The Bond Bubble Has Burst

I am calling it. What we are seeing in the markets right now is the start of the next big financial crisis. The huge bubble in government debt has begun to burst. It took a few years, but investors have finally realized that western governments in general, and the US in particular, are trapped in a low interest rate, money printing environment. As always, the downturn arrives at the peak of optimism, when hardly anyone was expecting it. So far, it appears to be just a correction in the stocks and bond market. It will take some time, before main street and the central banks will realize the scope of what is happening. At this point, however, there is no putting the genie back into the bottle.

The common narrative so far was that everything is well. The economy is strong, and growth is accelerating. We have finally managed to escape the slump of the 2009 financial crisis and everything is on its way back to normal.

This narrative is completely false. As I said before, if the economy was as rosy as government statistics would make us believe, we would have not seen things like Brexit or the election of Donald Trump. The so called recovery has not reached most people, and the masses making their frustration heard, by voting against the establishment.

In short, most economists use GDP growth to measure the strength of the economy. This is a mistake. GDP is not a good tool to assess productivity. It merely measures the amount of money being spend. But even if we were to accept GDP as an accurate tool, the official numbers are almost certain too high. That is because the official inflation numbers, which are used to deflate the GDP value, is manipulated down, through accounting tricks.

The only thing that kept the economy somewhat above water was a tsunami of fiat money. Since 2009, central banks around the world have printed more than $14 trillion to keep governments solvent and asset prices inflated. But this party is about to end. The FED is the first of the major central banks to try to normalize interest rates, and clean its balance sheet. Other central banks are expected to follow. This is why, fiat currencies are still trusted. People always assumed that printing money was a temporary policy, and not a permanent tool to finance governments.

The problem is, interest rates cannot rise, and the money printing cannot stop, without crashing the economy, and endangering the solvency of governments. Cheap money is like a drug. Once addicted, one cannot withdraw it without getting seriously ill. And more and more of it is needed, at an accelerating rate, to keep the party going. Western economies are still addicted to cheap debt. With rising interest rates, we are going to see a massive wave of private bankruptcies, which consequently will crash the economy.

That in itself would not be such a huge problem. Sure, a lot of people, who are currently indebted, would be personally hit hard. However, for the economy as a whole, if everything was left to market forces, we would only see a short, but severe, economic crises. Once the government is out of the way, however, real, free market price discovery would kick in immediately. Bad debt would be written off, and resources would be allocated to the truly best use. Within a year or two, maybe even less, the free market would have cleared all the distortion, and the economy would be booming again.

The problem, which will make this crisis most likely bigger than anything else we have seen, is that governments too are addicted to debt. And they have much more tools to defer an insolvency, until the problem is maximized. Kicking the can down the road has definitely already been the name of the game for many years.

Probably most states in Europe will not be able to pay back their debt. And things do not look better on the other side of the Atlantic. The US has already an official debt to GDP ratio way north of 100%. And that is calculated with a GDP number artificially inflated by cheap money. In addition to that, these numbers do not even include unfunded liabilities like pensions.

By any accounting standard, most western governments are factually bankrupt. That, however, is a too painful truth to sell to voters. In order to tackle the problem, governments would need to massively, and I mean really massively, cut the size of the state. In addition to that, they would probably need to think about increasing taxation to get more revenue. The ability to steal more, however, aside from being immoral, is limited by the fact that taxation most likely already is somewhere near the peak of the Laffer curve.

Neither cutting spending, nor increasing taxes can be easily done in a democracy. People do not tend to vote for their standard of living to be cut. Amazingly, raising taxes seems to be actually easier than cutting spending. What better indication that, in addition to being immoral, the state is also a completely dysfunctional organization.

President Trump, being the ruthless populist that he is, knows this full well. Therefore, he is currently doing the exact opposite of trying to avert an insolvency crisis. He has cut taxes for many people, and simultaneously seem to go bananas on new spending. And it is this which has spooking the markets last week. Investors are waking up to the fact that the party of the last few years will soon come to an end. In fiscal 2019, the US will have to borrow at least $1.2 trillion, a lot more than ever before in its history. At the same time, the FED will be a seller of about $600 billion of US treasuries. So the question arrises, who is going to buy all that debt?

In the years since 2009, governments could rely on central banks to buy a lot of their bonds. Draghi, Yellen and co., have bought them, no matter what the price. This has inflated an enormous bubble in government debt. Consequently, governments did not need to worry about how to finance themselves.

Some governments, like Germany or Switzerland, could even borrow at negative interest rates. That means, investors have paid for the privilege to lend money to Merkel. In reality, of course, this was a front running of the central banks. It was a save version of greater fool investing, since the central banks had made clear that they would always be the greatest fool. This has destroyed any honest price signaling on these markets. What a fantastic paradise for politicians, trying to buy votes.

But governments are now being driven out of this paradise. When central banks stop buying debt, and raise interest rates, governments will need to find real buyers, with real capital to buy their debt. And these real buyers are not going to invest in it at any price.

Given the enormous amount of new debt needed, and the risk involved in lending money to insolvent governments, it is inconceivable that the US government will be able to attract all that capital without significantly higher interest rates. The law of supply and demand will not be kind to politicians. In the media we can hear worst case scenario numbers of 3.5% or maybe even 4% on the US 10yr treasury.

But in what world is that a worst case scenario? Historically, the average yield on a such a bond was more around 6%. And that was at times when the US was very much solvent and did not need to borrow anywhere near as much money. When central banks now stop their price controls on government debt, it seems more likely that the bottom will drop out of that market. In other words, 6% is way too optimistic. But the US governments cannot even afford 4%.

Interest rates on US debt have already risen for month. At the beginning of February, the interest on the 10 year treasury bond hit 2.85%. That was too much for stock investors, and the sell off began. Pretty soon, one of three things is going to happen, each one of which will lead to a major crisis.

The first possibility is that governments openly default on their debt. I would say the chances of that happening in an honest, non-inflationary way are pretty much zero. No politician is going to take the responsibility for this policy, least of which Trump.

A second option is to raise taxes and massively cut spending. Since western government are democracies, and cutting spending in any meaningful way would seriously alienate a lot of voters, the chances of that to happen are also very slim.

That leaves us with the third option. Central banks call their bluff and reverse their plans to tighten. We would see another round of even bigger QE and a prolonging of low interest rates. This is the option that historically most states have picked. And it is almost certainly the one that the US government is going to pursue.

But for how long will they be able to get away with it? After all these years of QE and low interest rates, a failed attempt to exit these policies would make it very obviously that governments are trapped. They cannot exit the cheap money environment without causing a major financial crisis in the economy, and a solvency crisis of governments. A reversal of tightening will therefore cause a crisis of confidence in the central planners, which will most likely result in a currency crisis. The latter will lead to either a massive inflation in the Dollar, Euro etc, or it will force governments to eventually default after all, in order to save their currencies.

The verdict is not out yet, which of the two latter options we are going to get. But either way, buckle up, because things are about to get very rough.

Let’s apply the free markert to farming

I must stress that there was farming in the UK well before the creation of the EU.

There have been long-established trading relations all over the world particularly within the commonwealth . It sounds blistering obvious, but it is worth iterating this point as some articles published sound as though we would be left without food altogether.

Many companies here in the UK go to great lengths to state their food is made here in the UK , I can not imagine that this will go away anytime soon, perhaps some canny businesses will continue to leverage this one further.

The loss of farming subsidies and price controls understandably would be a worry to many farmers especially when their existence can be so precarious , but with ingenious thinking and  some changes in regulation these are problems that can be solved.

What would farmers do apart from farm….?

Some of the land could be moved over to housing as much as NIMBYs protest about excessive house building over the UK , such a small percentage of the country is built on “The urban landscape accounts for 10.6% of England, 1.9% of Scotland, 3.6% of Northern Ireland and 4.1% of Wales.” ( .First on the build list should be farms adjacent to existing housing projects, second on the build list would be the plots of land that were kept profitable due to subsidies or price controls these were most like to have been marginal in the first instance.

The government could also push to remove all the unnecessary administration and regulations that are currently coming from the EU. This would free up farmers to do what they do best which is farm and seeks new markets for goods or to use the land in a new and novel ways.

It is possible to remove all farming subsidies and produce more food at less expense to the taxpayer , who in fact get stung twice one through their taxes and the second through higher food prices. A real world example of this NZ where all farming subsides were removed 34 years year ago ,if anything it seems to have reinvigorated their farming industry ( , if an economy the size of New Zealand can perform such a change , there is no reason why the UK which is much larger economy could also not survive with out farming support

What about making all the food that we need here in the UK ? I don’t want to get into the meat (pun intended) of comparative advantage you can look that up yourself , but needless to say it makes no sense trying to make watermelon here in the UK considering our climate the amount of energy required would not be a good use of scarce resources. It makes much better sense for us to produce where we have an advantage such as making potatoes/financial services/design and engineering etc and trade them for watermelons from a countries where they make them with relative ease .

This sort of trade also allows developing nations to trade their way to prosperity as opposed to waiting for grants from first world nations . Which will come with inevitable strings attached. Trade is much simpler and bottom up way of helping individuals and nations out of poverty. As opposed to the top down method which is fought with money leaking a way to pay bureaucrats with very little making its way to the those most need it. We could do away with departments such DFID and have that money spent here at home or left with the taxpayer.

If we were to be true to our Cobden (google corn laws for more on this much forgotten British free marketeer) core ,then we would also not worry about who makes our food the UK would have the ability to trade outside of the customs union with everyone. The whole world would be able to trade food with us in return for all the goods and services where specialise . As many of the countries outside of the EU would be able to send us food more cheaply (not in all cases I conceded as they may not have scale but that could happen over time as the developing world would accumulate capital from the goods they have sold to us) .

A post Brexit Britain (or just Britain returning to nation-state which is self-governing like most other countries in the world) we need to this as an opportunity to allow all areas of the economy to flourish and experiment (one of the reasons not to integrate all EU law into UK law IMHO) with new ideas and solutions you never know what we may just come up with.

First published on

Goodbye Grid Girls

Last week the Professional Darts Association got rid of the ‘walk on girls’ that accompany the players onto the Oche. Today the F1 are getting rid of the ‘grid girls’ that have become an integral feature of F1 racing for as long as I can remember.

As somebody who does not really follow sports I have always thought things like ‘walk on girls’ was a little bit silly. there is something quite sad about people who need to see a half-naked women in order to pay attention to an event.

But there is something serious at stake here. This is because these changes are indicative of a serious cultural shift. Is this a nasty ‘neo-puritanism’ or the dawn of an age of maturity?

On the one hand, the idea that perfectly willing women being stopped from pursuing a job opportunity is repellent. Yet it is easy to see that market forces are at work here. These are private institutions who have acted on their own impetus. There is something quite natural about these sports trying to ditch the macho image and present a more family-friendly facade.

There has been an initial outcry against these decisions as ‘feminism gone too far’. Yet, as is often the case, the truth is more complicated. Clearly, new attitudes to how women are portrayed are influencing these decisions. But it is debatable whether we really live in an age of renewed prudishness.

Whether this really is the ‘feminazi’ at work or an attempt to rebrand these sports I will leave you to decide. I will certainly not be mourning the loss of the walk-on girls.

Like Mother Like Daughter

A graph published in this weeks edition of The Economist shows how a woman’s earning power is impacted by having children. It turns out that there is a strong correlation between the amount of income a woman loses by having children and the earnings her mother lost by starting a family.

For example, if a mother took a significant drop in income to have children then her daughter is likely to do the same. Similarly, if a mother went straight back to work after having kids then her daughter is likely to follow suit.

The pace of change today is staggering. Even in my comparatively short lifetime, the world has transformed beyond recognition. Big cultural shifts, on the other hand, happen more slowly. While some things change rapidly others mutate at a more relaxed pace. 

Despite the flux of the modern world ones parents are still a good indicator of what a child’s future may hold for them. Some people get extremely frustrated with things like this. “We need rapid change now!” They proclaim.

For decisive alterations to happen they need time to take effect. Through culture, not by state decree. People would do well to remember this.

The Alexander Adamescu case at Frontline Club

The following text was received by email late yesterday evening from Brian Micklethwait.

Below is the invite I received, which I now pass on to you, to a public meeting which  will be happening Wednesday 24th January. I very much hope that you will at least consider attending this event, despite the short notice.  At the very least, I hope that you will find this issue to be of interest and importance.  The more support that we can all give to this cause, the better.

If you are intending to come to this meeting, do please email Brian Micklethwait.


Dear Brian,

Given your previous interest in the Alexander Adamescu case and the speaker event that was hosted at London’s Frontline Club back in June 2016, I am writing to invite you to an update at the Frontline Club tomorrow on Wednesday 24 January. Sorry for such horrendously short notice.

As you may know, the Adamescu case poses huge questions for UK extradition, security and human rights (see this piece by Roger Boyes in The Times

Following the grisly death in custody of Alexander’s father, Dan, this time last year, we are now dealing with the consequences of what the former Romanian President has called ‘state murder’ (

Romania’s Magnitsky Case: 

The State Murder of Dan Adamescu – One Year On

A panel discussion chaired by Phil Collins

Leader Writer, The Times and Chair of Trustees, DEMOS


Speakers: Alexander and Adriana Adamescu

Emily Barley, Chair, Conservatives for Liberty

Catalin Breazu, Romanian Lawyer & Legal Expert

Wednesday 24 January 2018 

Speeches, Q&A and Drinks and Canapes Reception 6:30pm to 8pm


Frontline Club 

13 Norfolk Place 

London, W2 1QJ

(nearest tube stations: Paddington and Edgware Road)

In January 2017, Romania’s pioneering businessman and media owner, Dan Adamescu, died from sepsis under prison guard in hospital. His untimely death in custody prompted an international outcry, not least from Romania’s former President Traian Băsescu who declared that Adamescu had been killed “by the contempt for life of judges and prosecutors”.

His tragic passing prompted awkward questions from commentators around the world. Why was an already seriously ill man thrown into Romania’s notoriously medieval prison system and made to endure weeks without access to vital medication? How was he convicted on the basis of a single witness’s uncorroborated testimony? Why has nearly every What is behind Romania’s historic decision to continue prosecuting him 9 months after his death?

One year on from the murder of one of Romania’s most prominent newspaper owners, we ask what Dan Adamescu’s death really means for the European Union and even a UK heading for Brexit?

Featuring a discussion with Dan’s son, Alexander Adamescu; his daughter-in-law and journalist, Adriana; Chair of Conservatives for Liberty and family friend, Emily Barley; and the Romanian lawyer who defended him, Catalin Breazu, we very much hope you will be able to join us for this illuminating event and update.

LPUK Conference 2018

It is a freezing cold January afternoon. The setting is a brightly lit subterranean hall, the ridiculously baroque design of the room makes the place look like an upmarket nightclub. But people are not here to dance they are here to the UK Libertarian Party Conference.

The LPUK has had an unexpected burst of energy in the past year despite suffering for a while with a reputation as a ‘do nothing’ party. As I am not an LPUK member I attended the conference out of pure curiosity, to see if the party has what it takes to build on its success.

The first half of the day was taken up by speeches from LPUK activists. By far the best speakers were Will Taylor and Dan Liddicott; both finishing their speeches with thunderous applause. It was immediately apparent that putting forward a positive, thoroughly modern case for liberty resonated with almost everybody in the room.

The second half of the day was taken up by an eclectic mix of different speakers. Historian Ruth Dudley Edwards, Fathers for Justice leader Matt O’Connor, Firearms UK organiser David Ewing and finally the Liberland founder Vit Jedlicka.

There were three significant messages that the LPUK conference has taught us. This first being that there is a real appetite in our society for an enthusiastic party that truly represents the future of modern Britain and puts forward a positive case for liberty.The talking points that got the best response from the audience were reaching out to people’s hearts, promoting genuine diversity, new technologies like cryptocurrency and the importance of the private initiative.

Liberalism is a radical doctrine, we do not have to play the progressive versus reactionary game. The likes of Momentum and Rhodes Must Fall represent only one image of the future. There is an alternative outlook for the UK. It is innovative, open-minded and free.

The next message we learned is that people want to be part of the Libertarian movement. Over the course of the day, there were talks about Northern Ireland to firearms law to creating a new country. Libertarianism is exciting and people want to be part of it.

Finally, and on a less positive note, we must look at the condition of the LPUK itself. You may be wondering why little attention has been given to the LPUK leader Adam Brown. This is because there is really not much to write about.

Given that Brown has received criticism for being an extremely low key leader you would imagine that he would make use of this opportunity to stamp his authority on the LPUK. Sadly, nothing could be further from the truth. Brown made a rather clumsy introduction which was around two minutes in length. He then remained silent for the entirety of the conference.

At the end of the day, Brown had his chance to speak and finish the conference on a high note. Instead of doing this the party leader stuttered through a five-minute address which he admitted that he didn’t write himself. All of the chances for Brown to demonstrate some ownership over the day’s proceedings were taken by the party’s previous leader Andrew Withers. To add insult to injury the party top brass (in full view of the audience) were playing around on their phones rather than listening to the speakers for the duration of the day.  

The LPUK conference was a positive and energetic affair. At the end of the day one of the speakers, Ruth Dudley Ewards said she was “impressed” by the noticeably young and engaged nature of the audience. There is indeed a great amount of potential in the LPUK at the moment. But for it to gain more momentum it needs to sort out its chronic leadership problem. It is incredibly unclear who is actually in charge of the party. It would be a tragedy to see this new vitality wasted by an apathetic leadership.

The State Does Not Protect Children

This week it emerged that a family in California had held their children captive and tortured them. The disturbing case of the Turpin children, dubbed the ‘shackled siblings’ by the media is truly horrifying. The fact that parents could treat their children in such an appalling way should send shivers up our spines.

The state we currently live in is enormous. There is not a part of our lives that the government does not touch. Yet still, such horrendous abuses happen. The myth that the state protects the most vulnerable in our society is a pernicious lie.

This case and others like it (the Fritzl children spring to mind) raises some chilling questions about Libertarianism. The victims of David and Louise Turpin, were not adults but their own children. In a society with a night watchman state, how would such abuses of parental power be averted? It seems obvious that in a Libertarian society children are the concern of their parents, but what if parents choose to torture their children?

I believe the answer lies in creating not just a free society, but a freedom-loving culture. I am being deliberately vague here. It is often heard that ‘Libertarianism has nothing to say about culture’. Well, I would argue that cases such as these prove otherwise.