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Margaret Thatcher was a friend of gold, not of
diehard gold investors...
DIVISIVE doesn't cover
the half of it.
Quoting Francis of Assisi on bringing "harmony
where there is discord" as she first entered No.10,
Margaret Thatcher had already split the playground at my primary school. We
knew little then beyond the football-club squabbling of red versus blue. But
her political sons have since mixed it into a deep purple mess. Imperial
under Tony Blair's high-spending Labour, it's now
deeply patrician and scarcely meritocratic under David Cameron and his
Con-Dem coalition.
Thatcher's big free-market victory – squashing the unions, the
entrenched vested interest of the 1970s – brought another ironic
consequence. Because thanks to Big Bang and deregulation, we are now captured
by the bankers instead, an equally swollen, morally bankrupt power bent on
dragging us all into its inevitable but protracted decay.
Whatever your view of Thatch and
her legacy, she was at least a sure friend of gold. Long
before she abolished exchange controls in 1979, she had barked against the
Gold Coins Order of 1966 in Parliament, calling it "the final
indignity" of the then-Labour government's
economic mismanagement.
"Making it an offence for anyone who did not hold sovereigns on 27th
April, 1966 to buy as much as one sovereign," she said in the Commons
debate. "What an indictment of the Government! It was
a ridiculous Order."
Friend of gold-owning freedom, however, the Iron Lady proved no friend to
diehard perma-bug investors. Those who switched to
higher-yielding investments as the 1980s began enjoyed the strongest real
returns on UK equities in two centuries or more. Even cash in the bank paid
four and five per cent over inflation for most of the '80s.
Judged
on a rolling 10-year average, real returns to UK equities (excluding
dividends) were higher in the 1980s than any decade since at least 1800. Cash
interest rates meanwhile surged from minus 3.05% per year during the 1970s to
4.95% above and beyond the cost of living.
That peaked at more than 8% per year in 1990 – the highest level since
Britain lost its fight to stay on the Gold Standard half-a-century before.
Truly, to defend the value of Sterling, strong real rates of interest worked
where exchange controls and bans on gold coins had failed so badly during the
decline of empire and "financial repression" of the post-WWII
years. So just when they could buy all the gold that they wanted, British
savers no longer needed so much.
Abolishing capital controls, the Thatcher administration also abolished the
need for private savers to seek an escape. Whereas today, three years into
fresh "financial repression" via sub-zero real interest rates,
savers in the UK and elsewhere may well wish such a champion of household
thrift would return. And the about-turn on exchange controls begun last month
by Cyprus – a member of the single Euro currency whose birthing pangs
played a big part in her downfall – adds a final irony to the Iron
Lady's legacy.
Economic freedom looks in retreat. The private individual's ability to save
what they've worked for may be next to recede.
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