The seven horcruxes of inflation

Have you wondered recently where all this inflation seems to be coming from? Well, forget all that nonsense about a world growth in demand for oil pushed out by those moronic propagandists at the BBC and other government-licensed broadcasters. The real root of this monster is, of course, Gordon Brown’s tax and spend policy.

As a single example, let’s examine how he got himself out of the recent 10p tax dispute he fought with his own backbenchers.

1) Gordon Brown needed £2.7 billion pounds to make the pain of the 10p tax revolt go away. Obviously, he could have cut government spending by this much, but then he would have upset some of his parasite-state clients. He could also have raised this sum by further taxing the productive part of the UK economy. However, he has finally reached his ceiling on stealth taxes, so this route was politically closed off to him too. Between a political rock and a political hard place, what could he do? Well, easy really; he decided to stoke inflation instead. Here’s how.

2) What Gordon needed to get off the hook was to sell £2.7 billion pounds worth of UK government bonds. But who on Earth was going to buy them? The major holders of government bonds, and certainly the only ones who could pony up this much cash in a tight time frame, are the major commercial banks. However, even Gordon may have noticed that these organisations are in a tight financial fix at the moment, so how could he enable them to find the required sum? Easy.

3) Without really anyone noticing it, the Bank of England would have been ordered by the Treasury to surreptitiously buy up some old government bonds from commercial bank holders, via the BoE’s own open market operations. The BoE would have bought up around £135 million of extant UK government bonds, a pin-prick in this vast market. This would have been spread across various bond sellers, to hide the source, just like any good laundering counterfeiter, but most likely spread over the Treasury-licensed gilt-edged market makers, who gain enormous privileges on the buying and selling of UK government bonds, in return for generally agreeing to buy up any new ones which are issued by the Treasury. (These privileges include the stripping of gilts, but now we’re getting technical. BTW, you can see a list of these GEMMs, here). So where did the BoE get this £135 million from? Well, that’s where the magic comes in. They would have created it painlessly from out of 'fresh air'. Marvellous. But it gets better.

4) The current minimum reserve ratio for UK banks is 5%, which means that if a bank holds £5 million pounds in a Bank of England reserve account, they can then use the fraudulent fractional reserve system to lend out a further £100 million from out of even more 'fresh air'. In the words of the late Freddie Mercury, it really is a kind of magic.

5) Major bond buyers in the banking industry would then have found an extra £135 million pounds scattered across their various accounts, in exchange for offloading their bonds at a tidy profit. What would they have done with this extra loot? They would have immediately plugged it into their BoE reserve accounts, to then enable the commercial lending of a further £2.7 billion pounds. But where to spend this new money first, in the middle of the credit crunch? Well, the gentlemen’s agreement which governs GEMM licensing would have told them exactly where to spend it: protecting Gordon Brown’s fat arse by soaking up his £2.7 billion bond to finance his get-out-of-jail-free card on the 10p tax rate. Fantastic. It's almost symphonic in its crooked majesty.

6) In return for this favour of unloading bonds at a profit, the banks now also own £2.7 billion pounds of AAA-rated collateral to help with the credit crunch squeeze, plus interest payments from the British taxpayer for the next 10 years or so, plus the return of the £2.7 billion from the taxpayer again, when this new bond matures. Alistair Darling also gets to remain as Chancellor, because his Finance Bill will get through, and Scotsman Gordon Brown gets to remain as Prime Minister for another two years, for having managed to save his Scottish chancellor’s scrawny central belt neck.

7) So what does this give the rest of us poor saps who funded all of this Machiavellian bond skulduggery, ultimately at gunpoint? Well, we got one miserable tax rise cancelled for a single year, all of the bond coupons and principal lumbered onto us to pay off in the future, and a further £2.7 billion pounds worth of currency let loose to float around our sterling economy, pushing up prices all round as more money chases the same number of scarce goods.

So the next time you go to Tesco's and you cannot quite believe what the till receipt says, which is about 30% more than what a similar till receipt would have said this time last year, don’t be fooled by all the BBC's nonsense about a growing world demand for energy. There is just one fat man to blame for your continuing impoverishment. And I think we all know who that fat man is.

Anyone interested in learning more about the criminality of inflation can do no worse than read Uncle Murray’s The Mystery of Banking, which is freely available as a PDF from the Mises Institute.

So how do we ultimately solve all of this inflationary theft? The only way is to tie money back into a commodity which people want to hold and which cannot be created out of thin air by central banks and also by abolishing the fraudulent legal theft privileges of fractional reserve banking. The chosen commodity can be anything you like, from cocoa pods through to cigarette packets, but the most likely commodities are either gold or silver (or even both in a dual floating rate system). But I'll leave all of that detail for another day.

UPDATE: Related article today in the Torygraph. Maturin comment: Jack Maturin on June 2, 2008 11:56 AM.

UPDATE: Another related article, another Maturin comment: Jack Maturin on June 3, 2008 11:21 AM. Gotta get out more! :-)