Posted on 05/01/2012 5:31:48 AM PDT by blam
What Is The Consequence Of Printing Money That Nobody Wants? (Lock Your Door)
by Simon Black
April 30, 2012
London, England
[Editor's note: Tim Price, a frequent Sovereign Man contributor and Director of Investment at PFP Wealth Management in London, is filling in for Simon today.]
In a week that saw Britain slide into its first double-dip recession since 1975, we quite fittingly also saw evidence of the sort of insular bigotry and protectionist narrow-mindedness that one associates with that same ugly, painful decade, when Barry Sheerman, Member of Parliament, said:
“I’m getting increasingly worried about the free movement of people across Europe. It’s a very competitive world out there, and my constituents resent that.”
The signs of unravelling are not confined to British shores. French voters in the presidential elections shocked markets by
(a) favouring the socialist Francois Hollande; and (b) giving almost a fifth of their votes to the far-right extremist Marine Le Pen.
Meanwhile in another turn of the sovereign debt screw, Spain was downgraded toward reality. And the Dutch government collapsed altogether.
Amazingly, the people of Europe just don’t seem that keen on austerity. Yet it’s worth asking– why hasn’t the recession of today produced the same sense of crisis from the 1970s?
Chris Dillow of the Guardian newspaper suggests that average real wages are much higher now, so although standards of living are falling, they’re falling from a much higher level that softens the pain (even though the real pain of austerity hasn’t even really arrived yet).
But there is one outcome from the 1970s that is genuinely to be feared… the risk of which seems to be rising every day, if it has not indeed already arrived: Stagflation.
Stagflation– the utterly painful combination of stagnating growth and steep inflation that marked the 1970s– and will be the natural side effect of extended central bank quantitative easing during a period of widespread deleveraging.
In other words, stagflation is the consequence of printing money that nobody wants.
Moreover, an outbreak of serious stagflation will decimate conventionally managed debt and equity portfolios. And given that most people invest with the crowd, with conventional investments or conventionally managed portfolios, stagflation will wipe the savings and livelihoods from untold masses.
But, we live in strange times– times, for example, that reward bankers handsomely for bankrupting the economy. This is why the likes of so many politicians and financial commentators are able to insist with impunity that central bankers should ‘keep printing more money’ despite never having provided a scintilla of evidence that such tactics work.
Case in point– in a letter to the Financial Times from April 26, 2012, economist Roger Alford remarked:
“The utterly disparate time horizons and the very different experience and skills required… make it virtually impossible for any one person to have the experience and depth of understanding to provide effective leadership [as head of a major central bank].”
Intellectually constrained by his faux science “profession”, Mr. Alford does not take this argument to its logical conclusion: if the institution is so difficult to govern and the role so difficult to effect, why have it in the first place ?
We know the answer to this question. Central banks exist to protect the banking system and to finance the government’s debts at all costs… even if it means bankrupting the taxpayer and productive economy.
Yet the urgent need for austerity and an insoluble sovereign debt crisis make for uneasy bedfellows.
By definition, we cannot shrink our way back to the sort of growth required to service the West’s accumulated debts. Something has to give.
That something will ultimately be social and political disorder on a continent-wide basis, particularly as the taxpayer becomes increasingly frustrated in his obligations to fund the rapidly growing and untenable costs of Big Government.
Such disorder is almost universally feared– by politicians, by markets, by institutions. As the London-based marcoeconomic research consultancy Capital Economics recently commented:
“The last thing that the markets need right now is increased political uncertainty at the heart of Europe at a time when the economic outlook is already bleak…”
The only reasonable response to this is: tough. If social and political disorder is what it takes to shift an unsustainable status quo in which vampire banks and clueless bureaucrats suck the life out of the productive economy, bring it on.
Do you mean to tell me that quantitative easements 1,2,3,4............doesn’t really help matters?
My take on the situation: http://www.freerepublic.com/focus/f-news/2878488/replies?c=6
Here in the US, we’ve been watching the Feds prepare for unrest by pushing to transform local law enforcement into paramilitary outfits.
"Around 2007 I argued that this could get as bad or worse than the Great Depression. At the time, I thought I was being a bit of an alarmist, but it now has, according to some statistics, actually gotten WORSE than the Great Depression. It is why I now call the Great Depression “World Depression I” (WDI) and I now call this one WDII."
"Around 2007 I said this would probably start recovering from bottom in 2011 or 2012. I thought there was a remote possibility that it could go “apocalyptic”. I now FIRMLY believe it will go apocalyptic. As the title says, this is one hell of a cliff. When all is said and done, it will be the biggest socioeconomic collapse in the history of mankind."
"In 2007 I said this could, as with WDI, end with a world war. I now have little doubt that it will. And it will be much worse and much more global (e.g. fighting on US soil) than WWII.
"But in that last one is a caveat: I believe that for it to be that bad we will be talking Ezekiel 39, Daniel and Revelation. This means the “Beast” will amaze the “non-elect” with his solution to a problem that appears to have no solution. It means we may soon see this person rise to power."
"There is no human solution to our problem. We will fall all the way to the bottom before the phoenix can even begin to rise. It’s gonna leave a mark. Pray for your children and grandchildren."
This was previously posted by me:
“Political uncertainty” in this context means fear of losing control of the population they’ve been screwing over for decades.
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