Sterling Effort

The "flash-crash" in sterling this week has received a lot of attention in many different areas of the press. I have even read one astrological piece attempting to explain this week's sudden collapse of the British Pound versus the US Dollar. 

For me the event was more painful than most. Sitting in the Arizona heat I had to face the scary reality of seeing the price of beer go up 6% in one hour. Imagine the annualised rate...ignoring the effects of compounding my £5 bottle of ice cold Bud would be costing me over £5000 this time next week and the best part of £350,000 in a yea'rs time. The true numbers, if compounding is included, are beyond the reach of my phone's calculator.

Of course, the sudden move corrected itself to some degree and, despite its almost inevitable future weaknes,s the fall in the Pound will be managed much more stably than the crazy five minute's trading which allowed a peek behind the curtain. The key word in the previous sentence is 'managed'. The flash crash, if nothing else, demonstrated that the illusion of free markets is just as flimsy as the current notion of democracy.

The sole objective of economic policy since 1913 has been the redistribution of wealth from those whose only assets are their creativity and labour to those whose only assets are, well, assets....think land and capital. The tool of this re-distribution has been inflation. Inflation is not when the price of goods (beer) goes up, it is when the amount of money available to buy those goods increases. Those in control of the creation of money use inflation to price others out of the market for those goods. 

Defenders of the system will point to those "success stories" where self made millionaires accumulate significant assets...the American Dream. Indeed there are many examples of the system's fluidity where an individual's creativity (or hard work) has given the exceptional an opportunity toown some assets. However, closer examination would demonstrate that the real concentration and ownership of assets is probably not too dissimilar to one hundred years ago. The relative wealth of individuals in the West has more to do with their proximity to the trough than an often assumed superiority, or as Obama likes to call it exceptionalism. 

This dynamic has accelerated dramatically of late as demonstrated by the value of labour being so low and creativity, with a few exceptions, grossly under-priced. 

Having cornered most of the assets, the objective of economic policy has now become to manage the price of assets so as to maintain the current hideously skewed distribution. 

Market prices are set not by the flow of capital but by its creation. The value of the Pound versus the Dollar or the Dollar versus the Yen have nothing to do with the relative competitiveness of the underlying economies or the facilitation of fair trade. The role of these crosses (exchange rates) is to manipulate the prices of assets around the globe. They are part of a grander illusion which continues the concentration of resources into a few controlling hands. Smart traders feed off the crumbs but most people are simply buffeted by the Warrens of this world. 

Incredibly, the level of the Dow Jones or FTSE still impacts the population's perception of economic well being and so the importance of maintaining a "rising" stock market has been fundamental to a distraction which buys a little more time for those with the assets, allowing them to take another slice of the pie. Events like this week's flash crash have no real significance other than giving a glimpse of the fragility of the systems which are deemed so important. 

Politicians, economists, bankers and talking heads will posture and say whatever is necessary to stay close to the trough, but the contents of that trough feel ever more toxic.

Cherish your creativity and don't sell it too cheap and it may be wise to find nourishment away from the trough, it feels past its sell by date. 

Love

Bill