What on Earth is Normal?

The thing is, we are all in debt, either as individuals or as nations, and therefore we need inflation and interest rates to be as low as possible. On the other hand, many of us have money in the bank and pensions, and therefore higher rates would be highly beneficial for our savings.

Back in my youth, levels of debt, especially at the government level, were much lower, so higher interest rates suited the government and central banks. All they had to do was make sure the nation’s currency maintained a decent level against the global reserve currency, the US Dollar.

In 1979, Margaret Thatcher raised interest rates in the UK to 17% in an effort to combat inflation. And although this did have an effect on UK manufacturing exports, it was one of the major factors that moved the UK towards a nation of service providers rather than manufacturers.

In 1992, John Major announced his intention to move interest rates from 10% to 15%, hoping that this would encourage people to buy Sterling. The following day, when this buying did not materialize, his government reduced interest rates back to 10%.

Much higher interest rates and big moves were considered “normal” when I was younger, but for most of our younger people, the idea of such levels and overnight moves is truly frightening.

What many fail to understand is that post the global economic crisis, we have enjoyed the lowest levels of inflation in 300 years, so what many now call “normal” is far from it.

And, as for writing long in-depth reports about a quarter of a percent move in interest rates, what’s the bloody point?

Then of course, we have the psychoanalysts, who make a big story of the “words” used by central bankers. “He said this, but means that”, or “what he didn’t say was … and that is very important”.

At the end of the day, in the big scheme of things, interest rates are bloody low, and just because the power over interest rates has moved from governments to a quango of central bankers, doesn’t mean games are not being played. All we have done is move the power from one group of men in grey suits to another group of men in grey suits… and both groups went to the same schools, read the same books, and were taught economics by the same teacher, who was probably a teacher because he wasn’t good enough to get a well-paying job in a major bank!

Yes, I know. I am being a cynical old bastard. However, I’d rather that than eat shit with sugar on it, which is what we are being fed by most “commentators”.

The reality is that we are not living through anything that resembles normal times. The geopolitical landscape is changing, and the old regime refuses to accept that it is no longer in control of our destiny, AND THAT INCLUDES INFLATION!

“America innovates, Asia creates, and Europe regulates”, remains the belief for many, but do we really think this will continue over the coming decades?

American wealth has allowed it to claim the Gold medal for innovation. The fact is, the strength of the dollar has allowed American companies to buy many innovations and claim them as products of the Good ‘ole USA, when actually lots of the innovation came from citizens of other nations who could find the funding in their own countries. The first website didn’t come out of Silicon Valley, and the name Satoshi Nakamoto doesn’t sound like it belongs to the descendants of one of the founding fathers. Indeed over the past 30 years, over 25% of American patents came from foreign inventors, and that doesn’t include the majority of inventions which were bought from overseas inventors and patented by American companies.

I am not knocking the USA, because I am a big fan of eating Hot-Dogs whilst watching the World Series and listening to American Rap. But the evidence is that American innovation is on the decline.

Asia is still creating, and will do until the Chinese Communist Party is kicked out of office. Which there is zero evidence of right now.

And, as for Europe regulating. Well, what can I say!

EU regulating has reached a level that would be admired by any fascist dictator.

The EU claims openly that it leads the world in regulating, and this forces other nations to act in accordance with the standards set in Brussels. Basically, if you do not adopt EU standards, you are not allowed to export to the EU.

The EU is getting away with this for now. However, these regulations are destroying European growth and affluence, and as we decline, less regulated countries are witnessing massive growth, and the pendulum of influence by regulation is swinging away from Europe.

In our bubbles where we plan for the future, or hedge ourselves against uncertainty, we like to hear the word normal as it conjures up the idea of a nice warm blanket in which we can safely snuggle. But don’t be fooled!

I’ve spent 50 years in this crazy investment business and seen as much as anyone first-hand. And for me, when I hear someone talk about 2% inflation being normal and we need to get back there at any cost, I wonder if it’s me or them that lives on another planet.

Indeed, the only guy that makes any sense is a guy willing to spend billions trying to go and live on Mars. Surely that says something.