Until I looked it up (isn't the internet wonderful?) I had thought that the "Geddes Axe" (which slashed UK public expenditure) was a response to the Depression. Far from it: some would say it was a major cause. It turns out that after the First World War, our politicians wanted Britain to be great again, and thought that meant getting the pound back up to its former exchange rate against the dollar - just as I dream about getting into my old teen jeans.
They managed to do it for a while, but the result was a deflation that failed to take into account Britain's postwar economic weakness, and the 1925 restoration of the gold standard at this fatally high level prolonged the suffering. Then the zip bust.
More recently, some felt that lacing the pound into the Euro would stiffen our backs. Or perhaps this idea owed more to fuzzy notions of European brotherhood, modernity etc - we in Britain have had ten years of being led by a fuzzy thinker.
But not all agreed that the time was right - see the 2002 Cairncross lecture by Ed Balls. This lecture, by the new Prime Minister's former economic adviser (see Wikipedia bio), sets the historical context for the "five tests" that he formulated with Gordon Brown in a New York taxi in 1997. The tests were designed to determine the timing of the UK's entry into the Euro - for details, see this Scotsman article of 2003, which also reviews progress. Perhaps the timing will never be right.
Some hope that's the case -because it's not just about economics. Can Europe ever be a country? What will happen to our mode of government, civil liberties and economic prosperity in this herd-rush towards an "ever-closer union" commanded by a remote, opaque elite?
Is currency stability generally desirable? Sure; but another return to fixed exchange rates would certainly need extremely careful management, especially in fundamentally unstable conditions. I don't think Western trade deficits are purely due to monetary inflation; China's rapid rise from poverty seems just as challenging to our budgets as the Great War that drove us off the gold standard.
Tuesday, July 03, 2007
The Mogambo Guru on the lost days of rising real wages
Richard Daughty's latest piece, posted on GoldSeek, does the usual and then harks back to a time when employers were trying to cut wages because the workers were getting richer, thanks to a solid currency and steady economic improvement.
Faber in person, and "always long on gold"
While we're doing the visuals, let's have a look at Marc Faber. I find you can learn so much about people from their face, voice and physical posture. Faber comes across as frank, clear, careful to say it right, thought-out.
This interview is several months old, but has many nuggets of enduring value, such as a possible 30-40% drop in emerging markets, political prospects for Thailand, Japan as a buying opportunity, and gold as a store of value against the relentless decay of paper currency.
Note how he says at the end that Americans should not hold gold in America, for fear of expropriation in a crisis. Warnings like that made in his gentle and cautious way are all the more stark.
Part 1:
Part 2:
This interview is several months old, but has many nuggets of enduring value, such as a possible 30-40% drop in emerging markets, political prospects for Thailand, Japan as a buying opportunity, and gold as a store of value against the relentless decay of paper currency.
Note how he says at the end that Americans should not hold gold in America, for fear of expropriation in a crisis. Warnings like that made in his gentle and cautious way are all the more stark.
Part 1:
Part 2:
Inflation? We should be enjoying gentle, long-term deflation!
Richard Daughty, aka The Mogambo Guru, is on YouTube! In print, his rants are so funny that you can forget he's entirely serious. Here, he goes through the theory of money and the scam that is inflation, in two-and-a-half minutes. A gem, as they say.
Monday, July 02, 2007
Inflation: the evidence
If you want to see what monetarists would assert is the fountain of inflation in the UK, here are the M4 money supply figures from the Bank of England, going back to 1963.
The average rise over the whole series is 13.485% per annum; over the last, "prudent" 10 years, 9.99% p.a.
To put it another way, if £1 could have been invested in 1963 at an interest rate that kept pace with this monetary expansion, it would now be worth something like £261. And that's assuming you would have been allowed this interest tax-free, so as to preserve the value of your money.
Contrast that result with the inflation statistics as given by this paper in the House of Commons Library. The figures only go up to 1998, but let's assume purchase prices kept to their approximate target of 2.5% p.a. after that. According to this research, a "basket" of goods and services worth £1 in 1963 would now cost about £15.
Where has the rest of the inflation come out? Asset prices, presumably, or bank profits. Or have the monetarists got it wrong?
One thing's for sure: even after adding net interest at available rates, cash savers have seen an enormous, long-term dilution of their share of the country's circulating money. They would, I estimate, need to receive about 6.7% per annum ABOVE purchase price inflation, to match the money supply increases.
If I've got it wrong, do please show me where the error has occurred.
The average rise over the whole series is 13.485% per annum; over the last, "prudent" 10 years, 9.99% p.a.
To put it another way, if £1 could have been invested in 1963 at an interest rate that kept pace with this monetary expansion, it would now be worth something like £261. And that's assuming you would have been allowed this interest tax-free, so as to preserve the value of your money.
Contrast that result with the inflation statistics as given by this paper in the House of Commons Library. The figures only go up to 1998, but let's assume purchase prices kept to their approximate target of 2.5% p.a. after that. According to this research, a "basket" of goods and services worth £1 in 1963 would now cost about £15.
Where has the rest of the inflation come out? Asset prices, presumably, or bank profits. Or have the monetarists got it wrong?
One thing's for sure: even after adding net interest at available rates, cash savers have seen an enormous, long-term dilution of their share of the country's circulating money. They would, I estimate, need to receive about 6.7% per annum ABOVE purchase price inflation, to match the money supply increases.
If I've got it wrong, do please show me where the error has occurred.
The Daily Reckoning's Blog
The Daily Reckoning blog started in April 2006 and also features some free reports. You may wish to link / contribute to it.
Sunday, July 01, 2007
What's wrong with money?
Many a truth is spoken in jest, and Douglas Adams' "The Hitchhiker's Guide To The Galaxy" is full of wry truths. Here's one about money on Planet Earth:
Most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movements of small, green pieces of paper, which is odd, because on the whole, it wasn't the small, green pieces of paper which were unhappy.
It's odd how money seems more important than the here-and-now. Some would say that money changes real life for the worse, because it is a distorted representation of reality.
One solution is to try to amend the money system. This site reproduces the text of Richard Douthwaite's "The Ecology Of Money", a piece on money and community currency systems.
Another is to try to live without money, or nearly so, and instead have a more direct relationship with the land - for example, the Tinker's Bubble community in Somerset. I don't know whether the whole world can go that way - not everyone is so skilful, or can get hold of such lovely land and resources in such a relatively peaceful, prosperous and tolerant country; but to quote the poet Elizabeth Jennings, "sickness for Eden was so strong".
Meanwhile, the rest of us have to use some of our precious time, trying to prevent the value of our savings being stolen by inflation, and avoiding the worst consequences of an ill-managed economic system that, if it breaks down, could lead to a long period of hardship.
Most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movements of small, green pieces of paper, which is odd, because on the whole, it wasn't the small, green pieces of paper which were unhappy.
It's odd how money seems more important than the here-and-now. Some would say that money changes real life for the worse, because it is a distorted representation of reality.
One solution is to try to amend the money system. This site reproduces the text of Richard Douthwaite's "The Ecology Of Money", a piece on money and community currency systems.
Another is to try to live without money, or nearly so, and instead have a more direct relationship with the land - for example, the Tinker's Bubble community in Somerset. I don't know whether the whole world can go that way - not everyone is so skilful, or can get hold of such lovely land and resources in such a relatively peaceful, prosperous and tolerant country; but to quote the poet Elizabeth Jennings, "sickness for Eden was so strong".
Meanwhile, the rest of us have to use some of our precious time, trying to prevent the value of our savings being stolen by inflation, and avoiding the worst consequences of an ill-managed economic system that, if it breaks down, could lead to a long period of hardship.
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