Inflation, recession, and new currencies

Alasdair Macleod:

Central bankers are trying to steer markets away from higher interest rates, citing growing evidence of the harm they are doing to economic growth. Quantitative tightening is dead on arrival.

Predictably — because it is a repetitive cycle — bank credit is beginning to contract. But contracting bank credit is associated with periodic systemic crises. The credit contraction crisis promises to be even worse than the Lehman failure and any that came before it. And because central banks are sure to protect financial asset values from collapsing, their currencies are likely to suffer instead. Being entirely fiat unbacked by legal money, currencies are dependent entirely on the public faith in a financial system which lacks the backing of real money. 

We are all rapidly drifting onto the rocks which sank John Law in 1720. Central bankers, like John Law with his Mississippi bubble, are prioritising support for financial asset values over their currencies, which is what interest rate suppression is all about. Just as Law’s fiat livres rapidly became worthless, so will today’s fiat currencies.

Therefore, in the interests of one’s own self-protection, it is time to fully understand the difference between legal money, fiat currency and the importance of bank credit.

Central banks refuse public access to legal money, which is their gold reserves. Nor is access demanded by the investment establishment, which has thrived on monetary inflation. Instead, there is a developing debate about collapsing currencies being backed by commodities instead. This article puts these developments into context. [Weiterlesen]