Category Archives: interest rates

The vice of outsourcing everything to China

Dalrymple notes that Wuhan flu and its consequences have been rather revealing about the West’s condition. On the matter of supply chains and interdependence,

the economy, as we have constructed it, hangs by a thread.

Western folly

The speed with which so much unravelled came as a surprise —

untune that string, And, hark, what discord follows!*

If we had stopped to think,

we might have realised how unwise it was to outsource production of almost everything to distant and not necessarily benevolently-disposed foreign powers.

Ponzi scheme

Yet, says Dalrymple,

our habits — spending more than we earned for decades — required it. To maintain the illusion of solvency, money had to be created and interest rates kept low. But to avoid the appearance of inflation, prices (except for property and financial assets) had to be kept low. The only way was to outsource manufacturing to low-cost economies, and voilà, with the able assistance of the coronavirus, the economic situation that we are in.

Will we ever learn?

We discover when shortages arise that

most of the things of which we go short are not necessary to our happiness; materialism, that the good life is ever greater consumption of material goods, whether refined food or sophisticated electronics, is false, and we have run after false gods.

But

as soon as normal service is restored in the form of endless supply and huge choice of material goods, we revert to our materialism.

We were probably sincere in declaring that consumption of material goods was not all-important or necessary to happiness. It was just that

the spirit indeed is willing, but the flesh is weak.

*Troilus and Cressida act I, sc. 3
†Matthew 26:41

House of cards

Screen Shot 2015-05-06 at 07.45.57Britain’s fragile, debt-ridden economy

British socialists are determined to

put an end to government ‘austerity’—that is, the policy of reducing the budget deficit from 10 percent of GDP to 5 percent, which has taken seven years to accomplish.

The British

live by the grace and favour of foreign lenders content to buy the country’s bonds at low interest rates.

However, lenders’ confidence that Britain is, to a degree, a haven

could easily change. The country would then have to earn its current standard of living, which it is in poor shape to do; and a sharp decline could lead to social unrest, leading to a further collapse of confidence.