I can only pass on Societe Generale’s work to you once in a
while, but the piece for today’s Outside the Box is important enough
that its author, Dylan Grice, worked hard to convince his bosses to let
me share it with you. Dylan is one of my favorite investments analysts,
as well as just an all-around nice guy.
In a change from his usual fun-loving demeanor, Dylan issues a serious warning here.
I am more worried than I have ever been about the clouds
gathering today (which may be the most wonderful contrary indicator you
could hope for...). I hope they pass without breaking, but I fear the
defining feature of coming decades will be a Great Disorder of the sort
which has defined past epochs and scarred whole generations….
So I keep wondering to myself, do our money-printing central
banks and their cheerleaders understand the full consequences of the
monetary debasement they continue to engineer?
He runs through some of the Great Debasements of the past,
starting with third-century Rome, running through Europe’s medieval
inflations and the French Revolution, to the monetary horror story of
Weimar Germany in the 1920s.His key point is that inflations and hyperinflations don’t just hurt money, they hurt people and the societies they live in. Inflating money is less trustworthy money, and so people doing business trust each other less. Plus, those who are farthest from the source of artificially created money suffer the most (the “Cantillon effect”).
And now the social debasement is clear for all to see. The
99% blame the 1%, the 1% blame the 47%, the private sector blames the
public sector, the public sector returns the sentiment … the young blame the old, everyone blame the rich … yet few question the ideas behind government or central banks ...
I’d feel a whole lot better if central banks stopped playing games with money….
All I see is more of the same – more money debasement, more
unintended consequences and more social disorder. Since I worry that it
will be Great Disorder, I remain very bullish on safe havens.
In just 10 days we will see how the US elections turn out.
Depending on what happens after, the US will either remain as one of
those safe havens (and perhaps become even more of one) or those of us
who reside here will need to start thinking more globally. I know a lot
of thoughtful people who are already contemplating (if not acting on)
plans to make sure their life savings maintain their buying power
through the coming decade. I remain optimistic that we will set
ourselves on a course that ends in a safe harbor, although the sailing
will be quite volatile. What Dylan describes are the unintended
consequences of people who think they understand macroeconomics and who
are well-intentioned but whose policies can be most disruptive.
