The August Financial Terror
A Traumatic August Crisis in Italy and Spain and a Future Potential Great Explosion?
by Robert Wenzel
Economic Policy Journal
Ambrose Evans-Pritchard is out with an important piece in The Telegraph. I have been harping away in the EPJ Daily Alert that in recent weeks the U.S. money supply has been exploding. Pritchard makes the same point:
We have a glimmer of hope. The key indicators of the US money supply are at last firing on all cylinders, a dramatic turn for the better that would normally signal recovery or even a mini-boom within the next six to 12 months… data from the St Louis Fed show that America’s M2 money supply grew at a 6.4pc annual rate in the second quarter, accelerating to 12.2pc in June.
What Pritchard fails to point out, however, is that the coming manipulated-boom is a Trojan horse that will contain within it major accelerating price inflation.
On Europe, Pritchard warns of a possible 1931 scenario:
My recurring nightmare ever since the Western debt edifice began to crumble four years ago is that the denouement would track the events of mid-1931, when leaders failed to reform a destructive fixed exchange system (Gold Standard) and the fuse finally detonated on Europe’s banking system. It was when political blunders turned recession into the Great Depression, and ideology intruded with a vengeance.
The narrative of 1931 is already well-known to readers. France sabotaged a rescue of Vienna’s Credit Anstalt because of strategic disputes with Germany. This set off a financial chain reaction. Frightened markets tested the weak links of the Gold Standard. They withdrew funds from Britain after naval ratings “mutinied” over pay cuts. Contagion spread back to New York. By October 1931 the international system had collapsed, though the full horror did not become evident until the next year. A string of countries retreated into variants of autarky, or fascism, or both. Communists and Nazis together won more than half the seats in the Reichstag election of July 1932.
It is far from clear that the international order is more secure today than it was in the seemingly calm days of May 1931…