AN
OPEN REPLY
Dear
J-A,
Thank
you for your recent email. How you contrived to send it to me, under the
circumstances, remains a mystery, but I shall do my best to defend the remarks
I made.
Let
us begin on common ground. Total economic collapse of the West is now
inevitable. On that we are agreed. Owing to the irreversible increase in
sovereign debt, your beloved USA is disintegrating before the world’s eyes. It
saddens me too. I have loved its geography and culture since my first visit, in
1988, and will always admire the optimism and patriotism bursting ceaselessly
from its people.
US
sovereign debt has since risen from $2.6 trillion to $16.7 trillion dollars. It
increases by approximately $2 billion per day – and that figure itself is
rising fast. There are also trillions in off-balance-sheet liabilities, but
that would be almost too terrifying to address. Anyhow, there are five ways a
government can pay down its debt.
(1)
Raise taxes. This would be universally unpopular, especially in such a
precarious economic climate, and would probably prove counterproductive to
recovery.
(2)
Slash public expenditure. This would be political suicide for anyone even to
suggest it. Net recipients, growing in number by the day, would almost
certainly vote against, and one could hardly expect otherwise.
(3)
Borrow (by issuance of government bonds). This works up to a point. However,
the US is ‘maxed out’ and now unable to raise sufficient funds from the markets
because its interest rates are unattractively low. However, increasing them
would lead to an epidemic of bankruptcies, repossessions and, ultimately, a
collapse of the banking system, so that option has been dismissed out of pure
fear.
(4)
Print money (by so-called ‘quantitative easing’). By so doing, the US is
obliged to buy its own debt. This expands the money supply, fuelling inflation,
which shrinks the debt in real terms. It is the modus operandi of insolvent governments and central banks. Having already
taken this route, Federal Reserve chairman Ben Bernanke is left with two
choices: continue QE and cause hyperinflation (a slow death); or switch off the
printing presses and let interest rates spike upwards (a quick one). As much as
Mr Bernanke talks about curbing QE, only the economically illiterate believe he
will ever do so. He is simply buying time.
(5)
Direct confiscation of private financial assets. The prospect of ‘bail-ins’ is indeed shocking, but a precedent has been set. Cypriot bank accounts have recently
been raided, as have pension funds in Poland, and the Bank of England has drawn
up detailed plans – www.fdic.gov/about/srac/2012/gsifi.pdf
– to confiscate anything upward of £85,000 from British bank accounts, with no
obligation of prior warning.
Before
you remind me, the UK, too, is sinking into the abyss. Few acknowledge it,
though, and most people seem blissfully unaware of what lies ahead. Likewise most
other European countries, whose public finances are equally dire.
From
here, however, I must disagree with you. The imminent collapse does not reflect
the failure of laissez-faire
capitalism, which, for all its faults, is predicated on free markets. Today, in
practice, this concept is non-existent, thanks to QE bailing out overleveraged
banks, housing bubbles, gold-price manipulation and interest-rate suppression. There
is nothing ‘free’ about any of it. The stock market, too, is a powerful case in
point. QE has inflated share prices to artificial, unsustainable heights. Take,
for example, the company for which I have worked since 2008. Since then, its annual
profits have doubled (Figure 66.1), and yet its share price has rocketed almost
five-fold (Figure 66.2). For those of us who invested in 2008, this is a
wonderful bonus, but anyone currently considering buying its shares is risking
substantial losses should the stock market revert to its natural state.
Figure
66.1: The company’s profits have increased healthily in recent years, although I admit that its success is not entirely down to me! (You have no need to remind me that it paid no UK corporation tax in its last financial year; I already know.) EBITA, incidentally, stands for Earnings Before the deduction of Interest, Tax and Amortization expenses.
Copyright
© 2013 Intertek plc
Figure
66.2: Stock market performance (2008-2013)
Copyright
© 2013 Intertek plc
All
of these are the unnatural consequences of blatant State and corporate
intervention. We are witnessing the largest redistribution of wealth in human
history – from the prudent to the profligate, and from ordinary working folk to
the banksters and their cronies.
We
could legitimately call it corporate fascism (Figure 66.3), or corporate
socialism, but laissez-faire
capitalism it most certainly ain’t.
Figure
66.3: As long ago as 1790, banking dynasty founder Mayer Amschel Bauer
Rothschild (1744-1812) said: ‘Give me control of a nation’s money supply, and I
care not who makes its laws.’ His dismissiveness was not mere conceit. Two
centuries on, the world’s reserve currency, the US dollar, is being printed and
thus debased to its intrinsic value – nothing – as all fiat currencies
eventually are.
Copyright
© 2012 Secrets of the Fed
Yours
ever,
El Escritor Inglés
Copyright
© 2013 Paul Spradbery
