Godfrey Bloom on the Pensions Scandal


by Godfrey Bloom

I spent 40 years with City institutions. I am so glad to be out of it. I retired in 2004. It is impossible to value assets in any realistic way. As a neo-Austrian economist I understand well enough that value is totally subjective in terms of goods or services. The argument needs no repetition for readers of this blog, although much repetition in economics class rooms in state universities.

Money is simply a utility of exchange, a deferment of the completion of a transaction to avoid a return to a barter system. But how do you value a money instrument? I ran a fixed interest fund with some success in the late 80’s and early 90’s, interest being the compensation for deferment of receiving goods or services. The problems we now have were all in the system then but nowhere near the scale of today.

Fractional reserve banking, money printing, government deficits, nothing new. But in the last 5 years the UK national debt has doubled. The conservative coalition has printed £350 billion. A figure too great for the human mind to conceive. How can any fund manager possibly run a pension fund on this basis? What should a yield be to protect a pension scheme which has a vesting date 20 years hence? Even if one accepts inflation at the absurd official rate of circa 2 percent grade A paper will barely wash its face. But we know that pensioners do not buy much in the way of white goods or technology products the areas where inflation has been subdued. Pensioners face significant inflation in real costs, fuel, heating, travel and food. The real inflation here is nearer 4.5 percent. This means over 20 years the saver must lose money. There is nothing his investment manager can do for him.

In the 70’s 80’sand 90’s when I represented one of the largest pension fund managers in Europe to the National Association of Pension Fund Managers I would argue that the goal of managers should be one percent over inflation allowing for charges. This was regarded as very modest, especially after the nineties bull market in equities. Pension holidays abounded. The successive governments actually capped contributions to 10 percent of surplus funding. Politicians and journalists did not understand the enormity of that policy and the death knell came when the fiscally illiterate Gordon Brown stole the dividend tax rebate. The Financial Times in an editorial claimed this would not affect final salary schemes!

Final salary schemes are based on yield not capital value. Their discretionary triennial increases are totally dependent on this. Only 6 months later Wimpy was the first scheme to freeze its increases. Many followed and as we all now know the UK went from having the strongest pension reserves in the world to the catastrophic shambles that now faces us. Yet these criminals now strut the political stage as elder statesmen.

Serious reform is not even on the agenda. I give the same advice now as then to low income workers: save nothing. It will not be enough to live on but just enough to take you out of the social security net. I did not learn this by academic research. But many moons ago when commanding a TA Squadron in Doncaster from a pit head winder from a local colliery. An intelligent senior NCO who had done the numbers, he blew his tax free pension lump sum on a world cruise. That was 20 years ago. He was dead right. There is a race to the bottom currency war including, shamefully, the Swiss franc, bubbles in bond and property holdings and a western central bank/ political short selling conspiracy against gold (admittedly unsustainable long term).

This new phenomenon is replicated across the industrial western democracies. The stranglehold of Keynesian theory in our universities seems unbreakable. Youngsters dependent on parent and state sponsorship, lecturers never exposed to alternative ideas and too intellectually lazy to seek any out, politicians to whom Keynes is a godsend, a live now, pay later ideology designed for the modern ‘head count’ style of elections guaranteed to return bread and circus politicians. Where can you turn to protect wealth? Believe me that is the only question the world’s middle classes are asking, no longer how to make money.

In short, how do you value money? I can hear the howls of protest from my incredibly clever colleagues at the Mises Institute. But a fund manager must value money by whatever definition. Laboratory argument does not help the foot soldiers of wealth creation.

It seems to me, forgive purely anecdotal surmise, but victims of the current phenomenon appear to understand this and pursue a policy of spending. Why not? Zero interest and tax on that. Any reasonable yield necessitates high risk. I wonder even in my heyday I would have foreseen Tesco bonds going to Junk status. Perhaps history might suggest the best investment in 20 years from today would be tinned corned beef or sardines. You can’t eat the family Goya least of all anything that Tracy Ermin might have vomited up.

The truly dreadful aspect of this is not the political class, stupid, shallow, deceitful and self-serving, it was ever thus, but the complete abrogation of responsibility by public service broadcasting and the laughably so called quality press. I have only seen Liam Halligan attempt to tackle this inevitable financial holocaust, where the hell is everyone else? Gissa job Auntie Beeb and lose the lightweights you currently employ.

 

 

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14 comments

  • The connection between lending and REAL saving (the universities, taking their cue for the late Lord Keynes define the word “savings” in a perverse way) was never perfect – banks and other such always “credited to the account” of borrowers more money than had ever really been saved (hence the difference between the “monetary base” and “broad money”) and let savers believe their money was “on deposit” when (of course) to earn interest it must be LENT OUT (two different parties can not have the same money in different places at the same time) – the basic principle that savings that are lent out are not “on deposit” (like grain “deposited” in a grain silo) being deliberately hidden – for lenders did not like the tell savers that their savings were no longer in their possession, and would not be till when and IF loans were repaid (and did not want to tell anyone at all that much of the loans were financed by air pies and Moonbeams – not real savings).

    However, there was always some connection between real saving and lending. But this is now dead – as dead in the budgie in the Monty Python sketch.

    The financial system (not just the banks – the pension funds also, and the stock market) are now totally dependent on the funny money of the Bank of England and the other Central Banks – savers are now irrelevant (and are despised).

    Max Keiser (Putin’s boy) is a liar about many things – but he does not lie about everything all the time. And in this he does not have to lie – for the wildest enemy propaganda could not be more horrible than the bitter truth.

    In this the foes of the West do not have to lie at all – they can just tell the unvarnished truth (if they wish to do so) and then sit back and laugh at our inevitable doom.

  • What is this article about? I read the first two sentences and had no idea what the topic of the article was. Look – whatever the flaws of QE, it is certain that the stockmarket would have done much worse without it, and so pension investments would have fared much worse – something always ignored by the shills for the babyboomer lobby. There have been good pensions reforms – including the right not to take an annuity and the right to leave your pension to someone without a 55% tax. I think these must be welcomed. I would like a further reform – to remove the state’s right to tell you you can’t access your pension until 55. Your pension should simply be your money.

    • May I suggest djwebb that you read the article again and again and try to understand it next time.

      It is not difficult to pump up the traded prices of investments and any other assets if you debase the currency. That is what has been going on – wilful debasement in order to avoid frightening the voters in the hope the Chancellor’s favoured mates might end up back in office. It seems to me the 2015 id a General Election worth losing, but come to think of it, both Labour and Conservative seem to be doing just that, so maybe they are not a s daft asI first thought. The risk of a significant bust in the New Year is real and after the GE it looks increasingly likely.

      I still cannot make up my mind what to do. Will their be inflation and a property price collapse, inflation and high interest rates, inflation and depressed economic activity – I just cannot make up my mind, and I doubt if anyone knows the sequence. What we are not going to have is another 5 years when creditors allowed governments to debase the currency while paying a pittance for the deferred enjoyment of the money.

      • My own preference is for a vast, if unsustainable, property boom. Mind you, having bought the property next door, I would say that.

      • I will not wade a long way into an article before finding out what it is about. Sorry. I still have no idea what point the author wanted to make.

  • As dead as the parrot in the Monty Python sketch

  • Julie near Chicago

    I just paid $ 4.95 for a standard-sized can (~ 12 oz. American) of corned beef — under Libby’s label, don’t know how it would be labelled for you folks. Anyway, at those prices, who can afford to stock up on corned beef! Then again, ready-to-cook corned beef was priced at $ 10.69 per pound in the meat department. Shoulda checked the price for plain brisket. :>(

  • Does it really matter? Any kind of stored wealth facilitates the endless wars and expansion of the state, they’re only printing money from expendiency. Taking the Austrian argument to its logical conclusion, the economy only works so long as people believe in it, however it is constructed. The important thing is that the current monetary and financial system will carry on for as long as the majority of people buy into it. Is SIG’s comment facetious – I don’t think so even if he maintains it is. Adding prostitution and drug dealing into GDP is actually a sensible step for financial planning, since the real economy and the real free market exists (laws and regulations are simply another constraint that has to be factored in when making transactions in the exchange).

  • The Government did not “print” £350 billion; rather it allowed the banks to do this by QE which then sold this money at interest. If the Government had indeed printed this new money we would have had no debt and lower taxes. Seen website linked below including for the reason it did not do this – Europe.

  • For some reason I don’t understand, Godfrey Bloom is unable to post comments to this Blog. I therefore post this on his behalf:

    “I am sorry if I did not make my point clear, it was simply that it is impossible to manage money with fake asset values caused by QE, and repressed interest rates by central banks. I wrote the article as a retired professional. But for those who did not understand it, and do not have time to reread it be not downhearted, neither the cabinet, opposition, Bank of England or most journalists understand it. However everyone ,man woman and child will understand it before the end of the decade.”

  • People like Godfrey Bloom are not part of the solution to our debt problems, they are the problem. They are the problem because they operate the industry which is the problem, and they won’t state the true facts because they benefit, or have benefited, from the racket which is banking. The very last thing that those involved in the racket want is for the people to understand it. As Henry Ford once said: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning”.
    Quite simply, banks create money out of fresh air and then charge us for it. Without debt, there is no money. Almost all money (97%) in circulation has been borrowed into existence, that is the problem – pure and simple. Can we rectify it? Of course, very easily – but individual politicians can’t. Some have tried, but most have had ‘unfortunate’ experiences afterwards. Banking and money creation are the only subjects that we should really apply ourselves to at the moment when we discuss the economy, all else is a pointless diversion.

  • I proposed a novel solution, take the power to create credit away from the banks and give it to the Internet: https://archive.org/details/pay-wealth-creators-not-banksters-archive

    oh, and abolish copyright into the bargain:

    http://business.wikinut.com/Time-To-Rethink-Work%2C-Wealth-Distribution-And-Copyright/vc_twuhm/

  • Godfrey Bloom is an Austrian School economist, which I think partially explains the confusion shown by comments on his recent post. Austrian economics is free market, sound money, common law economics. No one today, who has not studied Austrian economics, can fathom what the world was like before money printing and state intervention in the economy became the norm. This is what Godfrey is trying to explain; i.e., that the world was and should be much different than it is today. We should live in a world where wealth is earned and not the result of market interventions in favor of privileged groups by coercive governments and central bankers. Pensions–the topic of Godfrey’s essay–had to be funded by money earned by the recipients. Pensions, by which I mean REAL pensions, are simply a form of savings by those who gave up current consumption for decades in order to live a decent lifestyle in their retirement years. Now we think that pensions are gifts from government, which really means that current workers are having their savings funneled to current retirees and not into real, wealth generating enterprises for their own future benefit.

  • There is nothing wrong with “printing money”. If the goods and services in the community are to increase so should the money supply, but this money should be issued debt-free. There is absolutely no reason on Earth this money should be created by the banks and sold to the rest of us, including the government and thus increasing the national debt.

    As the Internet creates wealth, and purchasing power belongs to producers…

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