Toby Birch

Articles:

Flight of Icarus

By Toby Birch May 2009

Leveraged 30 times to economic output, the whole financial world resembles an over-geared investment bank...

MANY PEOPLE know the fable of the flight and fall of Icarus in Greek mythology, writes Toby Birch of Birch Assets Limited in Guernsey.

Carried away by the freedom of his wax-bound wings, the feckless youth ignored his father's wisdom – whose message for moderation was twofold:
Don't fly too high or the sun will melt the wax; Don't swoop too low or the sea will soak your feathers.

Like the ill-fated Icarus, the global economy has been elevated to levels neither sustainable nor desirable. The high water mark of 2008 should therefore be looked on as a layer of scum left behind after a disastrous flood; one that should induce loathing, not longing.

Yet we continue to label the ascent of the Greenspan era as 'good' and the current times as 'bad'. It is therefore understandable that so few people can comprehend the big picture; that this downturn is a blessing in disguise which can only be appreciated many years hence.

The great sickness of the last century has been the private creation of false money in the form of bank credit. Its initial symptoms of rosy-cheeked prosperity led to ashen-faced penury. Current dogma now demands that growth must resume at any price, no matter how much debt is dumped on future generations – the 'solution' of the G20 meeting in London which will prove to be the tipping point, I believe, toward Depression.

'Legacies not Liabilities' should instead be the mantra. There is a corporate and government imperative to intervene and 'do something', but asset prices should be left to find a floor and establish a new, much lower equilibrium; the sooner the better.

Attempting to stave off the inevitable will worsen the outcome in direct proportion to the time spent in pseudo-stimulation mode. The wholesale dilution of our money will soon become clear when bond yields spike and currencies plummet relative to real assets like gold and commodities. Sadly, Anglo-Saxon governments continue to be advised by apparatchiks of a failed financial system who believe that bailing out banks is pre-requisite for saving the economy. Like quack-doctors of old, financiers have come to believe their own bogus diagnosis that further debt creation is just the tonic. Applying more leeches is not the cure, but the cause of our economic anaemia.

Humans carry a built-in design flaw which extrapolates current trends ad infinitum. So caught up in the consensus, market analysts could not comprehend that corporate earnings were generated from cosmetic credit creation and were a bubble in their own right. The delicious irony was that the very measure of value in

Article - categories

Monetary Reform Islamic Perspective