Political Metals

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Suicide of the Saver
by Adrian Ash
BullionVault
Wednesday, 19 October 2011

Savers and pensioners! Your murderers need no revolution to storm your stately homes and
palaces…

IT’S NOW 100 years since Great Britain established its welfare state. Shortly after, and as
the First World War kicked off, it abandoned the free exchange of bullion for notes under the
classical Gold Standard.

Those 3 events were far from unrelated, but 100 years later it’s the monetary shift which
feels most pressing right now. Yes, political fighting over the welfare state is hotting up,
but a European shooting match looks unlikely (for the time being). Whereas UK savers and
retirees, like their peers across the continent, in North America and pretty much everywhere
else, are getting slaughtered.

Compared to the previous 100 years, real UK interest rates – the returns paid to cash deposits
over and above inflation – have been atrocious since 1911. Averaging less than 0.9% per
year, they’ve been a fraction of the 4.4% averaged in the 100 years starting in 1811, just after
the British Parliament’s Bullion Committee recommended a full return to gold following the
Napoleonic Wars, setting in train the global Gold Standard run from London until the start of
World War I.

Enough ancient history; fast forward to today, and the UK’s real rate of interest is now the
worst since 1975, back when inflation was running well into double digits but at least the
central bank made a pretence of addressing it, setting a nominal base rate of 11%. Last
month’s inflation reading was only a 20-year high, but all-time record-low interest rates make
cash such a losing proposition, savers are actively paying to hold cash in the bank. And these
unsecured creditors are lending to institutions whose “underlying problem is one of solvency
not liquidity” as Bank of England governor Mervyn King himself put it in a speech last night.

Losing real value by holding money with insolvent banks sounds like financial suicide.
Which for today’s moneyed classes – those millions of savers, pensioners and would-be
retirees raised by the welfare state – should sound uncomfortably like the “euthanasia of the
rentier” hoped for in the mid-1930s by J.M.Keynes, apostle of deficit spending (and nemesis
of the Gold Standard), and slowly put into practice after World War Two by decades of sub-
zero real interest rates. Taxation of unearned income peaking at 98% sure helped, too.

“Interest today rewards no genuine sacrifice, any more than does the rent of land,” wrote
Keynes in 1936, just ahead of that “depression within a depression” which forced economists
to coin a new term, “recession”.

“The owner of capital can obtain interest because capital is scarce,” Keynes went on, “just
as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic
reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital…I see,
therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it
has done its work…The euthanasia of the rentier, of the functionless investor, will be nothing
sudden, merely a gradual but prolonged continuance of what we have seen recently in Great
Britain, and will need no revolution.”

Today’s savers might not see themselves as “functionless investors” anymore than they see
themselves as stuffed-shirt aristocrats wielding “the cumulative oppressive power of the
capitalist to exploit the scarcity-value of capital”. But the owner of capital, however modest,
can no longer obtain interest, that much is plain. Because capital is no longer scarce. But
solvency is.

Adrian Ash
BullionVault

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Our generation grew up with the USD as the global reserve currency, and until recently, few would have questioned its status. Since the global financial crisis of 2008, and more so in the last few months, increasingly large segments of the global community have been questioning the status quo to the extend of actually preparing themselves for the inevitable day when the USD loses its reserve currency status.

While the average lifespan of global reserve currencies is around 100 years, the average lifespan of fiat currencies is only 27 years.  Most if not all of the above global reserves currencies had some form of gold or silver backing in one form or another, that is they were not fiat currencies. The USD has been serving as a global reserve currency for over 90 years, 40 of which as a fiat global reserve currency.

If history is any guide, the USD is fast approaching its “use by date”. It is little wonder that many are preparing not just for the inevitable loss of its reserve status but also the demise of the currency itself.

Mr. Trump said he sees the deal as a repudiation of the Obama administration’s economic policies, of which he has been a vocal critic.

“It’s a sad day when a large property owner starts accepting gold instead of the dollar,” Mr. Trump said in an interview. “The economy is bad, and Obama’s not protecting the dollar at all. … If I do this, other people are going to start doing it, and maybe we’ll see some changes.”

Mr. Trump said he has some gold in his personal portfolio, but declined to say how much.

Thursday’s transaction was something Apmex suggested, Mr. Trump said.

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