The price of everything

Just who is the enemy ?

“..I sat at my desk wringing my hands, transfixed by the tragic slapstick of British politics..

“We are in the biggest domestic political crisis of my life..

“This is only the second time I can remember when the normal, trivial business of office life has stopped — and stayed stopped..

“I’ve witnessed a few surprising general election results, a few terrible terrorist events, a few sporting triumphs and defeats where we stopped and gawped and worried or marvelled for a little, but it never lasted long..

“The only other time I can remember when everything ceased was after 9/11..

“Another acquaintance, who holds a senior management job at a well-known company, reported feeling so lethargic and powerless he cancelled all but the most essential meetings and sat in his office staring at the news on screen, feeling increasingly out of control..

“Instead I went to work, and read more gloom about the UK economy. Sterling falling. Buyers pulling out of the property market. Decline in new job postings. And that is before the productivity catastrophe created by all this lethargy and all-round uncertainty..”

- Lucy Kellaway, ‘Carry on Post-Brexit, whether calm or not’, The Financial Times, 3 July 2016.

 

Ever since The Financial Times was acquired by the Japanese in the summer of 2015, its attitude toward the Establishment (that it partly forms) has hardened into ossified, dogmatic inflexibility. I felt so disturbed by Lucy Kellaway’s response to the Brexit vote that I felt compelled to write to her:

“Hi Lucy

“I’ve been reading my copy of the FT these last few weeks with a growing sense of disbelief – a sort of ‘Invasion of the Body Snatchers’ disbelief as you and your colleagues wail on about the collapse of everything you hold dear. Your piece today encapsulated that sense of rolling economic and cultural dread.

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On monetary terrorism

“Darling..

So No. 3 Commando were very anxious to be chums with Lord Glasgow so they offered to blow up an old tree stump for him and he was very grateful and he said don't spoil the plantation of young trees near it because that is the apple of my eye and they said no of course not, we can blow a tree down so that it falls on a sixpence; and Lord Glasgow said goodness you are clever, and he asked them all to luncheon for the great explosion. So Col. Durnford-Slater D.S.O. said to his subaltern, have you put enough explosive in the tree ? Yes sir, 75 lbs. Is that enough? Yes sir, I worked it out by mathematics, it is exactly right. Well better put a bit more. Very good sir.

“And when Col. D. Slater D.S.O. had had his port he sent for the subaltern and said subaltern better put a bit more explosive in that tree. I don't want to disappoint Lord Glasgow. Very good sir.

“Then they all went out to see the explosion and Col. D-S D.S.O. said you will see that tree fall flat at just that angle where it will hurt no young trees and Lord Glasgow said goodness you are clever.

“So soon they lit the fuse and waited for the explosion and presently the tree, instead of falling quietly sideways, rose 50 feet into the air taking with it half an acre of soil and the whole of the young plantation.

“And the subaltern said Sir I made a mistake, it should have been 7.5 lbs not 75. “Lord Glasgow was so upset he walked in dead silence back to his castle and when they came to the turn of the drive in sight of his castle what should they find but that every pane of glass in the building was broken.

“So Lord Glasgow gave a little cry and ran to hide his emotion in the lavatory and there when he pulled the plug the entire ceiling, loosened by the explosion, fell on his head. This is quite true.”

- Extract from a letter from the author Evelyn Waugh to his wife Laura, 31 May 1942.

 

Tricky things, numbers. Even when you do manage to calculate them correctly. What, for example, is the “correct” number for base rates ? Goldman Sachs employee Bank of England Governor Mark Carney thinks that here in the UK they should be at 0.5% - for the time being, at least. What about the euro zone ? Goldman Sachs employee European Central Bank Governor Mario Draghi thinks that they should be at -0.4%. And what about Japan ? Bank of Japan Governor Haruhiko Kuroda, who by way of some administrative error hasn’t yet worked for Goldman Sachs, believes that they should be at -0.1%.

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Mental men prefer bonds

“In a time of universal deceit, telling the truth is a revolutionary act.”

- George Orwell.

 

Japan got there first. 15 years ago, we met a Japanese equity manager who made an astonishing prediction:

“Japan was the dress rehearsal. The rest of the world will be the main event.”

That seemed an extraordinary suggestion 15 years ago. Today, not so much.

In the aftermath of the late 1980s real estate and stock market bubble, and its subsequent banking crisis, Japan became a giant laboratory experiment for novel monetary policies. In 2001 the Bank of Japan tried QE. It was a policy that Richard Koo of the Nomura Research Institute described as the “greatest monetary non-event”. It turned out, not for the first time, that academic economists had it all wrong. Borrowers, not lenders, were the fundamental bottleneck in Japan’s recession:

“The central bank’s implementation of QE at a time of zero interest rates was similar to a shopkeeper who, unable to sell more than 100 apples a day at $1 each, tries stocking the shelves with 1,000 apples, and when that has no effect, adds another 1,000. As long as the price remains the same, there is no reason consumer behaviour should change – sales will remain stuck at about 100 even if the shopkeeper puts 3,000 apples on display. This is essentially the story of QE, which not only failed to bring about economic recovery, but also failed to stop asset prices from falling well into 2003.”

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Trust no-one

“Predictably, there is speculation that Brexit will not happen. If Britain can vote for Brexit, it is being argued, surely anything is possible. But those who think the vote can be overturned or ignored are telling us more about their own state of mind than developments in the real world. Like bedraggled courtiers fleeing Versailles after the French Revolution, they are unable to process the reversal that has occurred. Locked in a psychology of despair, anger and denial, they cannot help believing there will be a restoration of an order they believed was unshakeable.”

- John Gray, ‘The strange death of liberal politics’, The New Statesman, 1 July 2016.

 

Something rather odd is going on in the mainstream media, when the most insightful commentaries around Brexit are surfacing from publications like The New Statesman as opposed, say, from The Financial Times or The Economist. Perhaps this shouldn’t come as much of a surprise, given that the most insightful reportage of the credit crisis came from the likes of Rolling Stone and Vanity Fair, through the good offices of the journalists Matt Taibbi and Michael Lewis respectively. John Gray has form here; again for The New Statesman he forensically examined, last October (‘The neo-Georgian Prime Minister’), the weaknesses of a Prime Minister whose sole work experience in the real world consisted of a brief spell in public relations:

“In the world of PR, actions are episodic and discontinuous and their consequences ignored unless they have some immediate effect. All that matters is having a serviceable story, which is constructed to serve the purposes of the day, then discarded and forgotten.”

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Liars led by junkies

“In a stark warning to politicians, [Bank of England] governor Mark Carney said a downturn was on its way and Britain was already suffering from “economic post-traumatic stress disorder”.

“He said the central bank would take “whatever action is needed to support growth”, which probably included “some monetary policy easing” in the next few months, in an attempt to reassure the markets and the general public.”

- ‘Carney ready to act’, Emily Cadman, The Financial Times (a.k.a. ‘Marxism Yesterday’), 1 July 2016.

 

“UK: world’s second largest external deficit. Canada: the fourth. Inflated real estate in both countries. #Carney fingerprints over the pair.”

- Tweet from @TrueSinews.

 

Never go full Draghi, but Mark Carney just did, pledging to do, effectively, whatever it takes. This despite the fact that Mario Draghi’s “whatever it takes” pledge was apparently an off-the-cuff line tossed at the press in desperation, at the height of the euro crisis. Future historians will no doubt look back at this period in amazement, wondering, in light of the stunning and murderous failures of Nazi Germany, Soviet Russia and Communist China, how central planning ever managed to find a last hold-out amongst the technocrats at the world’s central banks. Any search for the guilty should probably start with the governments that appointed them. (And the economist superbrains of the LSE.)

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