STAFF NEWS & ANALYSIS
Failure of the Bankers: Millions Face 'Impoverished Old Age'
By - May 21, 2009

Millions of Britons face an "impoverished old age" as the entire British pensions system is based on a "bet" on the stock market, Ros Altmann, a governor at the London School of Economics, has warned. Ros Altmann: She said the credit crisis and falling stock markets have resulted in a man with a £50,000 pension pot being 27 per cent or £20 a week worse off if he retired today compared to last year. Dr Altmann, a pensions expert, said the credit crisis had "hugely damaged" Briton's pension system and had left retirement savers "disillusioned". In a special report released on Tuesday, she suggested that stock markets have returned an average of just 1.2 per cent during the past decade compared to 16.1 per cent in the previous 10 years. – UK Telegraph

Dominant Social Theme: New thinking is required – but maybe not too new.

Free-Market Analysis: The problems in Britain are similar to those in the United States and elsewhere where savers took big hits chasing small profits. Retirement has receded, maybe a great deal. To add insult to injury, a lot of people – having lost 25 or 30 percent of their savings – likely removed much of the rest and thus missed the recent leg back up (along with many major hedge funds, it seems). But even so, when markets rebound there is no surety that those stocks that have plunged will reverse course. Some have done so, of course. But GM didn't. Neither did Chrysler and probably a number of other blue chip firms, including some very big banks.

So, when markets go down hard, people often lose a lot of money … often for good. It is difficult to understand how investing nakedly in equities can provide people with a dependable retirement. The poor fellow who is hanging on at work, hoping not to be fired and anticipating a few beers and a motorcycle ride over the weekend, may not really have the wherewithal to be a competent and contrarian investor. He may not even understand Modern Portfolio Theory! (Not to mention the controversies swirling round it.) Is he really going to stick it out in markets like these? How long can he sit back and watch his money, what he's got of it, evaporate? You know, US Treasury Secretary Hank Paulson himself is on record as saying the banking system came within hours of collapsing back in autumn '08. Is that the kind of system that one wants to entrust life savings to?

And yet … does one have a choice? Financial historian G. Edward Griffin says that the Fed has settled on five percent inflation – which is confiscatory enough to remove a good deal of a person's life savings over decades. And then there are taxes. For many, playing the stock market offers the only possibility to keep up, other than the lottery.

Of course, those who have a fairly sure thing, investment-wise, are those with pensions guaranteed by companies or by the state … but wait a minute. We don't believe state pensions (American, British or European) are so secure either. Do you really think, as the financial crisis unrolls, that voters will put up with the kinds of rich pensions that government workers are scheduled to receive over the next decades?

California, as we reported yesterday, is in the throes of a taxpayer rebellion. The voters, all 19 percent of them, sent budget-balancing amendments down to defeat and soon New York is likely to go through the same process. Now, the American federal government may pick up the tab for these failed states by guaranteeing bonds, borrowing, etc. But this only pawns the problem off on the topmost layer. Sure, regional difficulties can be assumed by central governments, but this won't provide real solvency. The problem is excessive spending.

And that's a money problem, isn't it? Excessive spending is driven by torrents of money. The ability to create money through central banks is an invitation to spend lavishly. In order to build the 21st century hyper-state, big spending is a necessity. Yet, there is an alternative. Absent central banking, a gold and silver market-based standard would provide a more rational approach in our opinion. Without monetary inflation, prices would sink over a person's lifetime as technology made items more efficient and less expensive. More might value self-sufficiency because a gold-and-silver standard simply would not allow for the kind of tempting booms (and busts) that have propelled people into modern lifestyles.

Western society has indeed been badly warped by the endless issuance of paper money. (We once compared the central banking era to a century-long dreamtime.) It seems to encourage false choices on numerous levels. For one thing, there are only so many articles you can read about exciting and luxurious city living before you leave the farm. Then, unbeknownst to you, you have traded your self-sufficiency for a lifestyle that is going to survive only so long as the next ruinous boom. You may believe the system is the real-thing, but likely it's not.

< br />Absent the stimulation of paper money, life might be calmer and less queasy. Booms would not swell the economy with an ocean of Things. More people would be in charge of their own destiny.

Would it happen? The monetary elite is scrambling as fast as it can to reinflate. Shoots of green are said to be everywhere. Of course the longer the current malaise goes on, the more desperate the banking class becomes. And unlike the 1930s, this financial disaster is playing out on the Internet – and more and more viewers are seeing the cause and effect.

We have written that the current situation is analogous to the days of the Gutenberg press: Finally, people could read the Bible and see priestly untruth. Today, of course, the West's establishment religion is monetary. Think about it. Are we so wrong? The mainstream media prints the every utterance of the central banking class with breathless reverence. The miens of these bankers are often ascetic; they are portrayed as good family men, patriotic and responsible. They are priests with a vocabulary all their own – as incomprehensible, nearly, as Latin. Their expensive, bespoke, business suits are a uniform akin to vestments. The gorgeous conference rooms in which they convene may be regarded as grave vestibules. Utterances, revealed in "minutes," have the resonance of commandments from on high. Regulators, media mavens and politicians are acolytes, expressing hosannas as they wish.

Say God is dead and no one will blink an eye. But try to launch a critique of our current central banking regime and see how amenable the mainstream media is to transmitting your message. Sacrilege these days (or until recently, anyway) has little to do with damning the almighty and a great deal to do with bashing Ben Bernanke.

After Thoughts

After 100 years, this sort of religiosity may be crumbling. The faith fading. The political class, snuffling the sea change, is seemingly less faw ning. Through the Internet, and as a result of the current grave crisis, people are certainly becoming aware, once more, that all is not as it seems. No, heaven on earth cannot really be purchased; sins cannot be purged by indexing; self-sufficiency is perhaps a better approach to life than stock-picking. And holding precious metals is preferable to paper money during this leg of the business cycle.

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