Sunday, 30 May 2010

Ed Milliband asks for a 'Living Wage'

"You need a statutory minimum wage which is mandatory, but I think we need to go beyond that. We can call upon employers, local councils and others to do better than what’s legally required and pay the living wage ... And frankly, why are we doing this? Because justice and a belief in dignity at work says that people shouldn't be paid poverty pay if employers can afford to pay them a decent living wage. That’s why we’re going to be campaigning for it, and it’s going to be a central part of my leadership campaign as well"
Ed Milliband, proposing a 'living wage' of £7.16 an hour

Minimum wage. It sounds like a great idea. A free lunch for all, justice for the poor, increase peoples purchasing power. However it creates as many questions as it sets out to solve. What is a living wage? What level should a minimum wage be priced at? 10p an hour? £100 an hour? Could I argue that my wage is not adequate for my personal wants and desires? Is the pay of an Asian worker on less than a dollar a day a working wage? Was it fair that our ancestors had to send their Children to work from an early age often under dangerous and hazardous conditions? Was it fair that my Granddad left school at 15 and signed up for the second world war at 17, yet myself and my father enjoyed a University Education? What is fair? If we raised peoples wages, wouldn't prices just rise, justifying yet further increases to offset these rises? If its that easy to make people more prosperous why don't we just keep pushing this price ever higher.

When confronted with the issue of a minimum wage 99 people out of a 100 would immediately say it is a good thing. We see the initial policy, thinking that it increases peoples living standards. Of course the opposite is true, its price fixing, just like arguing that the price of bread is too high. When the government implements a policy of raising peoples wages it means that any job that could be done for that lower price has now gone. It makes outsourcing a job to China, or replacing the position of the person with technology that much more cost effective. Why do we have such high youth unemployment? Why have we got an ever growing underclass who are priced out of the employment market? If they were in reality to raise the price to over £7 an hour, this would be a disaster. This would not hurt the 'rich capitalists' it would hurt the very people it was intended to help, the poor and vulnerable among society.

A fundamental premise of economics is prices. Buyers desire a price as low as possible, sellers want a high price. A wage is a price. Workers (not just "working class workers", as the divisive term is used by the left, but ALL labour),  the seller, want as a high a wage as possible, the company, the buyer, wants to pay as low as possible. Market forces ensure equilibrium's are established. If too low a wage is offered then an employer will not be able to fill a position. Offer a dentist £10,000 and you are going to be looking for a very long time. The employee offers too high a wage for his/her particular services then no one will employ them, as other people exist that can do the job for less. 

Think of it like a consumer good, a wage is just a price. There is no exploitation taking place here, both the buyer and seller agree with each other a fair price. If the worker thinks the price is too low they are welcome to exit the agreement. I'm a real life example of such a concept. I have raised my wages 250% in the space of 5 years yet I am a member of no Union, nor do I use a minimum wage to achieve this. I use the market to determine what I am worth and thus accept the fair price I am offered.  

Price equilibrium's exist to measure an individuals productivity. In a true free market the wage you command is how productive you are. Now we may not think of David Beckham as very productive, he just has to open his mouth for us all to see this. However in reality, he is. He's a global sports icon that can shift millions of consumer based products for a company. The product he promotes could be pants, but many are sucked into short term marketing campaigns and fads. He draws support from all continents of the globe, increasing his clubs revenues. Why do think Real Madrid bought him? However if we were to all stop watching football, buying the products he advertised, Beckham would be worthless. No conspiracy, this is how markets work, prices, supply and demand. Beckham quite clearly offers millions of consumers around the world a product that they want. 

Its the same for all of us. Why does a Brain Surgeon get paid more than a shop assistant? Its the productivity. You can't pull Joe Bloggs off the street on minimum wage and ask him to get a tumour out of someones head. The shop assistant does not require the same specialisation, therefore there is a wider scope of labour that can perform the duty. Again you can take it further, there is only one David Beckham, rendering his services a monopoly.

'These companies are making millions, why can't they spare some money for the workers?'. Complex issues are never black and white. The idea that company profits enrich some wealthy parasite that creams off the workers labour - the 'real wealth producers' - is not true. Profits are a market price, a signal used to determine which companies can utilise and mobilise societies resources effectively and meet the needs of peoples demands. A profit tells private capital "Ok, we can meet peoples needs effectively, we need more resources to help society". It can go into a number of avenues, such as expanding operations. It more commonly goes into paying stock holders a dividend. I have a pension pot and I no doubt receive dividends from multinational company somewhere. Does that make me a wealthy individual who creams off societies resources? Of course not. Profit doesn't just sit idly for the rich, it is a price that helps us all. So long as it is genuine free market profits, not Government propped up monopolies such as the Banks at that moment.

The world doesn't owe you a living, you have to go out there and offer something to society. For those in real need, the free market can do a much better job in providing welfare for those in genuine need than the state. Can you imagine if we didn't tax our entrepreneurs half of what they are currently taxed? They already do a lot of charity work but it would no doubt be a lot more. The competent who have proved themselves, rather than politicians with no such legitimacy, could provide help for those in need. For the majority of us, it would be offering what we could to society. No feeling sorry for ourselves, or wallowing in our own self pity of how we get 'screwed'. Get real. My Granddad fought a war during his teenage years while I got a world class education for practically free. Student fees? So what, I pay it as a tax, it gets cleared when I reach 50, and if I don't earn sufficient income at sometime in the future then they don't chase me and payments get reduced or suspended. Hardly a hardship. 

The left patronise the lower income people of this country, believing they are doing them a service by raising the minimum wage but all they are doing is taking further jobs away from them. Again a real life example. My Girlfriend worked in Bingo as a Student. Practically all the staff were on minimum wage. Every time the government raised this price management had to contemplate letting people go as their wage bill would rise. If they passed these costs onto the punters, then a drop in revenues would occur due to the higher Bingo prices and drop in customer numbers. It was a real headache, one that no doubt if raised to over £7 would cause a lot of issues for the business. Same in manufacturing, if the productivity of the worker is lower than the cost, the work goes over to China. 

Would raising the minimum wage to £7.12 solve the issue? Let me put it like this, did establishing a minimum wage when Labour came to power in 1997 solve the issue of a living wage? Has it been solved since through various increases down the years? It's an idiotic policy that appeals to people emotions over rational reasoning. Increase it to £10 - to £100 - it won't solve the living wage issue. Its the free markets reign over societies capital structure that solves the living wage issue.

Saturday, 29 May 2010

Central Bank Independence to create 'Economic Stability'

I've taken some interesting points from article in which Ben Bernanke states Central Banks must keep their independence in setting interest rates. 

"Restricting banks' ability to execute monetary policy would lead to economic instability and "boom-bust cycles."
The Bank of England has been independent since 1997. Since that time we have witnessed the largest credit boom and bust since the Great Depression. Through all those prior years monetary policy was driven by the Governments Chancellor. So how does a Central Banks independence solve the boom bust dilemma as claimed above?

"Politicians generally prefer holding interest rates low, as a means of stimulating the economy and boosting jobs."
Remind me what are interest rates at now as I write? 0.5% of a percent, the lowest in the BoE's 300 plus year history, since it was established in 1694. I don't think we can actually go much lower, can we? Inflation, as measured by RPI is the highest since our last recession and these guys still have their foot to the floor.
"Thus political interference in monetary policy can generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation,"
You don't have to be an economic wizard to see the anomaly in our present time.

How anyone listens to these Monetary planners is beyond me. Markets don't need people like this, something Hugh Hendry states quite aggressively in this video. Markets should 'purge the system of its rottenness' - now there's an idea? What wrong with entities going bankrupt? Its what differentiates real market economies to socialist dictatorships. It frees up resources to meet peoples genuine needs, one of the reasons we live such a relative pleasurable existence. As Mr Hendry states, 'We can spread this over 20 years or we can spread it over 3 years'. My bets are on the former.

Friday, 21 May 2010

China Hedge Part II

Earlier last year I wrote a post about the China Hedge and there's further activity as the video shows.

Click here to view Video.

Is Gold in a mania? Is this the end of the bubble? Or are the Chinese ahead of the game yet again? The clip mentioned that China has now become the largest Gold producer in the world, surpassing South Africa (which incidentally has been in decline for a while now). The Chinese are digging like crazy for the stuff, they have been for years as the Government knows the yellow stuff is the key to their economic well being during the next 10-20 years. We don't have a bubble, but the Central Banks and Governments will create one here. George Soros aptly called it the 'ultimate bubble' and I agree. When he said this many looked at his comments and concluded that this meant gold was already in a bubble, but I never drew that conclusion, he's a smart guy. As it transpired later Soros actually added gold to his fund. Funds all around the world are increasing their holdings. But we are way off the bubble top, years away. 

The fundamentals for the bull market just keep getting better and the authorities apostles, such as Paul Krugman, keep telling us Gold bugs what we want to hear. Apparently we aren't doing enough. Right? We've been here before Mr Krugman. You've been telling that gruff to Japan for 20 years now and what have they got? Huge debts and a basket case economy. Get those interest rates lower, increase spending and get more money into the pockets of people. I forgot that prosperity was that easy.

China has also become the largest Gold consumer, which is another huge shift in the world. Ten years ago their citizens couldn't buy it, now the Government actively encourages purchases. You can't eat gold? You can't use gold? But you can't use or eat worthless paper tickets, promises of payment, that we call money. Bonds are a disaster. Housing is going to be a terrible way to hedge going forward and stocks, dear me, companies have that much state intervention Karl Marx would be proud. Only Cash is going to do worse than the list above. However Gold is outside the system. It's no ones liability. However stupid, despotic or mad our leaders become, it won't affect gold. 

We all await the China crash. Marc Faber seems to suggest sometime in the next 9-12 months. More market commentators have noticed. Hugh Hendry, Jim Chanos, Mish Shedlock with many of the underground economics forums also beginning to discuss the events that are happening. Evey Credit boom ends, and there is never the 'soft landing' that is always told, it always gets messy. However when China does run into difficulties don't think this is it. It will just be a setback, many of the above also agree with that concept. Unlike the West, China is starting from a very low industrial base, meaning there is still huge potential to grow. She will just grow her way out of problems eventually. Remember the US had huge issues as it rose to become the superpower. The Great Depression, the panic of 1907 and many financial storms throughout the nineteenth century. She overcame them all as it was from a lower industrial base and she borrowed money to produce not consume, similar to China. Of course when China stumbles what will happen to Australia in the short term? Many Asian nations - Japan, Malaysia, Vietnam? African nations such as oil rich Angola or Nigeria? South America, with Chile and Venezuela? Not only are the Chinese buying gold but they are forming huge trade links around the world and also practice a form of check book diplomacy. They use their monetary reserves and labour to build infrastructure for such countries to access the natural resources they need and buy some friends while they are at it. 

The Eurozone, Chinas biggest importer won't be doing the country any good with what's happening there. Previously I contemplated that Euro members could leave as they can't adapt to the Germans mentality. However I now think its the Germans, the strong rather than the weak, who will leave! I mean the recent bailout is a complete disaster - no one has the funds to pay for it. This will just further undermine the Euro in the long run. I think it may now be more likely that Germany will leave as there are more mutterings from their public that they've already had enough and want a return to the sound Mark. If that happens you can kiss the Euro goodbye. The Germans are the only ones disciplined enough to run a relatively sound currency (perhaps Finland, Holland and France also). The Euro needs the Germans. Again all this just puts further gloss to the gold bull run. You can't even turn to the Germans for sound money any more.

We are witnessing the breakdown of the welfare experiment since Nazi and Japanese expansion created the Western promises 'a society fit for their war hero's'. The social ratchet kept tightening, with no politician loosening the grip. Just like the collapse of communism it will be the free market that defeats statist policies. It always does. While we transition there's going to be some pain along the way. Chinas Hedge continues....

Wednesday, 19 May 2010

Inflation - The Governments Free Lunch

"While our case has been aggravated by the illegal sanctions imposed by the Western powers, rising food prices are a world phenomenon because of the use of biofuel"
Zimbabwe's Finance Minister, Samuel Mumbengegwi 

Recent figures for inflation have been released for the UK yesterday and it doesn't make pretty reading for the Government. CPI up to an annualised rate of 3.7% with RPI standing at 5.3%. Again Mervyn King blames the increase on VAT, the fall in the pound or the rise in oil prices. Hate to break it to him but these are just symptoms not causes. The causes can be laid directly at the Governments monetary policy, that is printing money, record peacetime deficits and artificially low interest rates. Thats what he should have told the new Chancellor George Osbourne. Scepticism amongst the city seemed to be the other part of the story, that is they are not buying the above reasons anymore. How long will it be before the general public cottons on that inflation is going to be a real problem going forward. The only way inflation is going to come down, as the Governer would have us believe, is if the government stops printing money, hikes interest rates and gets their books in order. But none of this will occur.

Continued debates regarding which algorithm to use have resurfaced. RPI-X, RPI, RPI-Y? What about using a tool we all know works, the free market. Supply and Demand. Prices. But that would be all too easy. The Keynesian witch doctors couldn't promote their economic religion of the 20th Century. 

There are a lot of common myths surrounding inflation in most instances, the symptoms are portrayed as the causes. Symptoms such as unions, 'overheating', OPEC, speculators - the list goes on. In a nutshell inflation is actually created by making more money, its that simple. Zimbabwe hasn't got inflation because of their stock market or the Unions or OPEC, its got price problems because Robert Mugabe ran out of money and turned to a printing press instead of balancing the books. Of course he lists the same reasons as all governments do. Zimbabwe shut down their stock market recently by stating it was helping to cause runaway inflation. The best stock market in the world is there, along with the best housing market, gains we could only dream of. However there is a catch. The Zimbabwe dollar, in which these assets are valued, is worthless. Same policy as our current Governments are pursuing only with more moderation.

Excess Capacity? Now theres something Zimababwe knows about. But yet the well versed lines we are told is that we can't get inflation because of this excess capacity. People can't demand pay rises, again a symptom, because of this fact. When in history did a country sucumb to high rates on inflation when their economy was strong? Excess Capacity exacerbates inflation, it doesn't dampen it. So while the deflationist scream 'excess capacity', I say 'look at history' (Remember Stagflation?). Incorrect lessons are learnt, fallacies are drawn from history. By the same logic, Zimbabwe should have solved their inflation problem. I have been tracking events there from around 2006 when their inflation stood at a 'mere' 1,000-2,000%, and continuously there has been more and more slack in the economy but yet inflation has gone through the roof, it can't even be measured anymore. People stopped turning up to work because the price of the bus fare was more than they got paid at work. People get confused that the unemployment caused during Thatchers Policies in the early eighties helped dampen inflation when in fact all she stopped doing is spending money the Government didn't have and buying her way out of trouble like previous Governments had. She let market forces take over which lowed consumer prices, and let inefficient state entities fail. It wasn't excess capacity, it was a combination of market forces and the relative restraint of money creation.

Oil keeps going up and up. It does in Zimbabwe. So much so that they put price controls in place. Mugabe blamed oil speculators or OPEC, again the symptoms. It was caused in exactly the same manner as we have now, excessive monetary expansion. Supply and demand issues will occur at some point in the future as we hit peak, but not now. Global demand is weak and people are struggling to buy as much of it. So that price of £1.22 a litre in the UK, we can thank our MPC and our government. Not the oil companies as the Government would have you believe.

Unions or the lack of them. We won't get inflation because we don't have unions due to the wage price spiral they cause, again its a symptom. As more money gets created the publics demand for money becomes greater as it takes more money to buy the same goods and services. However pay demands can equally occur in the free market, for example people move jobs similar to India where they have greater inflation expectations as their Government is weak thus creates too much money. People can just as easily drive up their own wages. We will see more unions and strikes in the future, but don't confuse this with a cause of inflation. I disagree with the concept of unions but there is one point I agree with them, they don't cause inflation, they just play catch up to rising prices caused by weak incompetent Governments. Suggestions of public sector pay freezes does not bode well for future industrial relations, when inflation is on the rise.

In 1997 when Labour granted 'independence' to the BoE for controlling interest rates this was hailed in the city and by many economists, but I disagree. Their targets are still set by the Government. It's laughable that the BoE is independent with it's main remit to target inflation however this figure is now nearly twice as high as what they target, it's not even within their bounds. The 'recovery' or 'it will subside' are reasons given to not take action, but the bank doesn't have a remit on these issues. Its aim is to take steps once inflation goes outside its bounds of 1-3% that the Government dictates. So while Mervyn King and Co. sit on their hands it won't be long before the creditability of the central bank is called into question. A year ago the bank predicted that inflation would now be 0.7%. A 3% margin or error is quite large if you ask me. The record reads quite clearly - it didn't take until 2011 for inflation to rise above 1.2%.

Frustrated savers sit and wait, questioning the policies officials take. Of course its one great moral hazard and the Central Banks are masters at setting up future disasters. The reason savings rates are so low is because commercial banks can lend from central banks for virtually nothing. Unlike genuine savings (capital) this is just pure inflation, so why pay retail savers with real capital more than the central banks rate? The commercial banks can then take this money and lend it for the long term, a common trade is to borrow short term at 0.5% and take this money to buy long dated bonds, say 10 year gilts, which have a higher return (inflating the bond bubble). The difference becomes the profit, money for nothing. Of course the problem occurs when Central Banks have to raise rates. How will the banks deal with this sudden shock to funding? Bailout Mark II? Private Banks then lend to the public and the Government at higher rates because of inflation and default risks in the future. So unless the Government and Central Banks step into the place of private banks then they will never ultimately set market interest rates. 

Media types will have you believe that this is not a plan, that is to inflate away the debts, and its Central Banks believing that inflation will subside. Don't believe everything you read in the news, like I mentioned above there is a remit on the bank which they are quite clearly ignoring. Much damage will be done by trying to inflate, its not just a case that the prudent among society are punished to bailout the irresponsible. The prudent peoples savings erode, incentives are lost to save and capital begins to flee, into foreign assets or Precious Metals. Keynesian's would have you believe we have a liquidity problem, when it fact its a capital deficiency issue. If you have a printing press liquidity is never an issue, so by inflating all officials are doing is adding gasoline to the fire. It compounds the problem. I think people are aware something is not quite right with the monetary system, printing money, giving away free money, people are asking "isn't this what Banana Republics do?".

I warned that we can't devalue our way out of trouble, making the point that prices always catch up with you. The UK is now beginning to find this out. Companies and individuals get lazy but when prices come back to bite, suddenly that purchasing power has gone. Capital gets eroded, saving rates come under pressure as people's demand for money rises to buy the same goods for more - two building blocks for prosperity. Peoples inflation expectations grow. Capital becomes harder to form as prices rise and people struggle to forgo consumption. Company profit margins come under pressure. A vicious cycle can occur without action from a strong Government. Could we have a fall in inflation? In the short term I don't dispute this, when cuts are enacted we could have some slowdown but we won't go the distance and take our full dose. If we couldn't take the pain in 2008 why do you think our leaders will take it going forward with the economy in worse shape. 

There is only one trend and that is expect more inflation, but not the relative calm inflation we have seen over the previous decade. Over the new decade inflation will get out of control, the policy makers will go to far. With the same deflationary market forces relatively subdued it's going to get messy. Inflation, its historically the Government great free lunch.

"Inflationism, however, is not an isolated phenomenon. It is only one piece in the total framework of politico-economic and socio-philosophical ideas of our time. Just as the sound money policy of gold standard advocates went hand in hand with liberalism, free trade, capitalism and peace, so is inflationism part and parcel of imperialism, militarism, protectionism, statism and socialism."
Ludwig Von Mises

Friday, 7 May 2010

Hung Parliaments

The British people have spoken electing a hung parliament. Negotiations began. Speculation was rife. Media groups with 24 hour coverage. It was 36 years since the UK had the last hung parliament the same time we last entered a period of stagflation. This time a coalition government was the outcome, a marriage between the Conservatives and Liberals. Labours bubble has burst with the 'no more Tory boom and bust' happening on their watch, ending the Utopian mirage the general public believed the party had delivered them. Despite the election defeat the party is still in good condition for the next leader with a sizeable number of seats and share of the vote. I said that if we got a Conservative Government the UK was in trouble (and not under the conventional wisdom), well we got two of the parties so my bets are for a Labour Landslide victory at the next election. David Milliband has put his hat in the ring for the leadership contest, another possible Blair but I get the sense he has more political beliefs than the later PM. Speaking of Prime Ministers, Gordon Brown had a dramatic exit on Tuesday evening. Despite having all the wrong polices I liked Brown. I think he genuinely believed in what he did, was obviously a highly intelligent person and had a strong work ethic who believes he is doing the right thing. There's not many like him in any more in Parliament that is a real politician not a PR Guru such as the other two leaders.

While all the electioneering has taken place we've barely even noticed the carnage in the markets. The DOW crashing 9% at one point. Major stock indices all around the world looking shaky. Markets continue to worry about Greece, Spain, Portugal the UK. A bailout was announced but they can't kid the market who is playing the game but knows that the Government have set up the next disaster. Reports of relative safe 'havens' such as the US is like telling someone the boat they are in is safer than the next one because they've only sprung half as many leaks. Over the long term all boats are sinking just at different rates.

As the wheeling and dealing of the parties took place a hot topic was electoral reform, with the liberals trying to move towards proportional representation. In my view it will be a dark day if the UK was to loose the first past the post system, especially in these choppy waters the world finds itself in now. Its the political system that ensured Britain has historically maintained one of the most liberal and open societies in the world.

The end of the First World War sparked great political upheaval. The old empires - Habsburg, Ottoman, 2nd Reich - all collapsed and with it a scramble for the power vacuums they left behind. Democracy was imposed on many European nations, nations that were not acquainted with democracy. Not only did they get democracy but many got it in the form of proportional representation. The newly drawn boarders of the continent further exacerbated the issue of trying to dictate common policy. History views Fascism in rightly a dark context, however people in such countries didn't vote for the perverse beliefs such parties were associated with as the Second World War drew to an end, such extreme views had evolved during their time in power. Such extreme parties were formed from coalition governments that aligned themselves with traditional pillars of society.

Many European nations contained fragmented parliaments during the interwar period. Governments would come and go in months, for example the Reichstag in Germany had 16 parties all contradicting one another making laws almost impossible to pass. Many parliamentary members were radicals compounding the lack of common ground to be found giving huge variance towards policy. When the 'Crisis in Capitalism' struck in 1929, so did the crisis in democracy within many such European countries. The public began to believe that democracy was too ineffective to solve their problems thus seeking more radical alternatives. As extremes were given platforms in the context detailed above, nation after nation succumbed to the far right. All the above never occurred in Britain, the most mature democracy in the world. We had our share Fascism, but the first past the post never favoured Oswald Mosley.

Italian Fascism began like this, opportunities created by PR and the alliances they were able to obtain. Over time it gradually morphed into the political party it became infamous for. Hitler rose to power under exactly the same circumstances, again aligning himself with traditional pillars of society that could agree on some aspects of common policy but ignored other more radical views, believing these could be controlled. As Hitler and others increased their grip on power, they also abolished democracy and so began the dictatorships that they have become synonymous with.

Now I'm not saying that PR means we are going to elect a Fascist government, times have changed and I think the majority of Europe is a far more tolerant place. But PR gives rise to radical groups and fragmented weak governments. When the economies ticking over and everything seems fine this isn't so much of an issue, but when we have a persistent crisis then things can get messy.

I realise that our current first past the post system has produced a hung parliament, however the majority of seats are held by mainstream progressive parties. If we had PR then the Fascist BNP would have gained around 12 seats. Our current system ensures no such political base for them. UKIP would have around 18, the Greens 6. I understand what people say when parties get a greater share of the vote but don't get a proportional amount of seats, but first past the post generally ensures a moderate parliament. First past the post has its flaws but I would prefer it to other suggested alternatives out there.

With the new policy of fixed term parliaments I currently can't see the current Government lasting the five years. Splits are already emerging and when tough choices are to be made, finger pointing will begin, deals and U-turns will take place, garnishing further support for the opposition. Another Labour Government within five years? I think so and with it, further relative decline for the UK.

Thursday, 6 May 2010

It's not a Greek Crisis

"There is no money. There is no one else’s pocket left to pick. You can’t borrow anymore, you can’t print anymore, and you can’t steal anymore from anyone else....You object to the bond market, but the bond market is just the voice of reality calling. It’s telling you that 2 plus 2 is still 4, no matter what your union bosses would have you believe. Your bosses tell you that ‘the people’ didn’t spend the money, but it’s not true. That’s exactly who has wasted the money, and now the bill is coming due....You’ve thrown your bottles, burned your flags, waved your signs and had your fun. Now it’s time for you to learn the lessons of history and abandon this idiocy before we finally lose our patience with you. Grow up – and get back to work."
Daily rant directed towards the recent Greek Protesters

It may be all Greek to you, but the effects of the bond bubble is here for all to view (already a wiki page has formed). As soon as the so called economic professors proclaimed the financial crisis to be over (the very same individuals who said 'What housing bubble?') another one has begun to erupt and its only just begun. The location or nation doesn't matter, the important point is no politician, government official or prominent academic has a clue what to do next. A 'bailout' is required to avoid financial contagion, horror stories of Lehman are retold. It doesn't matter that no one in the West can cope with their own domestic liabilities never mind take on others, instead a short term fix is proposed as the solution. In reality it can only exacerbate the problems down the line.

Euro bashing has taken center stage. All the Euro sceptics have suddenly come out of the closet. They never knew in the first place why the UK shouldn't join the Euro but recent events have given them the confidence to speak out once more. Is the Euro doomed? Wrong question. All fiat money is doomed. Despite what has been said regarding the Euro, the Germans hold the key to it. Their Deutschtum regarding sound monetary policy does not bode well for future bailouts towards the more irresponsible European nations. Germany should have got rid of Greece and let them fail. But politicians prefer short term fixes rather than the tough long term ones - they won't be around when they break again. Our old PM Tony Blair can attest to that.

Many falsely believe that Greece is the Canary down the coal mine. Put it this way, did we expect better of the Southern Mediterranean nations? We could list the historical facts, the Inquisition, Catholicism focus on the collective rather than the individual, corruption, even the hot weather but that's what history teaches you - what to expect. Greece isn't the canary down the coal mine, the drachma when it existed was very weak, and the Greeks vigilance at the printing press had a terrible history. Britain, as I have mentioned, is the canary down the coal mine from what I can gather. It is a member of the monetary core - nations such as Germany, Switzerland, the Scandinavian countries, the US - these countries have historically had relative sound money (a few periods of exception can be noted) and have respected individual liberties as early leaders of free markets. When the crisis spreads to the core then we will see real problems. Who will bailout the last resort? There is only one tool. A printing press, others such as China wait to see what destruction we can inflict on ourselves. They gave us cheep goods, gave us their savings to buy more of their goods and saturated us with consumption based debt as we have already struggled to grow our economies over the past decade. If you can't beat them militarily then use economics as a weapon, as Sun Tzu said, ' hundred victories in one hundred battles is not the most skillful. Seizing the enemy without fighting is the most skillful'.

Portugal and Spain are showing signs of stress also, how long it takes to spread northwards remains to be seen. Eastwards Dr Faber says bubbles are forming in China, nothing I haven't observed but good to hear from the doom prophet whose practically called every bearish situation before it happened for the past 25 years. Where can an investor turn in times like these? The answer should now become obvious to anyone who is following such events closely.

Tonight we have the election here in the UK. Will we have a hung parliament? I hope it lives up to its promises as the most exciting election in a generation. The last two were very boring for a neutral like me, I was too young for the elections previous to these. On that note its time to go watch what Government will 'solve' our domestic crisis. Unfortunately as the quote hints at the start, no politician or bailout offers a cure. Only ourselves as individuals can put things right. Politicians will just keep putting our problems back for the next guy to solve.