January 12, 2015
London, England
[Editor’s note: Tim Price, London-based wealth manager, is filling in for Simon today.]
On All Saint’s Day, 1st November 1755, an earthquake measuring roughly 9 on the Richter scale struck the Portuguese capital, Lisbon. At least 30,000 people are estimated to have perished.
A little over half an hour after the original quake, a tsunami engulfed the lower half of the city.
Those not affected by the quake or the tsunami were then beset by a succession of fires, which burned for five days.
85% of Lisbon’s buildings were destroyed. Ripples from the earthquake were felt far afield. Finland and North Africa felt aftershocks; a smaller tsunami made landfall in Cornwall.
Such destruction had a follow-on impact, in both philosophical and theological terms. In June 1756, the Inquisition responded with an auto-da-fé—a witch-hunt, effectively, for heretics.
One much-loved novel happens to cover both of these events, written by Frenchman, François-Marie Arouet, in 1758. We know him better today by his nom de plume: Voltaire.
And his satirical magnum opus that catalogued these various disasters was called ‘Candide’.
‘Candide’ is a triumph of the style of novel best described as ‘picaresque’. It’s crammed with eminently quotable lines—the ‘Pulp Fiction’ of its day, if you will.
The book’s protagonist, Candide, is a naïf who wanders with wide-eyed innocence through a savage and corrupt world.
But in it Professor Pangloss offers us the perfect encapsulation of today’s conventional economist—the unworldly and confused academic whose misguided practice of a false science and grotesque monetary experiment has dreadful implications for the rest of us.
As investors we are all now the subjects of their grotesque monetary experiment. This experiment has never been tried before, and its outcome remains uncertain.
The unproven thesis, however, runs something like this: six years into a second Great Depression, the only “solution” is for central banks to print ever greater amounts of money.
Somehow, gifting free money to the banks that helped precipitate the crisis will lead to a ‘trickle down’ wealth effect.
Instead of impoverishing those with savings, inflation will be some kind of miraculous curative, and it must be encouraged at all costs.
It bears repeating: we are in an extraordinary financial environment. In the words of the fund managers at Incrementum AG,
“We are currently on a journey to the outer reaches of the monetary universe.”
On January 25, Greece goes to the polls. Greek voters face the unedifying choice of re-electing the buffoons who got the country into its current mess or electing rival buffoons issuing comparably ridiculous economic promises that cannot possibly be fulfilled.
But Greece is hardly alone. Just about every government in the eurozone fiddled its figures to qualify for membership of this not particularly exclusive club, and now the citizens of the euro zone are paying the price.
And most of the West is drowning in debt.
Not that any of this is new news; the eurozone has been in crisis more or less since its inception.
But the idea of letting the market deal with crises is now a quaint concept of a bygone age.
It has been replaced throughout the West by clueless bureaucrats manipulating prices. This is known as QE, but it’s better described as financial repression.
The clueless bureaucrat has a lot of history behind him—though in each case it is a history of failure. Paper currency and price manipulation has never worked.
But just as Professor Pangloss, the clueless bureaucrat cracks on.
Voltaire would certainly be in his element.
