X marks the spot

BullionVault

20 January, 2017

Monthly Musing

Perhaps I ought to explain why the status quo is so objectionable.

There are many reasons. The first, using a key trigger word, is sustainability. The world we westerners live in is unsustainable. Ever increasing debt is absolutely necessary for the status quo. It is also absolutely unsustainable.

Government growing ever larger is also unsustainable. Yet that is what we have had for at least a century.

Ever increasing house prices and financial assets are also unsustainable. Yet, we have 'enjoyed' this state of affairs for decades.

I suppose, house prices can continue to rise as long as interest rates continue to fall. Under such circumstances, a zero percent interest rate is not a boundary. Merely a point to pass through as interest rates continue downwards.

That is the paradox of our western civilization. For things to remain the same, certain things have to continue to change. So no rise in interest rates despite central banker blathering to the contrary.

Is this sustainable? No. America pays much the same in interest payments each year. The status quo requires the debt to continually grow, so it does. The status quo cannot afford increasing interest rates, so they fall.

Politicians blather on about productivity gains. Again, these gains are also required for the status quo to continue.

Those wishing I would be quiet and want everything to carry on without change are missing the point entirely. Ever increasing debt and productivity are essential in maintaining this state of 'no change'.

In the last fifty years, productivity gains have come from women entering the work force and more recently ever more powerful and affordable computer power. Not to mention ever increasing supplies of oil. How can these productivity gains be expected to continue forever?

I read an article that said we needed to find a new oil field every eight years the size of Saudi Arabia's biggest oil field. To keep the 'game' going. Well we haven't which may be why fracking is so heavily funded despite the lack of profit.

That is my answer as to why can't things just carry on.

There is no need to do anything. The unsustainable, eventually, can no longer continue.

The biggest 'promise' our governments make is about our retirement. Apparently, they promised me that I could retire at 65. Now it is 67. In Germany, the people are a little upset too. They were told that they could retire at 62 and now 67 is also their new number. The status quo needs this number to increase to around 80.

The status quo is heavily reliant upon its parasitic financial system. This needs a continuously more productive private sector and a public sector to continually grow its debts or the financial system just collapses. Slowly at first.

Those are a few reasons for my objection to the status quo. I feel that they are quite big issues. I am not suggesting any politician has ever lied about our collective pensions but the underlying assumption of ever increasing productivity has failed and with it our collective pensions. Or at least, the age of pension entitlement will need to rise further and faster.

The pension industry needs returns of about eight percent, forever, to meet its financial obligations. As interest rates must continue downwards, this eight percent becomes increasingly riskier to achieve. If not, actually, impossible. That little paragraph should have you smash whatever device you are reading this on. (I hope someone who loves you has given you a printed copy.) I have just explained that the pension you covet is actually worth nothing. NOTHING. Currently, it is worth something, HOPEFULLY.

At this point, should you be happy that all of the above is a reasonable view of the world, I feel obligated to give you some financial advice that would be worth its weight in gold. I suspect that would be illegal. Illegal is Latin for 'whatever those in power say you can and can't do'. Well, I cannot offer you a silver bullet to protect against whatever collapses first. Not legally. I can only ask you to seek out whatever treasures you truly value. The treasure with true value. I mean of course, your neighbours, friends and family. Somethings really are as good as gold and as shiny as silver.

Perhaps I ought to write a piece on subliminal manipulation. For examples read a newspaper or watch the news.

The trouble with sustaining the unsustainable is that when it can no longer be sustained then we get severe and abrupt changes that will impact heavily upon all of us. Even me.

For the hard of understanding, we are basically slaves on a Roman ship that is sinking. The reason for it sinking and getting increasingly difficult to pull on the oars is that we are not rowing hard enough. Well, that is the government's version of the truth. One that the boomers agree with. Why the millenials are happy to row is beyond me. The only thing that puzzles me more is my own involvement. (Rowing whilst screaming the ship is sinking.) So, are we set to row until we drown? Are there no human beings capable of imagining something different?

My view is that we stop rowing, dismantle the ship and build lots of new ones in a range of sizes and designs. Then we must be forever careful about who we choose to captain the vessels. No doubt, we will eventually be swayed by an enigmatic captain in a huge boat that he says is unsinkable. The boat will be as cheaply made as possible and already taking onboard water but not enough to worry about, yet.

You all take care and look after each other

P.S. A great many baby boomers will really struggle with the concept of nearly all of their pension being worthless. They will also struggle with the reality of heating their homes and feeding themselves but not yet, HOPEFULLY. I do write these things well in advance of publication.

07 January, 2017

UK inflation expectations 2017

I recently had the pleasure of talking to someone who admitted he wasn't a financial expert but he had maintained an active interest in the financial field for decades. Particularly in regards to mortgage payments, house prices, interest rates and inflation. Well, these were the things we discussed.

I learnt a great many things, most of which reinforced my view. I was also lucky enough to discuss a few things where I was plain wrong.

However, one thing really disturbed me. He expected interest rates to slowly normalize and inflation to increase. His interest rate opinion is as valid as anyone's. His inflation expectations simply shocked me.

This morning, I spent ten minutes with Google and found the following paragraph.

The Bank now expects inflation to hit 2.7% next year, up from the current rate of 1%.
It also raised its forecast for economic growth next year to 1.4% from 0.8%, but cut expectations for 2018 to 1.5% from 1.8%.
An interest rate cut this year was no longer an option, the Bank indicated.
From
http://www.bbc.co.uk/news/business-37860880 
A quick scan of the text and I feel confident that Mark Carney has everything under control, the BBC Business people are not concerned, so why should anyone worry?

Well, let's look closer at the numbers and try to actually understand them.
The words state, 'increased economic growth' which sounds very reassuring. A point I will come back to later. So 1.4% growth and 2.7% inflation. Which means nothing to me. However, if we subtract 1.4 from both numbers we get zero economic growth and 1.3% inflation. Hmmm. Zero economic growth is far too easy to imagine. No pay increase and you spend exactly the same this year as last year. If we change 1.4% inflation to 2% then that number feels easier to grasp than 1.4%.
I believe the numbers can now be easily understood.
Zero economic growth means that, for example, if you spent £100 on chocolate bars last year, you will spend £100 this year too.
2% inflation means that last year you may have bought 100 chocolate bars, this year you will only get 98, unless you spend a little bit more.
Has the first penny dropped? If economic growth rises a little bit (1.4%) but inflation rises a little bit more (2.7%), you get less.
Mark Carney has said this publicly and the BBC has published his words exactly. None of the BBC Business editors or Mark Carney care that this year you will have (2.7 - 1.4 = 1.3) on average just over one chocolate bar less.
Now, this may or may not concern you. It clearly hasn't bothered the BBC or The Bank of England. It isn't just chocolate bars it is everything. Less food, less heating, less petrol, less, less, less. This is a decline, a small one, in the average standard of living, on average, for everybody.

Well, what a silly little society we live in. All the technology and science and we are worse off. Anyway. Let us do second order analysis. In other words, think a little deeper.

Let us make two assumptions. The figures turn out to be accurate, which is a point I will return to. The trend continues for eight years.
A 1.3%s decline in our standard of living for eight years will mean that in eight years time we will not be enjoying 100 chocolate bars each year. We will be happy to accept 90 bars of chocolate.
Should the decline in our standards of living be 2% a year, rather than 1.4%, then get ready to relish 85 bars of chocolate.

Are you still completely unconcerned? Mark Carney is. The BBC is. The BoE is.

The BBC article just re-stated the Bank of England's position. I gave it some critical thought. Then decided to do some more critical thought. Then decided to share the results of my first and second order analysis with both of my readers.

There is a third level analysis. This is one where you realise that a simple reassuring statement from the Bank of England is, in fact, a statement of war. The masters of our currency are quite simply stating you will be getting less and less every year from now. The blame is entirely with the currency masters. However, the currency masters are openly blaming technology in general and robots specifically.

I can understand this and so can you. Mark Carney does. Either way Mark will be eating however many chocolate bars he wants and he expects us to gladly work however hard is necessary to provide him with all his material needs. In return, we get less and less every year. He even publishes the information for all to see. I am an arrogant prick and he is a world class arrogant prick.

You all take care and enjoy whatever you have. In eight years time you will have at least ten percent less.

Fun fact, the Romans call a ten percent loss a decimation. 
The article mentions 4% inflation. After eight years of zero economic growth, your chocolate bar ration would fall to 72 bars. Or, should you insist on consuming 100 bars, your costs rise from £100 to £150
That is what this society has in store for you. Less and less every year. For your children? Far less.
When did this 'less and less' trend start?
This 'less and less' trend is a feature of our currency system. The financial system takes more and more each year. However, science and technology helps us to produce more and more each year. The Bank of England then takes whatever it thinks it can get away with. Currently, the Bank of England is clearly communicating that it will be able to take at least ten percent more from us in just eight years time. This doesn't include all the extra production that the robots will be doing.

So, forget about inflation expectations. What do you think your chocolate bar ration will be in eight years time? How many of us are prepared to accept less than 100?

The top business and financial people don't expect you to be worried about receiving 90 bars of chocolate.
Advances in science, technology and robots could get the chocolate bar ration up to 110 bars easily.

I think we all know where the missing twenty bars of chocolate will be ending up in eight years time. Government waste, CEO salaries and banker bail outs and bonuses.

This is your society. I believe we can do so much better, far more easily.

You all take care of yourselves and each other. The masters of our currency certainly won't.

Just a quick but incredibly revolutionary thought. How much is our currency masters currency worth if we refuse to use it? (NOTHING)
Alternatives to currency are readily available. Physical currency can be replaced with physical silver. Wealth stored in pensions could necessarily stored in physical gold. Electronic currency can be replaced with Bit Coin or similar.

In fact, a human civilisation does not require Bank issued currency. Such a civilisation has a wealth of options.
Only our society needs currency. It is a means of taking wealth (chocolate bars) from the many to the benefit of a few.
However, this isn't what we are told about a society. We are repeatedly told that we all have to make sacrifices (pay taxes) for the benefit of us all.
These are the same people who have blamed immigrants and are now blaming robots for the continued erosion of our collective standards of living.
We are being lied to on a global scale. Outlets which attempt to voiceless concerns are labelled as fake news or Putin's puppets.

I have noticed that I am beginning to rant so I will choose to do something else. If you all want to live in a society rather than a civilisation, then so be it. You have my fondest regards and best wishes for your own and your children's futures.