A
former flatmate of mine, circa 1989, made Private Frazer from the BBC sitcom Dad’s Army sound like a dreamy optimist. I even dubbed him
‘Frazer’. The end was always nigh – in some direction or other. I recall once
discovering that he had packed one of the kitchen cupboards with nothing but cans
of baked beans, even though he rarely ate them. When I laughed and asked for an
explanation, he said, simply: ‘Inflation.’ At that time, the rate in the UK was
around 7%. It peaked at 10% two years later. Frazer’s doom-laden logic behind
his stockpiling was that by the sell-by date, the price in the shops would be 7
to 10% higher. ‘Beans are a good investment,’ he insisted, ‘if you buy enough
of them.’
Looking
back, the crazy fool seems to have been way ahead of his time. What happened
last weekend in Cyprus is shocking, albeit not surprising, given both the
economic catastrophe that is the Eurozone and the devious, autoocratic nature
of the EU. The Cypriot government, backed by the EU and IMF, served notice on
private citizens that it intended to raid their bank accounts. This was
immediately recognized by the rest of the world as naked theft. They have since
backed down, and been rebuffed in a parliamentary vote, but it is too late: the
EU’s thought processes have been disclosed. An ominous precedent has
been set. The EU can now, by its own admission, ransack people’s savings
whenever its debts threaten to overwhelm. No one with funds in any Eurozone bank is now safe (Figure
58.1). State guarantees? Deposit insurance? Such fundamental banking principles
are no longer valid.
Figure
58.1: A typical scene in Cyprus earlier today, where cash withdrawals have been
limited to €260. When all its banks reopen, there might be a ‘run’ severe
enough to bankrupt them and, just maybe, force Cyprus out of the Euro, spread
contagion to Greece, Portugal, Italy and Spain, and bring the whole house of EU
cards crashing down. Could this be a modern-day David and Goliath?
Copyright
© 2013 Ekathimerini
There
are British citizens currently resident in Cyprus. These include a significant
portion of the Armed Forces, all of whose personnel are advised, purely for
practical purposes, to open accounts in local (Cypriot) banks. As they would
stand to lose, the UK’s government stated that they would be fully compensated
from public funds. In other words, the taxpayer would be forced to shell out as
a result of the EU’s act of legalized embezzlement.
Since
the storm broke, the Prime Minister, his Deputy and the Opposition leader have remained
silent, conspicuously so. Why have they not been consumed by fury and
indignation? Perhaps they were waiting to learn whether or not the plan would succeed
– that is, without prompting a run on Cypriot banks. Would UK politicians ever
consider following suit, if they could pull it off? Bear in mind that its
national debt has quadrupled in little more than a decade.
The
truth is, the British government is already stealing from its people, on a
monumental scale, as I write. It is subtle and indirect, but at the same time
far more brutal than the Cyprus proposal. Since 2009, the Bank of England has
purchased £375 billion worth of debt – or ‘gilts’ – via quantitative easing (QE),
or ‘printing money’. The prudent are, in effect, being forced to rescue the
profligate. History has proved that such a strategy always results in rampant
inflation, the Weimar Republic (1919-33) being the most infamous example (Figure
58.2). At the height of the between-wars crisis, its paper currency had become so
outrageously devalued by inflation that a single ounce of gold could purchase
an entire street in Berlin.
Figure
58.2: Germany in 1923. Hyperinflation made bank notes a cheaper source of fuel
than firewood. Here, ‘millionaire’ children play with worthless money.
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expired
The
government’s QE programme will undoubtedly have a similar effect. The British
people are, to quote Tocqueville, ‘sleeping on a volcano’. Runaway inflation is
now building momentum in the UK pipeline. When I was a schoolboy, the annual
rate reached 25% (1975). This meant that, after just a year, savings and
pensions had lost a fifth of their value. To put it another way, a cupboard
chock-full of baked beans might have cost £20 one year, £25 the next. You see,
old Frazer knew what he was about. By stockpiling for twelve months, he could
beat the inflation trap and save a few pounds on the following year’s beans.
It
will pay, therefore, to invest in anything that will hedge against inflation.
Saving money in a bank deposit account might earn 2%, but high inflation will
slash its buying power by a far greater percentage. As paper currencies lose
value, owing to increased supply, smart investors will look to something that
cannot be made out of thin air at the whim of desperate politicians and central
bankers. Precious metals – gold, silver, platinum, palladium etc. – are of
finite quantity and arguably the most effective anti-inflation measure (Figure
58.3), even better than beans. Invest now, do not leave a paper trail, and watch
their market prices skyrocket during the coming decade, as inflation annihilates
savings, and politicians consider confiscating whatever remains.
Figure
58.3: Frazer, if you are reading this, it might not be wise to store bullion in
your kitchen cupboards. If you do, and economic and social collapse follow,
you might need serious security measures.
Copyright
© 2013 Reinder Dijkhuis
Copyright
© 2013 Paul Spradbery
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