BACK TO THE FUTURE
Just at the outbreak of the Asian Crisis, when the whole world was only fearing deflation and inflation was nowhere mentioned, let alone hyper-inflation, both the "Cape Argus", South Africa and "The News" of Mexico published on January 10th and 18th 1998 respectively the following "Letter to the Editor" written by me. Today the letter can be viewed in perspective. Its content is still as topical as three years ago - and its shows that Alan Greenspan is irrelevant.
If Greenspan were here, he would have been invented. It is the character, the spirit of people and the mood of the time which helps us to see where the world is going. Negligence, permissiveness, decadence, corruption is eternally at battle with character, belief, morals and ethics. Not cold statistics, economic frameworks and theories or mathematical equations. History is made by warm blooded humans, living beings with emotions, hope and trust, despondency, jealousy, greed and anger, brilliance, stupidity and vainness!
The Western Press is laying blame for the financial troubles in Asia at the feet of the locals. But it is not plausible that all the locals in each respective Asian country are all at fault simultaneously! The financial shockwaves rampaging through Asia are not local phenomenon, which might or might not spread to other countries. They constitute the first cracks appearing in the Western monetary house of cards itself. The present crisis in Asia is not an economic crisis (yet), but purely a financial one as was the Tequila Crisis.
The culprit is the expansionist "push-credit" policy, pursued by the New York financial establishment and collaborators. They well know that their IMF, their World Bank and their Federal Reserve Bank will always bail them out anytime with taxpayers monies. They are indulging in a global credit creation debauchery of unbelievable proportions.
To understand the present developments in the financial markets, we have to go back to the early 20th century. At that time it was industrial entrepreneurship, which was leading the world to greater prosperity. The financial institutions only played a secondary role -and constituted less than about 3% of GNP. Moreover, the State's share of the GNP did not exceed 10%.
Today the Western Courtries' share of the GNP has risen on average to 45% - and the institutions' share of the GNP to over 20%. Furthermore, they now control the greater part of business environment. There is an ever-insatiable appetite of the state bureaucracy's need for ever higher tax revenues, topped off with additional public financing through the financial institutions to cover the deficits. That is where the banks came marching in, and took over the running society. The ever-growing tax burden has forced the active population and enterprise into financial bondage. The tail is wagging the dog - and the tail has not the slightest idea how to run business.
During the last fifty years, financial institutions have been spoiled rotten. The crisis situation, Asia being only the tip of the iceberg, will only correct itself if the financial institutions and the State will return to their original share of GDP - and the man in the street and enterprise will have been freed from financial bondage.
Until economic balance is restored, we will go from crisis to crisis. This requires many years of hardship. And when the chickens come home to roost, then this time they will come back home to roost in the West.
On a such day of reckoning, the world will not gradually and resignedly slide into a deflationary downturn. This world is no longer meek. On the contrary: We are living in an ultra rapid, changing, hyper-sensitive world. A world on the threshold of a New Age. Things are happening! Humanity is fast and radically being remolded and globalized into one single "humapan" with a central nervous system, and with human relationships being re-invented. The present state of the world's psychology points towards upheaval, inflation, unrest, radicalism.
The never-never-pay-back credit explosion and financial manipulations of the
last decades have created a "potential global inflation" of menacing proportions. And once there is an overhang of potential inflation - in this case in the financial paper markets - no force on earth will be able to hold it back for long from pouring down one fateful day in a global deluge into the commodities, wages, services and finally the CPI. Inflation will return suddenly and unexpectedly.
And when the asset balloon bursts, and the basic livelihood of millions are threatened, the only way out left for governments and banks will be to resort to "hyper-credit" and explosive money creation in order to forestall immediate total economic collapse and social unrest. Then, inflation will explode with a vengeance. Then stocks, bonds, fiat currencies and everything else that represents fiat paper will shrivel away, and with them the Dollar as a reserve currency.
Hans Schicht
January 1998
Other essays by Hans Schicht
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