Britain is in Official Recession - No its much worse

“What I want to see is people who are mortgage holders having access to mortgages at prices they can afford. That's what tomorrow's programme is all about.”
Gordon Brown


Presenter: "You’ve said that over the long term, the US dollar is doomed. What are your thoughts on the British Pound?"
Rogers: "More doomed. It will disappear sooner. If it weren’t for the North Sea, the British Pound would have already disappeared. It’s more doomed. The UK has been exporting oil for 26 years; within the decade, the UK will be a net importer of oil again, and they have nothing else to sell to the world once the oil dries up."
Jim Rogers, CEO Rogers Holdings

It was another week packed full of financial news. Ireland looks on the verge of bankruptcy as they continue to guarantee all their banks, Spain lost its triple A rating, the prime minister of Iceland resigned for health reasons as its citizens begin to falsely blame the free market for their problems. David Cameron predicts Britain will soon require a bailout from the IMF just like the seventies, British banks were hammered with RBS shares down 60% at one point and its market capitalisation only worth £4.5B compared with £78B a year and half ago. “Reykjavik-on-Thames”, as London has become know to the world, is slowly collapsing, with defaults on British loans still to come. Bailouts and printing is the solution the Government proposes. Britain has even begun outdueling Ben Bernanke with the pound in free fall. Even with the pounds spectacular collapse now worse than the great depression, manufacturing still continues to shrink at a time when the UK economy is horribly balanced. As the off book liabilities are slowly included in the official debt readings, British debt now stands at its highest as a proportion of the economy since the dark days of 1978. To top off the financial Armageddon Northern Rock staff got a 10% bonus. This is what happens when you don't let business fail and distort free markets with all the imbalances becoming ever more clear.

The UK hasn't been the only nation is trouble. Ireland consistently blame the Euro, despite the fact that it is the euro that has sheltered them from early collapse just like Iceland. Just like Britain, Ireland continue to prop up the banks a policy that will lead to ruin. These banks have to fail - I can't emphasis this enough. There is a belief that they are too big to fail, however contrary to popular belief the bigger business, the quicker you have to let it fail. If we let these businesses go bust, it frees up scarce capital and labour that can be used more productively. Currently the UK government believes it can prop up the entire banking sector, a sign of incompetence or desperation. The fact that the government has not disclosed the full details of this second bailout attempt has spooked the market with the Government now believing it can beat the market. However, as history has shown, the market is much smarter than any individual or group of people - fundamentals always prevail.

It was also the week that a man from Alabama, who co-founded one of the most profitable investment funds during the seventies, told everyone to sell their Sterling. Jim Rogers has been telling people to sell the pound for years now, as he is one of the rare commentators on TV that talks sense (he also said the Federal Reserve should be abolished, which I also agree with, see my first post for a video of this). Then of course the pound fell, in which commentators began to point the finger at him that this was somehow intentional and he profited from it. I doubt it. Jim for a start is a buy and hold long term investor, in which he always comments he can never time markets, he's the "worlds worst trader" as he likes to be known. Jim has said sell the pound on numerous occasions without the pound flinching, its just this one got more publicity due to what was happening with all these disastrous policies our government is currently carrying out. Speculators placed bets as they assumed other speculators would bet on a fall so bet against Sterling. That's all that happened. It's the market pricing mechanism, not a conspiracy theory of 'fat cats' profiteering.

Demonisation of the Speculator

Of course people and in particular the left always like to portray the speculator as a breed of capitalists with no morals, always cutting a profit from the little man. Speculators, when they are doing their job properly are a crucial mechanism for the free markets pricing mechanism. Their job is to predict the future. In order for future demand to be met it is the job of the speculator to try and anticipate shortages of certain goods, therefore they place bets on goods and companies which they think are cheap, channeling capital to the required areas. There is great risk in it, as predicting the short term future is very hard but this increases the agility and responsiveness of the free market, in effecting keeping it one step ahead. Speculators don't gain as is commonly misperceived, they generally lose. It's like the lottery, there are big rewards for the few who bet correctly however there are far more loser's as greed gets the better. In the end they subsidise society. The recent spike in commodities we saw in 2008 was speculators anticipating the supply/demand imbalances, so directed capital towards these areas and pumped the price up. Of course the price of all these collapsed with great speed, wiping out gains that many had made and creating huge loses. To explain why the price collapsed and why commodities didn't gradually rise instead experienced violent up and down trends, means explaining how unsound money and fractional reserve banking has distorted free markets and their pricing mechanisms. I will leave that for a latter post.

The truth is Jim doesn't move markets, fundamentals move markets. Markets can stray, but they will always align themselves with the fundamentals and at the moment there are no fundamentals for the UK, as I explained in a previous post. Government spin about the 'green shoots of recovery' or the next imminent 'housing boom', will not change the markets sentiment. It seems that the UK is going towards the path of bankruptcy. Full Steam ahead, as Mervin King begins operation 'Money Print', magnifying the destruction. This could well destroy our currency over the coming years. The worrying thing is if the pound does collapse, there is little tools the MPC could deploy to stop the rot. We have very little foreign reserves of only around $60B, but our economy has trillions worth of external liabilities. By causing investors to loose confidence in the pound, this makes these external liabilities more expensive as the pound falls. To support the Pound the MPC could sell these foreign reserves and buy Sterling, but it wouldn't be nearly enough. The only thing they could do would be to raise interest rates through the roof, double digits, and this time it would be worse than the seventies. This is the end game, in all probability years away however if the worse happened, months. Like I've said, its only a matter of time before the UK loses its AAA rating, just like Spain has recently and who knows where it will stop.

Solutions to the issues above are simple:

• Stop inflating the currency. Stop interest rate cuts and printing money.
• Let the market take over. The Government needs to stop bailing everyone out and let them collapse.
• Cut government spending. Start reforming outdated institutions such as the NHS, whose costs are unsustainable over the course of coming decades.
• Let people loose their jobs and homes. We need to free up labour and capital and put it to more productive uses, quickly. Stopping this process will further ruin the economy.
• Gradually, over time, abolish the Central Bank. Free up banks to be part of the market, thus stopping the mass inflation that always occurs.
  

Most importantly do nothing. Let the market take over, in the short run it means substantial pain, but its better than causing irreversible damage, like we are seeing now. However the above won't happen. With the governments recent announcement that Northern Rock may start lending again it is further evidence of the desperation that is setting in. I joked with my dad a few months ago that by the time I look into buying a house I will have to go to the government for a mortgage. That joke seems to be quickly becoming reality. Gordon Brown likes to deflect the responsibility of this Depression onto 'Global forces' and 'sub-prime mortgages' but the UK is a mess from its own doings and it goes from bad to worse every week. A recent report on Channel 4 news that I saw while writing this article, posed the question if this was a normal recession, or something much worse with footage from the seventies shown. It was quite clearly not a question, but a statement, that this is clearly worse than a recession. As the months go on, and if these polices continue, I'm afraid the UK is in real trouble. My 'UK Bubble RIP' post, in which I thought we may have seen a high in the UK in our lifetimes may become true. Jim Rogers seems to agree.

"The idea that you can fix a period of excess borrowing and excess consumption by more borrowing and more consumption to me is just ludicrous ... I don’t think there is a sound UK bank now, at least, if there is one I don’t know about it ... The City of London is finished, the financial centre of the world is moving east ... All the money is in Asia. Why would it go back to the West? You don’t need London.”
Jim Rogers, CEO Rogers Holdings

Purchasing Power is Wealth - Not Money

Today, more than ever people are obsessed with money. It has become a key driver of the employment people choose, how we view individuals and one of the measures that helps form class structures. Yet money today, is one of the causes that has disrupted and distorted our financial systems and ultimately, that affects our prosperity. Sound money it seems, always evaded society, instead a continual debasement of currencies is the preferred approach. Yet it doesn't have to be like this. We could implement sound money, thus abolishing the periodic economic disasters we have become indoctrinated to accept. Unsound monetary expansion that occurs when banks expand credit in concert with the support of a Central bank and government, always leads to a loss in purchasing power of the money we have saved, the preferred commodity we use to store our labour. Our paper notes that we assume always have the ability to store wealth, don't. It is constantly debased, inflated, to pay for government programs, the invisible taxation. I think an historic, hypothetical example is required in order to explain this simple process.

The King who acquires money, without taxation

Let me explain the title above. It's no magic act, just monetary trickery. Lets say our King lives in the Kingdom of Hyper, and decides he needs money for his own consumption, in order to buy a new castle and land and chooses debasement to pay for his pet project. He announces to his people to call in of all of the gold coins in the kingdom to be re-minted with the kings face on the new coins. Currently each coin within the kingdom contains 10 grams of gold, and these are used to pay for goods, the unit is called the Crown. During this process however the King decides to readjust the amount of gold in the Crown, and only puts 5 grams of Gold in each Crown, using the excess Gold to create new coins for himself to use. The people don't really notice the weight as it is the unit, the crown, that they use to purchase goods not the gold content. However the money supply, to pay for the Kings extravagant life style, has increased 100 percent. With more Crowns in circulation and the same goods and services, the effect is that prices rise as the the money supply has increased, thus distorting the previous price equilibrium. The King benefits the most as he is the first to use the new crowns thus has the purchasing power he requires to pay for his consumption, but as the money moves through the Kingdom it effects the prices of goods and leads to inflation.

Other common historic forms of debasement was the alloying of Gold and Silver coins with more common forms of metal, thus giving the illusion of the coins having the same weight but they would now contain less Gold or Silver. The effect was the same. More Coins were minted and it lead to the inflation of prices.

So how does the above example link into the modern financial system we live in today? Well in modern times all a government had to do was print more paper money, they didn't even need to re mint coins. Today it has become even easier, in fact far to easy with the use of computers. They can just digitalise the extra monetary units without the need for deforestation and paper printing. This is what is happening now as this post is been written. Governments are now deploying "Quantitative Easing" in order to "Stimulate" the economy. In other words taxing all of us, ensuring our currencies have less purchasing power. Rather than all of us enjoying the fruits of prices falling in a free market system, we instead have to continually witness the decline of our wealth we have built up, for those of us who are prudent enough to save - which is a crucial function in any developed economy. Savings pay for increased productive efficiency.

We can see Debasement directly in our own currencies

Ever wondered why a unit of pound Sterling is called a pound? Well a pound used to be worth a pound of silver, or 16 ounces of silver. Now a pound is worth around, well, not even 1 ounce of silver. Rather it now takes around £8 to buy an ounce of silver. I'll leave the reader to do the arithmetic, as this shows the complete loss of purchasing power Sterling has had and most of it within the past century. Sovereigns, a common bullion coin that are still traded today used to represent a pound and contain 1/4 ounce of gold. That same coin today is now worth around £137. These were still used in the later years of the 19th Century, which shows how much inflating our governments have done. Ever look at your coins and wonder what they are made of? Very cheap metal, however the debasement has got so serious that even these more common metals used in the 1p and 2p coins are now being melted down as the metal is worth more than the coins. The new editions however are just copper plated steel - it makes you wonder whats next. We might as well start using monopoly money.

When we had currencies backed by gold or silver, our notes used to read redeemable in gold or silver, whichever metal was the preferred backing chosen. Now they just have empty promise statements, meaningless in terms of future purchasing power and value. One of the reasons that the US had to abandon Bretton Woods in 1971 and consequently loose ties the Dollar had with gold, was due to the printing during the sixties, that paid for Vietnam, President Johnson's Social spending programs and NASA's space adventures along with various other deficit spending policies. When the French and British got wise, they started trading some of their Dollars for physical gold. With a run on Fort Knox Nixon had to act, thus removed the Dollar from Gold convertibility. It was quite simple - the currency was being debased, just like the King of Hyper above.

So why are goods still so cheap?

Simple - The Free Market. Through technological advance, the reinvestment of capital to increase productive capacity and the relocation of production to low cost destinations (recently China), this has all created the mirage for a seemingly stable purchasing power. However we should have all basked in the falling prices of the free market more than we have. Perpetual inflation means we have to work until we are 70 and not 50. It means we have to speculate on investments, in order that inflation does not destroy the value of our money we save for the future. Investments that are based on rising capital gains caused by inflation, rather than dividend payments from solid business models. These investments where main street looses, while Wall Street gains. Just like a casino, the players (public), don't stand a chance. DVD players for £20 - more like 10 pence if our currency had retained value. We have China to thank for the gain in purchasing power we have received as they began industrialising, along with artificially pegging the Yuan lower, in order to achieve spectacular export growth. Their huge productive capacity has flooded our markets with goods - we haven't increased our production - they have provided the illusion. I don't care if I have £1,000 or £1,000,000 - I care about how much that money may be worth in the future. Money that has in all likelihood been gained by the use of my labour.

We mistake wealth for money when real wealth is the labour and goods that we produce - its stuff. Money is mearly the preferred mechanism we use to exchange these goods and services between one another, a contractual agreement. In order for these contracts to be valid, it is vital that money is a stable store of value. This, however, as history has shown, and economic theory can prove, is not the case.

"To put it another way: a continuing, sustained inflation — that is, a persistent rise in overall prices — can either be the result of a persistent, continuing fall in the supply of most or all goods and services, or of a continuing rise in the supply of money. Since we know that in today's world the supply of most goods and services rises rather than falls each year, and since we know, also, that the money supply keeps rising substantially every year, then it should be crystal clear that increases in the supply of money, not any sort of problems from the supply side, are the fundamental cause of our chronic and accelerating problem of inflation. Despite the currently fashionable supply-side economists, inflation is a demand-side (more specifically monetary or money supply) rather than a supply-side problem. Prices are continually being pulled up by increases in the quantity of money and hence of the monetary demand for products."
Murray Rothbard, The Mystery of Banking

The Descent of Niall Ferguson?

We came close to financial collapse, Wall Streets big Investment banks went bankrupt or were merged into other banks, the IMF bailed out various countries from monetary implosion, Sterling plunged, Governments turned to Socialist solutions, the myth of houses being a 'safe investment' was derailed. In all the turmoil with every asset in sight heading south, historian Niall Ferguson was on our screens again, this time with a series titled "The Ascent of Money" to promote his new book. A six part series that looked at the historical impact of finance within human society and how it has evolved, into the modern system we now use in our economies. I personally enjoy reading Niall Ferguson's books and there are some interesting titles to his name, my favourite being Empire: How Britain Made the Modern World. After the last episode there was an open web chat in which he answered peoples questions, which can be found here. Like the television series, Prof Ferguson seemed to have flawed analysis of economic matters, such as deflation and inflation which I wish to explain briefly here. Inflation and deflation is strictly a monetary phenomenon, it is caused by an increase in paper money compared with the goods and services in an economy. This shows up as rising prices, however the goods do not rise in price from market forces, but from monetary expansion. For the sake of this article, I may refer to deflation as falling prices, but technically it is a falling money supply. However I will use this definition to elaborate on Prof Ferguson points in question. I have selected some of the quotes he made in the online discussion that I found interesting.


"Well, right now Ben Bernanke is more worried about deflation than about inflation. But if he's successful we can soon revert to worrying about inflation. As I said in an earlier post, central banks today do not want 0% inflation (i.e. price stability). It limits the room for monetary policy too much. Are we going to see a big surge in inflation after this crisis is over? I frankly doubt it. The Fed can mop up a lot of this excess liquidity quite easily, as the Bank of Japan did after the end of quantitative easing."

The above analysis is flawed, in many aspects. First of all, that we are suddenly worried about deflation. This is a myth, as the past couple of decades have been deflationary. As I've said before market forces are always deflationary, people reinvest capital to increase productive capacity, thus reducing the cost of goods and services. Prof. Ferguson confuses general deflation, with the aspect of deflation that Ben Bernanke is worried about, that is asset price deflation - houses and stocks. As the US and UK have consumption debt based economies, where the 'wealth' is based on the price of the above assets, when these are falling in value then the economy contracts. This is what the Western Central Banks are worried about, as our whole economy revolves around these assets. They will inflate these assets at all costs, hence why they want to print money. History has always shown governments will do this as people want the government to take action. Prof. Ferguson does not mention any of this which is a big omission. He also doesn't mention it in the television series.

Apart from the first episode there is no great mention about inflation. Inflation is a purely monetary phenomenon, which amazingly he doesn't seem to explain in great depth. In order to obtain the 'price stability' he references above, central banks must constantly inflate the currency as the prices of goods and services continue to fall. Achieving price stability is a path to periodic financial crisis. Price stability helped cause the Great Depression, as the FED had to inflate during the 1920's in order to ensure inflation was ticking along, fighting against the deflationary forces of industialisation. Then when the bust came in, they tried to inflate to keep inflation up (i.e. keep wages, agriculture and stock market prices high), however they were beaten in the end by the gold convertibility so deflation won in the end. Rather than the economy resuming normal operation it stagnated for years due to the huge inflation in the proceeding years, accompanied by the draconian measures that were introduced as the government constantly interfered during the bust. It wasn't deflation that made the great depression, it was the inflation in the stock market. Then there was the stagflationary seventies. All currencies were off gold, therefore governments this time could inflate so inflation reached as high as 25% in Britain. Again the result was the same - economic hardship for years. It was inflation again in the 50's and 60's into asset prices that caused this as central banks looked for 'price stability'. Yet again, we are following the same foolhardy decisions, as price stability causes financial instability.

When Dr Ferguson mentions this price stability he says it limits the room for monetary policy. Does he really understand what he is saying here? The only thing it limits is the economies ability to re-deploy its resources efficiently and effectively. It has helped cause the stock market bubbles and the housing bubbles with the recent one, being one of the prime reasons we find ourselves in this mess as Greenspan and Co decided we had to pump cheap money in the system to ensure 'Price Stability' to combat these deflationary forces. They expanded the money supply so much that the West quite simply misallocated its resources in the wrong areas, hence the major correction we are now going into. Capital should always be scarce despite what people say, as it tries to direct a scarce amount of resources in the real economy into the required productive channels.

Then we come onto his other comment regarding if we going to see a big surge in inflation, in which he doubts we will. His reasoning is that we will be able to mop up any excesses like Japan. Like Japan did? As I have mentioned before, and unfortunately our governments have begun implementing this policy, Japan cut interest rates to 0% and tried to inflate to cure their downturn in the 90's but all it did was kill the economy. They also tried the new buzz word in the media "Quantitative Easing" which is effectively printing money, as I have earlier warned about. The reason Japan didn't experience inflation domestically, was that they exported this excess money to the world. Japan exported inflation to the world. You have probably heard of the Yen Carry trade well this is what it was in effect, people buying up huge amounts of Yen at cheap rates and putting the money to use in other countries where the returns were higher. It was also the reason for the Yens surge this year, and the deleveraging we saw in the autumn and winter of 2008 as these returns evaporated and the Yen increased in value against all currencies - people had to sell to cover these loses. This is also one of the causes of our asset booms in the stock market and housing. If it wasn't for this and the fact Japan is a huge creditor nation who have a trade surplus, they would have experienced huge inflation. So then we ask the question, how will the West mop up this excess money if the majority of the worlds economies are doing it? Quite simply, they can't, once this money is in the system along with less goods and services (which is what is happening at the moment as businesses won't invest) inflation is inevitable. The only way to stop it is by raising interest rates to double digits, a policy politicians don't particularly like, as Margaret Thatcher found when she became a demonised figure. Our economy is based around debt, so they are not going to be doing this for some time.


"Don't know the book. But people are always writing things like that. My favourite is William Rees Mogg's Great Depression of the 1990s, which never materialized (rather the reverse). Usually the predicted event doesn't happen. Sometimes it does -- though by 2010 I suspect we'll be out of this hole and Harrison's book will be out of print."

The comments above are in regards to Fred Harrison's book, Boom Bust: House Prices, Banking and the Depression of 2010, this is also a book I have read. Yet if Prof. Ferguson had done sufficient research and indeed read the book before passing judgement, he would have discovered that there is a very set pattern for the gap between each housing boom, specifically 18 years which Fred Harrison shows in his book. The book was also written in 2005, just as the housing market was slowing down and many thought it would collapse, however Fred stated that it would carry on for another two years, the period he terms as the "winners curse". He also said it would carry on with double digit rises, when everyone said it would slow to more moderate growth, as he claimed hysteria would grip the market once more. He also wrote a book back in the early eighties, The Power in the Land, in which he predicted the recession of the early nineties, so this is not a one off.

The assumption that we will be over the worst by 2010 is wrong and sounds like he has been listening to the Labour Government. This stagnation will go on for years in the West. 2009 will be even worse, with more bank failures, huge unemployment, and rising debt. Government finances will be in a hideous state and 2010 will be a grim year too, with in all probability the beginning of what will be years of inflation, as 2009 winds down.

"No, we are in a very different situation from the world in 1929, although the potential was certainly there for a Great Depression 2.0. The key difference is that the Federal Reserve System and the U.S. Treasury are doing everything in their power to combat the collapse of the banking system. And so far they've done a pretty good job. I find it hard to believe that this time next year will be so worried about deflation and depression. The conversation may even have switched to inflation and the need to reverse some of the stimulus that was injected."

The final sentence of the above comment concurs with the first statement in this article, however it is his comments regarding the authorities' interventions that I wish to tackle, as he quite clearly has a incorrect interpretation of history. As I have shown in a previous post the Great Depression was caused by government intervention, the Federal Reserve slashed interest rates from 6% to 1.2% and took all sorts of financial instruments from the banks to prop them up. Prof Ferguson seems to place a belief that they have done a good job, however President Hoover was saying exactly the same at the end of 1930. It wasn't until the second half of 1931 when things really were desperate, and the previous measures had quite clearly had no effect. Governments make the situation worse, which I will dedicate a post at a later date to fully explain why free markets should never be interfered with, even during a bust. He's right in once aspect that later in 2009 we shouldn't be worried about deflation, the monetary expansion along with the depletion of goods should ensure a resurgence in inflation again. We are facing a depression, even if the authorities never admit it, but it will be an inflationary depression.


These were just three of the comments he made in the web chat, I didn't feel the need to choose anymore comments as the post would have been too long. There were some good points regarding the Socialist Chilean President Salvador Allende from various posters and from Prof. Ferguson himself. His successor, General Pinochet was a tyrant and an oppressor of personal liberty, but Allende would not have been the Socialist Utopian alternative, as so many among the left like to believe. Before the coup, Chile was already showing signs of Totalitarianism, along with the classic hallmark of Socialist overspend resulting in the escalation in inflation. There was quite an extensive debate on this subject matter, with some emotions running high.

One of the terms coined in the series is that of "Chimerica", or the union of China and America in recent times. Ferguson paints a rosy picture of this relationship, although he does mention the possibility of a Third World War between the two without the mention of possible alliances. In one of his books "Colossus: The Rise and Fall of the American Empire", he evidently can see that America is on its way out as the worlds superpower, displaying signs of overstretch and faltering economic growth, similar to Britain's decline, decline that I suspect we will see over the coming decades (as empires always decline in over a long period of time). In the book he doesn't use the term Chimerica but acknowledges the China effect and the deficits that America is running with the rest of the world. This is one point he doesn't make an issue of in the series, which in my view is a major point. Britain, when it began its decline, was a large creditor nation with assets all over the world. America, on the other hand, is a huge debtor nation the largest in history with very little in terms of overseas assets. America, is in a far worse state than Britain was during its decline. Yet Ferguson seems to believe that America will be the main economic powerhouse for years to come. I disagree, and think he has overlooked this fact, or forgot to mention this historic parallel. The globalisation of today is far different to the one before the first world war. He mentions British trade with China, however the Chinese were very restrictive back then, only allowing European merchants to trade at key ports. They had no access to mainland China, and shifted their goods through the local merchants. In this recent revisit of Globalisation, the situation is very different. China now produces and exports huge amounts of goods to the West, and have modern economic capabilities. They are becoming self sufficient, while the West now relies on their productive facilities to make goods. This is why this time it is more experimental, as the West slowly loses its status as the economic center of the world.

In the final series Prof. Ferguson detailed the various financial events of the past two decades, from the Savings and Loans Crisis, the Asian financial crisis, the Russian Government Default, LTCM collapse, the dot com bubble, Enron then finally the housing bubble. Yet he didn't link into what caused these events, and how they kept reoccurring. Again the Federal Reserve has fostered these, and persistently distorted the market causing the major downturn we are now seeing today. All the above is created by Greenspan and Co who kept bailing the markets out. People were amazed that Lehman Brothers went bust last year, but half of those US investment banks should have gone bust 10 years ago, along with LTCM at the time. He instead pins the mistakes on human behaviour and markets. This is not true, as the market would have corrected these excesses long ago, instead the Central Banks kept bailing out everyone. In other words they took the risk out of the free market. The free market therefore did not price risk, which is a reason why the banks have so many issues we see today. This omission was fatal, as it explains the bust we are going into is not a product of the true free market, or the product of Capitalism (as many anti-capitalists have begun prophesying its downfall) but the product of Central Bank intervention. The market would have corrected all the above long before, thus we would have never had house values escalate as high as they did and an economy orientated so heavily towards these asset prices. These banks would have gone bust long before and along with it more sensible lending standards, with a more balanced economy.

After viewing the series I don't think I will be buying the book, and will probably wait until it becomes available at my local library. I was also disappointed that the series did not go into the details of fractional reserve banking, Central Banks and the artificial market forces that China have been exerting in recent years in order to grow their economy quicker. There was also a lack of history towards recent financial events, which would explain more clearly the predicament we find ourselves in. However, Prof. Ferguson is an academic, not an economist. His book Cash Nexus, another book that I have read, he declares gold as an old relic with comments such as "Gold has a future, of course, but mainly as jewelry". This was in 1999, around the bottom in Golds price, since which Gold has increased around 400%-500% in Sterling a decade since these comments. Other recent comments such as "Money is trust, not metal", is true with our modern fiat currency, however only metal ever keeps its value over history. Another historical point Prof. Ferguson misses.

Alan Greenspan, who helped cause the current issues we see, understood the damage central banks and a fiat monetary system can cause. Back in 2002 Ron Paul asked him about Gold and Economic Freedom, an essay he wrote (in which I have taken an extract from), and if he still believed it to be true and valid for today. He responded with "I wouldn't change a single word". It's a shame many mainstream commentators such as Prof. Ferguson can't see the flaws in our current system. Greenspan could.

"But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion ... In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value."
Alan Greenspan, Gold and Economic Freedom, 1967
Note: The Federal Reserve was established in 1913