Gold, inflation and the Dow Jones Industrial Index

I give below two charts that look at how gold has fared since President Nixon de-linked it from the dollar in 1971. In inflation terms (as measured by the US CPI-U), gold now worth is almost twice as much as its long-term average; but in turn, the Dow is still running very high against gold.

It may or may not be the case that gold is overpriced (perhaps we should be looking at inflation as measured by average earned income, or GDP, or something else) but either way, the Dow is still extraordinarily high. It does indeed look as though there was a "new paradigm" from the early 1990s; but perhaps a dangerously misleading one. Will gold double? Will the Dow halve?

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Gold and Goldman Sachs

Republished from the Broad Oak Blog:

It appears that Goldman Sachs will simultaneously predict a rise in the value of gold, and a fall, depending on how valuable a client you are. Mind you, that could reflect the difference between the advice one gives to active traders as opposed to buy-and-holders, so it's not enough evidence to convict, I think.

I looked at gold's longer-term price history in February of last year, starting in 1971 when President Nixon finally severed the official link between the US dollar and the precious metal on which it used to be based. Since then, and adjusted for the American Consumer Price Index, gold has averaged 2.8 or 2.9 times its September 1971 price. I reproduce the graph below:

In September 1971, gold was trading at $42.02 per ounce, when the CPI index was at 40.8 . As I write, the New York spot price is $1,232.40 and July 2010's CPI figure is 218.011. So "in real terms" gold is now worth 5.49 times as much as in the autumn of 1971, i.e. nearly twice its long-term, inflation-adjusted trend.

As I've said before, we're now not looking at gold as a "good buy" because it's undervalued, which it isn't (it was, 10 years ago). Instead, it's assuming its role as a form of insurance against economic breakdown. I've noted recently, as doubtless you have too, how shops and internet sites have been springing up, offering to buy your gold. There must be a reason - though remember that these purchasers often don't give you the full melt-down value of your jewelry, so there's a profit margin for them already.

It may be a sign of the times, but that also means that it's a temporary phenomenon. Unless you're willing to keep a sharp eye out for price movements and can sell fairly quickly when you have made a gain, perhaps you should keep out of this speculative market.

Unless you believe the future is rather more catastrophic. In that case, as some are now advising, you may wish to build up your personal holding of the imperishable element. But consider the ancient buried hoards that have been discovered over the last few years by people with metal detectors: presumably those ancients thought they'd come back for their goods, but were overtaken by events. If you really have the disaster-movie outlook, maybe there are other, more useful things you should be doing to ensure that you survive and thrive.

Gold and Goldman Sachs

It appears that Goldman Sachs will simultaneously predict a rise in the value of gold, and a fall, depending on how valuable a client you are. Mind you, that could reflect the difference between the advice one gives to active traders as opposed to buy-and-holders, so it's not enough evidence to convict, I think.

I looked at gold's longer-term price history in February of last year, starting in 1971 when President Nixon finally severed the official link between the US dollar and the precious metal on which it used to be based. Since then, and adjusted for the American Consumer Price Index, gold has averaged 2.8 or 2.9 times its September 1971 price. I reproduce the graph below:

In September 1971, gold was trading at $42.02 per ounce, when the CPI index was at 40.8 . As I write, the New York spot price is $1,232.40 and July 2010's CPI figure is 218.011. So "in real terms" gold is now worth 5.49 times as much as in the autumn of 1971, i.e. nearly twice its long-term, inflation-adjusted trend.

As I've said before, we're now not looking at gold as a "good buy" because it's undervalued, which it isn't (it was, 10 years ago). Instead, it's assuming its role as a form of insurance against economic breakdown. I've noted recently, as doubtless you have too, how shops and internet sites have been springing up, offering to buy your gold. There must be a reason - though remember that these purchasers often don't give you the full melt-down value of your jewelry, so there's a profit margin for them already.

It may be a sign of the times, but that also means that it's a temporary phenomenon. Unless you're willing to keep a sharp eye out for price movements and can sell fairly quickly when you have made a gain, perhaps you should keep out of this speculative market.

Unless you believe the future is rather more catastrophic. In that case, as some are now advising, you may wish to build up your personal holding of the imperishable element. But consider the ancient buried hoards that have been discovered over the last few years by people with metal detectors: presumably those ancients thought they'd come back for their goods, but were overtaken by events. If you really have the disaster-movie outlook, maybe there are other, more useful things you should be doing to ensure that you survive and thrive.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Beating inflation safely

Republished from the Broad Oak Blog:

UK investors who are concerned about the threat of inflation have recently (19 July) lost access to an ideal solution, the NS&I Index-Linked Savings Certificate. Now a building society is offering something to fill that gap in the market.

National Counties are marketing an index-linked cash ISA. This is not quite the same as NS&I's product, because the investment is for a fixed amount (the maximum cash ISA allowance, i.e. £5,100) and no withdrawals are permitted within the 5-year term of the plan. As with NS&I, the return is linked to the Retail Price Index (RPI), plus 1% p.a. For further comment by Citywire, see here.

A lot depends on what you think may happen in terms of inflation, which brings us to the great inflation-deflation debate. Some commentators are saying that Western economies are so indebted that we have reached a turning point and people will spend less and save more (or pay down debt, which amounts to the same thing). Governments are going to have to follow suit, and the UK government is currently busy trying to demonstrate its commitment to do so, fearing that bond markets may lose confidence in our financial management and will then charge higher interest, which would really put us in a pickle.

So demand is reducing. We see this in the recent bankruptcies of UK holiday companies and the pages of cut-price cruise adverts in the middle-class press. If this is the pattern generally, then holders of cash will benefit as prices reduce - the pound in your pocket will grow more valuable, quite safely. Even better, this type of deflationary gain is not taxed, at least not until the government nerves itself up to simply confiscate your savings.

But that's not the whole picture. While demand for luxuries is lessening, there are other things that we still have to buy, especially food and energy. Here, prices are rising. And if interest rates do rise, that will also increase RPI, which unlike the Consumer Price Index (CPI) includes housing costs. So it is quite possible that inflation as measured by RPI could be high, even as the economy slows down. It's worth noting that the government has recently changed rules on private sector occupational pensions so that their benefits will increase in line with CPI instead of RPI, which suggests that our rulers believe that one way or another, RPI will rise faster than CPI in years to come.

The BBC appears to have bought the official line that we should ignore food and energy costs, referring to CPI as "core" inflation and noting that it's now a mere 3.1%, as opposed to RPI which is running at 4.8%. However, unlike the mandarins at Broadcasting House, the rest of us need to eat and keep warm; or, to be a little fairer, food and energy is a more significant part of most people's budgets than it is for the upper echelon of the mediaocrities.

An RPI-linked cash product is a good each-way bet: if prices do reduce, then your money becomes more valuable; if prices increase, the value of your savings is preserved; and either way, you benefit from that extra 1% p.a. sweetener.

Reasons not to? You may find you need access to cash within the 5 year term; and if you're a gambler, you may be looking at investments that could outpace inflation (think of the current fever for commodities such as gold, silver, oil and agricultural products). But you shouldn't put all your eggs in one basket, and most ordinary people aren't gamblers when it comes to their nest-eggs, so this product is worth a look.

Beating inflation safely

UK investors who are concerned about the threat of inflation have recently (19 July) lost access to an ideal solution, the NS&I Index-Linked Savings Certificate. Now a building society is offering something to fill that gap in the market.

National Counties are marketing an index-linked cash ISA. This is not quite the same as NS&I's product, because the investment is for a fixed amount (the maximum cash ISA allowance, i.e. £5,100) and no withdrawals are permitted within the 5-year term of the plan. As with NS&I, the return is linked to the Retail Price Index (RPI), plus 1% p.a. For further comment by Citywire, see here.

A lot depends on what you think may happen in terms of inflation, which brings us to the great inflation-deflation debate. Some commentators are saying that Western economies are so indebted that we have reached a turning point and people will spend less and save more (or pay down debt, which amounts to the same thing). Governments are going to have to follow suit, and the UK government is currently busy trying to demonstrate its commitment to do so, fearing that bond markets may lose confidence in our financial management and will then charge higher interest, which would really put us in a pickle.

So demand is reducing. We see this in the recent bankruptcies of UK holiday companies and the pages of cut-price cruise adverts in the middle-class press. If this is the pattern generally, then holders of cash will benefit as prices reduce - the pound in your pocket will grow more valuable, quite safely. Even better, this type of deflationary gain is not taxed, at least not until the government nerves itself up to simply confiscate your savings.

But that's not the whole picture. While demand for luxuries is lessening, there are other things that we still have to buy, especially food and energy. Here, prices are rising. And if interest rates do rise, that will also increase RPI, which unlike the Consumer Price Index (CPI) includes housing costs. So it is quite possible that inflation as measured by RPI could be high, even as the economy slows down. It's worth noting that the government has recently changed rules on private sector occupational pensions so that their benefits will increase in line with CPI instead of RPI, which suggests that our rulers believe that one way or another, RPI will rise faster than CPI in years to come.

The BBC appears to have bought the official line that we should ignore food and energy costs, referring to CPI as "core" inflation and noting that it's now a mere 3.1%, as opposed to RPI which is running at 4.8%. However, unlike the mandarins at Broadcasting House, the rest of us need to eat and keep warm; or, to be a little fairer, food and energy is a more significant part of most people's budgets than it is for the upper echelon of the mediaocrities.

An RPI-linked cash product is a good each-way bet: if prices do reduce, then your money becomes more valuable; if prices increase, the value of your savings is preserved; and either way, you benefit from that extra 1% p.a. sweetener.

Reasons not to? You may find you need access to cash within the 5 year term; and if you're a gambler, you may be looking at investments that could outpace inflation (think of the current fever for commodities such as gold, silver, oil and agricultural products). But you shouldn't put all your eggs in one basket, and most ordinary people aren't gamblers when it comes to their nest-eggs, so this product is worth a look.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Growing ownership by foreigners

Republished from the Broad Oak Blog:

One indication of our plight is the balance of ownership between ouselves and foreigners - who owns more (including official debt) of whom? The Econbrowser blog reproduces the following graph from a study of the US position:
And I give below a graph I've constructed from official figures, showing what's happened here in the UK:

For those inclined to blame solely New Labour for the economic disaster, this should be an eye-opener - look where we were in 1997.

Growing ownership by foreigners

One indication of our plight is the balance of ownership between ouselves and foreigners - who owns more (including official debt) of whom? The Econbrowser blog reproduces the following graph from a study of the US position:
And I give below a graph I've constructed from official figures, showing what's happened here in the UK:

For those inclined to blame solely New Labour for the economic disaster, this should be an eye-opener - look where we were in 1997.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Chinese spam

Recently, I've been getting short, apparently irrelevant comments in Chinese, often quoting proverbs. Is this a dry run for commercial spam campaigns, or probing for vulnerabilities in preparation for some system-wide serious cyberattack?

Number crunching

Away for a week, but I read the papers, and on the same day they told me that (a) £5 bn pa is lost through fraud and error in social security payouts, and (b) UK banks have awarded £10 bn in bonuses this year. Which cheat-riddled benefits system should we reform first?

Campbell trial continues

If you think positive thinking is annoying, you haven't considered negative thinking

Do you believe in Affirmations, also known as Cosmic Ordering, the Law of Attraction etc?

Believers in this New Age alleged horse-puckey:

Scott Adams (creator of Dilbert)

Noel Edmonds (what's the betting Rachel Cooke didn't rush off to try it herself? Surely it would disqualify you for working for the Guardian)

... and, I think, Richard Templar, author of bestseller "The Rules of Work". I suspect the most important thing he has to say is in the foreword, because that's where he reveals the formative experience. He was competing for a promotion against someone who was less qualified and capable, but the other man won. Templar discussed his disappointment with a colleague, who told him that it was because he didn't walk like a manager. Templar started looking and found that managers did indeed walk in a different way. When he fixed that for himself, promotion came.

I don't think it's essentially about conning other people, or about starting to con yourself (how can you do that and not know you're doing it?); I think it's about accepting that you may already be doing it, but in a negative way. If that is so, then the implications are challenging - and hopeful.

Is gold a safe haven?

I've looked at gold a number of times on Bearwatch, trying to see whether it's a protection against inflation and/or falls on the Dow Jones Index.

The trouble is, there's so much wealth in the world that the relatively small market in gold can be manipulated by speculators, so it doesn't compensate for inflation etc in a smooth way.

It is also, many suspect, manipulated by central banks and governments, in order to preserve the illusion that the economy is under control. Sharp rises in the price of gold are traditionally seen as a vote of no confidence in national economic management, especially paper money (the last official link between gold and the US dollar was broken in 1971).

The graph below correlates gold and the Dow since the beginning of the 20th century. It's interesting because it shows how major crises impact on investment and gold.



It's also interesting because it suggests some sort of cycle, and the logarithmic scale makes the peaks link up in a straight line. Less so the troughs - many "gold bugs" keep looking back to the panicky spike in the gold price in 1980, which was clearly very exceptional (though the gold bugs still hope it's a benchmark for the future).

Beware: the human mind is very good at perceiving patterns, and will force them onto random data, which is why people used to think they could see canals on Mars.

Having said that, note the green line on the graph, which indicates the long-term trend. In particular, note that the blue line is now well below it, though nowhere near previous troughs. This could mean that gold is overpriced, yet still in the zone where a "bigger fool" may come along and pay even more for it. Such is our vanity, we tend to think we'll never be the biggest fool, ourselves.

On the other hand, since this graph relates gold to the Dow, it could suggest that the Dow is underpriced, and I have been reading a number of commentators who expect a continuation of the recent recovery in the stockmarket, though this opinion is not universally shared.

A further caveat: the graph looks as though it's a fairly regular cycle, but there are features of our present situation that are not cyclical, at least not in the usual few years/couple of decades frame. Some see the downwave of several longer-term cycles coming together in the not-too-distant future - here's an example from Charles Hugh Smith:

Here are some other reasons why the present recession (I believe it hasn't finished and has only been disguised by recent official financial intervention) may not be part of the "normal" business cycle:

• The ratio of total personal and public debt to GDP is the highest in modern history - higher even than just before the Great Crash of 1929
• There's been a social change in the West over the last generation or two, that has seen families become dependent on two earned incomes instead of one, so the option to earn more by sending one's partner out to work has already been exercised by many
• In developed and developing economies (e.g. China), the average age of the population is increasing. This means that more of the populace is looking to spend money on their needs (and older people need more healthcare), and fewer are in work and saving money
• National economies have become much more closely linked with one another. Many Western economies are in a similar, difficult financial situation and many Eastern economies have come to depend on trade with us, so that global fortunes are co-dependent in some ways. Investors may not be able to escape these problems by moving their money into other countries
• International trade has put highly-paid Western workers in much closer competition with workers in other countries where wage levels are far lower. Western wages per hour, already stagnant in real terms since somewhere in the 1970s, must (I believe) eventually come closer to Eastern pay rates; yet mortgages and other personal debts won't reduce just because the pay packet gets smaller
• Developed nations have set up expensive public systems of health treatment, education and social welfare benefits. It is going to be extremely hard to reduce these commitments in order to reduce taxation

Respected commentators like Mike Shedlock and Marc Faber (see yesterday) believe that the US, UK and other countries will not be able to square the circle. They differ only in how they think the disaster will play out.

In short, I would say that investing in gold is indeed a speculation, and to get into that market now appears to be coming a little late to the party, but if you share the wider outlook of many of the "bears" I've been following for the last 3 years, it may still be worth considering as an insurance against disaster. Perhaps we're at the point where we might even be prepared to accept a degree of loss on such a speculation, rather than lose far more if we remain in cash and see inflation destroy the value of money.

Investing in gold isn't the only precaution to consider. Look at what Faber says in the interview I posted yesterday - he's thinking in much bleaker terms and talks about buying agricultural land, moving out of the city etc. Faber isn't the only gloomy one: US Congressman Ron Paul is predicting social unrest when the government begins to fail on its commitments to citizens.

In short, the recent past is no guide to the future. Those graphs issued by investment funds and financial retail outlets, showing growth over 3 or 5 years (or whatever carefully-selected period makes their recommendation seem promising) are, in my opinion, pretty much useless. Whichever view you take, it is now important to make that a wider, longer view, because macroeconomic factors have become more significant.

And yes, the doomsters could also still be wrong, either about how things will go, or how soon, or both.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Inflation or deflation? Crisis, either way.

Mike "Mish" Shedlock, financial analyst at Sitka Pacific, and Dr Marc Faber (Thailand-domiciled investment guru and economic commentator) are thought to represent opposite points of view - deflation versus inflation, respectively.

In this interview, it's clear that to some extent they agree: the US Government will see huge budget deficits for years to come, and it's not going to be a re-run of the 1970s: there is no ability of the people to take on more debt because (as Mish says) we've now gone from 1- to 2-wage households (where work is available).

Faber accepts that the government may eventually choose to default with respect to foreign creditors, but otherwise he sees monetary inflation to cover the public funding gap and stimulate economic demand. Mish sees price rises as compatible with his judgment that the economy will deflate.



DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Too much wealth tied up in houses

Republished from the Broad Oak Blog:

A release from the Office for National Statistics, widely reported in the papers today, says that the UK's net worth is £6,669 billion. Of this, 61% (£4,048 billion) is tied up in housing.

According to Credit Action in April 2010, 11.1 million households have mortgages, at an average of £111, 612 per mortgage. The total of personal debt in the UK (including mortgages) is £1,464 billion; UK GDP in 2009 was an estimated £1,396 billion.

Much of the value of housing depends on the inflationary effect of lending. According to a release by the Council of Mortgage Lenders, in May 2010 the average loan to value for first-time buyers was 75%, and for house movers it was not much less (67%).

Housing has become a far more important element in our economy, over the last 50 years. Here is Table 1 of a press release by the Halifax in May 2010:


Since 1959, total net household wealth has increased 5 times in real terms. But houses have gone up in value 11 times, and mortages are 23 times bigger. Consumer credit is also 13 times greater.

I don't think we can really run a successful economy on the basis of inflating the value of our huts by getting into hock with moneylenders. Sooner or later, we have to get out there and hunt something.

Too much wealth tied up in houses

A release from the Office for National Statistics, widely reported in the papers today, says that the UK's net worth is £6,669 billion. Of this, 61% (£4,048 billion) is tied up in housing.

According to Credit Action in April 2010, 11.1 million households have mortgages, at an average of £111, 612 per mortgage. The total of personal debt in the UK (including mortgages) is £1,464 billion; UK GDP in 2009 was an estimated £1,396 billion.

Much of the value of housing depends on the inflationary effect of lending. According to a release by the Council of Mortgage Lenders, in May 2010 the average loan to value for first-time buyers was 75%, and for house movers it was not much less (67%).

Housing has become a far more important element in our economy, over the last 50 years. Here is Table 1 of a press release by the Halifax in May 2010:

Since 1959, total net household wealth has increased 5 times in real terms. But houses have gone up in value 11 times, and mortages are 23 times bigger. Consumer credit is also 13 times greater.

I don't think we can really run a successful economy on the basis of inflating the value of our huts by getting into hock with moneylenders. Sooner or later, we have to get out there and hunt something.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

The homeopathic approach to negative thinking

Feel free to put it on your coffee mug.

Fun with Google translate

I used Google's translator to render Milton's Sonnet On His Blindness into Chinese, then back again:

When I consider how my light is spent,
Ere half my days, in this dark world and wide,
And that one talent which is death to hide,
Lodged with me useless, though my soul more bent
To serve therewith my maker, and present
My true account, lest he returning chide,
Doth God exact day-labour, light denied?
I fondly ask; but Patience to prevent
That murmur, soon replies, God doth not need
Either man's work or his own gifts, who best
Bear his mild yoke, they serve him best, his state
Is kingly. Thousands at his bidding speed
And post o'er land and ocean without rest:
They also serve who only stand and wait.

When I consider how my light is spent,
Heat half of the amount of my day, in the darkness of the world, width,
This is a talent to conceal the death,
Useless to me, though my soul more inclined to
To meet this related to my manufacturer, now
My true account, lest he come back to blame,
Is God on the date of the labor, light denied?
I affectionately asked, but patience to prevent
This murmur, soon replies, God need not do
Both men's work or his own gifts, who is the most
Bear his mild yoke, they are the best for him, his country
Is benevolent. Thousands at his bidding speed
And after your land and ocean without rest:
They also become the only ones who stand and wait

Not bad, really!

Dagong's Sovereign Credit Ratings for June 2010

The new Chinese credit rating agency has issued its assessment of 50 nations - please click on the picture below to enlarge, then alter your computer view until it's readable (I haven't yet worked out how to get Blogger to show a long list like this full-size).

By way of comparison, you may wish to look at CMA DataVision's rankings of sovereign credit default risk from the first quarter of this year, which I rendered here.

Norway still looks good!

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

After the Apocalypse - or instead of it

Republished from the Broad Oak Blog:

In the comments section of my previous piece on the Broad Oak Blog,"Arthurian" picks up on a remark I made regarding the mindset of some it's-all-going-to-end-ers. I respond:

What I'm thinking re the bit you quoted is that there is a self-aggrandizing tendency to think that the end of the world is nigh, which kind of ties in with one's own mortality and somehow makes the latter more meaningful, e.g. when I was a teenager we'd write poems about the threat of nuclear war.

Take James Kunstler: very sparkly prose style, but through it you sense a relish in contemplating the end of the corrupt old order, which will be replaced by an energy-efficient, sunny, bike-riding, low-food-miles happyocratic New World. In its way it's the sort of fantasy promoted by Communists to justify the awful things we must regrettably do before we get there, only here it's simply inevitable and we don't have to do anything to make it happen, so no guilt.

Fact is, when the money system broke down in Germany in 1923 and Hungary in 1946, the history books don't conclude their accounts with the sentence "As a result, everybody starved to death". The worst things that happened in Germany were what people decided to do about the collapse, in particular to look for a strong leader - ah yes, what we all need.

So ignoring the Doomsdayists and the Bright New Worlders, we should look at the social and political ramifications of what is undoubtedly major financial change. Growing inequality, increasing unemployment, and a State more determined to keep tabs on the populace. Money meltdown has been prevented, but civil liberties and the democratic system are definitely threatened. We've all (or most of us) been a lot poorer materially before now, but our birthright (even in the UK) is the expectation of liberty and the rights and intrinsic, inalienable worth of the individual.

The US has an advantage in that this eighteenth-century vision of man and society was preserved, crystallised, installed in the Constitution, and there'll be a hell of a ripping sound if someone tries to tear it out. The UK's constitution is much more liable to change and so while the biggest noise comes from America, the biggest loss may be ours - if we don't fight for the Rights of Man.

As a financial adviser (while there is much of a financial system left), I try to defend the little wealth of my clients - property rights are part of the R of M - but as I say, at the end it's not really about money. Once a basic minimum has been achieved, the material aspects of life are less important than the social.

What good would all the money in the world be, if you were the last human being on earth? That's a question I'd like to ask the 1% who own 40% of everything. I suspect many of them are gripped by a kind of madness.

After the Apocalypse - or instead of it

In the comments section of my previous piece, "Arthurian" picks up on a remark I made regarding the mindset of some it's-all-going-to-end-ers. I respond:

What I'm thinking re the bit you quoted is that there is a self-aggrandizing tendency to think that the end of the world is nigh, which kind of ties in with one's own mortality and somehow makes the latter more meaningful, e.g. when I was a teenager we'd write poems about the threat of nuclear war.

Take James Kunstler: very sparkly prose style, but through it you sense a relish in contemplating the end of the corrupt old order, which will be replaced by an energy-efficient, sunny, bike-riding, low-food-miles happyocratic New World. In its way it's the sort of fantasy promoted by Communists to justify the awful things we must regrettably do before we get there, only here it's simply inevitable and we don't have to do anything to make it happen, so no guilt.

Fact is, when the money system broke down in Germany in 1923 and Hungary in 1946, the history books don't conclude their accounts with the sentence "As a result, everybody starved to death". The worst things that happened in Germany were what people decided to do about the collapse, in particular to look for a strong leader - ah yes, what we all need.

So ignoring the Doomsdayists and the Bright New Worlders, we should look at the social and political ramifications of what is undoubtedly major financial change. Growing inequality, increasing unemployment, and a State more determined to keep tabs on the populace. Money meltdown has been prevented, but civil liberties and the democratic system are definitely threatened. We've all (or most of us) been a lot poorer materially before now, but our birthright (even in the UK) is the expectation of liberty and the rights and intrinsic, inalienable worth of the individual.

The US has an advantage in that this eighteenth-century vision of man and society was preserved, crystallised, installed in the Constitution, and there'll be a hell of a ripping sound if someone tries to tear it out. The UK's constitution is much more liable to change and so while the biggest noise comes from America, the biggest loss may be ours - if we don't fight for the Rights of Man.

As a financial adviser (while there is much of a financial system left), I try to defend the little wealth of my clients - property rights are part of the R of M - but as I say, at the end it's not really about money. Once a basic minimum has been achieved, the material aspects of life are less important than the social.

What good would all the money in the world be, if you were the last human being on earth? That's a question I'd like to ask the 1% who own 40% of everything. I suspect many of them are gripped by a kind of madness.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.