Most people would agree that inflation is dangerous and that the likelihood of it is increasing. Now furlough has been extended to March 31, Government borrowing is moving into the trillions. It’s generally accepted that there are three ways out: spend less; tax more; inflate your way out of the problem. If it’s going to be the latter, we’ll not want the pound to go the way of the German Deutschmark, which reached 322% in 1923, or the Zimbabwe dollar, peaking at 837% this year.
If you lock four hungry people in a room and give them a fiver each, and one loaf of bread, that loaf will be worth at least a fiver. If you give them each a tenner, the price of the bread has miraculously doubled. With repeated bouts of quantitative easing since 2008, massively accelerated during the pandemic, the real danger is that the same thing has been happening to our economic system. We are putting the fundamental principles of that system under strain.
Yes, there are certain tools (such as lowering the base interest rate) that can be used to make tweaks around the edges, but we are no longer talking about the edges. We’re talking about the entire edifice of fiat currency. And while the little people like dental practice owners struggle to stay viable, adjusting to Covid regulations that affect their customers’ ability to access their services and their own ability to service those customers, corporations and billionaires are consolidating, buying up folded SMEs and distressed assets at knockdown prices.
If you had £100k in your bank account, it used to be that 16 years later, subject to inflation, it would be worth £50k in real terms. But that’s only the beginning. Other central banks have been following the Swedish Riksbank’s example of introducing negative rates, which it tried for the first time in 2009. Negative rates punish governments and corporations for sitting on money and reward them for buying stuff. Perversely, they rewarded for borrowing more and spending more, and so on. The base rate is currently 0.1% at the Bank of England. That should be an extraordinary and shocking thing, but we’ve got used to it.
All of this means that now, more than ever, you are under pressure to fulfil your asset manager job role. What is the wisest thing to do with your wealth over the coming year? It could be cashing in your practice and diversifying. There are opportunities. We know practice owners who have invested in Bitcoin and are already looking set, notwithstanding the heavy fluctuations in that market (it takes nerve to sit tight through big peaks and troughs). Gold is also a reasonable hedge, proven over the centuries, albeit with less spectacular potential gains.
What is beyond doubt though is that the old rules of economic life in the West are over. Incomes have remained stagnant for the past two or three decades apart from among the one per cent, while rising steadily in the Third World. Mostly our clients inhabit the bottom end of the one per cent, but that won’t do it anymore. You can’t follow the well worn fiscally conservative path and expect to be OK — you’ll get screwed by inflation. You have to be strategic if you want to maintain your lifestyle.
On top of that, you might want to keep an eye on the manoeuvrings of some of those corporations and billionaires. By which I mean the people who are heralding something called the Great Reset as an “urgent” answer to Covid. The Great Reset is an agenda that’s been pushed by Klaus Schwab of the World Economic Forum (WEF) for decades, and it will be the theme of another Davos summit in January 2021. In the words of Schwab: “Covid-19 has accelerated our transition into the age of the Fourth Industrial Revolution. We have to make sure that the new technologies in the digital, biological and physical world remain human-centred and serve society as a whole, providing everyone with fair access.”
Sounds good, but what’s the catch? Schwab envisages a “stakeholder capitalism” solution to the world’s ills (these are interchangeable but currently include Covid, global warming and the economic stagnation that the world’s governments have just created on purpose). He wants the big corporations to become “trustees of society”. So no democratic participation, then. On its website the WEF cheerfully predicts a world in which, by 2030, we won’t need to worry about owning anything. Presumably Schwab, if he’s had enough bio-upgrades to still be alive by then (I’m getting an image of Krang from Turtles for some reason) will handle the stress of owning everything for us. How kind of him. Be afraid.
