Famous last words

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Alan Bollard reserve back governor of New Zealand said on 14th July 09: "Early signs of global recovery have now emerged. We have avoided a repeat of the Great Depression,"

That sounds like a famous quote in the making, and this week AMP Capital Investors head of investment strategy, Jason Wong said "It has been a pretty mild recession in New Zealand," and "On balance, we think the recession is pretty much over,".

Could the above quotes become famous (or infamous) like these statements made not long after the crash of 1929:

"Financial storm definitely passed."
- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."
- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

"I am convinced that through these measures we have re-established confidence."
- Herbert Hoover, December 1929

"...there are indications that the severest phase of the recession is over..."
- Harvard Economic Society (HES) Jan 18, 1930

"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us."
- Herbert Hoover, President of the United States, May 1, 1930
"...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..."
- HES May 17, 1930

In the New Zealand context of this global recession why do people think a problem 36 years in the making will be over in 1-2 years?
We have had current account deficits for 36 years in a row! this debt has not gone away, it has built up for 36 years, it has not dissolved into the ether, it was there waiting in the background the whole time (Now coming into sight), we have reached debt saturation, we have reached the end of a long rope we were given to hang ourselves with.

The rope we were given was long because we have green productive land, we could have used our resources to save and build a sustainable future, but as per normal the human condition took over, that being to get things now and pay for them later, we have sold our birth rights and partied away our inheritance.

But will our creditors act like the prodigal sons father who welcomed his son back with open arms after wasting his inheritance? Will our debts be forgiven by our foreign creditors. “Here, don’t worry about it New Zealand, sure you have wasted our money we lent you, and you have productive assets we want also, but lets just forget about it and be friends”

Reality is, the likely outcome will be forced productive assets sales to foreign creditor “friends” because they are the people we owe money to. After that we will not have productive assets to pay our remaining debt back with, we will be renters in our own land paying money to foreign companies who will own our power, telecommunications, refineries and possibly large productive farms etc..

Food for thought…

For a moment lets jump back to an infamous statement a few years before the Great Depression got underway:

"We will not have any more crashes in our time."
- John Maynard Keynes in 1927

There are plenty of quotes like this from others but this one is significant because our economist and central bankers were all taught Keynesian economics and that is the system they are following now. One of the pillars of Keynesian economics is to keep confidence in the monetary system, it focuses on perception
to keep people lending and borrowing. We can see this written all over recent Reserve back of New Zealand statements (and other central banks). They spend more of their time maintaining the illusion because the fundamentals are so rotten that any light shone on them will bring an overdue correction.

So it is no wonder that we see continuing statements from “leading economists” that the recession is over and all is well, they have said that since the start, they are just following their training to provide confidence, then the problem will go away.
But as John Maynard Keynes found out a few years later, confidence will only get you so far…

Then later in 1933:

"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S."
- President F.D. Roosevelt, 1933

People need to think and prepare, what if all banks were put on “bank holiday” after hours and the dollar was devalued by 50% overnight (Or worse), effectively robbing the public of their savings. These things have happened before (Argentina another example) will they happen again? I certainly would not rule it out, it would be wise to plan ahead for this type of event, once announced it is already too late.

Bye for now

Andrew

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