As any astrologer will tell you, 2012 will be a tumultuous year. But, as the worldly-wise Cassius instructs the noble but naïve Brutus, “Men at some time are masters of their fates: the fault, dear Brutus, is not in our stars, but in ourselves, that we are underlings.”
As underlings in 2012 we are subject to a host of critical economic unknowns, but how are we to deal with them? How can we learn from past follies if we don’t understand them? Take the sovereign bond market’s relief when a second bailout agreement was reached between Greece and the “Troika” big shots in the EC, the European Central Bank (ECB) and the IMF.
That there would be an agreement was never in doubt. But was it credible? To the Greeks? Have they suddenly learnt to embrace austerity and taxes? Has private industry suddenly replaced public sector profligacy and corruption? What was “agreed” amounts to the age-old panacea of chucking money at the problem – only this time in unimaginably vast amounts.
strictly phony, hot off the ECB’s own presses.
Never mind that the money bestows no production-based purchasing power and is strictly phony, hot off the ECB’s own presses. Never mind that the bulk of it went to the European banks that funded the bailout itself. Or that the whole of the second bailout will go into an “escrow” account specifically to bail out, not the Greeks, but rather their “preferred” creditors, the insolvent European banks. The draconian Greek austerity package is actually funding a massive bank bailout, and everyone thinks it’s the other way around!
The euphoria did nothing to stem rioting in Athens over the imposed austerity package. The response of the unelected technocrat who now runs the place was: “Vandalism, violence and destruction have no place in a democratic country.” Is this man schizoid? When Alice complained that she didn’t wish to hang out with mad people, the Cheshire Cat replied, “Oh, you can’t help that. Most everyone’s mad here.”
QE mania in the UK
If funny money is the currency of the funny farm, we have plenty of digitally generated zeroes over here. The Bank of England’s latest round of quantitative easing takes us to £325 billion, which is more than the Treasury will take in income tax, VAT and corporation tax this year. The Bank’s eventual QE total is expected to be £600 billion – not far from rivaling the national debt, a mere £900 billion! And all at 0.5%, the lowest rate in the Bank’s 318-year history.
None of this chicanery works. The first £75 billion dollop was trumpeted as a one-off boost to growth. But this heady stuff is so addictive that when the growth didn’t happen the Bank simply took a bigger snort.
In recent times printing bogus money caused monetary collapse in 15 countries. In 1946, prices in Hungary doubled every 15 hours; in 1994, Ukraine experienced 1,400% inflation per month; in the same year inflation in Yugoslavia was said to reach 5 x 10 to power 15 but, by the time they calculated it, it was wrong. The prize goes to Zimbabwe: in 2007 its currency lost purchasing power at the rate of 11 million % per month.
To all of them, it seemed like a good idea at the time.