Red Pill, Blue Pill

by James Delingpole
Daily Telegraph

Recently by James Delingpole: Radio Free Delingpole XVI: Buying Britain's Gold Back

The other day m'learned colleague Ambrose Evans Pritchard wrote a piece in praise of money-printing. What the world needs is more Quantitative Easing, he argued, though this time deployed in "nuclear force."

I have no doubt that this would bring about a full recovery very fast if conducted with enough panache, but is it possible to marshal political consent for such revolutionary action?

The Tea Party Congress, like Europe's bourgeousie, would rather wallow in liquidation, Puritan cleansing, and mass default than tolerate the possibility of a solution.

I couldn't disagree more violently with this analysis. Nor, happily could most of you. The most popular comment response – approved by over 300 readers - countered:

In reality, economics is not the fiscal rocket-science you make it sound. Capitalism itself is based on good old-fashioned honesty. The money at the heart of it must be both an honest store-of-value and an efficient medium of exchange. It ceases to be so when the inherent deceits of fractional reserve banking allow trillions of false credit to be pumped into the system, thus forcing up prices (booms) which inevitably lead to over-valued commodities (busts).

What happens next is that the banks, having privatised their gains in the good times, simply socialise their losses onto the tax-payer. It's a crime. Simple as that really.

Reading these words – and seeing how many "likes" they got – did my heart good. "So I'm not alone, after all," I thought to myself. "There are others out there who've taken the red pill too."

The red pill – for those who haven't seen The Matrix – is the one which shows you the world as it really is rather than cosy, fantasy confection of the popular imagination. The red pill is not for the fainthearted because it involves confronting painful, ugly reality rather than living the dream.

Let me give you an example of what taking the red pill entails. It's a report from last year by the Boston Consulting Group showing that the amount of household, corporate and government debt which needs to be eliminated stands at $21 trillion. The cost of dealing with this "debt overhang" will entail the loss (ie confiscation by the government) of one third of the wealth of the asset-owning classes. Some time in the next few months, weeks or years, we're all going to be taking a 30 per cent hair cut.

Here's another fascinating report, this time about where gold is headed. Conservatively it estimates its target price at $2,300 an ounce.

Whenever I mention such things, I'm always amused by the rage it generates in some quarters from "experts" who passionately believe that gold is overvalued, that it's a bubble that is about to burst. Well fine. If that's what you think, don't go and buy gold bullion. No one's forcing you to – and what I say makes no difference either way to the market price: you can't ramp gold like you can share prices. I just happen to think you're making a big mistake which you could easily avoid were you to acquaint yourself with the most basic principles of Austrian economics.

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July 20, 2012

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