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David Cameron
was today forced in Brussels to choose between the free market and the
vanities of overreaching politicians...
Today is a
very sad day. We believe that the markets are telling us that there is a
horrible abscess in Europe, and that the Euro is the pus. We believe that
fuelled by injustice, the infection of nationalism will now tear Europe apart
- making outright enemies of Germany and Greece, France and Italy, the
Netherlands and Spain.
Our European
friends are today irritated by Britain's refusal to come to their drunken
party. Not for the first time we are the odd man out, and being pointed at by
the shallowest politician in Europe. It's OK. We can live with a little
name-calling for the moment, and we look forward to quietly rebuilding our
friendships with every one of you in the future. We hope it will be soon.
You are
right. Our financial system contributed - in part - to the mess we are in.
But you are wrong as to the reason and the solution. What happened is that
over a period of years the political classes in London, New York and the
smaller financial centres of Europe worked together
to hold down the cost of credit. Ever since 2001 they suppressed the will of
the market for higher interest rates. They did this to foster the 'feel-good
factor' and to get themselves re-elected. It was the irresponsible and
self-serving policy of elected representatives all over the western world,
and it is without any doubt the root cause of the explosion of credit which
we now have to pay for.
The result of
the explosion of credit was an enormous pile of cash accumulated at the banks
of the world. It represented the savings of an older generation, and there
was far too much of it. It was lent very unwisely. That happens. It's life.
And usually it means the creditors lose their money and gain some wisdom.
Only this
time some of the creditors - particularly Germany and France - don't want to
lose their money. They want to force two or three generations of Greeks,
Irish, Portuguese, Italians, Spanish and Belgians to pay, pay, pay. Germany and France lent to your father, yet you
become the indentured slave.
That should
never be how bad money-lending is resolved. The lender should take the hit
when the borrower cannot repay; it helps to focus his mind before he lends.
In Britain we got rid of inter-generational debt servitude 200 years ago, and
it is not progress to return to it.
As it happens
in Britain we have the same deep insolvency problem to resolve, but it is
going to be resolved in a different way. Our government is going to have to
print to eliminate the debt - just watch. There is going to be a storm and
Sterling will be murdered. Interest rates are going to climb sharply as world
markets demand the return of their rightful position as the setters of the
cost of money. Those rate hikes and concomitant inflation are going to
eliminate twenty five years of savings, and twenty five years of a silly,
credit-fuelled house price bubble. By the time it ends the creditors will
have paid in full. Houses will be again affordable by anyone with a half
decent job. Retirement at 55 will have been consigned to the dustbin. Student
loans will have inflated to irrelevance, and Britain will again be a great
deal fairer than it currently is.
In Europe you
will doubtless laugh quietly as this storm hits us. But you will have no
reason to make war on us, and you won't want to, because your strength will
be all used up making war on each other. We do not believe that 1,000 years
of carefully constructed and often hard fought mutual independence should be
sacrificed on the altar of a bad monetary union. We do not believe the people
of Europe will want it when nationalist tensions materialise.
We think that Europe's political class is making a monumental error in order
to hold on to something which carries their political credibility. We think
they will fail and that Europe will suffer dreadfully for it.
It is a black
day, because contrary to your belief we love Europe. We also love our free
market and the way it exposes the vanities of overreaching politicians. Today
you forced David Cameron to choose between the two, and he chose well.
Paul Tustain
Director and Founder
Bullionvault
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