There's a three-party race going on right now as to who can preach
world-wide doom and disaster the most persuasively. Presumably, when
the financial disaster actually occurs, they all want to take credit
for warning us. One party is comprised of the three credit ratings
agencies, Fitch, Standard & Poor and Moody's, which are steadily
downgrading both nation-states and banks. Another party is composed
of senior politicians such as Obama, Sarkozy, Merkel and Cameron.
Because their pessimism is normally so uncharacteristic of
politicians, we can only presume that they are feeling extremely
exposed and desperate. The third party is the most venerable of them
all -- central bankers such as Chairman Ben Bernanke and Governor Sir
Mervyn King -- who now have the chutzpah to publicly blame
politicians for the present mess. (A year or two ago they'd have been
immediately sacked for saying these things. Not now. They're inviolable.)
And, of course, there's a raggle-taggle of individuals right at the
back of the race who really don't count very much because they are
saying so many different things. There are hundreds, if not
thousands, of economists in academe and financial institutions who
want to embellish their CVs for possible future career use. Then
there are tens of thousands of bloggers on the Internet, such as your
own humble servant, who are flourishing theories ranging from the
bizarre to the passably sane.
However, there's a relatively small group of runners who are already
at the winning post, patiently waiting for the others to arrive!
They've been there for about a hundred years. And they've been saying
the same thing fairly consistently for the whole of that period. And
they've not only been forecasting the present financial disaster but
also have the solution. They are known, often pejoratively, as the
Austrian School, deriving from a brief intellectual ferment in Vienna
a hundred years ago which kick-started many new ideas in physics,
psychology and the arts as well as economics. At present they tend
to cluster around the Ludwig von Mises Institute website, but there's
also a small group within the economics department of George Mason
University, Virginia, others are scattered around Western academia in
ones and twos, and there is even one US Senator, Ron Paul (a
Presidential contender at present).
What they are saying is that it's OK for a country to print money ad
lib if it is in physical peril from another country. This way, there
can be sufficient money to pay for armaments, at least for a while.
For example, when England went to war against Germany in 1914 it was
paying for its armaments with real money, gold. However, within a few
weeks, the Bank of England realized that the Great War (as it was
known then) was going to continue for much longer and it would soon
run out of gold. So it had to start printing additional gold
promissory notes (banknotes) on the strict understanding -- be it
known to every Englishman and every English arms supplier -- that the
new banknotes wouldn't be redeemable with gold until after the
war. Soon, all the European countries (and America, a late joiner)
were at it, friend and foe alike.
The problem really started in 1922 at a conference in Geneva, eight
years after the war was over, when the countries (including America)
tried to get back onto the gold standard as it was before 1914. But
by that time governments were already addicted to the idea of
printing money and they ended up with a half-cocked scheme of trying
to retain gold as the basic currency discipline but also being able
to print money whenever they got into debt. The result? Bursts of
inflation in all sorts of places. But the Grandaddy of them all was
inflation in America, followed by a sub-prime-type house-building
boom and the Wall Street Crash of 1929. The subsequent Great
Depression only came to an end in the 1940s with yet more inflation
as the co-partner of rearming for World War II.
Well, that's where we are again today, waiting for Wall Street Crash
II. This time, however, there are a few small voices still echoing
from the Austrian School. Central banks all over the world, despite
their official propaganda against gold, are now quietly buying gold.
(This is why the price of gold has already gone up five-fold in the
last ten years.) Gold mines in Russia, China, Central Asia, South
Africa, Brazil and elsewhere are mining gold as fast as they can. The
Chinese have started the Pan Asia Gold Exchange in order to stimulate
gold buying and selling, and this will be extended soon to sales
points and vending machines in Europe (and even in America if
Congress let's them). We can but hope that this time, when printed
currencies such as the dollar and the euro have finally fizzled into
decimal points, that there's a chance of a sensible, stable currency
again. A new Geneva Conference is required, though it might be in
Beijing this time.
Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2011/10/
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