We Are On The Road To
Serfdom
By Detlev Schlichter; originally
posted at DetlevSchlichter.com,
‘…….Unlimited fiat money is a
political tool
A free society requires hard and
apolitical money. But the reality today is that money is merely a political
tool. Central banks around the world are getting ever bolder in using it to rig
markets and manipulate asset prices. The results are evident: equities are
trading not far from historic highs, the bonds of reckless and clueless
governments are trading at record low interest rates, and corporate debt is
priced for perfection. While, in the real economy, the risks remain palpable
and the financial sector on life support from the central banks, my friends in
money management tell me that the biggest risk they have faced of late was the
risk of not being bullish enough and missing the rallies. Welcome to Planet QE.
I wish my friends luck but I am
concerned about the consequences. With free and unlimited fiat money at the
core of the financial industry, mis-allocations of capital will not diminish
but increase. The damage done to the economy will be spectacular in the final
assessment. 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. It will not end through the political process but via complete
currency collapse…….
……..Sources of state funding
When states fund high degrees of
spending by borrowing they tap into the pool of society’s savings, crowd out
private competitors, and thus deprive the private sector of resources. In the
private sector, savings would have to be employed as productive capital to be
able repay the savers who provided these resources in the first place at some
point in the future. By contrast, governments mainly consume the resources they
obtain through borrowing in the present period. They do not invest them in
productive activities that generate new income streams for society. Via
deficit-spending, governments channel savings mainly back into consumption.
Government bonds are not backed by productive capital but simply by the state’s
future expropriation of wealth-holders and income-earners. Government deficits
and government debt are always highly destructive for a society. They are truly
anti-social. Those who invest in government debt are not funding future-oriented
investment but present-day state consumption. They expect to get repaid from
future taxes on productive enterprise without ever having invested in
productive enterprise themselves. They do not support capitalist production but
simply acquire shares in the state’s privilege of taxation……
………“I’ve seen the future, and it
will be…”
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.
Now you may not consider yourself
to be rich. You may not own or live in a house that Nick Clegg would consider a
‘mansion’. You may not want to ever bank in Switzerland or hold assets abroad.
You may only have a small pension fund and not care much how many government
bonds it holds. You may even be one those people who regularly stand in front
of me in the line at Starbucks and pay for their semi-skinned, decaf latte with
their credit or debit card, so you may not care about restrictions on using
cash. But if you care about living in a free society you should be concerned.
And I sure believe you should care about living in a functioning market economy.
This will
end badly.’
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