With huge infrastructure spending and the capital's skyline awash with new glass towers, there is a certain air of prosperity with the government spending money like there is no tomorrow. You could be forgiven for thinking we are in the middle of a boom. But this could not be further from the truth. We might look like a wealthy country but, the reality is, we are broke. In fact by 2016 it is estimated that most British households will have nearly £10,000 of debt from either personal loans, overdrafts or credit cards.
So why shouldn't we believe in the phony financial signals?
The lie is that the economy is recovering. All that is happening is we are funding our lives with debt. All the new building we are seeing is done with borrowed foreign money. Whether it is a holiday or a crowd-pleasing tax cut, debt is being used. At the end of 2014-15 the real national debt will stand at £8.6 trillion. That is the equivalent of £320,000 for every household in Britain*.
We are in an impossible position
In 2010 the coalition government calculated borrowing £37 billion by 2014. Official figures show this turned out to be £89.2 billion*. Mr Cameron's government will add a further £500 billion to this mountain of debt in the next 5 years*. That is more than every British government of the last 100 years. Fact! Standing at 5 times what our economy is worth, this government debt simply cannot be repaid.
Let's look at it another way. Even if the government was to sell off or close down:
• NHS £115 billion
• benefits £54 billion
• roads and railways £43 billion
• schools £43 billion
• the military £45 billion
• state pensions £153 billion
that would not get us even half-way to paying down what we owe, let alone paying it off. And this is just the news on the home front.
Cause for concern is the Chinese slowdown. For the last 30 years it has been a life saver and crutch for all world economies. With its huge market and massive appetite for resources, this is now not the case. 2014 saw China clock up 24% of the world's GDP growth*. But with the proverbial hitting the fan the Shanghai Composite index has fallen a massive 30% since June. And in the wake of China's slow down, commodity prices have tumbled too. Copper and oil, which are staples of the world economy if you will, have plunged dramatically since 2008. Copper alone has fallen 20% this year. These real world signals cannot be manipulated by governments and they are alarming. The FTSE too, in August, reached highs not seen since the dot com bubble burst.
To have ignored the signs over the last 30 years, governments have at best been ineffective at worst banker colluding. Japan's boom bust in the 80's and Argentina's in the 90's were huge indicators of what was going to arrive here. Because of our interconnectedness with investment markets and economies, it was always going to wash up on our shores at some point, and it is not going to go away. The governments and bankers are manipulating us with low interest rates which has given the illusion that all is well, when it is not. President Putin is using the boot and incentives to bring the wealth of the Russian super rich back to the Russian economy to prevent its collapse. This rings alarm bells for the London property market. Couple this with oil prices in free fall and the Eurozone starting up the presses for a another round of quantative easing (QE), and the UK looks less like a safe haven to foreign investors. The Bank of England (BoE) is looking at introducing negative interest rates. Andy Haldane, Chief Economist for BoE, has warned that rates may go negative to support our economy as China slows. He also believes the world economy is headed into a new phase of 'turmoil' from the 2008 banking crisis. So it's not just me then!
Regarding another round of QE, one major problem with money printing is that no amount of can fix the problems within the eurozone economies. The new printed money won’t end up in the pockets of ordinary citizens. It will be tucked away in hedge funds and banks, and play no productive part in the economy. The safe haven position we enjoy is only sustainable if we can pay what we owe whilst others lend us the money to spend. At some point there will be a massive correction as all this is not sustainable.
So who will pay the debt back?
The answer is, you. The government will seize your wealth. How will they do that? Remember Cyprus in 2013 when the IMF restructured the Cypriot banks? People's wealth was confiscated and turned into bank shares. As we have seen in Greece, this all happens very swiftly. As I said in my last blog: “Don't think that as a bank depositor, your money is 100% secure — with a God given right to have your deposits returned. Not so! In law this is not the case. As a bank depositor you are just an unsecured creditor of the bank! Depositors have become unsecured creditors.” http://www.cavendishcoins.co.uk/6/post/2015/05/what-is-a-bank-bail-in.html
The banning of cash – and how it would affect you
So are we all blindly swimming into the cod end of the net? Well little-by-little we are losing control of our finances. I mentioned Andy Haldane (BoE) earlier, who recently at a Portadown Chamber of Commerce meeting suggested the banning of cash. That's right, scrapping notes and coins and replacing them with 'blockchain technology' (bitcoin type currency). Their motivation is the spectre of deflation, which banks dread and which can bankrupt governments. The problem is, with 0% interest rates, people are removing money from banks. This means, at some point, a run on the banks. So by removing cash they eliminate the risk. Other reasoning behind this anti-cash move is that the banks can charge you for using money, your money. If they succeed in abolishing cash, we will be obliged to put every transaction through the banking system. In doing this the bank could charge you to keep your own money, and there would be no choice in the matter. Locking you into this financial system would make it much easier for the powers-at-be to make one off taxes and to conduct Bail-in's. This centralising of power would give the banks huge control over us, our money and the way we invest and spend. It is quite alarming that someone as senior and influential as Andy Haldane is thinking along these lines. The French authorities have already banned cash transactions over £700 (€1000). It has been 'sold' to the French public as a way of combating crime and terrorism. The wider picture is that governments and banks want to gradually ban the use of cash. If this happens we will be losing a fundamental part of free society.
You can choose to do something about it
Take a lead from the people in the know... the central banks! They continue to amass huge quantities of physical gold and silver the world over, whilst publicly referring to them as “barbarous relics”. Why are they doing this? Because it is the best form of insurance. They are preparing themselves for the volatility ahead. You may recall since 2012 JP Morgan have increased their physical holding of silver from 5 million to 55 million ounces, that is a large commitment to a volatile metal, so what are they anticipating?
Gold's liquidity makes it an amazing asset. It can be bought and sold 24 hours a day all over the world. Much quicker than other investments to buy and sell in uncertain times, this makes it critical. I would add to that, buying precious metals is best with a long term view. As a liquid asset it has no party risk i.e. no government or central bank has control and it can not be counterfeited. And unlike fiat currencies and paper derivatives, ISA's etc. which governments and bankers control it will never be worthless. So, by buying gold and silver, you are not only protecting your personal wealth and purchasing power, but equally important, you are taking back control. Simply put, gold and silver will endure.
Whilst on the subject of endurance, in the Old Testament there is a story about Nebuchadnezzar, a King of Babylon. It is said he bought 350 loaves of bread with a gold coin. If we look at this with today's prices, a loaf costs £1.50; that's £525 for 350 loaves. Today's gold price is £744.55 an ounce. This shows that you can buy more bread today with an ounce of gold than you could in the Old Testament days! Testament indeed to gold's great store of wealth and enduring purchasing power over time!
Finally I would like to leave you with the words of Bernard M. Baruch.
“Gold has worked down from Alexander's time... When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory.”
Bernard M. Baruch, American Financier and Statesman (1870-1965)
If this has been of any interest or help please share. As always your comments are most welcome!
The Tax Payers Alliance (http://www.taxpayersalliance.com/the_real_national_debt_hits_8_6_trillion)
Government borrowing –'Summary of Public Sector Finances, May 2015', ONS, 19 June 2015
Public sector debt – 'The history of Britain's national debt', UK Debt Bombshell, accessed 7 September 2015
China's GDP – International Monetary Fund 2015 Forecast