The Lesson Of Greece – Stuff Your Money Under The Mattress.

The manager of one of Britain’s largest bond funds has effectively urged investors to put their money under their mattresses. Ian Spreadbury, who invests more than £4bn of investors’ money across a handful of bond funds, is concerned that what he describes as a “systemic event” could rock markets possibly to the magnitude of the crisis of 2008 (1).

What Spreadbury advises people to do is increase their liquidity by ensuring they have access to physical money. Spreadbury is honest enough to address concerns relating to global debt, particularly mortgage debt. It’s in the interests of banks to increase the value of property. So what they have traditionally done is to lend ever larger amounts of money to individuals. The circulation of increasing amounts of debt-fueled cash for mortgages results in greater competition for property. This in turn, means an increase in prices resulting in banks’ lending even more money, and so on and so forth.

For the bankers this process amounts to an apparent never ending cycle of growth. But for the vast majority of the rest of us, its an increasing burden of debt. Mortgage debt is being pumped up to record levels. What Chancellor Gideon Osborne is relying on for future demand is an ever-expanding household debt which is already tipping £2 trillion a year. The financial crisis in 2008 largely resulted from the fact that many people acquired houses and goods with money they didn’t have. Since then, more people have acquired even more houses and goods at greater expense with money they don’t have.

Seemingly, the only thing people learn from history is that nobody learns anything from history. Given the fact that our mistakes are part of a continuum, one might reasonably argue it’s not even an historical thing but rather akin to placing ones left hand into a fire to retrieve a coin, getting burned and then using the right hand to do the same in the false hope that the result will be different. The current record level of debt is predicated on historically low levels of interest. Problems will inevitably arise further down the line when interest rates begin to climb.

One might think that putting savings into a bank would be a more secure option than taking on a potentially precarious mortgage debt. But I wouldn’t count on it. The Financial Services Compensation Scheme (FSCS) is supposedly intended to cover depositors for a limited amount invested per bank in the event of any collapse (2).

But under such circumstances, depositors’ would likely panic and demand all of their cash back at the same time. Inevitably there would be shortfall of available cash since the banks who in theory hold it would be unable to release it on mass given that it would almost certainly be tied up in high risk off shore investments.

Will the government be in a position to underwrite each individual depositor? Not so according to Spreadbury who says that such a suggestion is unfunded (3).

Following the 2008 crisis, the line pumped out by the leading figures within the establishment, was that governments’ could not allow banks to collapse because as institutions they were too big to fail. It was this rationale that underpinned their bailing out by taxpayers’. The government have since made assurances that tax payers’ money will no longer bail out failing banks (4).

But here’s the problem. The reach of these banks is greater now than previously because other smaller banks that were teetering on the edge have been swallowed up by the larger ones. So the banks who in 2008 were regarded as being too big to fail are even bigger in 2015. Contrary to government claims, taxpayers will continue to underwrite the inevitable future collapse of these larger banks at a far greater cost to the tax payer at least until 2019 (5). This is be predicated on the notion that in doing so the government will be protecting the savings accounts of depositors to the value of £75,000 (downgraded from the supposed FSCS limit of £85,000) (6).

The priority of government is to protect the bankers from their own incompetence, as opposed to protecting depositors in the event of a run on banks. As far as the banking racket is concerned, losses are ‘socialized’ and profits ‘privatized’. So for them, it’s ‘win-win’ situation.

Due to the close knit ‘revolving door’ culture that exists between leading parliamentarians’ taking their places on the boards of financial companies’ following their “retirement”, and the fact that the irresponsible actions of bankers continue to be underwritten by the tax payer, there is no incentive for either the politicians or the the bankers to change their destructive course. The continued suffering of the Greek people resulting from austerity in which their government is implicated, cannot be divorced from this kind of close knit relationship.

It was, for example, no accident that Greece didn’t do the rational thing by defaulting on its debt but has instead decided to continue with the ‘negotiation process’ predicated on further bail-outs. As Craig Murray succinctly put it, “the ‘Troika’ [of creditors comprising the EU, ECB and IMF] is very keen that there will be another bail-out because of course the money goes to the bankers to whom the political elite are beholden” (7).

In Britain we can see how this insane system has played out in terms of the so called relationship between house price and stock market inflation and what we have been told has been a growth in living standards. House prices in Britain have risen by 26% since 2009. In London during the same period they have risen by a massive 68%. Meanwhile the footsie 100 increased by 75%. And yet the economy is no better then it was in 2009. “Green shoots” have been talked about for years but never materialized. Stock markets and particularly house prices – which some forecasters assert could double within the next five years (8), has no bearing on reality (9).

We have reached a stage in human development whereby an elite backed by governments’ are able to gamble the money of other people with impunity. Even if by some quirk of nature, we as humans make it into the next century which on current trends seems increasingly doubtful (10), future generations’ will surely be amazed at how we have allowed the actions of a small parasitic minority to effectively asset strip the public realm owned collectively by the vast majority whose well-being and, in some cases, very existence depends. Craig Murray put it well when, in relation to Greece, he stated that “It will seem strange to future generations that a system developed whereby middlemen who facilitated real economic transactions by handling currency, came to dominate the world by creating a mathematical nexus of currency that bore no meaningful relationship to real movements of commodities” (11).

The price of nearly all assets – shares, bonds, property, land etc – have been rising for years. One of the reasons why this is so is because the money we have used to prop up the banks has not been to make them more secure in the long-term. The bankers are not interested in long-term stability but, on the contrary, are motivated by short-term gain. The way to ensure short term gain is to encourage people to buy assets. If, for instance, a lot of people invest their money into the same company by buying shares, then naturally the value of those shares will increase and so will their return on their initial investment. It can appear, therefore, that it’s of mutual interest to pump up these assets like a body-builder on steroids. Of course, rather like an over inflated balloon, these assets will at some point explode.

Writing in the Daily Telegraph, Jeremy Warner, states, “The trigger for an inevitable “correction” [financial armaggedon] could come from a clear blue sky – a completely unanticipated event” (12).

A systemic event could, in other words, rock markets thus precipitating another financial crisis akin to 2008 – a “recovery” which we haven’t yet recovered from. The last thing leading investment brokers – who advise investors as to where and what to invest in want to do, is to advise people to hold on to their actual money. Obviously, this is because in so doing, it doesn’t profit them personally. But that’s precisely what many of them ARE doing.

Have we escaped the worst of the crisis that began in 2008 or is the worst yet to come? The unresolved crisis in Greece, as well as the advice of people like Ian Spreadbury, would suggest we may be merely delaying the inevitable.

References:

1. http://www.telegraph.co.uk/finance/personalfinance/investing/11686199/Its-time-to-hold-physical-cash-says-one-of-Britains-most-senior-fund-managers.html

2. http://www.fscs.org.uk/

3. http://www.telegraph.co.uk/finance/personalfinance/investing/11686199/Its-time-to-hold-physical-cash-says-one-of-Britains-most-senior-fund-managers.html

4. http://rt.com/business/204155-taxpayer-bank-bailouts-rules/

5. http://www.bbc.co.uk/news/business-29982181

6. http://www.telegraph.co.uk/finance/bank-of-england/11715807/Banks-to-cut-protection-on-deposits-to-75000-from-January.html

7. https://www.craigmurray.org.uk/archives/2015/07/bail-out-or-sell-out/#comments

8. http://www.telegraph.co.uk/finance/property/house-prices/10216786/House-prices-Why-prime-London-property-could-double-by-2020.html

9. http://econlog.econlib.org/archives/2015/02/the_housing_bub.html

10. http://www.informationclearinghouse.info/article42281.htm

11. https://www.craigmurray.org.uk/archives/2015/07/bail-out-or-sell-out/#comments

12. http://www.telegraph.co.uk/finance/economics/11679761/Are-overvalued-stock-markets-heading-for-another-crash.html

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