Latest – ominous signs in Venezuela, Zimbabwe and Britain

Philip’s Desk:

Zimbabwe

Since our last newsletter, Zimbabwe has had a flurry of activity.

The Reserve Bank of Zimbabwe has attempted to reintroduce Zimbabwe’s currency through the backdoor, by issuing US dollar-backed “bond-notes”, with predictable consequences. This article provides useful information around the bond-note issue.

Zimbabweans have seen it all before, and are en-masse trying to withdraw money in a bank run that is revealing these banks have, in fact, no money! The ensuing cash crunch is causing a crippling crisis, with bank withdrawal limits being established, civil servants going unpaid (including police), planned government retrenchments and a general shut-down of local demand. This article here by Cathy Buckle describes it well (as do the other articles on her blog).

This is all a reflection of the typical boom and bust of money printing – while the country has been using US dollars, its banks have been lending out far more than they actually have on hand. This is a surreptitious form of money printing. These Zimbabwean banks have been “creating” US dollars.

But Zimbabweans are now finding out that their banks actually don’t have this money. While the banks were increasing the money supply, there was a relative boom (or, said better, a less severe economic downturn). But now the pain of a bank credit bust are being felt.

The cash crisis has caused countrywide outrage and an atmosphere of revolution is in the air with #ThisFlag protests across the country. In an attempt to quell the unrest, the government has resorted to the usual: tear gas, arrests, social media-shutdown and general intimidation.

Zimbabwe is in a state of great change right now.

Venezuela

Venezuela is the latest in a long list of countries to experience the devastating pain of money printing. Inflation rates are souring in the This article describes the current Venezuelan nightmare with great empathy and is well worth the read.

With such great food shortages 35 000 Venezuelans poured across the border in search of food in Columbia, in a brief 12-hour open border window. This isn’t the norm, however. The border keeps strict controls, locking people into the deteriorating country.

Murder and kidnapping have become common place. I considered flying to Venezuela to interview locals but kidnapping gangs around the airports have become a major problem. With food in such short supply, the country has become quite unsafe – alarming enough for me to avoid going there and is typical of how hyperinflation destroys a nation.

Money printing is the primary cause of shortages in Venezuela and let no-one forget it.

Russell’s desk

Brexit

Undoubtedly the most significant event of the past few months was Brexit! 17.5 million Britons, a little over 50% of the electorate, voted to leave the regulatory structures of the European Union. The outcome elicited cries by pro-Remain voters of broken democracy and that too much power had been vested in the hands of a dumb, bigoted electorate. But these pro-Remain elites betrayed their own intolerance and small-mindedness. This hard-hitting article by John Gray of the New Statesman brilliantly sums up the political significance of Brexit and what it means for the decade ahead. In short, Brexit and similar surprising democratic uprisings are the result of deep-rooted discontent with the economic status quo, the result of decades of monetary and fiscal injustice that has saddled nations and households with immense and burdensome debts. We don’t yet know where this popular uprising will lead: to genuine systemic reform or more political pressure for money printing for the people? Either way, the political rollercoaster has only just begun – brace yourselves!

Helicopter Money

Speaking of money printing for the people, things like “Helicopter Money” and “QE for the people” continue to be mulled over by the world’s policy elites. Helicopter Money is like QE but instead of the central bank printing money and buying government debt securities (bonds) from banks, it prints money and “loans” it directly to the government. The central bank literally creates a special drawing account for government to spend on whatever it likes. Since the central is part of the state, this is nothing more than the government borrowing money from…itself, or more accurately, from thin air. It is different from ordinary QE because it bypasses the banks and so the printed money can get directly to households and businesses without getting thrown straight into financial speculation and asset bubble-blowing. Helicopter money is much closer, actually roughly the same, to how the Zimbabwean central bank printed money during its hyperinflation. David Stockman’s assessment of helicopter money is blisteringly scathing.

If one needed any more proof that gargantuan debts and money don’t create progress, one only needs to gloss over the latest survey by McKinsey which concludes that “Across 25 of the world’s advanced economies, about two-thirds of the population—more than half a billion people—earn the same as or less than their peers did a decade ago.” People are going sideways or backwards and this could be one of the first generations in general peacetime to be poorer than their parents. This is creating political upheaval in the West. Read McKinsey summary here.

General:

We have had a heart for reform money and banking and are in the process of establishing The Monetary Justice Project to this end. We want to provide input to both governments and corporates around what that looks like and we’ll be giving you more detail as this progresses.