Monday, 17 October 2011

I am sorry to ruin your Monday morning but economically we are well and truly f***ed

Ludwig von Mises wrote that 'there is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.'
The Central Banks and their associates in government are trying to put off the evil day but that day will come. The problem is that Capitalism has been replaced by Corporatism is recent years and thus whilst Capitalism works through trial and error in free markets to find an optimal allocation of resources, Corporatism works by fixing the markets. We have had over a decade of central banks deliberately providing cheap & easy credit thus negating the existence of Capitalism. Under Capitalism losses are penalised, under corporatism loss making banks are instead bailed out or otherwise protected - thus we reach the position where a €2 trillion bailout fund is required. That's not €2 billion but €2 trillion; I have explained before how big a trillion is.

Central banks egged on by unscrupulous governments kept interest rates far too low for far too long. This engineered a boom, a fake one but a boom nonetheless, this boom enabled Gordon Brown and others to claim that they had 'ended boom and bust' and to increase taxation just less than the increase in (albeit fake ) wealth that the middle classes experienced as house prices rose. The US housing bubble also resulted from easy credit and liberal guilt over the comparative difficulty some blacks had in getting mortgage credit.

The trouble is that we are now in a situation where it is not the banks that might fail, but countries. If the banks are "too big to fail" what about Greece, Italy, Spain, the UK the USA?

We are well and truly f***ed, there's bugger all most people can do about it and as savings become worthless through the vicissitudes of inflation we may as well spend the lot - the decision is should it be a new car, new kitchens and holidays... or gold, generators and guns?

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