Reflections across the Pond
John Browne
Jan 22, 2010
Having been among the economic engines
of Europe for much of the past decade, it appears as if the British
economy has run out of steam. Inflation is rising while bankruptcies
and unemployment continue to swell. It is a problem that would
have left Lord Keynes' head spinning. In many ways, the responses
of the U.S. and U.K. governments to the financial crisis have
been very similar. So far, the American advantages in size and
reserve currency status have allowed us to avoid the storm-clouds
now descending upon Britain. But these advantages only provide
a temporary respite. In the meantime, the slow-motion collapse
in Britain offers a glimpse of our own future - and a chance
to prevent it.
The history of the United States and the United Kingdom are closely
linked in almost every essential manner, from culture to defense
to economics. This is hardly surprising because the Founding
Fathers were basically British subjects who wished to restore
the traditional liberties they were guaranteed in the mother
country.
After the Revolution, America went its own way with enhanced
freedoms that led to unprecedented prosperity. Most interestingly,
the American Constitution was quiet on the subject of central
banking. Two early efforts to imitate the British central bank
were withdrawn. But in 1913, Congress eventually agreed to establish
the Federal Reserve, which persists today as America's central
bank.
Many economists trace America's economic decline to the activities
of the Fed, in particular to the printing of massive amounts
of fiat currency unsupported by the gold and foreign exchange
reserves held by the central bank. It is a systemic fraud previously
committed in Great Britain. But why would a country's leadership
pursue such a dangerous course?
Foreign policy is a prime suspect. The center of a vast empire
that covered almost a quarter of the world's land mass and one
third of its people, Great Britain accepted the role of 'global
policeman' for much of the late 19th and early 20th centuries.
As with ancient Rome, this proved vastly expensive both in terms
of money and domestic tranquility. Funds diverted from the home
nation hurt working people disproportionately, fueling socialist
activism. Eventually, the empire rotted from within.
America took over the role of world policeman from the British
after the Second World War. Predictably, it has proved hugely
expensive, both in terms of money and domestic tranquility. Today,
the debts are mounting almost at an exponential rate, such that
the U.S. government's current liabilities stand at a staggering
$12.3 trillion or some $113,000 per taxpayer. [2009/01/20; usdebtclock.org]
And if the recent election of a Republican Senator in Massachusetts
is any indication, the people are fed up.
When I was a Member of the U.K. Parliament, under the now legendary
Prime Minister Margaret Thatcher, we were successful in dismantling
decades-worth of socialism and 'progressive' conservatism. The
new freedoms unleashed an explosion of enterprise, investment
and wealth creation. Thatcher cut back relentlessly on government
waste and reckless spending. Initially, it resulted in an increase
in unemployment - unpopular, but it worked. Thanks partly to
oil exports, we instituted a public debt repayment schedule.
Sterling rose from some $1.12 to $1.80. [1985-1988; miketodd.net/encyc/dollhist-graph2.htm]
Three successive socialist governments in the United Kingdom
now have undone most of the good done by Thatcher. Westminster
put pressure on the banks to make unaffordable property loans,
just as Washington did to America. The British government has
run up unprecedented levels of debt to finance the banks and
its national debt, by means of quantitative easing, just as the
American government has done.
Unlike America, Britain's pound sterling has long since lost
the protective shield of being the world's official reserve currency.
Therefore, the British are confronted with inflation and a possible
credit downgrade now, while America still has time to reverse
course.
If it does not, America may soon follow Britain into a lower
credit rating, with untold damage to Treasury financing costs
and the U.S. dollar.
However, shifting to a sensible economic path will inevitably
involve short-term pain, as it did under Prime Minister Thatcher.
Correcting the irresponsibility of socialism can be agonizing.
Over the short-term, it may have a negative effect on U.S. stocks,
even while the shares of the BRIC-CAN countries continue to rise.
Lady Thatcher once said, "The trouble with socialism is
that eventually you run out of other peoples' money." Once
again, the U.K. is broke, and this time, the U.S. is hardly far
behind.
###
Jan 21, 2010
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John Browne
Senior
Market Strategist
Euro Pacific Capital, Inc.
1 800-727-7922
email: jbrowne@europac.net
website:
www.europac.net
 John
Browne is the Senior Market Strategist for Euro Pacific Capital,
Inc. Mr. Browne is a distinguished former member of Britain's
Parliament who served on the Treasury Select Committee, as Chairman
of the Conservative Small Business Committee, and as a close associate
of then-Prime Minister Margaret Thatcher. Among his many notable
assignments, John served as a principal advisor to Mrs. Thatcher's
government on issues related to the Soviet Union, and was the
first to convince Thatcher of the growing stature of then Agriculture
Minister Mikhail Gorbachev. As a partial result of Browne's advocacy,
Thatcher famously pronounced that Gorbachev was a man the West
"could do business with." A graduate of the Royal Military
Academy Sandhurst, Britain's version of West Point and retired
British army major, John served as a pilot, parachutist, and communications
specialist in the elite Grenadiers of the Royal Guard.
In addition to careers in British politics and the military, John
has a significant background, spanning some 37 years, in finance
and business. After graduating from the Harvard Business School,
John joined the New York firm of Morgan Stanley & Co as an
investment banker. He has also worked with such firms as Barclays
Bank and Citigroup. During his career he has served on the boards
of numerous banks and international corporations, with a special
interest in venture capital. He is a frequent guest on CNBC's
Kudlow & Co. and the former editor of NewsMax Media's Financial
Intelligence Report and Moneynews.com. He holds FINRA series 7
& 63 licenses.
321gold Ltd
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