Jimmy the 2nd

I think it all adds up to a pretty bearish scenario because of all the inflation implications of what we’re seeing right now. You already had massive deficits and money printing in the developed world. On top of that you had enormous demand-side pressure from China relative to commodities. And now you’ve got the prospect of massive geopolitical disturbance in the great oil-producing centers of the world. I mean, that has to be a pretty inflationary scenario. The best case is that we’re about to re-run the 1970s, only with Barack Obama instead of Jimmy Carter in the White House.

Niall Ferguson

Keynesians and Repeating Mistakes of the Past

It was said of the Bourbons that they forgot nothing and learned nothing. The same could easily be said of some of today’s latter-day Keynesians. They cannot and never will forget the policy errors made in the US in the 1930s. But they appear to have learned nothing from all that has happened in economic theory since the publication of their bible, John Maynard Keynes’s The General Theory of Employment, Interest and Money, in 1936.

Niall Ferguson

The British government, following the advice of Winston Churchill, who was Chancellor of the Exchequer, in 1925 restored the gold standard at the pre-World War I ratio, despite the fact that the wartime monetary inflation had driven up the price of goods. Gold should not have been priced at the pre-War price. But Churchill had decided that national pride was at stake. He pretended that the debasing of the pound sterling had not been government policy.

There was an outflow of gold from the Bank of England. Speculators thought the price of gold in pounds would have to be officially hiked. To keep this outflow from forcing the Bank of England to suspend payment, thereby confirming the forecasts of the speculators, the head of the Bank of England met with the head of the New York Federal Reserve in 1926 and persuaded him to inflate the dollar, so as not to make the dollar too valuable in relation to the pound. This would have caused investors to sell pounds and buy dollars. The U.S. government would then have sent pounds to Britain and asked for payment in gold. The New York FED did what the Bank of England asked. It inflated the dollar. The result was the stock market boom from 1926–1929.

The head of the New York FED died in 1928. His successor recognized that a stock market bubble was in process. The FED ceased inflating. Short-term interest rates rose. This popped the stock market bubble in October of 1929.

The government then intervened. It raised tariffs. It began massive deficit spending. It began to interfere with pricing, so as to keep prices and wages high. In short, it adopted Keynesian policies, which made the economy much worse.

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Cartoon: Keynes, Debt, and Growth

...The remedy for such fears must be the kind of policy regime-change Prof Sargent identified 30 years ago, and which the Thatcher and Reagan governments successfully implemented. Then, as today, the choice was not between stimulus and austerity. It was between policies that boost private-sector confidence and those that kill it.

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Collapse of the American Empire

"One of the disturbing facts of history is that so many civilizations collapse," warns anthropologist Jared Diamond in Collapse: How Societies Choose to Fail or Succeed. Many "civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power."

Now, Harvard's Niall Ferguson, one of the world's leading financial historians, echoes Diamond's warning: "Imperial collapse may come much more suddenly than many historians imagine. A combination of fiscal deficits and military overstretch suggests that the United States may be the next empire on the precipice." Yes, America is on the edge.

Dismiss his warning at your peril. Everything you learned, everything you believe and everything driving our political leaders is based on a misleading, outdated theory of history. The American Empire is at the edge of a dangerous precipice, at risk of a sudden, rapid collapse...

Ferguson's final message about America's destiny comes from Foreign Affairs: "Conceived in the mid-1830s, Cole's great five-part painting has a clear message: all empires, no matter how magnificent, are condemned to decline and fall." Throughout history, empires function "in apparent equilibrium for some unknowable period. And then, quite abruptly ... collapse," a blunt reminder of the sudden, swift, silent, certain timetable in Diamond's "Collapse" where a "society's demise may begin only a decade or two after it reaches its peak population, wealth and power."

You are forewarned: If the peak of America's glory was the leadership handoff from Clinton to Bush, then we have already triggered the countdown to collapse, the decade from 2010 until 2020 ... tick ... tick ... tick ...

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