Now there’s no such thing as money, only credit - Jim Duffy

“We’re in the money, we’re in the money.” Not sure who sang that ditty, but it matters not a jot as the IMF calls for governments across the globe to spend, spend, spend and then blow a little bit more. It is almost as if we are living in a virtual world, a dream, where one day we will wake up and it will – in fact – be true. But, encouraging already skint governments to spend seems a trifle crazy and perplexing seeing as they are borrowing a ton of cash just to keep their stuttering economies afloat.

Jim Duffy

But rather than tighten their belts, governments are being told to go on out there and spend like there is no tomorrow. The head of the IMF, Kristalina Georgieva did not pull any punches in her clear ambition for global spending. She said “In terms of policies for right now, very unusual for the IMF, starting in March I would go out and I would say: ‘please spend’. Spend as much as you can and then send a little bit more.” All I can say to that is “Holy Cow Batman!”

With President Biden already pumping $1.9 trillion of stimulus, with more to follow, into the US economy, this is just the start of a fresh “money printing” round. And at present the Head Girl is telling all her prefects not to worry about amassing massive debt. Georgieva continued “I continue to advocate for monetary policy accommodation and fiscal policies that protect the economy from collapse at a time when we are on purpose restricting both production and consumption.” In short, the monetary policy we have followed and advocated for the last fifty years hasn’t worked. We have no cash, gold or other assets in reserve. But we do have debt. Ladies, gentlemen and them, welcome to 2021 where there is in fact no such thing as money, only credit.

Yes, Georgieva makes a valid point that this pandemic is costing economies a fortune. One can see how it is all unravelling when pilots are being made redundant in hordes, while they phone into national radio programmes, almost in tears, as their profession falls apart. It is sad to see the likes of Norwegian airlines going bankrupt in the UK, adding to the financial horror at UK airports. Nevertheless Norwegian was built on massive, no humungous debt. And just like our economies, that burden is unsustainable without more borrowing or in a doomsday scenario, economic meltdown.

IMF Managing Director Kristalina Georgieva is encouraging governments to keep spending

Those at the IMF, The US Fed and ECB cannot press the doomsday button just yet. Why would they? One, it would show them up as completely useless and futile. Cast your mind back to the forward guidance of the previous Bank of England Governor, Mark Carney. Interest rates are going up – oh yes they are – oh on they’re not. Many would suggest they make it up as they go along. And two, why spoil the good life? Currently, central banks have seen a gap in the market. Not to make money. No, but to elevate themselves to even greater power as they consider digital currencies and the potential to give us all our own personalised digital wallet filled with cash to spend. Watch this space in the next five years. In summary, why give it to retail banks as QE, while they could give it straight to Joe public, miss out the middle man and be seen as economic heroes.

This encouragement by the IMF to spend or indeed rallying cry to save the central banks from extinction may help kickstart some form of growth, while shielding economies from the effects of the pandemic. But, it feels like they are leading the mechanised infantry over the hill and into deadly quicksand. They will not accept that the system is broken and the pandemic has highlighted just that. In effect, Covid-19 has accelerated the demise of the fiat currency system built upon layers of debt and elaborate banking mechanisms. And in all of this, one thing bugs me a little.

No-one is coming out with a solution for the next 50 years. The Gen Z’s, kids, teenagers and twenty-somethings are currently growing up at the end of a big credit experiment created at the Nixon Shock when the USA came off the gold standard. And central bankers are still peddling debt as the way forward.

We may well be in the money for a few years to come, but the printing machine must run out of ink at some point.

Jim Duffy, MBE, Create Special