In this excellent article Dr Tim Morgan, Global Head of Research at Tullett Prebon, explores the disconnect between government policy and economic reality. Dr Morgan notes that, “One of the biggest problems facing many Western economies today is that political leaders are in near-total denial about the economic and fiscal facts.” He discusses the assumption in Britain that “growth will [magically] arrive” sooner or later, “despite all evidence to the contrary”, and his charts demonstrate the dangerous trajectory of US Federal debt.
From the article:
“Why, for that matter, are US, UK and other government bond markets still so buoyant? We already know that the point is approaching at which government debts can barely be serviced, let alone repaid. We know – and we knew even before the Fed and the Bank of England gave us the broadest of hints about dropping their inflation targets – that governments are going to use inflation to destroy the real value of accumulated debts. Having experienced the bitter chapter in which Paul Volcker and others tackled inflationary legacies, we know what happens when inflation takes off. We know that inflation steals value from investors and the general public.
Faced with this, has Congress, or Parliament, taken resolute action? No. Instead, the surreal idea of minting a $1 trillion dollar coin has been given serious air-time. You really couldn’t make it up. In Britain, a government fearful of unpopularity has retreated into a Micawberish assumption that “something will turn up”. Well, something will indeed “turn up” – in America as well as in Britain – but it isn’t going to be something that we’re going to like.”
Dr Morgan concludes, as we have, that “real progress cannot be achieved unless facts are faced, and voters are told the truth”.
For more on the solution to the problems we face, see How To Solve The Global Financial Crisis: A 20 Point Plan.