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We should be happier to have a job than to have our savings protected?!

Updated: Mar 20, 2020

"We should be happier to have a job than to have our savings protected … I think that it is in this spirit that monetary policy has been decided by my predecessors and I think they made quite a beneficial choice." Christine Lagarde, December 2019.

It may not seem it at first glance it but when you stop to consider what this really means, it is truly terrifying.

To understand the magnitude of this statement, it is important to understand exactly who Christine Lagarde is. We have all heard of Central Banks; the Bank of England, the Federal Reserve, the Bundesbank and so on. Well the International Monetary Fund (IMF) is the Institution that de facto oversees the global monetary system. Christine Lagarde was Head of the IMF from 2011 until 2019 and has recently started her new position as President of the European Central Bank (ECB). Given that the ECB controls one of the largest monetary blocks in the world (the eurozone) it would be fair to say that she is certainly amongst the top 10 most influential financiers in the world. Incidentally, Christine was voted the 3rd most powerful woman in the world in 2018 by Forbes.

The point is simple. Likeable or not as she my be, her power and influence in the world of finance is unquestionable and when she talks, things happen. More importantly, her opinion is a reflection of the ideologies of the environment she works in and those people with whom she rubs shoulders.

So why is this such a terrifying statement?

To understand, let’s take a closer look at the three points she makes:

1) “I think that it is in this spirit that monetary policy has been decided by my predecessors”

Post financial crisis, quantitative easing has been the name of the monetary game. When the phrase was first floated it left most of us scratching our heads, yet it didn’t take long to read between the lines and see this was a euphemism for money printing.

Printing money increases the money supply and is as an inflationary monetary policy. It inflates the supply of money and if not offset by an equal increase in total GDP will lead to price inflation. The mechanics of this can be quite complex but simply put, the new money draws its value from the existing money in circulation, keeping the total value the same but devaluing the per unit value.

Over the past decade this inflationary policy has been pursued hard, fast and on an orchestrated basis by central banks around the world. This has increased the global money supply and led to bubbles in real estate, equity markets, fine art and many other asset classes.

2) “We should be happier to have a job than to have our savings protected”

As with Newtons Third Law of Motion, every action has a reaction and unfortunately, the monetary policies that have been pursued come with a downside, so we cannot have our cake and eat it. Or put another way, its your savings or job, not both.

Quantitative easing was pursued to protect jobs in the aftermath of the 2008 crisis and it would be hard to argue that is hasn’t worked, the last decade has been far from a Great Depression scenario.

However, those jobs came from the newly created currency, whose value came from, well you probably guessed it – your savings. It is a form of stealth taxation and is no different to paying your annual tax bill to pay for national healthcare, this is just done behind the scenes, without representation or consent.

3)” I think they made quite a beneficial choice”

You don’t have to look too far these days to find someone bashing the inflationary monetary policy decisions made by the Central Banks. Afterall, you only have to look at Venezuela, Zimbabwe or Argentina as current day examples of where that road is heading.

Hyper-inflations devastate economies by devaluing the unit value of currency so fast that by the time its begun, its already too late. The purchasing power of $10k can go from a car this week to a loaf of bread in 12 months. Truly frightening.

Thought you were safe, think again.

Christine La Garde, one of the world’s most powerful leaders is announcing in public that not only does she fully understand the effects of the policies being pursued, via-a-vis jobs and savings, but she is completely behind them.

The policy direction is therefore to protect jobs at the expense of savers. This will keep people working but potentially devastate the wealth and savings of the nation to the point where the vast majority will be living hand-to-mouth, paycheck to paycheck and without hope of respite.

As with most bad situations, there is always hope if you look hard enough. Powerful as she may be and as pervasive as the financial institutions around us are, their reach has limitations.

Central Banks control our currency, and that alone. It is true that cash in the bank could be wiped out through a hyper-inflation, yet if we learn to prepare ourselves for such an event then we can come out on the other side in a far better situation than we went in.

As destructive as a tidal wave can be, those equipped with a surf board, the right timing and a lot of skill can come out unscathed. The same principle applies to finance.

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"It is well enough that people of the nation do not understand our banking and Monetary system, for if they did, I believe there would be a revolution before tomorrow morning"

Henry Ford

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