In today’s issue:
- Central banks want inflation – a lot of it
- “Snouts in the trough and the hypocrisy of socialism”
- It’s time for another currency soiree
Our video about the next wave of inflation is proving popular with readers. But with the YouTube algorithm? Not so much…
I suppose that shouldn’t be a surprise. We argue that the Bank of England is going to use climate change as its excuse to unleash another cost of living crisis. Who wants you to know about that?
Certainly not the ideologues in power. We’ve managed to upset them both. The climate alarmists and the inflation deniers, in one fell swoop.
But the story about what really happened in 2022, and will happen again, is getting out. Here’s one piece of feedback I received from a reader…
Hi Nick,
I just watched your latest video with John. Don’t you think the Bank of England will object to printing trillions to pay for Net Zero? After all it’s politically easier to plunder the pension funds. Maybe money printing is phase 2?
Central banks want inflation – a lot of it.
It’s the only way to deal with the most pressing problem they face – dangerous levels of government debt.
Don’t forget, the Bank of England isn’t just responsible for inflation. It’s also responsible for financial stability. And a debt-to-GDP ratio of more than 100% is such a threat. So it has to deal with the problem.
But how?
Raise taxes and cut spending?
You might laugh at the idea of Bank of England governor Andrew Bailey forcing the government to impose austerity. But in Portugal, Italy, Greece and Spain, they’re used to the European Central Bank running their country by now.
The question in the UK is how central banks can engineer inflation (again) to try and devalue the government’s debt (again). And climate change is the only plausible cover story for another cost of living crisis. Just as the pandemic lockdowns were their excuse in 2021.
Both require support from central banks to finance their impossible cost. And this support, in the form of printing money, is what creates inflation.
Of course, there’s always the more traditional excuse to print money – war. And there’s no shortage of those we could join in on. In which case defence stocks will go to the moon as the central bank prints money to fund defence spending.
Either way, over at The Fleet Street Letter, we’re positioned for both possibilities. A boom in net zero spending and military spending, funded by central bank largesse.
The reader from earlier went on to give a rather fascinating insight into some history you might want to brush up on if I’m right about inflation coming back…
You mentioned the Australian version of what was once called the Price Commission in the UK. It was set up by the sclerotic Labour government during the mid-70s in order to stem inflation. What a joke.
My dad happened to work there until Maggie Thatcher closed it down in 1979. I worked there as a summer student during my vacations from 1976-78. Nepotism, I hear you say.
My so-called job was to open the mail. Every UK company had to apply to raise its prices. A separate application had to be made for each product. You can imagine the bureaucracy. Even though I was a mere A-level student at the time, I realised it was all pretty pointless. King Canute sprang to mind.
My dad was a financial controller and he “processed” expenses claims for the senior civil servants and the Chairman of the Commission (Roy Hattersley). He had loads of rows with Hattersley about his expenses claims (e.g. fine wines, expensive restaurants, entertaining, etc). Snouts in the trough and the hypocrisy of socialism!
Needless to say my Dad never received Xmas cards from his boss Hattersly, who’s probably best known for his blubberly, dribbling caricature in ITV satire show Spitting Image. I recall he had a bulldog dog called Buster who liked to bite people.
Those were the days.
M.
They will be the days once more, I predict. They probably already are over at the energy price capping commission known as OFGEM.
With Labour in charge and another dose of inflation ordered by those really in charge of the government, what else can the government do?
Funnily enough, it’s the price fixers I want to warn you about today.
But this lot make the Price Justification Tribunal and the Price Commission look provincial by comparison…
It’s time for another currency reset
The market instability of Friday and Monday raises the spectre of something called a “currency reset”. It’s my latest warning to Fleet Street Letter readers.
You see, whenever exchange rates and the nature of money itself become a problem, international political leaders meet to figure out a solution.
They might reintroduce gold backing of their currencies, as they did in Genoa in 1922, and Bretton Woods, New Hampshire in 1944.
They might peg or unleash exchange rates as they did at the Smithsonian Museum in Washington in 1971, and at the Louvre in 1987.
They could coordinate to devalue the yen, or the US dollar, as they did at the Plaza Hotel in New York in 1985.
Yes, it’s always somewhere swanky that they get together and rewrite the rules of the global financial system.
Right now, the risk of such a soiree is unusually likely. The global monetary system is exhibiting all sorts of worrying signs.
The US dollar’s surge over the past few years is wreaking havoc on trading relationships.
The Japanese yen’s plunge and bounce is weaking havoc on financial markets by disrupting the yen carry trade – the source of Friday and Monday’s chaos.
The Americans and Europeans have used the US dollar’s reserve currency status against the Russians, making it unfit for purpose as a global medium of exchange.
The odds of rate hikes and cuts and fluctuating wildly, causing chaos for banks and borrowers.
All this instability is upending investment strategies, business models, profitable contracts and all manner of other relationships. In short, the nature of money and exchange rates have become the cause of chaos.
Just as price control commissions are created to hide the consequences of bad monetary and energy policy, currency control agreements are made to cover up instability in foreign exchange and global trading markets.
And so another currency reset is coming.
More on that next week.
Until next time,
Nick Hubble
Editor, Fortune & Freedom
