Once upon a time, economic prosperity was the result of a high savings ratio combined with sweat and risk taking. Victorian Britain pioneered it while the U.S. was built on it. Thrift created the funds that could be re-cycled via the banking system which, in turn, begat further wealth creation. Obviously, this commendable model contained a major flaw; it required hard work. As such, over the past decade, a new system evolved which we call the scam economy.
Forget making things or delivering worthwhile services punctually, to a standard and price the market is willing to pay. It was far more remunerative to use plenty of cheap debt just to return unearned cash to shareholders. In banking, why lend only to people or businesses that can repay; what possible future does that medieval practice have? Simply lend it to anyone and thereby hit your bonus targets. Didn’t have the lifestyle you wanted? Well, borrow against the value of your house. It earned more than you did and its value couldn’t possibly fall, could it?
The scamming wasn’t confined to the markets or the economy. MP’s expenses for duck houses and non existent mortgages are another facet of scam Britain. While the submission of illegitimate claims were, of course, entirely accidental, it does seem strange that nobody appears to have made the error of under claiming; funny that.
The desperate resuscitation of the scam economy is top of the agenda for a multitude of vested interests. Governments that couldn’t run a bath; central bankers printing monopoly money; asset managers investing in a manner more in their interests than those of their clients or, quelle surprise, estate agents telling us property looks attractive (again). They have all now seen more green shoots than Percy Thrower.
As we have said before, this is not your common or garden recession so we fail to see how a usual cyclical recovery can ensue. This one will be prolonged and, in the war to re-ignite consumption, Corporal consumer has gone AWOL. Unfortunately, the same dishonesty that helped get us into this mess is still in evidence with regard to getting us out of it. Obfuscation is everywhere but we were pleased to note that German Chancellor, Angela Merkel, again put the boot in to quantitative easing by calling for “a return to policies of reason”.
Quantitative easing may sound complicated but in the final analysis it equates simply to printing money. The sum total of the efforts of politicians, central bankers, economists et al amounts to nothing more sophisticated than turning the printing press on while borrowing the real stuff on an unprecedented scale. When the 18th century economist, Adam Smith, noted that all professions were a conspiracy against the laity, he was dangerously close to the truth. When he said “I have never known much good done by those who affected to trade for the public good”, he was even closer.
John Newsome can be contacted on: 01423 705123 or email:john.newsome@williams-im.com
