An Unpredictable Recovery
By Staff News & Analysis - May 20, 2013

Two-speed Britain as London soars away from the rest … In London, there are more cranes on the skyline than in the rest of the country put together. Evidence is growing that a recovery is under way, but there are now fears that only the south-east is benefiting, leaving the nation more divided. – The Guardian

Dominant Social Theme: This is an unpredictable element of the recovery.

Free-Market Analysis: Since it has been speculated that Britain is headed back into a recession, this article raises questions for us. At the same time, it is quite predictable. Let's look at why.

First of all, we don't think that Britain is anywhere near a "recovery," nor are we certain what a recovery would look like at this point in Britain, in the US or throughout Europe.

The problems are similar throughout the West. Higher taxes and price inflation, coupled with increased regulation and bureaucratic authoritarianism, provide a kind of job-sapping austerity that produces low growth or no growth.

So what is the explanation for the continued success of London's financial district? Well, we would argue it is central bank driven. Western finance is a product of money printing, and the US dollar drives this money printing and provides an inordinate advantage to Western societies.

US politicos, for instance, have persuaded the Saud family to swap oil for dollars and thus, throughout the world, nations have to hold dollars to buy oil. This allows US officials to print trillions more than they would be able to print ordinarily because there is a continued ready market for dollars.

As a result, Washington and the US military-industrial complex has swelled dangerously out of control. The financial sector in the US has benefited, as well. And this is the case in Britain and Europe/Brussels, too.

Until recently the society at large benefitted from Western-style finance and money printing in that standards of living were higher than in the rest of the world.

But this is not the case any longer. It would appear that the current monetary model has reached a tipping point and its advantages – such as they are – are no longer available to the "hoi polloi" but only to those in finance and clustered around the currency spigot.

Here's more from the article:

House prices in London's swankiest districts are clocking up a rise of £27 every hour of the day and night. It sounds like a statistic from the dizzy days before the Great Recession, when ostentatious consumption was in, "banker" had yet to become a dirty word, and the capital prided itself on providing a haven for the world's super-rich. But it's the story today in the prime postcodes, which are basking in a spring recovery yet to be felt in the rest of Britain.

Analysis of official data by London Central Portfolio, which helps investors to buy in the capital, shows that the cost of a property in one of central London's "prime" areas, such as Knightsbridge or Kensington and Chelsea, has jumped a whopping 25% in the last year to an average of £1,186,817.

London's skyline bristles with giant cranes as the construction industry cranks back into life, while deep beneath the capital hundreds of workers are digging 42km of tunnels for the vast Crossrail project, which will connect the heart of the city from east to west, in Europe's largest construction project.

… "The increasingly volatile global economy has only served to fuel demand among global investors," says Liam Bailey, Knight Frank's global head of residential research.

"The London market has really outperformed over the last four years, and over the past 12 to 18 months it has become more noticeable. The eurozone crisis undermines confidence in the UK and hurts the housing market but it is positive for London because eurozone investors look to London as somewhere to buy."

But back in Brough, at his commuter-friendly coffee stall, [David] Funnell is sceptical that the coalition has a convincing plan for spreading the benefits of growth beyond the capital.

"We're proud folk in Yorkshire, but we're getting increasingly fed up with the government," he says. "They feel that Cameron's Eton and Harrow set are making policies for Londoners and don't care about the rest of the country. In their minds, we're all 'flat caps and ferrets'."

This is the danger of a two-track financial recovery. Eventually, the have-nots look on with envy at the "haves" – and if society gets too out-of-balance civil violence can erupt.

Europe is already suffering from such violence, and Britain sporadically, as well. In the US, the government has begun purchasing ammo in such large quantities that there is little left even for sportsmen. It seems obvious that Washington in aggregate is fearful of civil chaos – especially if the US economy does not rebound but stays depressed along with Europe and Britain.

The West generally is not returning to pre-crises economic levels; meanwhile, price inflation continues to take its toll and retirement nest eggs continue to be in jeopardy or are actually being depleted.

The system needs changing and the emergent two-track "recovery" is simply exacerbating the obvious economic imbalance that has overtaken Western economies.

This is entirely predictable to those who study free-market economics. Central banking is a kind of socialism and as Ludwig von Mises pointed out in his great work "Socialism," societies cannot be "a little bit socialist." The outcome is predictable even if it is eventual.

One could speculate, therefore, that the current form of capitalism is beginning to reach an end game either purposefully or accidentally. Either way, the possibility of serious civil unrest comes closer the longer the imbalances continue.

This is another reason we tend to think that the current system is indeed on its way out.

The solution would obviously be to return to a system of free-market competitive monies. That would go a long way toward putting competition back into the marketplace, with a resultant surge in opportunity and prosperity.

After Thoughts

Western society cannot long tolerate massive imbalances in opportunity and wealth without serious repercussions … or so history tells us.