Wednesday, 30. July 2014
05. 10. 12. - 13:00
Hard-working citizens in Western nations often earn less than what is spent on their behalf by debt-ridden governments.
As poor manufacturing data makes even more QE more likely, what will be the ultimate consequence of this long-running imbalance?
‘World War III’ or 200 % inflation, are the outcomes opined by Clem Chambers, CEO of leading investment site ADVFN.com and author of new thriller, The First Horseman(http://clemchambers.com/books/horseman/index.html) and Amazon best-selling investment guides '101 Ways to Pick Stock Market Winners' (: http://www.amazon.com/Ways-Pick-Stock-Market-Winners/dp/1907616276/ref=la_B0034OKF36_1_4?ie=UTF8&qid=1343819636&sr=1-4)and 'A Beginner's Guide to Value Investing'. (http://www.amazon.com/ADVFN-Guide-Beginners-Investing-ebook/dp/B007HAZV0K/ref=la_B0034OKF36_1_7?ie=UTF8&qid=1343819636&sr=1-7 )
For years, the UK saw it's once proud manufacturing sector decline.
Factories that once employed 100,000s of workers declined to a mere few thousand as production moved elsewhere, including to mainland Europe.
News that production of BMW's Mini Countryman, currently made in Austria, might be moving back to the UK is a troubling sign for the Austrian economy.
The car sector has a huge supply chain, employing hundreds of workers in small firms making tools, key components and supporting the work of other industries.
Once a main manufacturing sector such as vehicles dries up, manufacturing in general can decline as it may become uneconomical for firms to remain open to supply other sectors.
Austrian business needs to look to Britain's past to see what moves it should make, but also to it's potential future.
I recently found myself discussing the future shape of the world economy with a friend, one in a high-level position who happens to be responsible for about 1% of UK GDP.
He reckoned the only escape path from the economic train wreck that’s the global economy right now would come via the establishment of a worldwide financial governance system.
I suggested he was then in fact predicting WWIII…
Why? Because – whether it’s the answer to the world’s problems or not - the establishment of a "UN-like" financial system would be fought against. The control of a country’s financial system is, by proxy, control of the country itself, core to a nation’s sovereignty and not easily given up.
Instead of a painfully constructed "world government" I suggested another route - how the one heading down – or up – the inflationary route.
An inflationary rate of 100-200% over approximately a decade would do the same "fixing" job, probably a better one in fact.
Executed at the press of a button, in complete safety, this inflationary path can be taken with no direct casualties, with few, in fact, even understanding what was going on.
Thankfully, inflation is the lazy man’s solution, meaning it will be the chosen route by world authorities consumed with the mammoth task of rebalancing the currently-gridlocked process of global economic realignment.
With much short-term sovereign debt currently at levels as close to freshly printed bank notes as is possible, a problem with selling new bond debt would be the only catalyst required to morph the mountain of short term bonds into actual currency - pouring out of ATMS in inflationary quantities.
The US, with its "Operation Twist" has dammed up the water cannon of money printing – whih is now sitting there just waiting to explode into the world economy.
It must be said that this money explosion will be avoided if at all possible. (Inflation nukes the pensions of the very people in charge of government.)
Yet ultimately, if no one will lend governments enough money to pay their bills, they will have to print the money – it’s the final resort when there’s simply no other way out.
INFLATION ‘NOT THAT BAD’
Even 200% inflation in coming years won’t be that bad.
Anyone born a little while longer ago than yesterday will see that inflation’s been an ever-present giant in our midst for decades.
Only those belonging to the most recent generation have come to know life without hundreds of "per cents" worth of inflation being standard measure.
Life goes on in any case. The roadblocks of "special interests" are washed away by the physics of inflationary economics.
Of course, it’s not a nice state of affairs - but then the current crisis is the result of years and years of bad economic management which have played "nanny" to most of us - whether we like it or not.
People don’t seem to realise, for instance, that both the UK and American governments each spend more on the average family than the average family earns from a honest day’s work.
For what each person receives in "benefit" from this government spending it doesn’t seem possible that this could be the case - yet the numbers are out there in the public domain.
In fact, this "average money" spent on an "average family" in truth is applied to all families, whether the adults are working or not.
Think about it. When a government is the main recipient of its income as well as the main allocator of resources, how can this possibly lead to a well-run economy?
The credit crunch and sovereign debt crisis are comeuppance for this stealth nationalisation. Further consequences will slowly unfold over the next 5 to 10 years.
Well, let’s hope we can say it was inflation that reset the status quo, rather than another world war.
~Visit www.ADVFN.com for free, real-time stock prices
~ Clem’s latest news and articles at www.clemchambers.com
~Follow Clem on Twitter: @ClemChambers
Clem Chambers (www.clemchambers.com ) is CEO of the leading financial information and investors website ADVFNand author of books including A Beginner’s Guide to Value Investing and 101 Ways to Pick Stock Market Winners, both out now on the Kindle. His latest financial thriller The First Horseman is available for pre-order now.
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