Douglas Carswell's Blog

How's that 40 year experiment with paper money working out?

The day Spain lurches closer towards a painful contraction made inevitable by a massive credit boom, I get to Blowing Bubbles, chapter 7 of Philip Coggan's masterful book, Paper Promises.

It seems it ain't just Spain in trouble.

Nor is it only the future of the ten year experiment with a common European currency now in question. Perhaps it is the forty year one with paper money, too?

Since the collapse of Bretton Woods, we have had a massive increase in the money supply and a surge in credit. A boom in asset prices inevitably followed. This might have been most pronounced on the periphery of the Eurozone, but it has happened elsewhere, too. Think UK house prices.

Could it be that this forty year experiment in paper money fueled a mega boom, which is about to become a mega bust?

Perhaps an awful lot of assets are about to be worth a lot less than we think they are. Which is, more or less, what brought down so many Spanish banks.

What ought to alarm us most is the inability of the political elite throughout the West to recognise that we are not just dealing with a cyclical downturn, but something far more profound.

Only a couple of days ago, I had a twitter exchange with one of the Chancellor's advisers, who clearly believes that more cheap credit is the way to fix things.

It does not seem to have occurred to the Treasury team that all those years of cheap credit boom are the problem. Until they read it in the Economist, I doubt the idea that might be a failure of the post-Bretton Woods currency system will even cross their mind's.

The West needs leadership. Western Treasuries need to be run by people able to think for themselves. Instead we have people who think the cheap credit and monopoly money that got is into this mess will get us out.

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