Friday, January 31, 2014

Something Stirs



Do you remember this poster that idealistic people used to have on their walls in the 1970s? The native American wisdom it quotes stresses that we can't actually eat money, which to my young self seemed pretty self-evident.

These days of course, people don't put posters like that up on their physical walls, they put them all over their virtual social media walls so that like minded people can 'like' them and un-like minded people can unlike you and whisper about you having 'gone weird'.

Anyway, money, or what passes for it these days, has been getting a whole lot more exciting over the last week. I blame Ben Bernanke, the soon-to-be ex-chairman of the US Federal Reserve. During his tenure he has overseen a massive bond-buying programme, the likes which the world has never seen. Now, as he steps down to hand over the reins of power, he is tapering off the amount of - let's be honest - money printing. And this is having a pretty dramatic effect on things, to say the least.

Although he is being hailed as a fiscal hero in most quarters, the legacy he leaves behind is massive debt and broken economies. And it is only now becoming clear that the effect of flooding the too-big-to-fail banks with money has been to make them even bigger, and to launch a series of crises around the world as 'emerging economies' (I hate that condescending nomenclature, so have to put it in quotes) suddenly find themselves with currency crises. Any number of them are having to hoik interest rates to protect their currencies, and in doing so are chucking many of their citizens under the proverbial bus.

India, Turkey, South Africa, Russia, Ukraine, plus a baker's dozen other 'emerging nations' are in full panic mode as they exhaust their supplies of hard currency trying to keep their own rands, rupees and florins from devaluing. Each one is a different case, with some in better positions than others, but the upshot of it is that all of them will be going through some challenging contractions. Some excitable people are talking about currency wars being a prelude to real bullets and bombs wars. Better get a flak jacket and dig a shelter, if that's the case.

And it's not just the 'emerging economies'. Combined, they make up almost half of the world's trade. A couple of decades ago this would not have been the case, but now, by crashing their economies, the US is effectively shooting itself in the foot - albeit a foot that is wearing the steel toe-capped boots of a reserve currency status. For now.

Turmoil ensues. Stocks are dropping like stones. Money is flooding into safe havens, such as gold, the Swiss franc and, of course, the US dollar. The volatility index has gone through the roof and the mainstream media, for all of its talk about recovery, is still trying its best to ignore it.

And so it becomes clear that all of this QE business boiled down to one thing: most of the world's weaker economies were sacrificed on the alter of keeping the bigger western economies from melting down. Simple as that, really. Let them have an emerging middle class of consumers, and just when their expectations have been raised, pull the rug out from under their feet and send them all back to the shanty towns. That's life in the hardball world of dog-eat-dog capitalism.

And still, it may all be for nothing. Does anyone feel safe with their money in a bank account? If so, why? Putting your money in a bank is akin to lending it to a crystal meth addict with a black credit record. Incidentally, once you put your money in the bank it ceases to be yours. Almost every western nation is now talking in terms of bail-ins. A bail-in is where YOU get to bail out the failing bank with YOUR money because the world's central banks are running out of fire blankets and ammunition to contain the problem of over-leverage. It happened in Cyprus. It may well happen in the UK next, where some banks are insisting that if you want to withdraw money from your own account you must submit to intimate questioning, have documented proof of what you are spending it on, and present a signed note from your mum for good measure.

What's more, we are heading into a period of deflation. People hear the word deflation and think that it'll be great because things will be cheaper. They may well be cheaper, but they'll have correspondingly less money to spend on them, so they'll still be poorer. Europe has already entered into deflation. I found myself in a Poundland store (where everything costs a pound) this morning on a trip to Truro, the regional capital (a throbbing metropolis of 19,000 people). I must admit to being a bit sniffy about this kind of place in the past. Not any more. I picked up four fruit bushes, some toilet paper, a roll of silver kitchen paper, two home-grow mushroom kits, a CD, two litres of milk and some potting compost - all for ten quid. The same stuff in other stores would cost four times the price.

Perhaps that's why everyone all of a sudden seems to be shopping at these places and why supermarkets such as Lidl are popping up everywhere. Of course, not everyone can even afford to shop at Poundland or Lidl - these are the people that find themselves lining up at food banks. There are plenty of these too. Some recovery! Still, better get used to going hungry some reports suggest that global food prices will triple in the next two decades.

Poundland: cheap and cheerful

On the way back home I listened to a BBC programme on the radio in which people in Liverpool were questioned about whether they could 'feel the recovery yet'. Only one person said he had become better off in the last five years and he was selling donuts on the street ('Because people can't afford a proper meal any more so they buy donuts.'). Everyone else seemed to have tales of deprivation and downright misery. The only person who could see any green shoots at all was the leader of the city council, who was defending his decision to spend £50 million on a shiny new prestige library that has won some kind of architectural award. The city borrowed the money to build it. But even he said it was 'challenging' when the receipts from local taxes only covered about half of what the city spends annually. But he figured everything would be okay in the end because the city has a great vibe and 'people are resilient'.

Yet, despite all this gloom, there remains a patina of richness and wealth about the country. People cruise around in their shiny new BMWs and Audis and luxury supermarkets are also on the rise. Property prices are rising dramatically, and the government would have us believe that Britain is the rising star of the European economies. Sometimes I have to pinch my arm and remind myself that most wealth is virtual, that 99% of 'money' in the global economy is just static electricity on computer chips being buzzed around via satellites and cables from one continent to another seeking 'yield'.

A newspaper front page last week

So it seems that the propaganda machine is in overdrive to convince us that we are enjoying boom times again. Could it be that this is timed to coincide with the inevitable capital flight from the 'emerging nations' as QE programmes are wound down? Is the British government's policy to try and look like the proverbial prettiest horse in the glue factory to skittish investors? Does anyone realise we are just one sharp pin away from a big bubble going pop?

Prediction time. Over the next few weeks and months there will be a massive deleveraging of unsalvageable debt. The stock market will go down a lot. The weaker currencies will devalue mightily as traders act like pack wolves to bring them down one by one. China will wrestle with its out of control shadow banking system, with unpredictable results. People will willingly sign up to have their pensions evaporated. Financial Crisis 2:0 will be hailed and politicians everywhere will blame the 'emerging markets' for the chaos. Within a year the fracking bubble will have burst (big oil companies are already pulling out as fast as they can), deflation will take hold and a lot of people will suddenly find they are a lot poorer. Life will go on, for most. The investor classes will look around for a new bubble to inflate.

And no, when the last tree has been cut down, the last river poisoned  and the last fish caught, we will find that we can't eat static electricity either. What strange times we live in.

***

I'm taking a break from updating this blog for at least a month as I attempt to finish the book I am working on entitled When the Lights Go Out. I hope to have this for sale in the summer, assuming anyone has enough money to buy things then. If not, I'll accept family silver, shares in DONG, non-perishable food and pigs' teeth as currency (but, sorry, not Bitcoins).


15 comments:

  1. So.... how many pigs' teeth for a copy?

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    1. Depends on the quality (of the book and the pigs)

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  2. The edifice of Peripheral Currencies and the Debt Edifice is a bit more complex than you make it out to be here Jason. Not that I disagree entirely with the conclusions, but the problem is more complicated than just Helicopter Ben printing FRNs.

    Look forward to reading your new book. :)

    RE

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    1. Granted - things tend to be more complex than they appear. However, I think that in any complex system that comprises intelligent agents (such as the world economy), and where a clear advantage can be gained over others by manipulating said system, the powerful core will always predate on the relatively weak periphery to maintain their hegemony. That's what QE and zips have allowed the US to do - although I don't think it worked. I don't think they really know what they are doing.

      As for the book - I'll send you a review copy :)

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    2. Obviously I meant 'zirps' rather than 'zips'. Blogger's spell checker doesn't recognise the former and changed it to something it did.

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    3. I think what a predator does is "prey", not "predate", but maybe I'm just old-fashioned.

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    4. Hmm. From Wiktionary:

      Verb[edit]
      predate (third-person singular simple present predates, present participle predating, simple past and past participle predated)
      To prey upon something.

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  3. This could shape up to be a milestone year in many ways, economically, environmentally, politically, socially.

    What little we have left is tucked away in Triodos Bank (www.triodos.co.uk/en/personal/). I would certainly appreciate your take on them, if you have the time that is.

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    1. I used to bank with Triodos back in the days when I was earning a reasonable wage. To be honest, although they may be the ethical choice, I have no idea as to their setup or how safe they may be. They are Dutch, but I think that they are effectively (to the customer) a British bank and therefore subject to the same dangers as the rest.

      I bank with the (formerly ethical) Cooperative Bank. Of course, they are run by a US hedge fund now, so all bets are off. I only use it for basic transactions, such as paying taxes, utilities and the like, as I 'cashed out' of the system and invested what I had in land, tools and bricks. I do a bit of translation work that pays the monthly bills, but other than that we don't really have anything that would be recognised as 'money'.

      Perhaps that's why I'm shopping at Poundland these days!

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  4. This comment from WHD - who is unable to comment on Blogger for reasons unknown:

    Just think, the bernank/yellen cabal has another $65 billion/month to taper. Of course, ms yellen might be like, hey, QE4-8 or 9, because PIIGS really can fly! LOL.

    Are you thinking of making a swine tooth jacket in place of chain mail? Wear a boars head and grunt real fierce to scare away the looters?

    When The Lights Go Out. Is that a modern fairy tale? Y'all gonna need some help from fairies about then. M'hopes you are making a welcome for them @ the fox hallow?

    You live in Penzance, right? Perhaps there are some ghosts of pirates you can call on? :)

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  5. Could well be the third party cookies thing in the browser settings again.

    Surely there must be a pound shop in Penzance, no need to come all the way to Truro?

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    1. Yep, there are plenty. Ironically, I was only in Truro because that's where the nearest branch of the Cooperative Bank is and I was having to pay council tax.

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  6. I've been doing a lot of walking in my local area this month and one thing that struck me was the price of a 25kg sack of tates, (potatoes) from a small farm for £4. Last winter they were £12 a sack. Mind you it was 9 miles from home and it would have been hard work carrying them back! I can't grow them that cheap on my allotment. Likewise 10kg of onions for £4. Carrots the same price. So its not all massive increases. If you had to you could live on these and allotment veg and eggs. By the way my hens have just started laying again after their winter break. Look forward to seeing and reading your book Jason. Hope you enjoy the time off writing it.

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    1. Sack of tatties go for a fiver round here. It did strike me as very cheap. I remember, as a student, me and my housemates would often find ourselves with almost no money and having to live off potatoes (in London!). It's perfectly possible, if you have some ketchup and/or curry sauce to relieve the monotony.

      But, yes. Prices do seem to be dropping for some things and rising for others. Shops seem to have permanent sales on these days, and the internet has made things et cheaper still. No wonder physical stores are going bust all over the High Street.

      Glad to hear the hens are back in action! We are building a large coop in the woodland and have invested in an incubator.

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    2. JHK has noticed this too ...

      http://kunstler.com/eyesore-of-the-month/february-2014/

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I'll try to reply to comments as time permits.