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Savers
and pensioners! Your murderers need no revolution to storm your stately homes
and palaces...
IT'S NOW 100 years since Great Britain
established its welfare state. Shortly after, and as the First World War
kicked off, it abandoned the free exchange of bullion for notes under the
classical Gold Standard.
Those 3 events were far from
unrelated, but 100 years later it's the monetary shift which feels most
pressing right now. Yes, political fighting over the welfare state is hotting up, but a European shooting match looks unlikely
(for the time being). Whereas UK savers and retirees, like their peers across the
continent, in North America and pretty much everywhere else, are getting
slaughtered.
Compared to the
previous 100 years, real UK interest rates – the returns paid to cash
deposits over and above inflation – have been atrocious since 1911.
Averaging less than 0.9% per year, they've been a fraction of the 4.4%
averaged in the 100 years starting in 1811, just after the British
Parliament's Bullion Committee recommended a full return to gold following the Napoleonic Wars,
setting in train the global Gold Standard run from London until the start of
World War I.
Enough ancient history; fast
forward to today, and the UK's real rate of interest is now the worst since
1975, back when inflation was running well into double digits but at least
the central bank made a pretence of addressing it, setting a nominal base rate
of 11%. Last month's inflation reading was only a 20-year high, but all-time
record-low interest rates make cash such a losing proposition, savers are
actively paying to hold cash in the bank. And these unsecured creditors are
lending to institutions whose "underlying problem is one of solvency not
liquidity" as Bank of England governor Mervyn
King himself put it in a speech last night.
Losing real value by holding money
with insolvent banks sounds like financial suicide. Which for today's moneyed
classes – those millions of savers, pensioners and would-be retirees
raised by the welfare state – should sound uncomfortably like the
"euthanasia of the rentier" hoped for in
the mid-1930s by J.M.Keynes, apostle of deficit
spending (and nemesis of the Gold Standard), and slowly put into practice
after World War Two by decades of sub-zero real interest rates. Taxation of
unearned income peaking at 98% sure helped, too.
"Interest today rewards no
genuine sacrifice, any more than does the rent of land," wrote Keynes in 1936, just ahead of that "depression within a
depression" which forced economists to coin a new term,
"recession".
"The owner of capital can
obtain interest because capital is scarce," Keynes went on, "just
as the owner of land can obtain rent because land is scarce. But whilst there
may be intrinsic reasons for the scarcity of land, there are no intrinsic
reasons for the scarcity of capital...I see, therefore, the rentier aspect of capitalism as a transitional phase
which will disappear when it has done its work...The euthanasia of the rentier, of the functionless investor, will be nothing
sudden, merely a gradual but prolonged continuance of what we have seen
recently in Great Britain, and will need no revolution."
Today's savers might not see
themselves as "functionless investors" anymore
than they see themselves as stuffed-shirt aristocrats wielding "the
cumulative oppressive power of the capitalist to exploit the scarcity-value
of capital". But the owner of capital, however modest, can no longer
obtain interest, that much is plain. Because capital
is no longer scarce. But solvency is.
Adrian Ash
Head of
Research
Bullionvault.com
You can Receive your first gram of Gold free by opening an
account with Bullion Vault : Click here.
City correspondent for The Daily Reckoning in London, Adrian Ash is
head of research at BullionVault.com – giving you direct access to investment gold,
vaulted in Zurich, on $3 spreads and 0.8% dealing fees.
Please Note: This article is
to inform your thinking, not lead it. Only you can decide the best place for
your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
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