Economic reality v cycles: Hayek wins on points

There is absolutely nothing out there to justify the wave of optimism spanning the pages of our popular newspapers. Let’s look at the key indicators:

a) Mark Carney, the Governor of the Bank of England, knows that British remains so over-borrowed, both individually and corporately, that any rise in interest rates could be fatal. He is therefore using every trick possible (like tying rate rises to the level of unemployment which is fatuous) and may have to evoke further Quantitative Easing to fight off rising inflation (please note that this week the currency markets have ignored the Governor’s statements).

b) Businesses still cannot borrow from the Banks and the SME equity markets have been decimated by a brutal, and totally un-necessary, campaign by the Regulatory Authorities who are power drunk.

c) The uplift in the housing market must be considered from the position it was effectively in: dead or, at best, struggling. With the exception of the South East of England, where foreign cash continues to pour in (India being the latest nation to worry about outflows), new starts are desperately low. In a week when the population of the UK was confirmed at 63.7 million, the news that The Treasury is restricting the equity support scheme to 73,000 applications says it all. If there are 2.5 people per home, that will help 200,000 individuals.

It’s ironic that the Funding for Lending scheme, which was supposed to help the banks to lend to SMEs, is stimulating the next housing boom. The banks and building societies are not stupid. Finance is pouring into ‘buy to let’ mortgages. No doubt Goldman Sacs is busy bundling them all up and selling them on to the Funds securing vast profits for themselves.

So what is happening?

Friedrich Hayek was right. The value of money has been restored by a punitive period of austerity and now the market psychology is kicking in. We’ve had enough. The milk bottle is half full and the sun is shining. Houses are selling and Greece is still there. We are winning at tennis (A. Murray), rugby (the British Lions), golf (J. Rose) and cricket (the Ashes).

Isn’t life great (except for E. Miliband)!

Happy Summer holidays. As the sea washes away your sand castles please don’t think about Mr. Carney’s statements.

Hayek is winning on points: let’s enjoy it while it lasts.

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