your newspaper. If you believe a rate cut was a good thing, then you are wrong and you simply do not understand economics. Or, if I may be less charitable, you do understand economics but you are within the magic circle of those who benefit from increased amounts of fiat currency, which includes anyone working directly for the state, or for anyone working indirectly for the state in the City of London or the media, or someone who will get this counterfeited money first.

The state always needs an intellectual bodyguard to protect its existence, hence the state education system and the state regulated media system, and the state always needs someone to finance state borrowings via a corrupted money supply and government debt system, hence the entire UK gilt market and most of the banking system; so these people will always be looked after.

Now I know you've read Douglas Adams. And I know you laughed at the Golgafrinchams running around stuffing leaves under their shirts and calling them legal tender. Now explain to me the difference between this leaf stuffing and the Bank of England counterfeiting yet more paper currency? If you can, I would be pleased to hear your response.

With Brown's ten year boom about to go bust I'm reminded of the old Spike Milligan shows where the entire cast would look towards the camera and then start shuffling off the set under the refrain, "What are we going to do now?" As far as the UK government goes and its latest cut in interest rates performed by its useful idiots in the Bank of England, I think we have reached that Spike Milligan moment. When they publish the meeting minutes, I think between the lines the phrase "What are we going to do now?" is going to be quite prominent.

Oh well. I think that's enough from me for the moment. It must be time for a stiff gin and tonic while I can still afford one. Cheers.

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