“In my several decades as a financial and economics commentator – covering banking crises dating back to the early 1970s and the Latin American debt catastrophes of the early 1980s – I have never heard a sitting [Bank of England] governor talk in such apocalyptic terms about the parlous state of the global financial system.”
– Alex Brummer, The Daily Mail.
So what precisely did our inflation-fighter-in-chief actually say?
Well, that euro zone instability had created
an exceptionally threatening environment
as falling government debt prices, softening confidence and distressed asset sales threaten to
into a systemic financial crisis. Also, the UK financial system was encouraged to continue building up capital to bolster against an
situation not of its own making and which it could not resolve. Also,
The crisis in the euro area is one of solvency not liquidity. And the interconnectedness of major banks means the banking systems and economies around the world are all affected. Only the governments directly involved can find a way out of this crisis.
If debt is not to [continue] exploding to ever more unsustainable levels, transfers will be required together with the plan to restore the competitiveness within the euro area. There comes a point where the creditors need to realise that the scale of the debt owed to them is so large that they may have to be part of the solution.
Strong stuff from a fellow who looks like the hamster in “Danger Mouse”. It is all a waste of time, of course, more than a day late and more than a trillion short in whichever currency you care to proffer.
Perhaps things are not quite as bad as they seem. Last week in London we had the pleasure of hearing Gordon Corrigan speaking at Owen James’s always stimulating “Meeting of Minds” investment seminar. The intention of his speech was to put to rest a few myths about Britain’s role in the Great War. There was undeniable tragedy during those dreadful four years, but could there be a chance, asked the ex-Gurkha Major, that the Brits have tended to mythologise the whole World War One experience, magnify the national role, and accentuate the negative – a process that hardens with every passing year?
The late Alan Clark once quoted a conversation between a German general and one of his men that has not just entered the national psyche but become firmly embedded there. These British fight like lions, observed the soldier. Yes they do, replied the general: lions led by donkeys. But apparently Alan Clark made it up. No such conversation ever took place.
And there are evidently plenty of other established “facts” about the Great War that turn out to be somewhat detached from the actualité.
The popular British view of the Great War is of a useless slaughter of hundreds of thousands of patriotic volunteers, flung against barbed wire and machine guns by stupid generals who never went anywhere near the front line. When these young men could do no more, they were hauled before kangaroo courts, given no opportunity to defend themselves, and then taken out and shot at dawn. The facts are that over 200 British generals were killed, wounded or captured in the war, and that of the five million men who passed through the British Army 2,300 were sentenced to death by military courts, of whom ninety per cent were pardoned
The popular conception is that nearly every family in Britain had somebody killed in it. But according to the official census reports, there were approximately 9,800,000 households in Britain in 1914. The British lost 704,208 dead in the Great War. So statistically, only one family in 14 lost a member. Although there were undoubtedly certain parts of the country where fatalities were concentrated due to the way in which British infantry were recruited back then, there were large swathes of the country from where no one was killed. Corrigan has spoken of his own family, and his own black-clad Great Aunt, who never married – perhaps because all of her boyfriends and potential boyfriends met their end at the front ? “Nonsense,” suggests an uncle – his Great Aunt never married because she was “simply too damned ugly”.
By Gordon Corrigan’s account, British soldiers actually spent more time playing football than facing the enemy. By regularly rotating the soldiery and never keeping men in maximum danger for more than relatively short periods of time, the British army was alone among the major forces on the Western Front in never suffering a collapse of morale leading to mutiny.
One in 65 of the British population was killed in the war; for the French, the figure was one in 28. One in every 12 men mobilised in Britain was killed; for the French, one in six. For the Germans, one in 31 of the population was killed, one in every seven mobilised, as shown in the table below:
|Country||Population in 1914||Men mobilised||Men killed||Percentage of soldiers killed||Percentage of population killed|
Source: Mud, Blood and Poppycock: Britain and the Great War
France, with a population six and a half million less than that of the UK, mobilised more men and suffered nearly twice as many deaths. Unlike in the UK, the demographic effect on France was enormous.
The perception of soldiering in the Great War has the young patriot enlisting in 1914 to do his bit and then being shipped off to France.
Arriving at one of the Channel Ports he marches all the way up the front, singing ‘Tipperary’ and smoking his pipe, forage cap on the back of his head. Reaching the firing line, he is put into a filthy hole in the ground and stays there until 1918. If he survives, he is fed a tasteless and meagre diet of bully beef and biscuits. Most days, if he is not being shelled or bombed, he goes “over the top” and attacks a German in a similar position a few yards away across no man’s land. He never sees a general and rarely changes his lice-infested clothes, while rats gnaw the dead bodies of his comrades.
Just on the topic of transportation, many soldiers were moved by train until a few miles from the front, and as the war went on, motor lorries and even London buses were used as troop carriers. And as Corrigan has already pointed out, the rotation of troops alone ensured that conditions were altogether more bearable than the popular conception would have it.
But back to the present. The war then may have been ultimately much less bleak for the British, for example, than the media and propaganda have portrayed. That does not mean that the peace now is any less bad for any of us than Mervyn King suggests. As investors we remain trapped in a surreal nightmare in which clueless politicians and desperate central bankers can see nothing other than money printing as a way out of the gloom. In the euro zone the problem is worse to the extent that the currency crisis is not merely severe but existential. Tragically, former voices of sanity such as The Telegraph’s Ambrose Evans-Pritchard seem to have now taken leave of their senses and joined with the inflationists, as this recent mad piece indicates.
This crisis can be stopped very easily by monetary policy.. to expand the quantity of money..
Oh, really? I am indebted to Tony Deden for the following quotation, from Alasdair Macleod in excerpts from a speech given to the Committee for Monetary Research and Education, given in New York on 20 October 2011:
I support sound money for two very good reasons. Firstly, it is a basic human right to choose to save, without our savings being debased by the tax of monetary inflation. Those who are worst affected by this inflation tax are not the rich, they benefit; but the poor and the barely well-off, which is why monetary inflation undermines society and why the right to sound money should be respected. If government gives itself a monopoly over money, it has a duty to protect the property rights vested in it.
Secondly, it is a basic right for us to own our own money rather than have it owned by the banks. For them to take our money and expand credit on the back of it debases it. It is an abuse of an individual‟s property rights and a banking licence is a government licence to do so. If anyone else was to do this, they would be guilty of fraud. Banks should be custodians of our money, and it should not appear in their balance sheets as their property..
Sound money guarantees a stable yet progressive economy where people are truly equal. It allows people to save properly for their retirement so that they will not become a burden on the state. It leads to democracy voting for small governments. It encourages peaceful trade and discourages war. It is the only path, after this mess, that leads us to long-lasting and peaceful prosperity. We really need everyone to understand this for the sake of our future.
Are you listening in the chancellories of Europe? Here in Britain we may not have had lions led by donkeys, but we now have liars throughout finance being led by junkies addicted to the printing of money. As democracies throughout the continent now topple to be replaced by technocrat stooges, and as the monetary and social chaos accelerates, we must hope that we at least manage to avoid the devastating political mistakes our forebears throughout Europe committed almost a century ago.
This article was previously published at The price of everything
We are witnessing a coup by the banksters who are trying to set up a globalist, corporatist, technocratic, communitarian dictatorship commonly known as the ‘New World Order’. National sovereignty is being destroyed. The EU has put its satraps into Greece and Italy so that these countries are now effectively provinces of the EU. Spain and Portugal are the next targets.
How do they do it? Manipulating systems.
This will not end well.
Terrible wars. Worse in some places than others.
The global financial system is insolvent.
I believe that, by definition, means there is too much debt to be repaid.
The creation of new money is in retreat as consumers, businesses and nations TRY to reduce their debts(balance sheet) and the money supply.
Therefore according to Mr. King, the global financial system implosion is pending – approaching the abyss, and we need to SOMEHOW reduce our debts.(see above)
Even Mr. Pritchard has come over to the money-creators side, albeit without a mechanism for action that does not include MORE DEBT.
So….(looking around)….. what we seem to need is some mechanism for creating money without creating debt.
And, am I to understand that the author’s choice is to return to the gold standard?
Interesting read, for interesting times.
I would be interested to know how the author thinks that the rich benefit from inflation. It is a fact that financial securities are overwhelmingly held by the rich. As inflation benefits debtors and punishes creditors, it seems to me that the rich stand to lose the most from inflation. The poor are protected as most benefits are inflation linked.
So maybe it is the rich that should really be pushing for ‘sound money’, as it is in their interest to do so.
That sounds like Krugman’s “Rule by Rentiers” argument.
Krugman is right if the “financial securities” he mentions are “nominal” assets, that is tied to the value of money. I’m not sure that they are “financial security” covers a multitude of possibilities.
Anyway, the situation is more complicated than that. If what you Keynesians say is true then normal worker/consumers estimate their real wage by looking at their nominal wage. That’s why raising nominal wages (and *cutting* real wages) can end a recession, that’s what Keynes says in Part 1 Chapter 3. In this case what we’re talking about is temporarily disadvantaging some workers to benefit others (and if Keynesian theory is correct, to benefit all in the long term).
Looking at it from the Austrian point of view things are a bit different. In what you describe there is only two things that move in price, consumer goods on the one hand and financial assets on the other. What about real capital assets? If interest rates are low their value stays high. If the rich own more capital assets then nominal financial securities then low interest rates are in their favour, what they lose on inflation they gain elsewhere.
Rob, yes the situation is more complicated than securities only. But I think this shows that the rich do not somehow benefit more from inflation than everyone else, and actually lose out in many ways.
This is why I would say that the article is wrong in making the black and white argument that the rich benefit and the poor lose out through inflation. What remains is a rather woolly philosophical view on property rights.
“But I think this shows that the rich do not somehow benefit more from inflation than everyone else, and actually lose out in many ways. ”
You’re right that it’s complicated, that was my point. But, I don’t think we can clearly say if “the rich” benefit from inflation or not, there are too many different things going on.
@Dan Mosley: Financiers and bankers certainly benefit from inflationism, to the extent that they are first to get their hands on the new money, being closest to it.
But how are they personally benefiting? All that is happening is an exchange of one financial asset (bond) for another (cash). Financiers and bankers are paid too much, but in my view this is more a consequence of oligopoly than money creation.
Still, I’m wary of belittling the sacrifice made by Britons in WWI. The British may have paid a lower price than the French and Germans, but it was still extraordinary, and it was not so much our fight as theirs.
The real question is whether any intervention was justified.
mrg, although I have little knowledge of either the first or second world war, it is my opinion that in both cases, we were lured into a fight between two sets of socialists. And if we had looked after our own interests, we would have left them to sort it out by themselves. And, interestingly, socialists are never grateful for the help that is given to them, when their saviours aren’t of the same political persuasion. Hence the tensions in the EU between the UK and the rest of them. They are socialist and we are (or rather we used to be) not. If we weren’t different from them, why would the EU continental countries refer to us as the ‘Anglo-Saxons’; meaning the USA, the UK but also other English-speaking countries. This same lot of socialists were smugly proclaiming in 2007/08 that the ‘crisis’ was an Anglo-Saxon problem, for those brilliant socialist Europeans had avoided the pitfalls. Yeah, right.
Interesting that I first came to the conclusion that the First World War was ‘not all utterly bad bad bad’, by noticing that the Ottoman Empire was sent to its oblivion by WWI, and they lost all power in Saudi, Iraq, Iran, and surrounding areas just BEFORE oil was discovered there. Then the British helped to save civilisation with involvement in setting up Anglo-Persian Oil etc, and the Persian Gulf had a safe channel for the oil tankers…then I started to wonder, what if all my half-wit school comprehensive school socialist humanities teachers had missed lots of other salient points?
Having read through this whole article and taken in all the comments I feel slightly out of my depth intellectually so I will try to be brief with out making a fool of myself. I know something of the system, how it works (basically) and how it has become abused. I personally believe that if the right leader got involved and had a “peoples government” mindset he could as a last resort he could order a “reset” of the system after all when the bankers have shown time and time again that they are incapable of making the right decisions at the right time then they should be fired immediately as they are supposed to be “professionals” and yet they are the ones benefitting, enormously I might add from the huge bail out monies thats supposed to be used to get us out of the current crisis. In my own simple mind I would say the once great institution of banking has become corrupted and self important, selfish and self sustaining to the detriment of everyone else. Its time to clear out the rot and reset the system with a new set of tight regulations that can strangle any attempts of corrupt, financially dangerous plans before they are enacted. I am a single happy unemployed middle aged man with little prospects “What would I know”
Paul, surely you know by now that markets do not behave perfectly rationally. Oil speculators know that oil prices are supposed to rise when news that threatens the stability of a commodity occurs. Of course, being quick to raise prices is good for profits, especially if everyone develops lighting-fast reflexes. Being slow to lower prices is good for profits, especially if everyone is slow to lower prices. Being hyper-sensitive to “bad news” is good for profits, especially if everyone is hyper-sensitive to bad news. So, unsurprisingly, that is how everyone acts.
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