UK: is inflation and national ruin inevitable?

See the Broad Oak page for "The Quiet Collapse of the Pound."

The quiet collapse of the pound

 

The forces ranged against the British pound may be so powerful that the government is in no position to offer inflation protection to savers.

 

I show above what has happened over the past five years. Nominally, UK inflation has advanced by 17 or 18 per cent, depending on how you choose to measure it.

 

Gold has soared, and had already done so for some time before 2008, but it had been at a low point for a long time during the years of the phoney boom. I still feel that, bearing in mind the amount of extra money pumped into the economy, gold is fairly valued. But compared to other assets it's a small market and so more volatile and subject to manipulation, so for the active trader it's full of traps:

 



So let's return to the first graph and look at the currency market instead, to get a feeling for our relative performance and a hint about the future.

The euro has risen 8% over the period - not dramatic, but the EU has its own large problems.

The US dollar has risen 29% and although it is an ailing giant, the dollar is still the world's major reserve and trading currency, so when crisis hits there may be a flight to USD. Longer term, the US economy is out of kilter, like that of the UK and EU, so all three are in a quandary - the choices appear to be painful deflation and social unrest, monetary inflation with all that attends it, or debt defaults and forgiveness (which powerful creditors are determined to prevent).

My feeling is that the UK will pursue the first course until it's politically impossible, then the second (by which time the smart money will have got out, as happened in a different way in the Cyprus bank debacle).

The orange columns (except for Saudi Arabia) show the progress of the six currencies tipped for 2013 by the Money Morning website. I have no idea whether their recommendations are good. And again, I'm not one of these nimble traders that draw lines all over their charts and make references to the Fibonacci series, tramlines, head and shoulders etc. Like all professional gamblers, they're terrific until they get to the point where they sell their binoculars for one last punt. Good luck to them but I haven't got their nerve.

What I'm looking for - and what was available for 35 years in this country, until the Coalition took over in 2010 - is something for the humble saver. Something safe that will simply hold its value in spending terms, after inflation and taxation. In short, something that makes saving worthwhile, instead of a form of slow financial suicide. I don't see why the cautious, prudent saver has to choose between losing to the pickpocket of inflation, or alternatively to the croupiers in the marble-halled casino of stocks and bonds.

But we may have gone beyond the point of finding the right bank for our safe haven; we could be at the stage of backing the right country. There's a stealthy run on the banks going on now - not only in Cyprus, but capital flight from the Euro area; soon enough, I fear, there'll be a sort of run on countries.

In which case, I'd be looking for one that is politically stable, balances its budget, is strong enough to defend itself (and isn't near a psycho state like North Korea), doesn't feel obliged to join in competitive devaluation to maintain its exports, doesn't have porous borders or an over-generous welfare system, and has what other countries will still want once the international disaster is over.

Australia, with its industry-relevant natural resources? The USA, with its high arable land-to-population ratio?

Wish I knew. Perhaps I should back all the best horses in the race. But one thing seems clear to me: the UK is not one of them.

All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Fighting the Government for savers and against inflation (2)

This series is a report on my attempts to get questions raised in Parliament about the Government's failure to protect small savers against inflation, taxes and theft by banks. Part 1 is here.

The latest news that should (ought to) turn up the gas under this issue is Matt Taibbi's article for next month's edition of Rollling Stone magazine (htp: Jesse) detailing another gigantic price-fixing swindle by banks who have previously been exposed in the Libor scandal. As Taibbi reports, not only has the door opened to reveal that virtually all markets are rigged (against us, the ordinary people), but - astoundingly - an American court has accepted defendants' argument that nobody expected the interest rate market not to be fixed.

All the more reason why you might look at the Move Your Money website.

Here are some of the newer email exchanges between myself, my MP and his researcher:

MP to me - March 3, 2013:

I am happy if you wish to work with my researcher on written parliamentary questions on this issue.

(N.B. note the "written")

Researcher to me - March 12, 2013:

[...] I understand you wish to ask ministers about maintaining the value of savings vis a vis inflation and purchasing power parity of the pound against other currencies – it would help if you could give me an indication of exactly what you would like to ask or if you could draft a question I could amend?

For instance, I’m not sure if you would like to simply ask a question along the lines of ‘ To ask the Chancellor of the exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation and devaluations of the pound’ -- or alternatively you might want to ask the Treasury if you have a particular scheme or strategy you would like them to adopt?

Don’t worry about phrasing, I can amend a question so that it will be accepted by the table office.

We can table a written parliamentary question to any department with ease and departmental oral questions in the house occur every few weeks, I am sure we could arrange for John to ask an oral question if his diary allows – Questions to the Prime Minister during PMQs on a Wednesday are more tricky – you can put in written Questions for oral response or try to catch the eye of the speaker if you are a member, but demand is, obviously, high and this would require John to both be in the chamber and willing to use what is an infrequent opportunity to gain significant publicity for a cause, on this issue. That’s not saying he would be unwilling to do so but I don’t know if he has an issue he does want to raise at PMQs and it might take a few months before that opportunity presents itself.

A written or oral question to the Treasury would be most feasible with a reasonable turnaround on a response.

 

Me to researcher - March 12, 2013:

[...] I have some ammo to use in framing questions, the idea being to get govt to accept that there is a moral case for protecting the value of savers' money and in fact there's a couple of passages in Hansard that strigly  [sic; intended "strongly"] indicate that acceptance in the year that NS&I Index-Linked Savings Certificates were first introduced.

It may well be true that the financial situation is serious, as your boss says - in fact I've been blogging about it since 2007 and warned of the banking crash both there and in the letters pages of the Spectator - but there is absolutely no justification for making the prudent pay the cost, or for forcing them to gamble with their money just in order to try to avoid losing it to inflation.

I wd very much like your help in framing Qs that will make the ministers, Chancellor and PM bloody well squirm.

 

Researcher to me - April 18, 2013

 

I’ve still got this on my list of things to do – You suggested you would be back in touch, but I do not seem to have a follow up email from you since the one below

Could you confirm if you have a question in mind, or if the more general one I suggested below would suffice? [The question was omitted from his email]

Me to researcher - April 21, 2013:

Sorry, been away a few days.

I don't see the general question you refer to, but since Cyprus I have two serious worries - which should apply to many of my ex-clients and people generally:

1. How to set aside money and preserve its spending value, without being eroded by inflation and taxes and without being forced to accept any kind of investment risk;

2. How to be sure that no portion of savings below the deposit insurance ceiling will not be seized in some form of bank bail-in or pseudo-tax, but be payable in the form and to the schedule expected by the saver.

I understand that Tam Dalyell was feared as a Parliamentary questioner because his questions were short, to the point and allowed no room for irrelevant waffle in reply. Do you think you could frame questions on that model?

Also, should they not be asked as PMQs rather than handed off to get some dusty reply from the Treasury? My experience of the latter pretty much destroyed my confidence in getting anything other than fluff and party political twaddle.

 

No reply received before my next email to him - April 27, 2013:

 

Further to my last email of 6 days ago, perhaps you could spare the time to look at the latest article by Matt Taibbi in Rolling Stone. It may give you some idea of why I now (as a former IFA of 23 years' experience in the financial industry) regard the whole bank and trading shebang as irredeemably systemically corrupt. Any government that wishes to retain its claim to authority needs to protect the life savings of the little people.

http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425

Do please let me know how you are getting on with framing appropriate questions as previously discussed.

Best wishes

All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Fighting the Government for savers and against inflation (2)

This series is a report on my attempts to get questions raised in Parliament about the Government's failure to protect small savers against inflation, taxes and theft by banks. Part 1 is here.

The latest news that should (ought to) turn up the gas under this issue is Matt Taibbi's article for next month's edition of Rollling Stone magazine (htp: Jesse) detailing another gigantic price-fixing swindle by banks who have previously been exposed in the Libor scandal. As Taibbi reports, not only has the door opened to reveal that virtually all markets are rigged (against us, the ordinary people), but - astoundingly - an American court has accepted defendants' argument that nobody expected the interest rate market not to be fixed.

All the more reason why you might look at the Move Your Money website.

Here are some of the newer email exchanges between myself, my MP and his researcher:

MP to me - March 3, 2013:

I am happy if you wish to work with my researcher on written parliamentary questions on this issue.

(N.B. note the "written")

Researcher to me - March 12, 2013:

[...] I understand you wish to ask ministers about maintaining the value of savings vis a vis inflation and purchasing power parity of the pound against other currencies – it would help if you could give me an indication of exactly what you would like to ask or if you could draft a question I could amend?

For instance, I’m not sure if you would like to simply ask a question along the lines of ‘ To ask the Chancellor of the exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation and devaluations of the pound’ -- or alternatively you might want to ask the Treasury if you have a particular scheme or strategy you would like them to adopt?

Don’t worry about phrasing, I can amend a question so that it will be accepted by the table office.

We can table a written parliamentary question to any department with ease and departmental oral questions in the house occur every few weeks, I am sure we could arrange for John to ask an oral question if his diary allows – Questions to the Prime Minister during PMQs on a Wednesday are more tricky – you can put in written Questions for oral response or try to catch the eye of the speaker if you are a member, but demand is, obviously, high and this would require John to both be in the chamber and willing to use what is an infrequent opportunity to gain significant publicity for a cause, on this issue. That’s not saying he would be unwilling to do so but I don’t know if he has an issue he does want to raise at PMQs and it might take a few months before that opportunity presents itself.

A written or oral question to the Treasury would be most feasible with a reasonable turnaround on a response.

 

Me to researcher - March 12, 2013:
 

[...] I have some ammo to use in framing questions, the idea being to get govt to accept that there is a moral case for protecting the value of savers' money and in fact there's a couple of passages in Hansard that strigly  [sic; intended "strongly"] indicate that acceptance in the year that NS&I Index-Linked Savings Certificates were first introduced.

It may well be true that the financial situation is serious, as your boss says - in fact I've been blogging about it since 2007 and warned of the banking crash both there and in the letters pages of the Spectator - but there is absolutely no justification for making the prudent pay the cost, or for forcing them to gamble with their money just in order to try to avoid losing it to inflation.

I wd very much like your help in framing Qs that will make the ministers, Chancellor and PM bloody well squirm.

 

Researcher to me - April 18, 2013

 

I’ve still got this on my list of things to do – You suggested you would be back in touch, but I do not seem to have a follow up email from you since the one below

Could you confirm if you have a question in mind, or if the more general one I suggested below would suffice? [The question was omitted from his email]

Me to researcher - April 21, 2013:

Sorry, been away a few days.

I don't see the general question you refer to, but since Cyprus I have two serious worries - which should apply to many of my ex-clients and people generally:

1. How to set aside money and preserve its spending value, without being eroded by inflation and taxes and without being forced to accept any kind of investment risk;

2. How to be sure that no portion of savings below the deposit insurance ceiling will not be seized in some form of bank bail-in or pseudo-tax, but be payable in the form and to the schedule expected by the saver.

I understand that Tam Dalyell was feared as a Parliamentary questioner because his questions were short, to the point and allowed no room for irrelevant waffle in reply. Do you think you could frame questions on that model?

Also, should they not be asked as PMQs rather than handed off to get some dusty reply from the Treasury? My experience of the latter pretty much destroyed my confidence in getting anything other than fluff and party political twaddle.

 

No reply received before my next email to him - April 27, 2013:

 

Further to my last email of 6 days ago, perhaps you could spare the time to look at the latest article by Matt Taibbi in Rolling Stone. It may give you some idea of why I now (as a former IFA of 23 years' experience in the financial industry) regard the whole bank and trading shebang as irredeemably systemically corrupt. Any government that wishes to retain its claim to authority needs to protect the life savings of the little people.

http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425

Do please let me know how you are getting on with framing appropriate questions as previously discussed.

Best wishes

All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Australia: Alternative Economics

 

I was born in Manchester England in 1950. My mother a housewife, my father a salesman in an engineering company but steadily rose to high management. He was quite conservative but could entertain any idea and judge its merits, and he liked to debate. He was quite willing to be devil's advocate and would make a spirited defense of ideas he didn't adhere to. That was when I began to question just about everything and started my career as a rebel.

 

I failed the 11+, a single test at age 11 which purported to determine if a child has academic potential. Somehow, in my last couple of years at school, I got sent to an age-old part-boarding grammar school. It was super conservative and the teachers still wore gowns and mortar boards. It reeked of tradition, privilege and snobbery. This was where I honed my and hardened my rebellious streak. I was in the headmaster's office at least once a week. At university (mech eng), I toyed with joining the Socialist Society which was the most radical group, but they said and did such silly things, so I joined the Peace Society and got to do demonstrations (peaceful of course) and started to pick up some flower-power, hippie ideals of sharing and caring, love and peace man! I began to see how unfairly money is distributed in a country and around the world. It still is, worse perhaps.

 

I managed to do enough work to graduate with honours, but did not want to get my nose to the grindstone of a career, so worked a couple of months in a warehouse stacking boxes and headed off on the overland hippie trail to the the antipodes. A couple of years and many adventures later I found myself in Australia. I was now an expert on living on a shoestring and out of a backpack. Suddenly, due to a genocidal maniac called Ida Amin in Uganda, the Commonwealth changed all the immigration rules. By immense good luck, I was entitled to be a permanent resident of Australia, just by being in the right place at the right time. It has been very difficult to come to Australia since that time.

I then put in the longest period of work by far in my life. Two whole years! Doing exploration work in central Western Australia. With one other guy, or sometimes on my own, I did 4-6 week projects in some of the most open and deserted landscape on the planet. The job paid labourer's wages, but food and swagroll was provided, and there was nowhere to spend money. Great way to save. I spend the money to buy an empty block of land at the other end of the country. From flat, desiccated, blistering desert to hilly lush rainforest in far north Queensland. 156 acres of cloud-forest on top of the great dividing range. Now to really become a self-sufficient hippie recluse, maybe even start a commune! No money left, no knowledge of how to build, grow anything, live etc, no road in, no tools ........ no problem. I invested my last few dollars in a machete so at least I could get to the place. I worked a couple of months out in the bush to buy a 1962, 3 geared Toyota landcruiser for $750. The exhaust valves were blown and many other things wrong but got it going again. I got stereoscopic aerial photos centered on my block and used skills I had acquired doing exploration to see the land around in 3D so I could spot a possible route in. 4kms long and totally unmade, it went mostly through a neighbouring farm.

 

I started building a house with very little money, no idea how, no plans, not even a sketch on the back of an envelope, no power and of course no council permission because it didn't even occur to me. I used a considerable amount of discarded scraps from local saw mills, bush poles for free, secondhand doors and windows, scrap fencing from the tip to reinforce the concrete stumps, discarded 1 inch thick boards from 3 inches wide to 20 inches. They were used in two layers for the outside cladding and cost $10 per ton on average. A local planing mill sold reject packs of planed wood such as floorboards at a fraction of the retail price. So I built myself a house of 90 sq m for $1400 complete with plumbing, wood stove etc etc. A third of the cost was the tin on the roof. 35 years later it is not only still standing but has not required any maintenance beyond a bit of paint. You can check it out if you like at www.possumvalley.com.au . It is now called Blackbean Cottage.

I built a hydro-electric system utilising a 20m high waterfall and knowledge I acquired at university. I built a water system to provide water to the house utilising a smaller waterfall and a ram pump to deliver what most take for granted:- water coming out of taps. I built sewerage systems to deal with the stuff most don't even want to think about. I enjoyed all my successes at the most menial things. I love getting things to work.

 

I got married, have 2 daughters, started doing wood craft and carving to sell at local markets, and whenever I required money, dug spuds for the local farmers. Hard work I can tell you. Anytime the farmer looks round and sees anyone on the digger with any time to spare, he finds another gear until everybody is flat out. Tractors have a lot of gears. When I started digging, spud bags had a nominal weight of 70 kgs. They mostly weighed 75 kgs as they were packed by volume and hand sewn with twine and a 6 inch needle. It was quite a skill as they mustn't leak spuds in all the handling on the way to market. On average they were filled, compacted, sewn and stacked in 11 seconds. I liked it though. It was satisfying. There is no product more important than a potato. There are products of equal value like an avocado or a cup of rice, but the humble spud is my personal favourite.

 

So at last, I get round to the subject in the title. Alternative economics. At 63 years of age, I can now analyze my chosen path in life for its economic and social benefit. I have worked for wages perhaps a total of 4-5 years. I have paid tax in only two years when I did exploration. I have also worked as a builder's labourer, a carpenter building a school in Darwin (which got flattened 6 months later by cyclone Tracy), and perhaps the best was as a ski lift operator in New Zealand. Great.... the spell-check has never even heard of New Zealand. I still don't earn enough to pay tax. I now use two houses to earn a living at B&B. It is to my great personal satisfaction that people mostly have a wild and real experience at my rainforest retreat.

 

I have mostly worked directly for myself, building things I need without the overheads of tax on what you earn, other taxes, fees, insurance, travel, profit and other costs which multiply when you employ someone to build your house etc. And of course interest on the mortgage you require to get started. So my strategy has been not to go into debt. If you haven't got the money, don't do it. I have always valued my freedom and debt is the antithesis of freedom. I have maintained my financial freedom throughout my life by being debt free which enabled me to pursue many opportunities. Of course having children is a lifetime commitment with no remission, and which I undertake gladly. So I am not free of obligation or responsibility. Please, if you escape the rat-race don't think you will have freedom. It will just morph your responsibilities onto a different landscape. Perhaps a better landscape, where your concerns are family and friends rather than money and debt.

 

My income for the last twenty years has come from 2 fully self-contained cottages. I don't provide meals so the work is servicing, maintenance and washing linen and towels. I work perhaps a few hours in the day. It is a small non-taxable income but I have no debts and few non-business payments. I have few expenses, generate my own electricity, and the biggest bill every year is the rates. So I have a small income but nearly all of it is disposable at my whim.

      

It had been my idea decades ago, to opt out of the money paradigm altogether, but I soon found that is not practical. Most of my life I have had very little or no money, arriving in Australia with US $11 and knowing no one. It never bothered me. I have lived on rice alone for weeks. Now I live surrounded by a beautiful tropical rainforest with the nearest neighbour 5 kms away. I stay at home and other people come here, give me money and go away again with a large percentage returning. I have plenty of time to do just what I want. I have done many interesting things in about 70 countries around the world. My alternative economics has served me well.
_____________________________________________

Paul's Possum Valley blog and website are here.

All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy.

Anuta

Anuta tempts the philosopher and moralist. Its 300 Polynesian people live on the smallest inhabited island in the South Pacific and sustain themselves by carefully harvesting their natural resources. Fragile, precious, beautiful life in utter isolation - a metaphor for planet Earth in a universe where we may still turn out to be alone.

The BBC sent ex-Royal Marine Bruce Parry there in 2007; he said afterwards, "If I had to pick one tribe to go back and live with permanently — and I hate doing this, it’s not a contest — it would be the people of Anuta [...] It’s got white beaches, blue seas, good food and gentle, friendly people who have a wonderful philosophy of sharing." The communal ethic is calleed "aropa" in their language.

In 2009 the BBC returned to include the story in their stunningly-shot series "South Pacific", contrasting Anuta with Easter Island, where the tribes' competition and reckless exploitation of their ecology led to catastrophe. (The Easter Islanders are the starting point for Belgrano whistleblower Clive Ponting's 1991 book, "A Green History of the World: The Environment and the Collapse of Great Civilizations", reissued in 2007.)

BBC reporter Huw Cordey was part of the 2009 visit and made a radio programme for the Nature series, called "Anuta - An Island Governed By Love". He found that even in Anuta there are discontents, like anywhere else.

Yet we're still haunted by the myth of the happy land. As the poet Elizabeth Jennings says, "Sickness for Eden was so strong."

All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy.

Gold market crashes!

Chart: The Real Asset Co

All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.