The price of everything

Angela triggers a gold rush

“An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense.. that gold and economic freedom are inseparable.”

 

-       Alan Greenspan, unbelievably.

 

 

Philipp Bagus, on the consistently excellent Mises website, asks whether we have now crossed the point of no return. As Austrian economic theory essentially warned, a credit expansion led by a largely unchecked banking system triggered an unsustainable boom with all the attendant malinvestments. The problem, however, is not that the free market has been allowed to run out of control. Quite the contrary. Under a free market system, unsustainable financial organisations would have been liquidated. Instead, as Bagus explains, governments across the world chose to inject capital into the banks whilst guaranteeing their liabilities: “malinvestments induced by the inflationary banking system found an ultimate sponsor – the government – in the form of ballooning public debts”. If the level of public debts before the crisis had been modest, the cost of the banking system bailouts might have been manageable. But since the level of public debts was itself at crisis levels pre-crisis, it may now be beyond the point of salvageable return. The example of Greece is hardly reassuring. Bagus suggests that the ultimate outcome of our present dilemma is the inevitable collapse of the welfare state. But whatever the outcome, the tone of the public debate requires that electorates recognise that politicians are not and cannot be the solution, because they are unequivocally the source of the problem.


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Hard money for hard times

“Britain in 1945. No supermarkets, no motorways, no teabags, no sliced bread, no frozen food, no flavoured crisps, no lager, no microwaves, no dishwashers, no Formica, no vinyl, no CDs, no computers, no mobiles, no duvets, no Pill, no trainers, no hoodies, no Starbucks.. Heavy coins, heavy shoes, heavy suitcases, heavy tweed coats, heavy leather footballs, no unbearable lightness of being. Meat rationed, butter rationed, lard rationed, margarine rationed, sugar rationed, tea rationed, cheese rationed, jam rationed, eggs rationed, sweets rationed, soap rationed, clothes rationed. Make do and mend.”

 

-       From ‘Austerity Britain 1945-51’ by David Kynaston. Hat-tip to JBP.

 

 

There was a strangely surreal sense of comedy to British politics this last week. Perhaps it was born out of relief that the socialist incumbents had finally been prised from office, like parasitic barnacles. Their legacy seems unlikely to be viewed favourably by posterity and that widespread air of good humour is unlikely to last. The Sunday Times reports the new government’s predictable complaints that Labour pursued a “scorched earth” policy in its final months of rushing through billions in extra spending commitments in a doomed attempt to buy votes. We can now rest assured that fiscal skeletons will be tumbling from closets for the balance of the year.

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Do you have a licence for your Minsky ?

Wikipedia defines a Minsky moment as the point in the credit cycle when investors start to incur cash flow problems due to the growing debt load they have acquired in order to finance speculative investments. At this point in the cycle, a major sell-off begins as counterparties start to withdraw from the market, leading to a sudden and precipitous collapse in asset prices, accompanied by a sharp drop in liquidity. Economist Hyman Minsky argued during his lifetime that markets were inherently unstable and that prolonged stability (a bull market, if you will) always culminated in a larger collapse. This has something in common with Mandelbrot’s view of market instability, namely that the idea that market prices and volatility are normally distributed – essentially, held within the classic, orderly ‘bell curve’ of standard distribution – is a dangerous myth. A nice metaphor for market instability in this context is a sand pile slowly growing on a table. As each individual grain of sand is dropped onto the pile, the sand pile grows in a more or less orderly fashion. But at some point, just one extra grain of sand will cause the pile to collapse upon itself. But judging in advance precisely which individual sand grain will cause the tipping point may be impossible. The natural order of markets, in short, may actually be closer to chaos than we think.

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