Tuesday, 28 June 2011

'Money is losing its value!'

LAST Friday I overheard an old man in the Yorkshire Building Society in Manchester say 'I'm spending my money on my house because money is losing its value'. The very next day, I picked up the Financial Times to read Merryn Somerset Webb writing about Adam Fergusson's book 'When Money Dies', which she says everyone should buy: it's about hyperinflation in Weimar Germany.

It seems that at some charity event a year ago, Ms. Somerset Webb had argued that: 'Five years ago, we trusted the big banks to keep our money safe and they trusted each other to stay more or less solvent' but she then went on to say 'That's not the case any more.' She followed this by making a prediction that we would endure 'a period of deflation before a period of much higher inflation.' Her talk was accompanied by one from Gillian Tett, the FT's United States' managing editor, who had predicted that 'the next stage on the crisis would involve a collapse in trust between populations and governments.'

This year, at the same charity function, Ms. Somerset Webb will be explaining 'why she was wrong on deflation'. A headline in today's International Herald Tribune entitled 'In Greece politicians are seen as common foe' and quoting a recent study by Transparency International that 'in Greece ... 9 out of 10 Greeks said their politicians were corrupt, and 80% said Parliament had lost credibility' suggests Ms Gillian Tett got her prediction spot on. As I write demonstrators in Athens have projected the word 'Thieves' across the facade of the Greek Parliament.

While the citizens of Greece face wage and pension cuts, their lawmakers have benefits including state cars, generous double pensions (from the government and professional guilds), bonuses for attending committee meetings in addition to monthly pay of $8,500 or £5,800. Even the Prime Minister, George A. Papandreou, realises he must do something and has promised to form a committee to look at cutting the number of Parliamentary members and to abolish the law protecting Greek MPs from prosecution.

In her column in last Saturday's FT, Merryn Somerset Webb admitted: 'Gillian's (Tett) prediction in June last year was entirely right' and she says 'Look at Greece and you can see the next stage of the crisis ...' But, Somerset Webb writes: 'Along with losing their faith in their politicians, the Greeks have lost faith in their currency.' 'After all, if you think that there is a chance Greece might end up out of the euro, why on earth', she asks, 'would you hold any money on deposit in a Greek bank?' Why indeed? Reports of Greeks swopping their euros for olive groves, Swiss francs and gold coins now flourish.

Ms. Somerset Webb is what has been called 'a gold bug' and she has be advocating that we get into gold with her for some time now. The old editor of The Times, William Rees Mogg, took a similar 'Buy gold' view, as I recall, in the 1980s. Webb thinks their will be a sudden loss of faith in paper money because of 'the levels of sovereign debt knocking around the world' and that there will be 'either defaults or more massive rounds of money printing'. Either way her message is to stock up on the Krugerrands before it's too late. Today's price for a one oz Krugerrand is £977.00.


Anonymous said...

m somerset webb has never got over the fact that the uk housing market has not crashed!

Anonymous said...

Anonymous: tell that to the thousands of people who cannot sell their houses, even when reducing the price.
Good houses in good locations are selling. That is producing a misleading statistic. Unsold houses are not included in sale price analysis.