August 18, 2014

Start the presses, Mr Draghi

Posted in Sunday Business Post · 65 comments ·
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I am sitting opposite the Latin Bridge in Sarajevo, where the First World War started one hundred years ago this month. Six weeks after the assassination by Gavrilo Princip of Franz Ferdinand came the actual outbreak of war.

No one really thought the war was possible. Europe was so economically integrated. Financial markets were sophisticated and all the major players were trading with each other to such an extent that the mainstream view was there was too much mutually at stake for war to happen. But it did.

Once the war started, the top brass were faced with the reality of trench warfare, which they didn’t expect. Rather than change tactic to suit the new reality, they organised the slaughter of young men by sticking to the old policy of ”going over the top”.

At the time, the generals stuck to the mantra of ”there is no alternative”.

Sometimes, when I hear the European elite say there is no alternative to austerity, I am reminded of those moustachioed generals and the appalling human consequences of their inability to see that neither tactics nor strategy were working.

Today, the European economy is shuddering to a standstill. Both Germany and Italy contracted in the last three months. Meanwhile, France has stagnated for the second consecutive month.

Yet, just three months ago, the EU Commission announced in its Spring 2014 forecast: ”The EU economic outlook is strengthening. While leading indicators point to GDP growth gaining momentum in the near term, the conditions for a sustained recovery in the medium term are also improving. Among the largest economies, economic growth is expected to be sustained in Germany while the recovery is firming in Spain and slowly gathering pace in France and Italy”.

So much for that!

Germany, Europe’s biggest economy and driving force, is contracting; and that’s before we see the real impact of Russian sanctions. On Friday, when Ukraine attacked a Russian humanitarian convoy entering its territory, the news caused a surge of money into German bonds and sent the yield on the ten-year bund below the 1 per cent mark for the first time in its history.

Following the revelation that France’s GDP has remained stagnant for the past two quarters, its finance minister Michel Sapin admitted that, ”as a direct consequence of sluggish growth and insufficient inflation, France will not meet its public deficit target”.

In turn, the French have cut their 2014 growth forecast of 1 per cent in half. This is not good news for the eurozone, which in total produced a growth rate of 0 per cent, while EU GDP grew by 0.2 per cent this quarter.

Much more worrying for Europe’s generals is the persistence of deflation. Prices are actually falling in five countries – Spain, Portugal, Greece, Bulgaria and Slovakia – and were flat in Italy, Estonia and Poland. Once deflation sets in, it is extremely hard to reverse. Just ask the Japanese.

Only once during a bout of deflation in the modern era has a government managed to get prices up again, and this was under president Franklin D Roosevelt in the Great Depression in 1935.

Unlike the war generals, president Roosevelt realised that in the Depression he was fighting a terrifying enemy that demanded a radical change of tactic to win. As a result, he knew he had to be radical.

He abandoned orthodoxy, took America off the gold standard, told investors that the American government would not pay them back in gold but in dollars printed by the Federal Reserve – and he printed money.

At the time this was branded as heresy by the economic mainstream. But it worked. Within months of the US gold default, agricultural prices in the US started to rise, prompting more production from farmers. In time, producer prices started to rise, prompting more production, and the economy began to recover from the Depression.

So what is Europe going to do?

Mario Draghi, like Roosevelt, has to consider printing money, which is termed, in the vernacular, ”unconventional monetary policy”. Sapin issued a statement urging the ECB chief to act and with a potential slowdown in Germany, perhaps the Germans will become more worried.

While the euro continues to hover around $1.337 against the dollar, the currency has to weaken much further, much faster, for the economy to begin to reverse its slide.

Now here’s the question: once the ECB accepts that it has to print money, does it matter what form this takes?

At the moment, the mechanism – borrowed from the Fed in the US – is to give the banks as much free money as they like and let the banks decide what to do with it.

The Americans hoped that this would prompt banks to lend to the public. The free money would then find its way, via the banking system, into people’s hands and then people would spend it.

But this didn’t really happen. The banks only loaned money in significant quantities to very rich people and corporations – so-called low-risk recipients. So while the central bank turned on the taps, the money didn’t flow down to the economy because, at every stage, the banking system proved to be more of a bottleneck than a funnel.

It’s a bit like trying to water your garden in a hot summer by turning on a giant firehose, which is then attached to a garden hose, a narrow pipe and then ultimately to a party straw. Such a contraption forces all the water pressure back up towards the tap and ultimately only a trickle will drip out on to the parched earth. Why not, once you’ve decided to water the garden, just turn on the firehose and drench the place?

Similarly, if you have decided to print money to combat deflation, why not just give people money directly, rather than letting the banks stand in the middle? Encourage people to spend this money and, as the economy starts to recover with the extra spending, rein in the amount of money you hand out. This is exactly what QE (quantitative easing) is when you strip back all the complications, fancy arrangements and efforts to make respectable what is, in essence, money-printing.

The cure to deflation is inflation, and the way to get inflation going and prices rising, is to get people spending money again. If they have it, give it to them, at very low or even zero rates of interest.

This may sound radical, but it isn’t really. It is exactly what the central banks are trying to do without the bank bit in the middle. Clearly, this type of radicalism demands a rethink of the way we run the economy.

Roosevelt, by defaulting on gold, was prepared to entertain these revolutionary notions, with positive results. In contrast, the First World War generals weren’t able to change their script, with catastrophic consequences for all of Europe.

What would you prefer: the risk of experimentation, or the deadening certainty of inactivity?


  1. CorkRob

    How does that work in a broken economy such as ours ? How DO you put money in peoples hands? The banks will NEVER do it for you – we know that much !

    Do you reduce taxes – but how does the ECB do that when it’s National Governments who set taxation policy?
    Do you issue money free to National Governments – help them reduce their debt burden, allowing for greater state spending on huge Public projects – hiring thousands of long term unemployed and funnelling money through spending back into the economy ?

    This could be done via EC Grants for major infrastructural projects – perhaps 95% grants – but it would need to have caveats about hiring local workers – not allowing the importing of cheap labour.

    If this (EC Structural grants) were to happen, one would hope (!) that Enda & Co have thought out carefully and diligently, the best way to put that resource to work.

    It could well be the spark to ignite the trailblazing development of our natural & national resources (e.g. Wind, wave & tidal energy) or it could prove to be just another damp squib of political croney support plans.

  2. SMOKEY

    David, does that strategy not run the risk of your “tacky wedding” champagne pyramid?
    The liquid flows, liquidity in this case, into the top glasses eventually reaching the bottom glasses, and or classes, and spilling out everywhere?
    Then when the magnums are once again empty,…..hmmm?? Bust?
    I say give the T.V. license a fitting burial, cut the USC in half and shelve water charges for the next 5 years, make child benefit available only to those earning under €30,000 p.a. and cut road tax by 5% and diesel and petrol by 5 to 10c per litre.
    You will see a economy with a mini boom without any other actions.

    • Deco

      We do not need the TV licence. It is an affront to the concept of consent.

      We know it is an insult to people’s self respect, because it is enforced via a draconian penalty – jail.

      RTE is already well past it’s “sell-by-date”.

      • Colin

        Yes, and if you choose never to watch RTE TV, they still take your money.

        Let’s bring in the polluter pays principle, if RTE continues to pollute the minds of the population with property porn propaganda and lefty liberal slanted news items, then RTE sends a cheque to every household in the country along with a note of apology for the pollution caused.

        • Deco

          RTE are a reverse of progressive taxation.

          They take money from everybody and it is spent making some very rich, very useless people, even richer, and even more useless.

          Strangely enough, we have never heard anybody in the comic of record complain about this.

  3. StephenKenny

    So you make a lot of very cheap money available to lenders, and they have the option of lending to businesses who have no security (perhaps with property providing a little), and of lending to people who want to invest directly in property.
    What are the odds on anything other than another property bubble?

  4. CorkPlasticPaddy

    Couldn’t agree more with what you had to say, David. The trouble is the clowns and idiots that are running the EU simply haven’t got a clue!!

    When you had generals sending men ‘over the top’ during the first World War who were still using tactics used at Waterloo a hundred years earlier its no wonder you had such a slaughter on both sides!!

    The same thing is happening today on the economics front when you have politicians from all over the Eurozone who simply haven’t got a clue of how to stop the rot, then what can you expect?? All Enda and co are interested in is that when they go over to Europe they keep on getting their heads patted for being ‘good boys’.

    When you’ve got clowns and idiots running the country how can you expect anything to change. The Irish electorate keep on voting for them time after time, so, how can you expect things to change in the long run?? I rest my case!!!!

  5. Deco

    I respectfully disagree.

    Lack of money printing, or loose monetary policy is not the problem. The problem is that we tried it under Trichet, via low interest rates to the point that it caused a massive misallocation of resources. And we can see evidence of this misallocation in the asset bubble, that left working people under enormous debts.

    Where monetarism and Keynesianism are both failing is in respect to the money supply.

    The source of the deflation, is declining real incomes, post taxation. Participants in the wage economy have less money to spend. Therefore you get deflation, as an automatic consequence of less consumption. And there is less money to spend because the entire system is engineered to ensure repayment of loans (even though the system would actually get balanced by a partial default). Money printing is not a partial default. It is flexing the money supply to prevent a partial default, and then calling that a partial default.

    To solve the problem, taxes on wages need to decline. And to facilitate that there needs to be a thorough efficiency drive in the state systems. Now that is exactly the sort of policy that causes paranoia in many sections of the commentariat (the media in other words). In Ireland currently, rather than embrace the need for improved state sector efficiency (which would solve many of the rampant problems) we have the Jack O’Connor dialogue of “fighting austerity” with more taxes/levies, and more over-elabouration of an inefficient state system). And I am not talking about welfare payments. I am talking about the various entities that survive off the taxpayer, often without the taxpayer’s knowledge, let alone the taxpayers consent.

    Inflation of the monetary supply is the “easy way out”.

    If adopted on steroids, the results are like Zimbabwe. If done in slow motion, the results are like Japan (which is now approaching a reckoning, of which it cannot fix – unless it simply decides to default, and force a realignment of the entire Japanese economy, and indeed society).

    • DB4545

      Net wages after tax are being used to pay mortgages and rents to service the banks which lent the money recklessly and often without due diligence. Remember these were the banks that sold off their main street branches just before the bubble burst. Taxation is high but we pay a ridiculous amount of after tax income to pay rent and mortgages which are out of kilter with European norms and our own average income levels. What entities or interest groups are you referring to?

    • Three months ago I recall being told by our host that the world was in recovery. Some of us disagreed. Now we have a reversal of opinion without apology for the switch??

      Deco is fundamentally right.

      The deflation is the result of the collapse of the previous boom caused by continual inflation of the money supply. The medicine poisoned the patient and the doctor says double the dose.

      The patient will die and the doctor McWilliams will proclaim ‘we did everything possible but we were unable to save the patient’.

      It is time to address the question. Are all doctors stupid, ill informed, or deliberately do what they do knowing the results.

      It appears to me that there is a deliberate policy in effect to destroy the western industrial democracies. War is being actively propagated against imaginary foes. The population is being prepared for draconian measures of control as society unravels economical, socially and culturally.

      War measure acts are in place. Legislation is passed to remove habeus corpus, and to seize all private assets via bailin provisions of the savings accounts of the citizens.

      There is a way out of this mess at a local level (unless the war is nuclear). Withdraw from the collective money system,and the collective political system.

      Ireland in particular is well placed geographically to do this.

      Form a national currency, withdraw from the european political union and the EURO. Proclaim national borders and include the continental shelf.

      Revoke the odious debt and pay off all other debts with a national currency issued by treasury debt free at no interest.
      The state budget is immediately in surplus and income taxes can be largely reduced or eliminated.

      A national project will declare the neutral status of Ireland and immediately build a fleet of coast guard ships to preserve protect and manage the resources the national waters and continental shelf..

      Prosperity would quickly return to the Irish hinterland.

      The current policies and actions are leading to a refutation of the struggle for independence, a loss of freedom of the people and a slide back to serfdom and penury.

      • DB4545

        Tony we did the “dancing at the crossroads” ourselves alone routine until the 1960′s and then we joined the EU. Our greatest export was people in the 50 years after independence. Are you really suggesting that we return to that madness?

        • In the Early 60′s I was seeing the improvement in the economy. No EU in sight at that time as I recall.

          BUT the so called economic boom evidenced after the joining to the EU has resulted in the BUST and todays’s austerity.

          Also the inflation you covet has resulted in huge debts from those exorbitant prices.

          your choice as there is no free lunch.

          Paying off a lender with debased dollars is not a fair act either. Why would I lend you money at 3% interest to receive payment that is worth 50% of what I loaned you. That is the result of inflation

          • DB4545

            The 1960′s saw an improvement because Lemass and others moved us away from the insane “ourselves alone” economic war and towards the Benelux model. Remember that pre-independence we had export markets throughout the Empire and the Commonwealth. We were a major whiskey exporter and the Scots were canny enough to develop that market. We need access to markets to sell our goods and services and the EU for all its structural faults gives us that access. Regarding your comment I don’t covet inflation but why the undue concern for the banks? I’m talking about moderate inflation not Weimar republic stuff.

  6. Pat Flannery

    How are the central banks going to get the purchasing power (water) to the spending public? Under present EU law they cannot monetize fiscal spending.

    An EU government cannot just call up Draghi and ask to borrow a few billion, nor can Draghi offer it, even if the Germans suddenly panicked and called out for the dreaded inflation. How then is it going to happen? How do we “start the presses” in order to emulate the Roosevelt miracle? What is our equivalent of going off the gold standard.

    Roosevelt told investors that the American government would no longer pay them back in gold but in dollars printed by the Federal Reserve. EU governments are already paying off their bondholders in Euros printed by the ECB. How do we print more of them and stay within our covenant that our ECB will not monetize fiscal spending?

    • Good questions.

      Correct as I understand it. The ECB is constitutionally forbidden from printing money to loan to national central banks.
      Any money supply increase has been provided by the FED by issuing reserves to major US banks with european branches. Then currency swaps take place and dollars convert to Euros.

  7. Deco

    We have a problem that people working for a living do not have enough money, to pay their bills.

    And the solution…print money and loan it to banks. Nonsense.

    The entire approach of these various bailouts, stimulus packages, and whatever else you have is to achieve another misallocation of resources.

    The asset markets are completely overblown thanks to cheap money. Yet there is none in the waged economy, because it is all taxed out of the waged economy – or else “goosed” out via an interest rate policy that is designed to get the waged economy deeply into debt.

    The entire policy program being advocated across the developed countries is absolute rubbish.

    Trickle down theory is dead. The trickle is too small to make a difference.

    Anybody who disagrees should take a good look at Japan – where defaults have been avoided, and debts have simply moved from the private sector to the public sector. And that is in a country with a trade surplus, and a domestic corporate sector that owns production at home and abroad.

    Ireland is simply fooling itself with respect inward investment, low tax rates, and bottlenecking the Dublin real estate as a means of saving the banks.

    • bentley

      I agree with this comment. David’s enthusiasm has also led him to make a totally false statement …. Ukraine never attacked any so called “humanitarian” convoy. I should know ….. I live in the Luhansk war-zone. I am tired of reading bullshit comments from people who have no possible clue of what is happening on the ground in Ukraine and Crimea at this time. Don’t believe anything the russians say ….. and be wary of so called “news”

      • Deco

        The mainstream media news is a message pumped out to generate a result from the public, for the benefit of corporate power.

        When the corporations control the needs of the state, even state produced media is obedient.

        The whole thing is an absolute façade. The real agenda is about power. Information is power. And therefore Information must be twisted to empower the powerful, and disempower the less powerful.

        The goal of the mainstream media is to ensure the retention of the power imbalance in society.

        Cut yourself loose, stop watching the mainstream media, and let it wither on the vine. Let it try even more desperate measures to sustain it’s grip. Support any competition that exists against it.

  8. Deco

    Moving the tax burden from the PAYE sector, to the financial sector (IFSC take note) would solve the problem.

    Don’t subsidize the banking system (via money printing, and low interest rates). Fix the imbalance that exists where many of those entities pay 3% tax rates, while the PAYE sector pays 50% plus marginal taxation at the average industrial wage.

    • DB4545

      The problem is that the financial sector would move offshore and 3% of something is better than 50% of nothing. If the banks were forced to write down mortgages in exchange for access to central bank funds that’s an asset (albeit a reduced one) that can’t be moved out of the State.

  9. Pat Flannery

    When Finance Minister Brian Lenihan signed a Government Promissory Note to the Irish Central Bank which the Central Bank then used as the asset backing loans to the AIB and other Irish banks, was that not a central bank funding government spending and therefore illegal? Are you suggesting that Lenihin’s trick should be adopted all over Europe?

  10. Deco

    Why has money printing not eliminated debt in the US ?

    http://www.financialsense.com/contributors/marc-chandler/great-graphic-u-s-household-debt-has-barely-fallen

    Mortgage debt has fallen. There have been defaults in the mortgage sector. People have walked away. We know this, because the lenders have been folding, as a result of mortgage debt. In addition, a real estate price collapse has resulted in a fall in the size of new mortgages.

    The debts have declined in respect to hard impact events. Otherwise the debts stay high. The various QE programs are not feeding into a reduction in the scale of debt. Non-mortgage debt is particularly resistant to reduction.

    All that money printing – and if anything is fixed, it is fixed by something else entirely.

    • Why has money printing not eliminated debt in the US ?

      Because all money is debt. The issuance of all money increased in the world ((or those ruled by a central bank))is issued as a loan.

      It is a fact that an increase in the money supply is automatically an increase in debt. The more that is printed the larger the overall debt.

      This fact is well understood by the central bankers which draws the conclusion that it is deliberate policy to indebt and enslave the world.

  11. DB4545

    Instruct the banks that in return for access to central bank funds a significant percentage (40-60%) of existing mortgage debt must be written off. The Banks finally take the hit for their reckless lending and it prevents central bank funds being syphoned off for stock market speculation. Place heavy windfall taxes on anyone trying to profiteer from the situation i.e. people holding land banks or landlords trying to maintain high rents.House prices and rents might then reflect their true realistic value and with debt levels significantly reduced for mortgage holders and tenants this will feed into the economy from the bottom up rather than top down. I’m sure people see downsides but almost everything else has been tried and we need something radical.

  12. Colin

    I’d settle for a new charter, a declaration.

    It should start with the following words; the government loves it people, it wishes to rule them justly and fairly…..

    It should acknowledge property should be affordable (average house price equal to 4 times the annual salary of the average man’s/woman’s income, about €200,000). Slap new large taxes on sales of property exceeding €200,000. Slap new large taxes on inherited wealth. Cut VAT out completely, keep low income people out of the tax net, target children’s allowance to only those families who need it to spend it, not save it.

    • paddythepig

      We already have punitive inheritance taxes for the average Joe – http://www.uhy.com/uk-imposes-highest-taxes-on-inheritance-of-all-major-economies/ – but guess what, farmers and business people have special treatment.

      What is the incentive for the average Joe to work to pass on some capital to their kids, if it’s going to be taken and given to pay Bertie’s pension, scangers dole, and lazy-bones medical card?

      Plus, this ‘need to spend’ malarky. That is dependent on your definition of ‘need’. It amazes me how many people supposedly on the breadline can swan around in authentic sports gear, tune into skysports, get the medical card, and the dole, and the children’s allowance, and the rent allowance. And yet other struggling families do without because they have a more realistic definition of ‘need’. Do we want to penalise the prudent family?

      • Colin

        Hi paddy,

        Good points there. We do not want to penalise the prudent family. Farmers and certain business people should not have exemptions.
        Bertie and the rest need to take a huge cut in their pensions. Regarding rent supplements, they should be halved to help reduce market rents. Welfare budget needs to be slashed, with old fogies in the firing line first. Young families should face less cuts.

        hope that clarifies my position.

      • Deco

        Can we tax political families, when they “pass on the family seat” ?

        There seems to be this assumption that they can pass on income streams to family members, so that the families concerned can keep sucking off productive members of society, subsidizing their own clan.

        • DB4545

          We could choose not to elect them or limit the number of terms they can serve. Their pension structure is a pure cash cow and if that was limited with no access to multiple pensions that might help. What about a windfall tax to target multiple pensions so that the maximum net pension funded by taxpayers is less than 2000-3000 a month and even that is far too generous?

  13. michaelcoughlan

    When I first read this article I remember thinking what a pleasure to be part of this board since the robust commentary is so prescient almost like a leading indicator.

    The article although well written and sound from a Keynesian perspective is basically a load of shit and I will explain.

    You yourself suffer from the same misunderstanding as the generals you reference as you are misdiagnosing the real underlying problem which isn’t monetary (lack of spending either public or private) in origin the problem is too much TOTAL DEBT. Total debt in the euro zone is over 250% of GDP see here:

    http://www.economicsinpictures.com/2014/08/total-debt-public-and-private-in-united.html

    What this means is that as the currency is borrowed into existence with a corresponding % rate of interest to be repaid to the ecb for the issuing of new debt then the European economy must expand by the same percentage on the total debt or the money supply contracts due to a fall in the money supply resulting from the need to pay the percentage of the total debt issued from the total money available.

    Therefore the European economy money supply is falling as a result of paying the loans already outstanding held by the ecb and paid for from taxes. Prices are starting to fall and deflation is a result of the economic contraction taking placer rather than THE OTHER WAY AROUND. Issuing MORE DEBT even if spent on commercially sound Keynesian type projects will only make the problem WORSE. This is why we are paying property taxes. The elite knew income would fall and income taxes consequently. We as a people fucked up royally by voting yes to the fiscal compact referendum when we handed the government a mandate to asset strip very citizen, farm and business in the country to save delinquent banks.

    “He abandoned orthodoxy, took America off the gold standard, told investors that the American government would not pay them back in gold but in dollars printed by the Federal Reserve – and he printed money”

    I know McWilliams and since there is no such thing as a free lunch he shafted savers and users of increasingly worthless fiat currency by reducing its purchasing power and transferring the wealth to the government and presented this act of theft as success as you do now.

    “The Americans hoped that this would prompt banks to lend to the public. The free money would then find its way, via the banking system, into people’s hands and then people would spend it”

    Assuming this was their aim which I don’t believe it is. The money went where it was supposed to go into the balance sheets of banks and the people are left to fend for themselves as we are in this country.

    The way out of the problem is for the sovereign countries to print here OWN NON DEBT bearing instruments and issue them to the citizens directly for the repayment of existing debts only. The instruments should be paid for by the wealth taxes going to the banks to speculate on the stock markets going to national governments instead.

    You will get deflation in stock markets brining down commodity prices, no increase in inflation in goods at street level, reduction in total debt levels, reduction on interest payments on existing debt levels , strengthen of banks balance sheets as debt are being paid back etc.

    In time the wealth taxes can be reduced as the debt levels drop.

    It won’t happen though because Bernanke et al thinks they can solve debt crises by issuing more debt because just like the generals in ww1 they don’t get it. The problem for all of us is that they are not the ones stopping the bullets with their chests.

    Michael.

    • michaelcoughlan

      “here OWN NON DEBT bearing instruments ”

      Should read “their own non interest bearing debt imstruments”

    • michaelcoughlan

      Have a look at this David;

      13 trillion is European GDP.

      Total debt is 250 by 13 trillion or 3250 trillion or total money in circulation since debt equals money.

      I don’t know what percent the ECB charges pa for producing the currency but lets just say its 0.5%.

      0.5% of 3250 trillion equals 16.25 trillion.

      16.25trillion must be divided by 1000 to arrive at the cash value cost to the taxpayer because of the fractional bank reserve system. The central bank issues loans to commercial banks on a 10 to 1 ratio who lend it to retail street banks on a 10 to 1 ratio I presume before its lent out.

      So 16.25 trillion divided by 1000 equals 16 billion or 1.23%

      If the European economy doesn’t expand by 1.23% the money supply falls because the taxes need to pay the 1.23% reduce the money supply. This results in economic contraction due to a fall in the money supply leading to a reduction in prices.

      ITS NOT THE OTHER WAY ROUND i.e. deflation causing economic contraction. Printing more money makes the problem WORSE IRRESPECTIVE of who spends it either Govt. or Private Industry.

      • michaelcoughlan

        “So 16.25 trillion divided by 1000 equals 16 billion or 1.23%”

        should read “So 16.25 trillion divided by 1000 equals 16 billion or 1.23% of GDP”

  14. EugeneN

    Not impressed. McWilliams knows that Ireland is in the middle of a mini-boom in property again. If the credit goes to the plebs we will do with it what we always do with it, take it and spend it on holidays and property. I mean if property is increasing at 25% p/a with no credit I can’t imagine how fast it will grow if we give everybody the ECB rates of 0.25%. At the moment is it only 3-4 years from peak based on low supply and cash ( extrapolating the 25% compounded over that timeframe), if we release the flood gates of credit before getting supply into gear it will reach and exceed the boom, in about 2 years. It might even take months, given the paucity of supply. And once again the dubious “wealth effect” will cause more spending from eejits with 20K on credit cards but 200K in the house. Then supply will catch up, rents will fall, the system will continue to bubble until shacks in the south side cost €1M and the paper of record is 90% property: until the next shock, then it will crash again and we’ll socialise the debt to 300% of GDP. If we can.

    Hair of the dog that bit ya.

    There are clearly no solutions to this. It looks to me like the entire “science” of economics is bereft of any ideas, or any possible mathematical model which is in any way predictive like real science. It might be that the entire globalised project has to lead to this – work goes to China, it deflates the world, money is transferred from China back into the West, it becomes free money but since there is no way it will go go business, or if it does most of the work goes to China, it goes to property until that fails. And when it fails government intervenes, and then there is austerity, and then demands for credit growth and it all kicks off again.

    A proper science would have worked this out before we entered into the globalisation matrix.

  15. barry1969

    Ah David-your analysis of the way World War one was fought is simplistic. The Generals didnt just stick to “over the top” They innovated all te time with some success but the trouble was the other side were innovating too. ” Defense in Depth” and the “rolling barrage ” to name but two innovations. Read Peter Harts “The Great War” if you want to get a more balanced view.
    One consequence of rolling the presses is more inflation and perhaps higher interest rates. That surely is bad news for Tracker mortgages and all mortgage holders?

  16. DB4545

    What’s so bad about some inflation? Old debt becomes easier to service as it becomes a smaller percentage of monthly outgoings.

    • michaelcoughlan

      Are you mad? Will your employer inflate your salary also?

    • Colin

      I haven’t had a payrise for 3 years. My rent, bills, transport and food have all gone up in 3 years. My boss would laugh at me if I asked for a payrise. In short, inflation is stealing my money from me.

      • Deco

        Inflation is NOT the answer.

        And neither is more taxation.

        This is exactly the problem that the majority of PAYE workers face in the economy.

        This government’s solution will be to provide free housing to those who are not working, and pump out the propaganda to those that are, to get them to spend money they do not have.

  17. DB4545

    I may be but not as crazy as the people making the decisions. If there’s inflation throughout the economy including wages surely that has to make “old debt” cheaper. If in five or ten years inflation has made a 200K mortgage a much smaller chunk of monthly outgoings surely this must benefit the average joe. I’m not talking on Zimbabwe or Weimar Republic levels maybe 2-5% per annum?

  18. Can we believe anything from the MS Media anymore. Lies are told and opinions change with the wind.

    Bill H:

    Next time?

    Around mid morning on Friday we heard news that the Ukraine had “destroyed part of a Russian convoy”. The stock market immediately dropped nearly 200 points, Treasury bonds were bid 10 basis points lower, oil was higher and gold which had been hammered $20 lower earlier ran back to unchanged. I do want to mention that “the sale” which knocked gold down was some $2 billion worth of COMEX futures. $2 billion, this would amount to a little more than 1 week’s production from ALL mines in the ENTIRE world. Again, “who” would ever sell their product in this fashion where they receive THE worst price of the week? The real laugher is that this was not even “gold” which was sold, the sale was merely COMEX futures. This game however will shortly end as the Shanghai exchange comes on line which will be a 100% physical exchange. China has a history of meting out harsh and should I say “physical” penalties for financial crimes, selling something that does not exist would fall into this category. This further display of naked short selling is not what I’d like to write about today.

    The “announcement” of the destruction of a Russian convoy had all the makings of being the spark for WWIII. As soon as I heard the “news” and saw the markets react, my first thought was “this is the beginning”. Were it true, the situation would have already escalated in every fashion. The escalation would have certainly been militarily but also financially. What the heck really happened though? Anything? Here it is more than a day(s) later and what do we really know? Was there a Russian convoy destroyed? Was there even a Russian convoy on Ukrainian soil? Was anything at all destroyed? The Telegraph put this article out Friday evening http://www.telegraph.co.uk/news/worldnews/europe/ukraine/11038156/Ukraine-destroys-parts-of-convoy-of-Russian-military-vehicles.html , the headline clearly states “Ukraine destroys part of Russian military convoy”.

    First, two British journalist “saw firsthand” the military convoy cross the border. Do we have any pictures? Did they not have cameras with them? This is possible but not probable, but surely they had cellphones right? So where are the pictures? I haven’t even seen any pictures showing destroyed vehicles in the light of day after the alleged attack. Russia denies having any vehicles on Ukraine soil nor having anything destroyed. Yet the president of Ukraine himself swears to it? What really happened if anything? Zerohedge even speculated the Ukraine may have even fired on their own units.

    I have to ask again just as I did after the Malaysian airliner was brought down last month, where are the satellite images? Russia says they don’t have any because there are none, the White House tweeted “can’t confirm convoy destroyed”. Who is going to come forward with proof one way or another as to what happened? Was this just another false flag to start war which went sour and failed? I hope you understand just how serious this is.

    Sadly, I will give you my opinion on what “is happening”. Some who read what I am about to write and will say I am “un patriotic” or “un American”. This couldn’t be further from the truth. After watching the U.S. “back” tyrants in various countries and support the coups of “puppets gone bad” who would no longer do our bidding, I can only say we are wrongheaded and dangerous. In my opinion, Washington is doing anything and everything possible to start a war. This war of course will end up being against the interests of China and Russia. Is this war “winnable”? No it is not and the danger is we end up in a nuclear conflict.

    But why? Why does it seem the U.S. is hell bent on war? There are several reasons all of which turn back to the U.S. dollar itself and the power involved in issuing the reserve currency. First, it is my opinion that Washington knows the game is about over. The economy has not and cannot be kick started because there is too much debt weighing it down. I also believe we are at the end of the road where it comes to keeping a lid on gold and silver, I believe the metal to deliver has just about run out. I also believe the realization that there is very little good collateral left to be lent or borrowed against has sunk in. Even outright lies about economic numbers are no longer supporting confidence which is waning. Remember, “confidence” is what holds up fiat money. It is the failure of confidence that Washington is trying to hide or misdirect your attention from.

    It is my opinion that we have come to the point where a scapegoat is needed and dirty tracks must be covered. The dollar system is a Ponzi scheme which cannot just fall apart on its own without having something to point at as the “cause”. The thought process I am sure is if a war is started and “we win”, the dollar can then be “forced” upon the world. If we lose? This will be pointed to as the reason the economy is in shambles, the markets collapsed, your bank closed and your dollars cratered in purchasing power. Never mind the fact we ran wild deficits, printed money and have done everything that history has shown us was imprudent and reckless. A war will (they hope) act as a distraction from the financial chaos. I believe the thinking here is the public will be so involved with their own problems that the perpetrators of the grand fraud might get a pass. Whether this would/will work or not is another question.

    It is my opinion the world knows all of the above and is in the process of isolating the U.S.. Our actions to start a war have eaten away at the trust in our currency. “Trust” was all we had left and we have lived off of it for years. It seems the more we lost it, the more we “pressed” to keep it using bullying tactics which only served to eat further away at the remaining trust. As I wrote last week, we are “kicking the table over” because there are no other options. Starting a war will do this.

    The above was written over the weekend. Here we are Monday morning and “it never happened”. Nothing happened so please move along and just forget about it! Actually, Friday’s news has already been completely forgotten. What you should not forget personally is the fact that you were given “news” on Friday which was completely false. What will you believe “next time”? There will be a next time, you can count on it. There unfortunately will be “next time’s” until one gets the desired end which results in the war called for by the script. Regards, Bill Holter, Miles Franklin Associate writer

    • Deco

      The current President of Ukraine, became a billionaire, in an extremely corrupt society. He even managed to get his name into wikileaks, in rather suspect circumstances.

      He does not have the interests of any of the people in Ukraine at heart. He is unfit for holding any form of power or authority. He was practically “gifted” the presidency, by the fact that the main opposition party were in disarray, and the fact that the other leaders in Kiev seem to have been “encouraged” by Washington to not put their names on the ballot.

      Ukraine is yet another disaster of that on-going saga in perpetual misery creation, that is US Foreign Policy. When a country becomes the focus of Washington think tanks, it’s people are set up for years of needless misery, conflict, bad leadership, and destruction.

      If you want to ruin a country, let US Foreign Policy “intervene” in it’s governance.

    • Deco

      Did the Tory-graph issue a corrective apology ?

    • DB4545

      Tony who believes mainstream media any more? Despite all the manufactured “stories” have a look at two key indicators. The price of oil and gold normally spikes as a “canary in the coalmine” reaction to world instability or impending crisis. Have a look at their performance over the last two years. The media may spin a yarn but the market is not buying the bullshit. And I don’t think most ordinary people are either.

      • Well the great unwashed believe in the mainstream media if they bother to read it. Most get their info/news from TV.

        However more and more use alternative media and there is the salvation at hand. The MS Media propaganda sheets are disproved and discredited daily by more and more people.

        As for looking at the PM performances for the last two years, one should look further back and do a study of money. There will be found the rational for sound money and the halt of the use of fiat ponzi money currently circulated.

        It will be seen that gold and silver mining stocks have been the best performers this year to date and the metals themselves have outperformed the stock market handily.

        The major thing that emerges from a study of money and finance is the realization of the complete manipulation of all things financial. Money supply and interest rates are first and foremost. The distortions in the market place from this are huge with interest rates lower than in 600 years and the excess cash creating booms and busts everywhere one looks. Nasdaq IT stocks, housing markets and bank crises.

        The barometer of all this economic activity is disabled. If there are such misalignments caused then people flee to safe haven resources. The US dollar used to suffice but if the US dollar is suspect where can one go. gold and silver is the answer.

        The cartel has to discredit gold and silver so people stay with the fiat and so here is the final manipulations. drive the prices down with paper derivatives in the futures markets. The london gold exchange went down and now Comex is threatened as there is onlt one ounce of gold for delivery for every one hundred ounces sold in this market.

        This affects the trend investors who are kept out of the market and so the price id kept down. This is the history since 2008 inparticular and even then a reteat is made to higher prices occasionally.

        Soon there will be delivery asked for gold not in existence and that is when it all goes down. In addition The Shanghai gold exchange soon to come into operation will be a physical market only. All traded gold bought and sold must be available for delivery and so the pricing mechanism will move from London to Shanghai. This at the pleasure of the Chinese as they exert their influence as the major holder of gold.
        They will wait until they have acquired what is left of western gold and then the fiat currencies will be shown as the shallow shells that they are.

        Most of the general public have no idea about money or what it is. I defy anyone here to accurately define money and the characteristics of sound money. If you are able you are one in 100,000.
        The ordinary people have a long way to go in this understanding. More is the pity.

        So David , are you up for this challenge or will you be judged by your continual silence except to say you do not believe in sound money!!?

  19. DB4545

    And yet Berkshire Hathaway won’t touch gold as the sage of Omaha considers it worse than useless. You dig it out of the ground at great expense and then get people to guard it at great expense. It’s a symbol of value just like fiat currency. If people don’t place confidence in it then it holds no value. Oil has value and the US has mitigated a medium term oil crisis with fracking. The internet has helped the great unwashed(I’m one of them)to be much better informed about the world and how it works. I wouldn’t be so dismissive of the ordinary joe after all that’s what elitists tend to do.

    • StephenKenny

      The difference between precious metals and every other currency is simply that precious metals are a currency that have transcended time. Every civilisation throughout history has used them as currencies, so their qualities as a currency cannot be questioned. Every central bank today bases their capital stock on gold, and indeed are measured by it.

      Warren Buffett, as a professional investor, makes statements according to his own
      interests, and as such it’s very dangerous to take it all as it seems. You do not make successful investments by telling everyone what you’re going to do.

      As for the internet, it too is a very dangerous place to take news and information from at face value, simply because it is available to everyone. We now know that the US & UK intelligence services have huge departments dedicated to manipulating all the major news and current affairs sites, including discussions, votes & polls, etc.

      It isn’t even clear who is on who’s side – it was only a recently that an ex-Socialist
      prime minister in the UK boasted to an international gathering that he’d successfully used mass immigration to hold down wages. As far as I know, it didn’t get coverage in the UK media, but it was quite shocking in countries where it did.

      These are strange times indeed.

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