Back in 1720 the South Sea Bubble finally popped. The South Sea Company was formed to consolidate the national debt of the UK – £9 million, which now seems a risibly small amount but is about £20 billion in today’s money. All holders of this debt (which the government had no means of paying) were required to surrender it to a new company, the South Sea Company, which then allocated them shares to the same nominal value, on which the government promised to pay 6% annual interest. Of course, it quickly defaulted on this promise – governments tend to do that.
The bonds representing the debt were tradable on the open market after the company floated; it issued more debt and by 1719 the total debt owed was £50 million (£1.23 trillion in today’s terms). To cut a long story short, speculating frenzy broke out (along plenty of dubious share allocations to friends of the government) in shares, which rose from £128 per share in January 1720 to £1,000 in August that year. The bubble burst, as all bubbles must, to the ruin of thousands; by the end of September a share was back down to £150.
One of the most important lessons of the South Sea escapade is that one can never trust the pledges of governments or their nominated advisers, who throughout history turn out to be too chummy with government. We have seen this chumocracy at work this year. According to a National Audit Office investigation into government procurement during the Covid-19 pandemic, by the end of July more than 8,600 contracts had been awarded relating to the pandemic, valued at £18 billion; £10.5 billion were awarded directly without any competition. The lack of transparency in handing out lucrative contracts is said to be because government needed to work “at pace”. To which one can only say “less haste, more speed”.
Biggest fall in GDP for 300 years
Rishi Sunak, the UK government’s boss of all things money (i.e. the Chancellor) told Parliament this week in his ‘spending review’ that the country this year would see its gross domestic product (GDP) fall by 11.3%, the biggest drop in 300 years – which put me in mind of the South Sea Bubble.
The government, said Rishi, has racked up £394 billion so far, (which is currently 19% of GDP, the highest in peacetime) – more debt is to come on unbudgeted borrowing, the costs of dealing with the economic disaster of shutting down the economy to prevent the transmission of Covid-19.
According to the Office of Budget Responsibility the government will have to find £20 to £30 billion in spending cuts or tax rises to balance revenues and spending by 2024, when the next general election is due to be held.
In my opinion, this has been a cack-handed mess in which the Conservative Party government – like many others – has been captured by sentimentality, ignored scientific opinion that does not accord with the dominant narrative, and has accumulated debts that our grandchildren will be paying back.
Hence my view that the UK government, like many others, has saddled us with a broken economy without sufficient justification. The Office for Budget Responsibility argues that “the coronavirus pandemic has delivered the largest peacetime shock to the global economy on record. It has required the imposition of severe restrictions on economic and social life…” It has certainly ‘resulted in’ but it is debatable that it “required”. By 2025, according to Rishi, the economy will be 3% smaller than he predicted in March this year. Unemployment in Britain will rise to 7.5% in the second quarter of 2021, equivalent to 2.6 million people without a job.
Only one answer
There is only one answer to mendacity and foolishness which is imposed on one – and that is to avoid it if at all possible. The consequences of Rishi’s well-intentioned (and what is the road to hell paved with?) largesse is that we or our descendants will be faced with diminished lives pretty soon, as tax cuts and/or spending cuts are forced upon us by a government trying to pick its way through this rubble.
It’s at this point that I’m happy to confirm that I will continue to use my Glint card and app. I know that the gold price is down about 11% from its August level, but it’s still up by more than 18% since the start of the year.
Not that Glint cards are just about saving in gold – they are much more useful than that. The gold on your Glint card is an alternative to fiat money and it can be used to spend on all types of goods. When the world so obviously is in the hands of politicians who are free and easy with money which is not theirs, you need to take back what is yours – and take as much control over your life as possible.
After all, governments make promises which they later break – such as the Conservative Party government’s promise not to cut its spending on foreign aid, which Rishi also tossed out the window. On your banknotes is the statement “I promise to pay the bearer on demand the sum of…” Ask yourself – how watertight is that promise?