Sunday, 21 March 2010

Vote for Gordon

"Deflationary policy is costly for the treasury and unpopular with the masses. But inflationary policy is a boon for the treasury and very popular with the ignorant. Practically, the danger of deflation is but slight and the danger of inflation tremendous."
Ludwig Von Mises, Human Action

The prospect of a hung parliament. The prospect of a Labour victory. The prospect of divided politics once more. With the British polls showing a narrowing between the Tories and Labour, markets have begun to get the UK jitters once more. David Camerons indecivness on issues such as the deficit and the inflationist policies of the current Government have casted doubts in the British peoples minds. With so many of the populace aboard the Government Gravy train, do we really want cuts? Maybe the government can inflate their way out of this mess resulting in us all obtaining our free lunch, living in endless prosperity? I'm afraid the laws of economics are the same as the laws of gravity. It doesn't matter which way you jump off a cliff, or in this case how the government chooses to inflate, the end result is the same, just like gravity pulling you towards the earth the free market demands the required correction. All the government can do is lower our standards of living for the long term. The more it fights the free market, the worse the end correction will be.

Vote for Gordon may seem like an odd title, as Gordon Brown and the Labour party are carrying out the worst policies listed above, a contarian view if you may. It's important for me to state that I have no political affliation. All parties are as clear as mud, all with agendas to infringe on peoples liberties, distorting markets and impovishing people. Get rid of Government I say, but that is seperate topic for discussion. We need Labour to win the next election. We need another term to discredit statist policies. I fear if the Conservatives win, the UK will be in serious problems.

If, as the Conservatives say, they will cut spending as should happen, this will spark off a further deflationary collapse. This is the required medicine, however the majority will not see it this way. As Ludwig Von Misses states above, "...inflationary policy is a boon for the treasury and very popular with the ignorant". Another quote that has stood the test of time. Recently it has been stated in the news that the UK may not need to borrow as much as initially forecast. 'Economists' talk about the recovery, people say the recession is not that bad, the malinvestments are proped up providing the illusion that its business as usual, all of course are the product of an inflationary mirage. Governments have convinced themselves that all we need to do is drive down interest rates as low as possible and print money to fix our problems. We can avoid the required adjustments by simply trying to continue consuming and borrowing, the exact measures that created the problems.

People have very short term memories and short term outlooks which I have witnessed throughout my life. For example people always state what a disaster Thatcherism was, as they looked at the short term effects, high unemployment, less government support for individuals, the acceleration of industrial decline. Over the long term of course, it was for the benefit of Britain, my generation are all Thatchers children. We all benefit from goods that we used to make, that are now made in China at a lower cost. We have all moved into other areas of employment, better jobs in many cases.

Its peoples short term memory that is dangerous. If the conservatives win at the next election, will the squeeze provoke the public to turn to the left? "We were doing fine under Brown before he left?" - remember "people say the recession is not that bad", the required corrections would be painful. There is so much imbalance, I don't think the Tories could correct the mess in one term. I also think they don't have the spine or the conviction to go through with the required medicine. The temptation to eventually inflate after initial cuts will be too great, the short term benefits will give the government room for manove. This in turn would confuse the people, believing that cuts are the last thing we need, we need further Government action to solve the issues. A resurgance of left wing politics once more could take place. The free market will be blamed once more for the problems.

However if Brown were to win a second term, cuts would not be on the agenda nearly as much. Further inflationist policies will be carried out as the Government spends its way to popularity. The market would not tolerate this, instead capital would flee, interest rates would rise, currency instability or a full blown currency crisis would occur. Its better that this happens on Labours watch rather than the Tories. People would have a clearer picture of what caused the mess - continued Government intervention - "We need the free market to solve our issues, no matter what the cost".

You see the Tories are a classic scapegoat, they generally tell people the truth, that we need disipline. Labour are the weak parent, who give in to their children and let them run riot. We need labour to continue in power so that the Tories can say "Told you so". The end game is a deflationay collapse, hard times?, sure but good for the moral character. The only other alternative is the quote at the top of the blog, monetary collapse.

How likely is Hyperinflation?

It's a topic that comes up in various articles, with authors proclaiming its just around the corner, weeks or months away. Truth is Hyperinflation will happen if we as a nation wish it to happen, which is exactly the path we are walking towards. An excellent article has been published by Dr. Krassimir Petrov detailing the road to hyperinflation. It is only a road and at any point we are free to turn off it, but only if we wish to do so. Vote for Brown, it will build the moral fibre we need to avert such a situation and as Dr. Krassimir Petrov points out, buy some Gold in the meantime.


  1. “If, as the Conservatives say, they will cut spending as should happen, this will spark off a further deflationary collapse. This is the required medicine....”

    More than one mistake there. Spending cuts, per se, are not deflationary. What WOULD be deflationary IS spending cuts unmatched by tax cuts. I.e. it is NET government income that counts.

    Second, re your claim that spending cuts are the “required medicine”, not true. I agree that EITHER spending cuts OR tax increases are required. I also agree that the latter are normally deflationary.

    However, to medicine for reducing the national debt is “tax increases or spending cuts” combined with more Q.E. And the net effect of this is not deflationary. The reasons for this are too complex to set out here, but they are well within the grasp of an intelligent 15 year old. I’ve set them out here:

  2. Ralph,

    There is no easy way to reduce the debt. QE (printing money) will not do this as all it does is impair the economies productivity, default on creditors and makes international money more nervous. If it was that easy then Robert Mugabe would have cleared his nations debt by now, however once you start to print money it feeds on itself and the Government becomes more reliant on it, eventually ruining everyone.

    I notice your blog mentions just after the Napoleonic wars and WWII that the UK's Governments debt was higher, I've also pointed out this myself but theres more to it then simplistic statistics. What were PRIVATE sector debts around then? The answer is low compared to now as people were fighting wars, not getting huge mortgages. Also how large were the welfare states back then? Not very, the expanse of the Welfare state really occured after WWII as Labour began increasing state spending. We also grew our way out of debt more back then. We are now in for a period of stagflation which will mean we will stuggle to grow our way out of the debt.

    Also the governments debt are not 60% as they state now. What about PFI? Unfunded Civil Service Pensions? NHS costs in the future as the population ages and medical technology advances? You see the Governments debts are already much higher then even the napoleonic era, they just fiddle the books.

    Regarding Inflation, there is one and only one cause for it - Expansion of the money supply. The only thing that keeps it lower (as has recently been the case) is productivity gains and low cost destinations etc. So if the government stops QE, lets banks fail and so forth, this will contract the money supply and thus cause deflation, a fall in the money supply. But they won't do this - they will never do this as the whole current system would collapse and Governments and banks profit too much from it.