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Saturday, 19 November 2011

Government does not solve problems, it creates them

Central banks have been attempting to drive down interest rates by purchasing long-term treasury debt and selling short-term debt. This is just the latest instance of a central bank desperately flailing around doing something, merely for the sake of doing something. Central Banks still do not understand-- or admit-- that the central banks themselves caused the financial crisis by driving interest rates too low and relentlessly expanding the money supply. Any action on their part will just exacerbate the problem.

A one hundred trillion Zimbabwe dollar note
how long until we see the same in US dollars?
The decision by the ECB to print more Euros under pressure from France is just the latest in a long list of examples.

Markets, however, understand that the central banks have failed and have no clue what they are doing. This is why markets are in a tailspin. Stock, bonds, and commodities drop in price while the financial press wondered whether this worldwide sell-off meant that the entire system was collapsing. Not since 2008 had there been such a dramatic drop across so many different sectors of the market.

Because of continued rising inflation and central bank suppression of interest rates, investing in traditional safe havens such as savings accounts, mutual funds, and Treasury bonds has become unprofitable. Lots of money is moving through the system seeking a return on investments or at least some measure of safety, as increasingly desperate investors move their funds around in search of long-term profits and stability.

Until the Central Banks stop their monetary intervention and allows interest rates to be set by the free market, investors will move their money in a volatile manner. They will invest in commodities and stocks while prices swing upwards, but will flee to bonds and cash at the first sign of a downturn.

The uncertainty caused by Central Banks does help some people – professional traders for example. Increased volatility and huge price swings mean more opportunities for profit, as sophisticated electronic trading programs can buy and sell huge positions within a fraction of a second of a major market movement.

But small businessmen are misled by the artificially low interest rates into making unwise investments, and those whose jobs vanish when the latest bubble pops, suffer.

Without the knowledge or ability to move with the markets or diversify overseas, average people see their savings stagnate or depreciate-- along with their hopes and dreams for a better tomorrow.

The only way to return to a sound economy is for Central Banks to cease and desist their monetary manipulation and allow interest rates to be determined by markets, just as the price of goods, services, and labour should be determined by markets.

Everything Central Banks are doing by pumping money into the economy benefits only the insolvent, too-big-to-fail banks. Low interest rates encourage consumers to take on more debt, meaning more profits for the banks issuing those loans.

Jersey's future economic well being we are told is dependent on a rise in the interest rate, our government is ignoring economic reality the truth is that interest rates will not be raised until at least 2013, if ever.

Japan has been trapped in a 0% interest rate corner for 20 years now. Once interest rates hit 0% they never come back, so the government must change direction. Unless it can find a way to change the laws of economics, to remain on its current course the only option is to pilfer more and more wealth from the residents of Jersey.

The amount of tax our government pickpockets will either have to rise further or the government will finally need to comprehend what an expenditure cut is – an actual drop in the amount of money spent.

We have all had to accept expenditure cuts as the government has continued to steal ever more of our hard earned money. We are taxed enough already.

It is this government theft that is causing so many people to need ‘assistance’ – ‘assistance’ which robs us of our liberty and transfers power and control to government.