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Post-Thatcher Pygmies

Uncomfortable truths for statist politicos...

DIFFICULT, somehow, to imagine Rishi Sunak (or 'Keef' Starmer, for that matter) banging any sort of book down at a policy meeting as a statement of belief – unless it happens to be on the topic of public relations, writes Tim Price at Price Value Partners.

That is the measure of Margaret Thatcher's premiership. Regardless of whether you were for or against her policies, today's crop of aspirant statesmen in both the British and US (and also most European) governments look like pygmies by comparison.

Where are our conviction politicians? This matters, because as 'The Economist' has pointed out, in a world desperately in need of growth, "the pendulum is swinging dangerously away from the principles Mrs.Thatcher espoused.

"In most of the rich world, the state's share of the economy has grown sharply in recent years. Regulations – excessive, as well as necessary – are tying up the private sector. Demonstrators protest against the very existence of the banking industry. And with the rise of China, state control, not economic liberalism, is being hailed as a model for emerging countries."

An uncomfortable fact: all western governments are, to a greater or lesser extent, functionally insolvent.

And as the German political analyst and asset manager Erwin Grandinger makes clear in his analysis of the problems facing his own national body politic, 'Beyond Repair' – an analysis that is likely to shock, quite profoundly, anyone who regards Germany as a true safe haven from the ongoing Euro zone debt crisis – the witch-hunt against the bankers that began in 2008 is straight out of the statist playbook.

Not only that, but the more recent Covid years have shown that all parts of the corporate community, along with the state itself, now appear hopelessly corrupt. Regulatory capture is clearly not limited to the banking sector. It is alive and well in Big Pharma and legacy media..

"What many have not understood is that 15th September 2008 [the date of the collapse of Lehman Brothers] revealed the biggest political scandal in Germany since 1949. It is not just the banking caste that has to be exposed to ridicule, but also the political elite, the ministerial bureaucracy and the central bank ideologues. All have worked hand in hand with the financial industry for decades (always to the disadvantage of the citizen – better known as the taxpayer).

"That was the reason why the political backlash against erstwhile-pampered allies in the world of finance was so brutal. The scapegoat may only be assigned to one camp. The legal, tax-related, monetary, fiscal and personal links existing between the finance ministries, the Bundesbank, the Federal Financial Supervisory Authority (BaFin), other supervisory authorities, Landesbanks, private banks and leading political parties have a complex, deep, broad and dense nature."

Given the wholesale betrayal of fiscal probity by government, politicians, bureaucrats, regulators and the full panoply of the state, it is hardly surprising, then, that the one interest group so far to be frog-marched to the gallows, albeit years after the crime, and in the full glare of the media, is that single one which is representative of a failed banking sector. To survive, the other guilty parties must hide in plain sight.

In the words of Herr Grandinger, again, "Politicians and the media, metaphorically speaking, do not discuss system recovery (or, in the best case, systemic change), rather they talk extensively about the remuneration and punishment of the captain and the ship's complement, dressing the debate with class struggle slogans.

"As always in such cases, citizens, politicians and the media, as the mouthpiece of populist gratification, demand a sort of mass psychological and hysterical gaining of satisfaction, à la old school, if you will. For politicians, what matters is to release the pressure. Thus eye-catching demands are quickly fulfilled: financial speculators are to be kept on a 'tight leash', bonuses are to be restricted, 'banksters' are to be outlawed and fired, some useless set of rules is quickly modified and, if need be, a 'pogrom atmosphere' is whipped up."

The reference to the captain and ship's complement is by way of 'Titanic'; both of us have used this metaphor over recent years to describe the chilling and relentless mathematical inevitability of systemic failure when overburdened welfare states collide with the iceberg of zero growth in the aftermath / ongoing 'long emergency' of a (central) banking and debt crisis that politicians appear powerless either to understand or meaningfully address. The brevity of the electoral cycle trumps long term social and economic interests. Having long exhausted all conventional measures, central banks now feel obliged to steam on into uncharted waters and, by way of money printing and quantitative easing and / or tightening, test their bond markets, and ultimately their currencies, to destruction. (We still love gold and silver.)

The gigantism of the State casts a long shadow over the economies of the western world. Erwin Grandinger develops the 'doomed State' thesis with regards to Germany. But not even the US is immune to this baleful trend, though its economy and currency are likely to end up being the last man standing, despite the best efforts of the Democrats (sic) and the Biden international crime family.

The passing of Margaret Thatcher is not just melancholy in itself, it shows the sad distance that the west has travelled between the individual libertarianism of then and the resigned capitulation to an impotent State of now. In purely investment terms, there is a very real danger, we think, in throwing valuation caution to the winds and blithely riding any rally – in "riskless" sovereign debt and equity indices alike – powered by indiscriminate tides of liquidity released by central bankers.

As Joe Saluzzi recently tweeted, "Dear CNBC, the reason why this is the most hated rally is because most of us still believe in free markets and are disgusted by central banker hubris."

To swell the State once to the brink of destruction (1979 UK) is bad enough. To do so twice (post-2008 UK, and of course elsewhere) while keeping a straight face beggars belief. The onset of Covid enabled the serial arsonists at our chancelleries and central banks to burn down the global economy for a third time. Instead of making properly hard choices (such as pursuing genuine austerity rather than the effete variant favoured by the statesmen of the past decade), our political and administrative "leaders" dole out spin and liquidity and not much else, whilst permitting the continued and inexorable rise of the State.

The role and indeed value of our central banks is worthy of much greater discussion than it currently commands. It used to be said that if you were not part of the solution, you were by definition part of the problem. In what respect is central banking and its curious attempts to solve inflation by printing money really solving anything?

London-based director at Price Value Partners Ltd, Tim Price has over 25 years of experience in both private client and institutional investment management. He has been shortlisted for the Private Asset Managers Awards program five years running, and is a previous winner in the category of Defensive Investment Performance.
See the full archive of Tim Price articles.


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