Across the world, the impression grows that those in charge are both brainless and blind.
When people at the top say things as daft as Mervyn King’s deputy did yesterday, there is a sense of double shock for anyone paying attention. The first reaction is “Don’t you know anything about real people?”; and the second one – in many ways, more pertinent – goes along the lines of “Be careful what you say, chummy – otherwise you might face some very searching questions about what good ZIRPing has done for anyone or anything beyond bankers and their balance sheets”.
What Charlie Bean said was, “What we’re trying to do by our policy [zero interest rate practice - ZIRP] is encourage more spending. Ideally, we’d like to see that in the form of more business spending but part of the mechanism that might encourage that is having more household spending. So, in the short-term, we want to see households not saving more, but spending more…”
During the Q&A that followed, he observed that “Savers shouldn’t necessarily expect to be able to live just off their income in times when interest rates are low…” A stunning insight Mr B, but if they don’t have any other income, how are they supposed to start spending. You gonk.
Charlie’s basic salary is £250,000. He gets paid this (along with his fat Sir Humphrey pension) because of his skills in not noticing that ZIRP has made no difference, not spotting that UK citizens don’t believe a word of what any banker says any more, and not being able to see past next Thursday. As I write, the £ has risen 4 points against the euro in 20 minutes of trading, the direct result of a certainty now accepted by the Irish Government that the country needs tons of ESFS – and fast. And in that environment, he wants people to go on a spending spree?
But Bean is far from alone on the financial landscape: for while he was railing at spivs and gamblers last week, Vince Cable should also have had a go at the WUTS* apparent throughout banking and Treasuries the world over.
We’ve already covered Christine Lagarde’s loose grasp of aggregates. Now in the States (I was informed late last night) it seems that Bernanke has been given the go-ahead by the White House to buy up $100 billion of worthless assets a day in an attempt to get the show back on the road. This is, effectively, dribbling the money away in a strategy doomed to have no effect beyond medium-term inflation….and in my view, long-term hyper-inflation.
Meanwhile, the little men in Beijing are slugging it out with the equally little men of Tokyo, in a currency war of words that can only spread to the Swiss franc (via Brazil) in the end. And while the US grumps about the Yuan’s over-valuation, Ben the Bernanke is being given carte blanche to devalue the Chinese creditors’ pot.
All this needs but one catalyst to set off a nuclear chain-reaction, and it looks as though Ireland is about to be it – not because their indebtedness is out of control, but because (a) the need for ESFS is going to make it even less possible for the Irish to borrow; and (b) the frightening exposure of the European banks to this bad debt must – no, will – be far too much for eurozone members to stop. Too Big To Fail doesn’t apply when there is no way to stop it.
This entire shambles has been the direct result of insane targeting, greed beyond the dreams of those who suffer from compulsive greed disorder, blind hubris is the face of inevitability….and too many of us distracted and apathetic about it happening. The incompetence is mind-blowing: but it’ll be nothing compared to the crashing dominoes about to clatter around the globe. The final breakdown predicted by The Slog in 2006 is now moving into Stage Three. Hang on tight.