It’s the English-speaking world’s favourite game – property. And today the stakes in the game are higher than ever. Niall Ferguson, The Ascent of Money e5: Safe as Houses
Property ownership was once the preserve of an aristocratic elite. ibid.
Yet the Savings & Loan crisis was a mere tremor compared with the property earthquake that would strike the US market twenty years later … The subprime quake would shake the entire world of finance to its very foundations. ibid.
We tend to think of property as a one-way bet. ibid.
In our time we’ve witnessed the zenith of global finance. In 2006 the world’s total economic output was worth around $47 trillion. The total value of stock and bond markets was roughly $119 trillion. More than twice the size. And the amount outstanding of the strange new financial life-form known as derivatives was $473 trillion. Ten times larger ... This is the story of financial globalisation. Niall Ferguson, The Ascent of Money e6: Chimerica
According to [George] Soros’s Theory of Reflexivity, financial markets can’t possibly be perfectly efficient much less rational ... His biggest coups came from being right about losers not winners. And the greatest of these was among the most momentous speculative hits in all of financial history. On September 16th 1992 with the British £ in big trouble I watched as Soros put out a contract on the Bank of England ... So sure was he that the £ would drop that he bet $10 billion. ibid.
The Nobel Prize in Economics. It seemed as if Intellect had triumphed over Intuition. As if rocket science had taken over from risk-taking. Equipped with their magical black box, the partners in LTCM seemed poised to make money far beyond the wildest imaginings of even George Soros. And then in the summer of 1998 when every self-respecting hedge-fund manager should have been playing with his yacht something happened that threatened to blow the lid right off the Nobel Prize winner’s black box: Reality started to misbehave ... On Monday August 17th 1998 a giant asteroid smashed into Planet Finance. ibid.
The only chance of survival was to find a White Knight to rescue them. And the most powerful Knight in town was none other than George Soros. It was the ultimate humiliation: the Quants from Planet Finance begging for a bail-out from the Prophet of Irrational Unquantifiable Reflexivity ... Fear that Long Term’s failure could trigger a general financial meltdown, the New York Federal Reserve hastily brokered a multi-billion-dollar bailout by fourteen Wall Street banks. ibid.
The Ascent of Money has seldom been smooth. Time and again it’s been punctuated by big painful crises. ibid.
American borrowers have come to rely on Chinese savers, a symbiotic relationship between China and America that I call Chimerica. ibid.
So enormous have Chinese savings become in recent years they’ve enabled globalisation to do the most almighty U-turn. Previously, it was the rich English speakers who lent money to the poor Asian periphery. But now it’s the Chinese who are lending money to the Americans. Welcome to the strange new hybrid country of China and America – I call it Chimerica. ibid.
The People’s Republic of China has become banker to the United States of America. ibid.
What starts with competition for Olympic medals could end in a battle over dollars if the Chinese decide one day to cut off their credit line to the American empire. Maybe as it name suggests Chimerica is nothing more than a chimera ... The really big crises come just seldom enough to be beyond the living memory of the people who run today’s companies, banks and funds. ibid.
The Ascent of Money has been one of the key factors in human progress, an extraordinary story of innovation, intermediation and integration that has done as much as anything to help people escape from the drudgery of subsistence agriculture. And yet Planet Finance can never quite escape from the gravitational force of Planet Earth. Because the Quants can never take full account of the human factor – our tendency to underestimate the probability of black swans. Our propensity to veer from euphoria to despondency. Our chronic inability to learn from History. ibid.
Five years ago today the government faced one of the biggest financial crises in history. It was a day when the Bank of England lost billions and speculators made fortunes. A day of disaster from the which the government never recovered. Black Wednesday, BBC 1997
It would be a revolution: the £’s value would be locked against the German Deutschmark and other currencies. ibid.
The prime minister took the decision without negotiation. ibid.
In the City the crisis that would become Black Wednesday was brewing. ibid.
Our economic systems were not built for a world driven by technology where prices keep falling. They were built for a pre-technology era when labour and capital were inextricably linked, an era that counted on growth and inflation, an era where we made money from scarcity and inefficiency. That era is over. But we keep on pretending that those economic systems still work. Jeff Booth, The Price of Tomorrow: Why Deflation is the Key to an Abundant Future
Transitioning from an inflationary world to a deflationary world – people should be scared. There is going to be disruption and that disruption is coming no matter what. There is nothing fundamental that governments can do to stop the rate of technology progress. Jeff Booth, interview The Keiser Report, author The Price of Tomorrow: Why Deflation is the Key to an Abundant Future, RT August 2020
You have technology moving at an exponential pace driving prices down, and governments all around the world [are] caught in an inflationary trap that they created themselves out of monetary policy, fighting that force. And I would ask a simple question – isn’t it good when the value of your money goes up, and prices go down? ibid.
The abundance of technology would be broadly distributed. ibid.
It’s not going to go on for ever no matter what … It doesn’t matter until it does. One giant thing they miss that this is they assume a reserve currency goes on for ever, right, and you can just keep printing and people just trust in your currency. ibid.
What if a country, let’s say China, created a currency and decided to keep on printing for ever, and they used the currency and they used it to buy the world? … Would we trust that currency? ibid.
And so you can see from that thought experiment that if you just keep on printing money, people lose faith in your currency, and so you don’t have a reserve currency any more. So there’s a whole bunch of people like I think are like brainwashed in this ‘debt doesn’t matter’, that this can go on for ever. And it’s going to happen gradually … There is nothing that can stop this. We are going to have deflation for sure. Structurally, technology requires it. The path to get to deflation could end up through hyper-inflation first – currency default, debt default – it could happen a whole bunch of different ways but we are going to have deflation anyhow. ibid.
The concentration of wealth because you’re fighting a natural force – Capitalism can’t work, right, so effectively the Government is the market today. Free market principles don’t work any more. ibid.
Deflation we’ve never seen in our lifetimes. What if next year everything around you got cheaper? All it does is increase the value of your savings, and decrease the value of your assets. ibid.
Why do you think the top five technology companies are at historic heights? ibid.
Everybody knows it. ibid.
More band-aids on a systematic, a structural change that has to take place. And so what they’re really trying to stop is a revolution, right, but they’re making the revolution more likely. ibid.
It was presented scientifically. But then they always present it scientifically. As being the only way of doing it; there is no alternative. And this gripped people. But at the same time you must never forget that politics is in pursuit of an interest and an ideological ... So the conflict between as it were Milton Friedman and Keynes was a political conflict. Tony Benn, televised interview
These United States are confronted with an economic affliction of great proportions. Ronald Reagan
The government’s view of the economy could be summed up in a few short phrases. If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it. Ronald Reagan
The economic ills have come upon us over several decades. They will not go away in days, weeks or months. But they will go away. Ronald Reagan