I started this blog in June 2007 asking these questions: Are we in a massive asset bubble that will blow up in our faces ??? - ANSWERED YES ! Is western and particularly British society on the verge of social collapse??? What are the best common sense long term investment strategies to keep you rich? When will consumption/debt bubble economics end and a real savings/production economy begin ???
Saturday, 23 January 2010
Rock bottom interest rates in the US and UK have allowed the rich elite to prosper at the expense of the middle class
Can freedom and liberty survive the current democratic systems that encourage the masses to vote themselves money in the short term at the cost of their long term wealth ?
In the short term low interest rates make everyone happy because they can borrow cheap and therefore get rich ! Over the longer term all they do is generate massive inflation and thus boom/bust, while at the same time reducing savings and thus eroding the capital pool available for increasing the productive capacity (wealth engine) of the economy. Is it a coincidence that high savings economies e.g. Germany, Japan and China have outsize industrial capacity while the negative savings in the US and UK produce a hollowed out industrial base ?
In the EU things are great for France and Germany that get the correct interest rate but countries like Ireland, Spain and Greece will always have a rate that is far too low. Governments love this because it is an easy sell to their voters but over time these countries are killing themselves. They are condemned to permanent debt as the EU will not let them default, low rates mean they can't rebuild their savings and thus productive capacity and they can't monetise their debt. A real case of the meat voting for the meat grinder.
How many times are Irish voters told (often by academics in the pay of the EU) that international companies would not invest in Ireland without Irish membership of the Euro. What voters are not told is that a country can declare anything it wants as legal tender (e.g. the dollar in Panama and the Euro in Kosovo). The Irish could have the Euro without the European central bank - thus attracting big business while getting real market interest rates ! Also without the ECB government debt would be curbed and the boom/bust cycle much less pronounced as the only way to increase the money supply would be via increased exports from an increased production base built with savings. You would think the Irish would be wary of empires after their experience as a British colony in the 19th and early 20th century but the EU has done more damage in 10 years than Britain did in a 100 ! One of the main reasons for Irish independence was the over taxation of the Irish to pay Imperial Debt. How can a country saddled with unpayable debt be free ?
Are central banks really independent ? Do they really operate in the best long term interests of the people ? Why did Alan Greenspan try to get people off 30 fixed mortgages onto ARMs that were a lot more risky and only seemed better value because of the artificially low rates he engineered. http://www.usatoday.com/money/economy/fed/2004-02-23-greenspan-debt_x.htm Was he helping ordinary people or his rich friends ?
What is the point of universal suffrage if no one understands the issues ? Surely to vote you must pay (e.g. £100) and pass an economics test to prove you understand basic Keynesian, neoclassical and Austrian theories. You have to pay and pass a test to drive but not to vote. An out of control economy is every bit as dangerous as a speeding car ! All US/UK politicians care about is the quick fix they can sell the masses that will produce minimum pain and therefore get them elected. Building an industrial base via a long term increase in savings (i.e. austerity measures) is not on the agenda.
There is no limit as to how high this graph can go as QE stoked inflation chokes the middle class:
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