“Bunny had a talk with Mr. Irving, who told him that it was the Federal Reserve system at work; a device of the big Wall Street banks, a supposed-to-be government board, but really just a committee of bankers, who had the power to create unlimited new paper money in times of crisis. This money was turned over to the big banks, and in turn loaned by them to the big industries whose securities they held and must protect. So, whenever a panic came, the big fellows were saved, while the little fellows went to the wall.” - Upton Sinclair, ‘Oil !’ (1926), cited by Rudy Havenstein.
Next to the ‘home’ button and before you reach ‘UK’ and ‘World’, there are four topics on the BBC News homepage. Three of them – ‘War in Ukraine’, ‘Coronavirus’ and ‘Climate’ – are entirely artificial crises. The fourth – ‘Cost of living’ – is at least a legitimate crisis, but one that is grotesquely misreported. Have a wander around the BBC website and you soon find an article ‘Why are prices rising so fast ?’ – here is what it says:
“The Bank of England’s governor Andrew Bailey has said “the Russia shock is now the largest contributor to UK inflation”. But economists agree that there are many factors, including:
“Not all prices behave the same way. The cost of some other goods and services have increased only slightly or stayed the same.”
This is all total nonsense. The truth, as commentator Konstantin Kisin puts it,
“is that the current crisis is not caused by the war in Ukraine and is neither unexpected nor unforeseen. In April 2020, as governments around the world shut down their economies to deal with COVID-19, we interviewed 2 economic commentators who are regulars on TRIGGERnometry: Dr Pippa Malmgren and Jim Rickards. When asked what the effects of the lockdowns and associated policies would be, both were unequivocal: inflation.
“According to the Government’s own estimates, COVID-related policies cost this country between £310 billion and £410 billion, the equivalent of between £4,600 and £6,100 per person and more than a third of the UK’s annual budget (£1.1 trillion).
“As a result, our national debt rose to over 100% of our income for the first time in 2020.”
Russia may be a convenient scapegoat for global inflation but she is also an unjustified and largely irrelevant one.
Here is what Russian President Putin himself said at the St. Petersburg International Economic Forum of June 2022:
“Surging inflation in product and commodity markets had become a fact of life long before the events of this year. The world has been driven into this situation, little by little, by many years of irresponsible macroeconomic policies pursued by the G7 countries, including uncontrolled emission and accumulation of unsecured debt. These processes intensified with the onset of the coronavirus pandemic in 2020, when supply and demand for goods and services drastically fell on a global scale.
“Because they could not or would not devise any other recipes, the governments of the leading Western economies simply accelerated their money-printing machines. Such a simple way to make up for unprecedented budget deficits.
“I have already cited this figure: over the past two years, the money supply in the United States has grown by more than 38%. Previously, a similar rise took decades, but now it grew by 38% or US$5.9 trillion in two years. By comparison, only a few countries have a bigger gross domestic product.
“The EU’s money supply has also increased dramatically over this period. It grew by about 20%, or Euros 2.5 trillion. It is this that is creating inflation.
“The rising prices, accelerating inflation, shortages of food and fuel, petrol, and problems in the energy sector are the result of system-wide errors the current US administration and European bureaucracy have made in their economic policies. That is where the reasons are, and only there.
“I will mention our special operation, too: yes, it has contributed to the trend, but the root cause is precisely this – their erroneous economic policies.
“So, they printed more money, and then what? Where did all that money go? It was obviously used to pay for goods and services outside Western countries – this is where the newly-printed money flowed. They literally began to clean out, to wipe out global markets. Naturally, no one thought about the interests of other states, including the poorest ones. They were left with scraps, as they say, and even that at exorbitant prices.
“While at the end of 2019, imports of goods to the United States amounted to about US$250 billion a month, by now, it has grown to US$350 billion. It is noteworthy that the growth was 40% – exactly in proportion to the unsecured money supply printed in recent years. They printed and distributed money, and used it to wipe out goods from third countries’ markets.”
It says much about the state of the current world that the President of Russia is being more truthful about the source of our biggest economic crisis than the British Broadcasting Corporation.
Now that Liz Truss has been installed as our new Glorious Leader, it is worth reiterating that the fault is not in our stars, nor in ourselves, but in our governments.
Our friend Sir Steven Wilkinson made the following observations two years ago:
“As far as I am concerned, the world is wending its inexorable way towards a socialist dystopia with ever more sections of the economy being brought under central planners’ control. Governments and their metastasising civil services have been playing a “double-or-quits” game since the late 80s if you ask me, the result of which is the need for ever larger interventions – both monetary and regulatory – to counteract the ever-larger swings of the pendulum that the previous efforts engendered. The economist Hiram Minsky wrote about this in the early 1980s and, although from an entirely different end of the political spectrum to von Mises, came to the same conclusion – namely an inevitable collapse in both the currency and the economy as the long overdue “creative destruction” which is the regenerative genius of the capitalist system clears out the mal-investment and bad money.
“I expect the following:
– years (2-5) of agony as the establishment struggles to keep a) the whole edifice from collapsing and b) us in our places
– nationalisation of the banking system and effective nationalisation – but not on idealistic grounds – of “essential services”
– ballooning of Central Bank balance sheets to 7 – 10 x their current size (which for the Fed means 40-50 trillion just to give you some perspective)
– banning of cash completely (in preparation for the inevitable currency collapse and reboot) – swingeing levels of taxation for capital gains (the corollary of the money inflation) with rates going up to 90% for “speculative assets”
– some measure of restriction on private investments in precious metals especially gold
– re-imposition of capital controls
“- I also expect a denouement in the Eurozone as (and I know we keep predicting this but the EU are really running out of runway) as particularly the US seeks to devalue to negate the trade imbalance causing unbearable deflationary pressures on the exporting nations – EU (especially Germany) and China.
“- I don’t know enough about China to guess what will happen there but whatever it is we will not be in much a mood to gloat.
“- On a positive note I believe that we are looking at the end of “monotheism” in respect of the standard orthodoxy around the definition of what a “country” is. I think the map of the world coloured by self-regulating independent sovereign “nations” will look a lot more like a map of 1500s with tens possibly hundreds more entities and a great deal more competition in terms of economic, tax and civil liberties between states. Europe will fracture into more traditional regional loyalties (Bavaria, Saxony, Tirol etc) and the US will rediscover its constitutional divisions of power with states and within them counties re-discovering the ability to experiment and set their own standards and fiscal policies. There will in my view be a huge amount of competition between models of civic society. Expect, for instance, a rebirth of the Hanseatic League only on a global scale.
“The last five years, especially the last two and a half in which we have seen the vicious disdain for sovereignty by the EU and the British Establishment for democratic principles and the appalling mismanagement of the COVID crisis have radicalised me and accelerated my transition from a Thatcherite Conservative with a focus on free-markets and decentralised local government to a libertarian with a deep loathing of the inhumanity, incompetence and corruption of our modern government. I despise the way in which we are being run by oligarchs, corporate interests and financial sociopaths and despair of the way in which our educational system, media and civil service has been bent out of shape by proto-Marxists and their incoherent, divisive and intellectually insulting “critical theory” dogma..
“I would rather die fighting on the hill of liberty than watch it being bulldozed away by midwits, corruptocrats and ululating socialist dervishes.”
The following is what we ourselves wrote two years ago (in ‘The Great Reset’, 2nd November 2020):
“So what practical measures are we taking to protect our clients’ capital from the likely depradations of the state ?
“Markets were born free but are now everywhere in chains. Cash deposit rates are now derisory, but with added bail-in risk. Bond yields are likely to remain squashed indefinitely, helped by governmental funny money. So cash and bonds are largely out of the question. The one market too big for even the world’s central banks collectively to kick around is the currency market. So we would not be surprised to see some kind of reset develop there. Our way of anticipating that reset is to own precious metals and the shares of sensibly priced mining concerns in “safer” jurisdictions. Because we anticipate an ultimately inflationary outcome due to those aforementioned torrents of funny money, we value claims on the real economy in the form of equity ownership of cash-flow generative businesses run by principled, shareholder-friendly management with an excellent track record of capital allocation, especially when such stocks can be bought at a discount to their inherent worth. And because we frankly have no clue how the Great Suppression will necessarily play out, we hold uncorrelated (systematic trend-following) funds that offer the potential to zig when the markets finally and conclusively zag. Our watchword: if in doubt, diversify.
“Not the sort of commentary we would prefer to be sending out into the world. But sometimes spades must be identified as such. On a more positive note, some wisdom from the ages: this too shall pass.”
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: email@example.com
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and specialist managed funds.
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