Let’s work this out

Everyone is everywhere on the economy and the correct policy prescriptions.

The mainstream assessment is here.  I would call it the Paul Krugman assessment.

There’s low aggregate demand.  Poor spending.  A recession.  So government should spend big to compensate.  And interest rates should be zero to encourage spending.

Problems with this view of the world:

1. Debt is already massive, both public and private.  More borrowing will bring everyone to the brink of disaster.  We need a “buffer” – savings – not more borrowings that will further erode personal and public balance sheets, making the next “shock” even more disastrous.

2. Government cannot allocate investment and spending appropriately.  If people don’t want to spend, there’s a reason.  They are bust.  We need  – NEED – a recession to purge the malinvestments.  Why is the government fighting this process?

3. The cause of the problem – debt and spending – cannot logically be the source of the solution.  It’s logically impossible.

So what are the real solutions?

Well, first, there are none.  At least not easy ones.

The real solution is higher interest rates, massive public sector layoffs, and a reduction in spending for at least two years.  That would cause massive pain.  The stockmarket would be down 60%.  Think about that.  60%.  It’s not going to happen.  At least whilst the current democractic system is in place.

Call it the Iceland solution.

Commentators are trashing the half-assed solutions of Germany and Ireland and Greece and other “austerity” countries.  This is bullshit.  They are not austerity countries because their banks have been saved.  They are no different from Britain and the US.

The only country that has taken a knife to the debt problem is Iceland.  How are they doing?  OK, actually.  But no mainstream commentator mentions them because they want to create a false dichotomy: “Look at how bad Ireland is doing!  That’s where austerity gets you!  The US isn’t so bad in comparison” [PLEASE IGNORE TRILLION DOLLAR BANK BAILOUTS IN ALL THESE COUNTRIES, PLEASE IGNORE ICELAND AND PLEASE IGNORE CHINA]

So what WILL happen, given Iceland is not politically possible in the corrupt West?

Japan will happen.  The central planners will tinker.  Zero interest rates.  Billions in wasted government projects leading to nowhere.  But combined with that will be the spectre of massive currency wars and a grab for gold.

What do you do?  What would you have done if you were in Japan in 1991?  Sold everything and moved to a country that had high interest rates or a cheap exchange rate.  Australia.  Indonesia.  Singapore.  Brazil.  Anywhere.

What do you do now? 

Invest in gold and silver.  Buy a farm if you can.  Buy a gun if you can’t.  And leave for a small island or a “backward” country that speaks the same language as you.  Because when the government doesn’t work, everything falls down and there’s no one to pick people up except for additional zeros in everyone’s bank account.

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