I must admit I took no satisfaction at seeing the man we used to call the "Iron Chancellor" being savaged in an open arena — but someone had to say it. Bailouts, stimulus packages, interest rate cuts, quantitative easing and anything else they can think of just will not work. The reaction of the Prime Minister to this scathing attack was embarrassing. His great strength as Chancellor was that he gave the impression of being both able and formidable — you took him on at your peril. Not so now.
They say that history tells us everything, even the future. It has given us repeated lessons about fiat money and inflation. Hannan said it about as clearly as it can be said — you cannot spend your way out of recession any more than you can borrow your way out of debt.
But we know this already. The dot.com bubble bust was followed by a deliberate policy of inflation which was the principle cause of the present crisis. Let’s go back. Japan. They’re twenty years into it now. What started their problems? Inflation following the Plaza Accord. Let’s keep going back. The 1970’s and the emergence of stagflation. The Keynesians said it couldn’t happen. The cause? Inflation, trying to spend your way out of recession. 1977 — The UK took their begging bowl to the IMF. Two years later Paul Volcker was appointed Fed. Chairman in the USA. Inflation was not creating jobs just higher prices. He called a halt to it and let interest rates rise. Jimmy Carter didn’t get a second term. Career politicians made a note of this.
Let’s go right back to the big one. The Great Depression. The cause? Inflation. The cure? The same nonsense that’s going on now. Massive government intervention. It didn’t work then, it didn’t work in the 1970s, it didn’t work in Japan and it’s not going to work now.
We’re just putting off the pain. But it’s in the post. Late delivery simply means it’s going to be worse when it arrives.
Again and again history tells us that the cause of such problems is inflation made possible by fiat money. It’s all lies, deceit, smoke and mirrors. They can’t even say the words "printing money" — instead it’s "quantitative easing"! More double-speak — the "Mushroom Principle" — keep them in the dark and feed them BS!
Far be it from me to start throwing out well-worn Austrian adages but this one bears repeating again and again — the cure for a recession is a recession.
Let’s take one more step back. The USA 1921. Recession. The cause? Inflation. The cure? Do nothing. The government of President Harding didn’t know what to do — they ended up doing next to nothing. This was the correct response. A severe but short recession followed. Then recovery.
Gordon Brown is currently engaged in a series of meetings here, there and everywhere, trying to set things up for the G20 summit coming up in London next week. The in-fighting, insults, arguments and horse-trading are already in full swing. He has been humiliated everywhere he’s gone. France and Germany do not agree with his strategy. The Brazilian leader was less than courteous, the Argentinians are still going on about the Falklands and the Chilean leader gave him some motherly advice about household management. Then there’s the Czech leader who has called President Obama’s plan the "road to hell."
Add to all this calls by Russia (along with strong interest from China, not surprisingly) for a new world fiat currency — I hope they call it the "Gono" in celebration of Gideon Gono — and we have a boondoggle of epic proportions in the making.
What is the purpose of this thing? Why is President Obama attending? Does he even want to? Will it change what he and his administration are doing by one iota?
Of course not! But hey, they will be seen to be doing something when the best thing they could be doing is nothing!
This was a highly damaging speech by any stretch, not least for the fact that he said quite clearly that the Prime Minister is fully aware of the disaster into which his policies will lead us:
"Now, it’s not that you’re not apologising … [I]t’s that you’re carrying on, wilfully worsening our situation, wantonly spending what little we have left.." (Emphasis added) — Daniel Hannan.
No government could create such havoc were it not for fiat money — it is the root cause of our problems. Without it not only would they have to live within their means, thereby restricting their growth, but also they would not be able to manipulate its supply and price via central banks, thereby eliminating the booms and slumps which follow.
Fiat money has been a boon for a few but a disaster for the rest of us.
Chris Clancy [send him mail] is Associate Professor of Financial Accounting at Zhongnan University of Economics and Law in Wuhan, Hubei Province, People’s Republic of China.