An interesting article can be found here which contains some insightful commentary. It details that the worst is still to come, highlighting the socialised fiat monetary system we live under. I've highlighted a few points of interest.
There is no natural end to QE. Once it has propped up markets it has to be continued ad infinitum to keep ‘prices’ where the authorities want them. None of this is a one-off or temporary. It is a new form of finance socialism.
When QE started I mentioned it was just a foot in the door. Since then economies have deteriorated, yet QE carries on, with hundreds of billions pumped in to no avail. The central planners may have "saved" prices but at the same time have ruined the lives of millions. By not allowing markets to function they are following a failed Socialist doctrine.
An Eat-the-Rich rhetoric is discernible everywhere, and it is getting louder. In Britain, Deputy Prime Minister Nick Clegg wants to introduce a special ‘mansion tax’ on high-end private property. This is being rejected by the Tories but, according to opinion polls, supported by a majority of Brits. (I wager a guess that it is popular in Scotland.) In Germany, Angela Merkel’s challenger for the chancellorship, Peer Steinbrueck, wants to raise capital gains taxes if elected. In Switzerland of all places, a conservative (!) politician recently proposed that extra taxes should be levied on wealthy pensioners so that they make their ‘fair’ contribution to the public weal.
Politicians from all Spectrum's create scapegoats from minorities. The far right blame race. Mainstream parties, the greedy bankers. There appears to be one common scapegoat of late, that of "eat-the-rich", envy is a simple emotive to invoke in fellow humans. The rich always make up a minority of society so are easy pickings to target, similar to targeting ethnic minorities in Germany during the 1930's. For those who believe it is different, let me ask would it be right if we lived in a global society and everyone in the West was considered wealthy. Compared to other fellow human beings on a dollar a day all Westerners can all be considered wealthy by comparison. Would it be right if the rest of the world would target the minority Westerns and demanded more money?
More importantly would it solve poverty levels? Absolutely not, it would further aggravate the poverty not just of Westerners but people Globally. The West with its relative free speech has spearheaded the abolition of relative historical poverty (I don't class not having a Playstation as poverty), and recently has lifted many others around the world out of such subsistence. In Asia, Eastern Europe and South America growing incomes are raising living standards across the globe thanks in large part to Western know how and capital. The investment and technologically transfer has enabled such countries as India, China and Brazil to begin to raise its citizens out of the true historical measure of poverty. Thanks to the Wests respect for freedom of speech and private property laws.
A witch hunt is not what we need. The Entrepreneurs, the "Rich", the risk takers, will get us out of this mess. Such policies, to persecute the "wealthy" among us, have always impoverished all income levels within a nation who pursue such folly. We don't want to cut off our nose to spite our face.
The above trends are all nicely epitomized by developments in France. In 2012, President Hollande has not reduced state spending at all but raised taxes. For 2013 he proposed an ‘austerity’ budget that would cut the deficit by €30 billion, of which €10 billion would come from spending cuts and €20 billion would be generated in extra income through higher taxes on corporations and on high income earners. The top tax rate will rise from 41% to 45%, and those that earn more than €1 million a year will be subject to a new 75% marginal tax rate. With all these market-crippling measures France will still run a budget deficit and will have to borrow more from the bond market to fund its outsized state spending programs, which still account for 56% of registered GDP.
The French President is a true Socialist. He recently stated he wanted to abolish homework as some Children had an "unfair" advantage as parents would actively help. What utter nonsense, but in true do-gooding fashion Hollande wants to bring us all down to the lowest common denominator. Learning doesn't stop in the classroom. In fact I'm a big believer in self education more so than formal state run education. No axe to grind. I did all the formal education and got a First Class Degree. But I've learnt far more from others with experience and my own self learning. Children should obtain their knowledge and experience from wherever, in the long run it benefits all of society. Depriving them of such vital experiences and knowledge does no good for any of us.
France has turned into a basket case once more. Hollande's policies will cripple his country.
If the government spent money on hiring people to sweep the streets with toothbrushes this, too, would boost GDP and could thus be labelled economic progress.
Keynesian economics would actually endorse such a policy. As Murray Rothbard once remarked, if a Bank Robber was caught and understood the arguments set out by Keynesian's he would state that he did not deprive society of any resources, he was merely taking money now and spending it in the present thus driving up GDP due to the multiplier effect.
It may seem absurd, but the Government does the same. It steals peoples money in the form of forced taxation (try not to pay it!) or by printing the money. It spends this money as consumption, thus claiming to drive up GDP by the multiplier effect.
Fiscal and monetary actions by states will increasingly be flanked by aggressive regulatory and legislative intervention in markets. Governments are controlling the big pools of savings via their regulatory powers over banks, insurance companies and pension funds. Existing regulations already force all these entities into heavy allocations of government bonds. This will continue going forward and intensify. The states must ensure that they continue to have access to cheap funding.
The Socialisation of the Finance sector should be clear for all to see, as I have detailed in previous posts. But the article also highlights the more subtle points. For example certain regulations impose that portions of funds be kept in Government bonds. Politicians superficially claim that this is to ensure safety for the holders when in fact it is a convenient tactic to create artificial buyers for Government spending. QE has been the latest largest buyer of Government bonds. This is why bond rates are low in countries that have pursued such a policy. The UKs chancellor George Osborne proudly proclaims in Parliament that this is because of sound free market economic policies implemented by the Government, when in reality it is actually inflate and spend policies. A socialist policy from a supposed austere right wing Government. It illustrates how far left we still are in Britain.
Regulations continue to cripple finance and as Detlev states, the level of state control will intensify. As further desperation ensues, Governments will take ever more desperate measures with a misled public told it is for their own good.
And to round it all off, there is the War on Cash. In many European countries there are now legal limits for cash transactions, and Italy is considering restrictions for daily cash withdrawals. Again, the official explanation is to fight tax evasion but surely these restrictions will come in handy when the state-sponsored and highly geared banking sector in Europe wobbles again, and depositors try to pull out their money.
We see this all the time. War of tax evasion, inheritance tax - taxes don't stop when you die! Ulterior motives are always concocted rather than tell the public the real reasons.
Pieces of the Jigsaw are coming together. Five years of stagflation consisting of mild and serve recessions accompanied by the prices of core goods rising. Still the majority do not see the train wreak to come. Got Gold? It thrives on infringements of personal liberty and crisis. And the tentacles of the state will only get ever more invasive in the short term. Keep your stocks, bonds and cash. I'll stick to something politicians can't warp and destroy with endless QE and general economic mismanagement.
So here is the future as I see it: Central banks are now committed to printing unlimited amounts of fiat money to artificially prop up various asset prices forever and maintain illusions of stability. Governments will use their legislative and regulatory power to make sure that your bank, your insurance company and your pension fund keep funding the state, and will make it difficult for you to disengage from these institutions. Taxes will rise on trend, and it will be more and more difficult to keep your savings in cash or move them abroad.
There is nothing in the mainstream that looks to solve the crisis. Instead the state further encroaches on all our individual freedoms exacerbating the problems. The article departs with "This will end Badly". I tend to agree.