Director MBMG Investment Advisory
When the sky falls, I’ll still be part of the Union
Last week I was down at CNBC in Singapore for an
interview on what’s going on in the world of finance. It’s been too long
since I’ve been down to the Lion City and much as I enjoyed it, the problem
was that there’s so much happening in the world, it was hard to know what to
The global economy?
MitonOptimal’s Scott Campbell was recently in Bangkok1,
expounding a case that austerity is strangling the Eurozone’s economy to
death, Asia and emerging markets are largely dependent upon China and the US
and that these 2 economies are both now through the worst; although
structurally lower growth numbers for China should be anticipated from
hereon in. I half agree. Austerity is destroying the EuroZone and smaller
emerging economies’ fates are out of their own hands and much more down to
the whims of policy makers in DC and Peking. However, the US economy seems
to be facing headwinds that remain unabated since the global financial
crisis (GFC) and China’s economy seems to be getting ever closer to the
moment when my more apocalyptic friends think that a suitable musical
accompaniment would be Adele singing “when the sky falls…” Admittedly, I’m
disregarding the positive ephemeral data and focusing on the unresolved
structural issues, but they continue to get bigger every day simultaneously
delaying but also increasing the inevitability of an “Adele moment” if the
economy doesn’t change path.
Last week’s Federal Reserve FOMC meeting?
We don’t have the minutes yet of course, so we don’t know
everything that was said. But other than getting to know which regional Fed
members asked, “Janet, what does considerable or mechanical mean?” or
“Janet, are you really, really sure this stuff is working?” or “Janet, do
you promise this will all go back to normal one day?” Reading FOMC minutes
is depressingly like reading the minutes of a cult whose leaders are
committing all the cut members to a “mass suicide”, while telling them that
the garden is rosy and they’ll all live forever.
Our own research has recently highlighted some ‘maturity management’
strategies by the 2-headed spectre of the Fed/Treasury that help to
understand why so-called ‘tapering’ was nothing more than a scam - a kind of
artificial book-keeping exercise, that wouldn’t satisfy even America’s own
highly dubious standard accounting practices for financial institutions -
but then The Fed doesn’t get audited so it doesn’t even have to clear that
low bar, does it?
Spitting Image, an irreverent, latex puppet satirical show that
older UK readers may recall, used to have a segment lampooning TV
intellectuals (Dr. Jonathan Miller came out very badly) called ‘talking
bollox’. In mainstream economics, the intellectuals do it to themselves and
simply call it research.
Paul Krugman may have the conscience of a liberal but that’s allied to the
economic understanding of a 5 year old at times. Having previously announced
that the government could easily “end this depression now” (‘this
depression’ being one that in his view couldn’t actually have happened
anyway), he now admits that they can’t (at least not by his prescriptions)
and has come up with the idea that it would be normal and natural for
interest rates always to be negative (i.e. I’ll borrow your money but only
if you pay me to do so); and that the right way to achieve sustainable
economic growth is to create a series of bubbles so that there’s another one
to hop to (like some capital market version of the 1980’s video game
‘Frogger’). Our Chief economist at IDEA Economics has actually taken time
out to expose this view as nonsense2 and you may also have seen my recent
attempts to do the same on Money Channel.
Part of the Union?
Much kerfuffle this week about whether the Flower of Scotland
would remove itself from the pastures green of England (and to a lesser
extent Wales and Northern Ireland). MBMG’s most Scottish face, Graham
MacDonald MBE, has spoken openly on Nation TV a couple of times about this.
Despite Graham’s evident passion and wisdom, I’d rather lost interest by the
time that the vote came around. This was largely driven by the realisation
that the vote didn’t actually matter. At this phase of the economic cycle,
we’re about to enter the phase where small independent nations are no longer
economically or strategically sustainable. Scotland leaving The Union at
this time was not only unlikely (although the final results were closer than
many had expected) it was also unsustainable. They’d have re-joined The
Union again (probably on worse terms) within a very few years. Scottish
independence would be much more viable in 2050 than it would be today…
Expect tensions globally to continue to rise, not just in
Scotland; that’s what happens at this part of the cycle. The logical
conclusion of this week’s FOMC meeting (and everything else happening from
Ukraine to Damascus to Jekyll Island) is the descent into World War 3. Many
blame Putin, I’ve taken Kerry to task, most of Scotland will, with
considerable justification, probably blame Dave the numpty. The reality is
that the economic course that is currently being charted is the ideal
breeding grounds for a universally unwanted conflict. Janet, can you promise
me it won’t happen? If it does, Paul Krugman and Larry Summers can be relied
upon to come up with the idea that causing a bigger war will be the way to
1 Nothing but Blue skies? Scott Campbell September 3 and September 4
2 Secular Stagnation and endogenous money, Steve Keen, Real-World Economics
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