Almost a year to the day since Britain pulled out of the longest and deepest recession since the Second World War, the Office for National Statistics revealed the economy had swung back into contraction. Is the UK economy heading for another dip? The biggest forecasting miss in memory – the consensus was for the economy to grow by 0.5pc, instead of which it shrank by that amount – caused waves of alarm in the markets and raised a huge question mark over what is happening in the UK. – UK Telegraph
Dominant Social Theme: UK economy's shock GDP fall reignites fears of double-dip. But the best minds are trying to overcome …
Free-Market Analysis: We notice that the UK is suffering from a spate of terrible numbers, and it is not just the UK. The US continues to create jobs, revenues and higher stock prices, but somehow none of this has an impact on the larger economy. The bottom line is that the regulatory democracy that has functioned for the past 100 years is dying or dead, at least from an economic standpoint. Something else, likely, is coming, though what it will be is not entirely clear yet.
Here at the Daily Bell, we believe it will have to do with an honest-money standard of some sort, but not merely a regurgitation of previous standards controlled by the state. We would like to think that the market itself will generate a free-banking standard and that a free-market in money could once again hold sway.
In truth, we can also see that the power elite is marshalling forces for some sort of controlled or controllable new money. The European Union’s economic situation is so dire that the Chinese have been invited in to help with it. America’s stock market is doing well but the country as whole is not – and this some two years after the 2008 economic crash. As for Britain, it has not even shown the beginnings of the American rebound. The Telegraph article (see excerpt above) tells us this:
Even before the GDP figure, the British Chambers of Commerce was saying another 100,000 jobs will go by the end of the year, taking the jobless figure to 2.6m. With the Bank's hands effectively tied, all eyes will now turn to the March Budget, predicted Ms Pryce. The Chancellor faces the balancing act of keeping his credibility with the markets, which back attempts to cut government borrowing, with the need to help businesses grow.
The UK, as this article points out, is caught in the classic bear-market trap that we've been predicting for several years. It was inevitable that the central bank would begin to print money to restimulate what was after the 2008 crash an unraveling dollar reserve economy. We estimated at the time it might take up to US$100 TRILLION to rejuvinate the Western economic system, and according to some accounts we are already almost halfway there.
But in pouring up to US$50 trillion in money-from-nothing (so far) back into the world’s economy, central bankers have lit a fuse that cannot be damped. The inflation blow-back that will eventually occur will likely raise rates to impossible highs. The resultant paralysis of economic animal spirits will likely be overwhelming. We are beginning to see this dilemma played out in Britain and sooner or later it wil played out throughout the West.
Is it possible that central banking economies can fully re-stimulate growth in the 21st century? As we've pointed out before, the 2000s are a repeat of the 1970s. The syndrome is the same. A crash followed by intensive money printing and then price inflation. This financial syndrome was condensed into a decade in the 1970s. We have often estimated that it will take a full 15 years or perhaps longer in the 2000s.
And yet … because the money printing has been so excessive, and the bust so deep, we tend to believe that there is little that the powers-that-be can do to truly salvage the system as it is today. Already we see evidences of this. The Chinese and Russians talk openly of a new currency system. The International Monetary Fund pitches a global SDR-oriented currency. One way or another, we would tend to believe the dollar-reserve system is unraveling, the victim of over-printing and other kinds of profligacies.
Nothing constitutes a more powerful dominant social theme than money and its value. The Anglo-American power elite did its best in the 20th century to assure Western citizens that their increasingly evanescent paper dollars were valuable in the long-term. But increasingly, this looks to be untrue, a kind of economic Dreamtime. What seems to be a standard economic formulation in the early 21st century is not, in fact. The dollar "reserve currency" itself is a relatively new invention. Gold and silver have functioned previously as reserve currencies, and for thousands of years. The idea that "fiat" could ever constitute a stable "reserve' is simply a fiction.
Because government can print fiat at will, the distortions to the larger economy can build over decades before ruin sets in. By then the economy is so distorted that only a purgative crash can winnow out the losing endeavors from the winning ones. But in modern crashes, the central banks step in and print yet more money. Thus the economy never unwinds. Lending itself is frozen because no one can tell a healthy business from a failing one. Not only that, the banking sector which most needs a purgative is reinflated most assiduously by central bankers. The bubble is reblown to the degree that it is possible.
Within this context, it is fairly difficult to see how there will be a significant amelioration of unemployment. The bubble that collapsed in 2008 is yet collapsing in our view. Eventually, even the BRICs (China, Brazil, etc.) will suffer; price inflation will cause a contraction of these economies and then where will the West turn for growth? Meanwhile, the West's industrial capacity will continue to be undermined by fiat money printing. An honest money system lies at the core of a healthy economy. A rotten one (in use for nearly a century) eventually hollows out the larger economy. It basically rots from the inside out.
This is what is going on today. Certain parts of Western economies can apparently be restimulated. Certain businesses, the multinationals especially, can be restarted. But the larger economy will remain questionable and even failing. The mis-allocation of resource is a gigantic and uncontrollable one. (Who know what a "real" economy would look like at this point?) Indiscriminate money printing props up failing enterprises along with successful ones. In such economies, employment will like remain suppressed.
Even before the GDP figure, according to the Telegraph, the British Chambers of Commerce was saying another 100,000 jobs would go by the end of the year, taking the jobless figure to 2.6m. Central banking hasn’t worked in the West, nor could it ever. Fiat money sinks towards its intrinsic value which is zero, taking whole economies with it.