Reflections on 2012 – December 19th 2012

As ever the “View” cannot see into the future with any clarity, so here are some quotes gleaned during 2012; some contemporary, some timeless. Enjoy your Christmas festivities and may 2013 bring everything you wish for.

 Firstly two messages for our central bankers

“There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Ludwig von Mises


“Our analysis leads us to believe that recovery is sound only if it does come of itself. For any revival which is merely due to artificial stimulus leaves part of the work of the depressions undone and adds – to an undigested remnant of maladjustments – new maladjustments of its own.” Joseph Schumpeter

 There is however hope

“We are continually faced with a series of great opportunities brilliantly disguised as insoluble problems.” John W. Gardner

Or not as the case may be…

“If all else fails, immortality can always be assured by spectacular error.” John Kenneth Galbraith

 Followed by a rare, truthful observation from one of Europe’s finest

“We all know what to do, we just don’t know how to get re-elected after we have done it.” Jean- Claude Junker

And another from an American banker

“In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored.” Jamie Dimon

 The root of the problem

“The more I studied economic science, the smaller appeared the knowledge which I had of it in proportion to the knowledge I needed; and now, at the end of nearly half a century of almost exclusive study of it, I am conscious of more ignorance of it than I was at the beginning of the study.” Alfred Marshall

“Economics is extremely useful as a form of employment for economists.” John Kenneth Galbraith

 And wishful thinking doesn’t help either

“The road to hell isn’t paved with gold, it’s paved with faith. Faith in a dollar that’s backed by a belief that people have faith in other people’s belief in it.” Jarod Kintz

“The market is not an accommodating machine. It won’t provide high returns just because you need them.” Peter Bernstein

 Whatever happened to the democratic process?

“The best argument against democracy is a 5 minute conversation with the average voter.” Winston Churchill

“Bipartisan usually means that a larger-than-usual deception is being carried out.” George Carlin

 Are there any rational thinkers left?

“I can calculate the movement of the stars, but not the madness of men.”  Isaac Newton

“Two things are infinite: the universe and human stupidity; and I’m not sure about the universe.” Albert Einstein

 Can history help?

“History – one damned thing after another” Churchill

“History is a set of lies agreed upon.”  Napoleon Bonaparte

 Finally – to prove that many a true word is spoken in jest – The euro according to Blackadder

 Baldric: “What I want to know, Sir is, before there was a euro there were lots of different types of money that different people used. And now there’s only one type of money that the foreign people use. And what I want to know is, how did we get from one state of affairs to the other state of affairs?”

Blackadder: “Baldric. Do you mean, how did the euro start?”

Baldric: “Yes, Sir.”

Blackadder: “Well, you see Baldrick, back in the 1980s there were many different countries all running their own finances and using different types of money. On one side you had the major economies of France, Holland and Germany, and on the other, the weaker nations of Spain, Greece, Ireland, Italy and Portugal. They got together and decided that it would be much easier for everyone if they could all use the same money, have one Central Bank, and belong to one large club where everyone would be happy. This meant that there could never be a situation whereby financial meltdown would lead to social unrest, wars and crises.”

Baldric: “But this is sort of a crisis, isn’t it Sir?”

Blackadder: “That’s right Baldric. You see, there was only one slight flaw with the plan.”

Baldric: “What was that then, Sir?”

Blackadder: “It was bollocks.”

Plus ca change – December 13th 2012

Solidarity in our union is alive, ‘Grexit’ is dead. Greece is back on its feet. The sacrifices of Greek people have not been in vain. It’s not only a new day for Greece, but also a new day for Europe.”

 Greek Prime Minister Antonis Samaras declared that the Grexit era was dead; speaking in Brussels to reporters after the Eurogroup approved the mammoth bailout fund of €52.5 billion. Plus ça change, plus c’est la même chose. Nothing has changed; political spin is alive and well, Greece is still bust and the eurozone is in for yet another unsecured loan. He would probably have liked to have said a “new dawn for Greece” but the ultra right wing party – New Dawn – have the lien on that catchphrase. In a way he is right as the can has been given a seriously good kicking and Greece is off the agenda for a while, but we still have Spain and Italy to worry about. The ECB’s new mandate to regulate eurozone banks is all about sorting out the Spanish Cajas and Bunga Berlusconi has put a spanner in the Italian Job. That iconic film ended with a coach, full of gold bars, hanging over a precipice. Given Italy’s burgeoning gold reserves this is not a bad metaphor for the state that country finds itself in.

 Meanwhile in the US, as predicted, QE3 has morphed into QE4, with a specific target to reduce unemployment; another triumph of hope over reality in the Greek vein. Yes we are seeing an improvement in non-farm payrolls and the unemployment rate, but both are relatively anaemic compared to past recoveries. The assumption that we will return to previous employment rates and GDP growth is truly heroic. Hurricane Sandy has added a new dimension to “seasonal adjustments” and if you believe everything the US Bureau of Labor Statistics has to say, then your name is probably Antonis Samaras.

 The “Big Issue” that no one is prepared to address is how we unwind this enormous central bank largesse. If you throw enough money at the problem one part of the equation will go away, but how do you expunge the debt burden that it creates? Central bank printing creates the short term life blood for profligate government spending at very accommodative rates of interest, but the baby they are left holding is a going to be one hell of a problem child.

 As the world is coming to an end on December 21st, according to Mayan mythology, why should we care? As with any prediction timing is the problem. I have every intention of enjoying my Christmas turkey, complete with brussels sprouts (am I the only one who does), on the 25th, but I am still more than a little concerned about the pile of tin ware building up outside the doors of our central banks.