An Excess of Money Cannot be Cured by More Money

Two things have come together this week to concentrate my thoughts on Brown's abject failures in economic and fiscal management.

One, on Wednesday I attended an investment conference and two, I have been writing our investment policy statement.

At the conference one of the best speakers was the bloke doing the fixed interest bit. The simple message was that the rates of return available to investors on fixed interest securities, both Sovereign and corporate, did not provide adequate compensation on instruments with durations greater than 12 months. Short dated bonds of AA quality or better were the only things to buy as investments. This is essentially an anti inflation argument. Inflation being the excess of money supply.

We have decided that the Risk Free Rate of Return will use is RPI. RPI is the nearest proxy I can get for inflation, as in the excess of money supply. Really I would prefer a more comprehensive measure that took into account the increase in broad money supply, but the RPI seems to us to be a reasonable proxy.

These actions and consequential thoughts got me thinking about money supply. Clearly, and now undeniably, the cause the the current economic woes is an excess of money supply. Here, in the US and elsewhere in the world. Money supply has boomed. And suddenly it all stopped. Why did it stop? The 'market' stopped it. Not Brown, not Obama, the 'market'. That is blokes like me and you said, 'That's it. No more. I don't believe what I am being told. It's all gone Pete Tong and I'm off'. 'I'm not going to put any more of my wealth into money or investments until all the existing excess of money has been washed out of the system'. 'And what's more any more money that I do get will be used to rebuild my balance sheet by reducing debt - and in consequence increasing the amount/value of my equity'. 'So stuff it'.

'I am not going to invest until I can be sure that this excess of money has been washed out of the system.'

(Of course one of the most bound and certain ways of destroying this excess money was to let the likes of RBS and LloydsHBOS go bust.)

Given the above, how is Brown's policy of tipping Billions of new (poor quality) Pounds into the economy going to help us get rid of this excess of money and encourage investors and others to spend their, devalued, money?

Afterthought.

Clearly this is market success. The markets are passing an accurate judgement on the failures of proto-socialistic policies of global lefty or mercantilist governments. They daren't admit this of course. It's be curtains for them all.

Tessa Jowell - Useless

Watching QT. The odius, sanctimonious and clueless Tessa Jowell again trotted out the 'appalling self regulation under Tories that failed' mantra. Listen you fat headed old bat, I have run a financial services business under all regulatory regimes from 1989 and it is not the case, and never was, that self regulation 'failed'. It did not. I grant you that there were a couple of problems with pension transfer sales and endowment mortgages, but the costs and possible losses from these are miniscule when compared to the catastrophic losses created by the failed over regulation since 1997 and specifically from the the coming into law of the Financial Services and Markets Act 2000.

Zen and the Art of Aga Maintenance

Late last week our oil fired Aga went out following a very windy day. Sometimes happens as fumes back up and trigger the fire control valve. So I set to and relit it. Over the next couple of days it became obvious that something more fundamental was wrong. It would not get up to temperature. On Friday night I let it go out and spent sometime on the interweb researching all I could find on Aga issues. I found one very useful site here, which I recommend.

Saturday morning bright and early and full of no tea following a breakfast of bread and Marmite and water I set to get it sorted. Now, I am quite a capable tinkerer and taking it apart and carrying out all the checks and repairs was quite pleasurable. The fault turned out to be the usual oil Aga problem of carbon build up in the base of the crucible and the consequential restriction of the oil supply line. Once cleaned and properly reassembled the Aga lit easily and was up to full temperature this morning, despite being set at 3 and a bit on the thermostat as opposed to the 4 ish that I had been using.

Whilst engaged in this therapeutic exercise I was musing on the world and it seemed to me that in the saga of the Aga there was a lesson. Normally the Aga functions well. It just goes on in the background ready to take on any form of cooking, always hot. Quiet and efficient and providing a source of heat for drying clothes or comforting the dogs or guests as well as being ready to cook bacon or kippers with no smell. It has no external controls, it is only regulated for heat. By one simple control.

The supply of oil.

Too much oil and it overheats and shuts itself down. But the oversupply of oil cannot be fixed until it has cooled down, which will take hours. And once you have fixed it - reduced the supply of oil - and got it going again it will take hours to warm up. Too little oil and it signals that it needs a little maintenance. That a blockage has occurred and needs clearing. If you ignore it and do nothing it gradually it goes out and the cold returns. But at least you can attend to it immediately as it is already cold. And consequently the time it takes to get it going again is half the time it takes following overheating.

Aga's and Oil. Money and Markets. It's a Zen thing.

Brown Cannot Reform

The causes of this economic crisis are now self evident. Excessive cheap money created by Brown together with excessive taxation of private business and the cash hosed at bloated unreformed public 'services'.

The cures are therefore a reduction in the amount of money, the reduction in taxation on private business and individuals, and the genuine reform of the public 'services'.

Reform of public services can only start with huge redundancies. There are about 7 million people engaged (I cannot say working) in public 'services'. Of these about 1.3 to 1.5 million are at the front end of the health, education, law and order, defence and the HMRC, which leaves 5.5 million doing what exactly?

Everyone knows that this is the case. Everyone knows that these jobs are not really jobs and need to go. Even Gordon Brown knows it. So why doesn't he get on with the redundancies.

He won't do it because he wants to leave it to the next government, whom he also knows will be the Tories. Why? So when he, or more likely his party is in opposition it can use the mantra of 'Tory cuts' to discredit the government.

Trust me, he ain't going to sack a single civil servant, unless the IMF turn up and tell him. It'll always be someone else's fault.

QED - we are doomed to impoverishment.

Told You So!

Go here to see why.

A System of Natural Liberty

That's it. I've found my short phrase to describe 'capitalism'.

A System of Natural Liberty.

Isn't that lovely? And who coined it? Adam Smith of course.




As some of you may know I had sort of tried various things leading to

'Anglo saxon libertarian free market capitalism with thrift resposibility and compassion operating under the rule of English Common Law'

Not a very good word smith am I? Not exactly up there with dear old Adam.


And you don't have to disect it do you? You just have to get on with it. Oh joy.

Market Failure - Not

I swear, if one more loony lefty trots (sic) out the 'what you are seeing now is the failure of the markets' line I will be straight out to the shed and measuring off lengths of piano wire and searching for suitable weapons.

For one more time listen. What you are now witnessing is markets working brilliantly to smash up all the statist leftist meddling and messing about over the last, well, 20 years ish.

A perfect example of this is the FSMA 2000 whose bastard child the FSA has so comprehensively cocked up. As anyone who works in financial services could (and we did) tell you they would. Why? Because their rule book is an eight foot high tome of bureaucratic minutiae, most of which is just train spotting. It is nationalisation by regulation. And we all know what nationalisation does to any industry don't we?

How though do we get this out on the MSM? The BBC is completely corporatist and knows its own future depends on the continuing deceit of the lefties? Murdoch will go with whatever makes him money and power. The Internet does not yet have the penetration to influence public mood.

If anyone has a good idea, just marginally short of full insurrection, I'd be pleased to hear it.