Jim Grant is an economist of the Austrian School and writer, this week he wrote:
“The modern
financial animal is wont to assume that he or she lives in an age of science. Just peruse the economic research that the great central
banks produce. Even the titles of the papers are incomprehensible. Surely, the
wit of man and woman has conquered the mysteries of money. The truth is we live in an age of pseudoscience. The central banks’ forecasting models have
failed to predict the future. Quantitative easing and zero per cent interest
rates — policy centrepieces of the post-2008 era — have failed to restore what
we used to call prosperity.
Far from dealing in
science, central bankers, and, to a degree, investment bankers and security
analysts, employ magical thinking. What they have conquered is scepticism.”
Wow! What he is saying is the
most powerful people in the financial world do not know what they are doing,
but they have succeeded in fooling most people that they do.
Is he right? There is plenty of evidence to say he is. In
the UK in the early part of this century the TV was full of ads asking us to
take out a second mortgage to “consolidate all your debts into one monthly
payment”. After the 2008 crash these ads disappeared, part of the sub-prime
disaster that plunged the world into a banking meltdown.
And what was the answer that our financial masters came up
with to sort out the banks and the world economy that had been brought down by
issuing debt that could not be repaid? Easy create more debt. Except this time
the debt is not being issued by banks and financial institutions it is
government debt that has to be re-paid, under the current system, by government
surpluses i.e. the taxpayer
In order to run a surplus government revenue must exceed
government spending. In the UK in the last 50 years this has happened just six
times, a total surplus of £45billion. The total deficit in those years comes to
over £1 trillion. The government debt since the 2008 crisis has increased by
£800 billion. Given these figures it is easy to see that the debt will never be
paid off by running surpluses.
Another way debt has been reduced in the past is by
inflation. If I lend you £100 and you promise to pay me back in one year with
5% interest (£105) that sounds good but if inflation is running at 10% per year
then you would need to pay me back £110 just to re-pay the capital. So
inflation can reduce debt – the problem with government debt is that as
inflation rises so does the amount of interest governments have to offer to
sell their debt.
Of course there is another way (the government preferred
way) to look at national debt. This is to use a percentage of GDP. If I earn
£10,000 per year I am going to struggle to pay a loan of £5000 back in 1 year
as it is 50% of my income, but if I earn £50,000 then at 10% of my income I
could probably pay back that loan back in one year. So as GDP increases then the national debt is
more manageable. The problem with this is, growth in GDP depends on an increase
in the amount of money available to be spent into that economy. And as to increase money supply you must
create more debt we are back to square one.
The debt cannot be re-paid, but we must not say this out loud, instead we must pretend that it is manageable and to keep people from seeing the truth we will impose austerity whilst at the same time making sure the status qou is maintained by rigid control of asset values.
Jim Grant says later in his article “. Prices should be discovered in the market, not
administered by a government”
Essentially in order to properly run a free market capitalist
economy then you cannot buck the market, but since the 2008 crash the central
bankers have had to control every market (FX, Property, Bonds, Commodities and
Equities). Because if left to themselves all the bubbles would burst and prices
(and asset values) would plummet.
So essentially we are living in a capitalist utopia
that is being run under centralised control rather in the same way as the USSR
was all those years ago. With exactly the same result. The proletariat are
suffering and are paying for the elite to maintain their lifestyles.
And we all know how that ended.
