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A stern warning from a central banker

February 1, 2011
La Serena, Pacific Coast, Chile

Mervyn King is Britain’s chief central banker and a key figure in the global financial system. Last week, after surprising reports surfaced that the British economy had once again contracted in the 4th quarter of last year, King delivered a stern, sobering message to his country:

- “In 2011, real wages are likely to be no higher than they were in 2005… One has to go back to the 1920s to find a time when real wages fell over a period of six years.”

- “The Bank of England cannot prevent the squeeze on real take-home pay that so many families are now beginning to realise is the legacy of the banking crisis and the need to rebalance our economy.”

- “The squeeze on living standards is the inevitable price to pay for the financial crisis and subsequent rebalancing of the world and UK economies.”

- Furthermore, inflation may rise “to somewhere between four per cent and five per cent over the next few months.”

- “The idea that the MPC could have preserved living standards, by preventing the rise in inflation without also pushing down earnings growth further, is wishful thinking.”

- “[U]npleasant though it is, the Monetary Policy Committee neither can, nor should try to, prevent the squeeze in living standards, half of which is coming in the form of higher prices and half in earnings rising at a rate lower than normal.”

- “I sympathise completely with savers and those who behaved prudently now find themselves among the biggest losers from this crisis.”

To summarize, one of the world’s leading central bankers has looked his country in the eye and admitted that he is completely powerless to prevent the inevitable decline in living standards that will result from years of reckless behavior.

It’s amazing that someone in his position would be so terse, so direct in his appraisal of the situation; by nature of their positions, central bankers are serial liars who must continually deceive the public in order to set expectations and carry out their agenda.

King’s statement may be a sign that England is finally on its last leg. Fiscally, the country is in a similar situation as the US and Europe– in debt up to its eyeballs, hemorrhaging cash, and quickly losing the confidence of the international community.

Unlike Europe, the US, and even Japan to a degree, England lacks reserve currency status in any measure that matters… so without a line of foreigners to buy its debt regardless of the fundamentals, the UK has been forced into its day of reckoning before the others.

Meanwhile, Europe and the US continue to spin unjustified confidence; Angela Merkel and Nicolas Sarkozy have pinkie-sworn that they will not let the euro fail, and Barack Obama’s State of the Union address provided a temporary ‘feel-good’ blip that the government is going to fix everything.

People should not be fooled, however, into thinking that the US, Europe, Japan (and those nations which depend heavily upon them) will fare any better than England.

Because of its place in the global pecking order, England has less control over its financial destiny and has had to face the music first, but it will not be the only member of the Western hierarchy to fall.

Europe is in a desperate situation to continue bailing out bankrupt members of the eurozone even though the price tag will soon become larger than the monetary union can possibly bear, all while stimulus pressures and strained pension programs create challenges even for the ‘healthy’ euro nations.

Meanwhile in the US, the government plans to continue running trillion dollar deficits for the next several years with no end in sight to runaway spending, not even considering the upcoming carnage that will occur when cities and states start to go bust, or social security runs out of money.

Japan is probably in the worst shape of all, simultaneously suffering both a fiscal and demographic crisis. Japan’s debt, well over 100% of its GDP, has already been downgraded by the rating agency monkeys, and its population is slowly disappearing due to low birth rates and inhospitable immigration policy.

The best case that these countries can hope for is to suffer the same fate as England: a significant reduction in standard of living.

There is an opportunity now, however, for everyone to assess their basic vulnerabilities and take steps to mitigate what may lie ahead. This may include seeking work overseas, expanding a business to broader services in new markets, moving assets to safer jurisdictions, reducing system dependency, etc.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • Curtis

    I agree this is a remarkable comment coming from a group of people like you said, for the most part, don’t tell the truth. But giving me a clue in your last paragraph of how to prepare for when other countries fall apart is worth reading your articles.:) Thank you Simon.

  • David

    King delivered a sobering message, and kicker is ““I sympathise completely with savers and those who behaved prudently now find themselves among the biggest losers from this crisis.”

    As you said “There is an opportunity now, however, for everyone to assess their basic vulnerabilities and take steps to mitigate what may lie ahead.”

  • me

    While Japan is in a deflationary does not translate to a lower standard of living. Perhaps, at the beginning but not once the pieces stop moving. Give a look at the article in BusinessWeek and the analysis by Mish at

  • Dana Nutter

    I’ve been checking out a couple of your articles. Very well done.

    BTW: I noticed you are in La Serena. I’d be very interested in knowing about opportunities there, though I’m more interested in Viña del Mar or Concon. Any help would be appreciated.

  • Guest

    I’m curious about your opinion on th nordic countries and Sweden in particular. The growth is like Asia and currencies very strong.

    • Rolf

      Sorry, but as far as I know ( I am swedish) the strong swedish krona is also very dependant on its neighbours, above all the euro but also the dollar. To cite Simon:People should not be fooled, however, into thinking that the US, Europe, Japan (and those nations which depend heavily upon them) will fare any better than England.

      I thus think the “strong” krona is only relative and not to be compared with asia … but I migth be wrong…

  • Diogenes

    re: But giving me a clue in your last paragraph of how to prepare for when other countries fall apart is worth reading your articles

    -Here’s my take-earn an honest living, save and invest in honest wealth, and try to associate as much as possible with those who do like wise. That means make a basic physical product, buy precious metals and agriculture land, and live and do business in those areas that are least dominated by a governments fake money and self serving business regulations. Those areas right now would be Brazil,Chile,China,Hong Kong,Singapore,Switzerland,Malaysia and maybe some others. Some middle eastern countries may even be better than the US and Europe.

    What does it mean when a central banker warns about inflation and reduced standard of living? It means he fears pitchfork mob accountability more than even attempting to keep his job or career. It means John Turk is looking more right about a global collapse within 6 months.

    How did this collapse happen and what does it mean? What it really means is that people in the EU,US and Japan have been doing more iou trading and ‘make’ work than real actual product producing work. The central banks caused widespread economic malinvestment by tricking and forcing people into accepting pieces of paper representing nothing as capital or payback on capital. Since that paper is not inherently rare or desirable, as gold and silver are, and that paper was forced into use, there has been a constant push over decades to be the one lazily handing out paper instead of the one actually making products. Thus economies that started out strong like the US, gradually hollowed itself out while pushing the then weaker economies like China and Japan to do the actual product making. Fast forward from 1971 till today and the US and Europe make almost nothing but bombs and paper money. What do the Chinese factories need us for now? Absolutely nothing but for putting off the necessary temporary shock of retooling for their own populations and cutting their huge and ever increasing US bond loses.

    So how do you earn an honest living? Actually make something customers want and need instead of selling mortgages, services related to the government or infotainment distractions. Make food,clothing,machinery,water/sewer systems,pharmaceuticals,mine resources,etc. We have to go toe to toe with the Chinese factories and beat them. That shouldn’t be impossible considering they have to ship everything.

  • WL

    Deflationary pressures: declining birth rates in developed countries, real estate declines, technological efficiency increases.
    Inflationary pressures: govt printing to prop up system.
    Wild cards: weather, wars, earthquakes, volcanos & other acts of God.
    Declining birth rates are caused by increased standards of living, abortions, birth controls, and education/information (to mention a few factors), and are one of the most potent causes of deflation, and they are more a symptom of modern life than any particular political agenda. Note that greenies say there are too many people on this planet, but to acheive their goal of a reduced ‘burden’ of humans they will necessarily need to experience deflation. Hail to all the Japanese greenie youth who knowlingly or unknowlingly are doing their best to make the planet greener by choosing not to reproduce.

  • mendo

    Can you say; fiat currency?

  • jimc

    There are four reasons why the economy of the United States, or Britain, is imperiled. They are: 1. The present practice of creating credit/money via T-securities in the amount of the principal of the security, with a promise to repay the principal PLUS the interest, is impossible. The interest is never created; the debt is perpetual and must continually be increased or the economy will collapse from de-levering. Any contract that cannot be culminated is an act of fraud and is void from its inception. 2. All other fiscal obligations of the nation must be curtailed while the growth in debt will escalate. The exponential growth of the interest in the Ponzi scheme will cause the interest and rolled-over debt to increase until it consumes the entire wealth of society. 3. ALL money created by Treasury securities goes into the pocket of the Fed. Not only does the Fed receive the interest (if not sold), but also the value of the security upon maturity (or by sale). Congress has temporary benefit of the fiat money (until maturity).4. The operation is, as in any Ponzi scheme, predestined for inherent national bankruptcy when buyers to roll over the debt cannot be found. As the scheme becomes visibly precarious, the interest rate will sky-rocket and accelerate the collapse.

  • Guest

    My husband and I are pretty close, if not already your definition of “free.” Although I believe that what we are doing is necessary, I struggle with the logistics of our “free” life style. As a wife and mother to a 5 month old, I crave a nest. Do you have a wife or know of a woman that could share/blog about her “free” life?

  • Brianforbes335

    Simon would have more credibility with his factuous comments if he were to refer to the United Kindom as such and not England as if she were on her own. Ignore the strength of the Celtic nations and you make a mistake. Learn American not to be so arrogant!

  • JerryCheesman

    Here is light at the end of the tunnel. The first step to solve a problem is to identify its true nature and deal with it openly and truthfully. The real difficulty with the stimulus plan in the U.S. and perhaps throughout the world, is that, again it placed fiat currency, printed up for just that purpose, in the hands of a very few, who jealously guarded it for their own gain, while the needs of the other 99% of the people, for example to get a loan to start a business, or to were again ignored. If America is to solve its fiscal problems, the first step will be to eliminate the Federal Reserve System, as well as the IRS, and all income taxes at all levels of government. The Federal Reserve Note must be replaced with a new means of exchange which by constitutional requirements, “Only the Congress shall coin or mint currency, which shall represent a store of value, (some type of commodity) on deposit in the U.S. Treasury. I propose several Commodities to include; the value of productivity among America’s workers, the highest in the world, available potential energy, (where its exchange will involve converting it to kinetic energy.) In the case of Renewable Energy, we could arrange credit for companies, based on their business plan to generate new sources of energy, targeted to reduce the load on critical portions of the grid, by introducing distributed energy to those areas, by such investments. For example, since 2000, America has committed itself, to the current situation of obtaining 52% of its electrical supply from coal fired power plants. Those plants are designed to last around 50 years. The capital investment committed to those plants, as well as the infrastructure requirments of mining, processing and shipping such quantities of coal, have been made and the loans must be repaid. One way to release this investment back into the economy, would be for utility companies, coal companies, oil companies and gas companies, to allocate a portion of their profits back into emerging and proven conservation and renewable technologies. This will improve their long term viability and release the needed capital investments, to put American’s back to work. Further, These investments could be backed by the utilities existing assets and equity, in the form of M-2 currency, which could be exchanged by the related businesses. For example, Cape Wind Associates, recently obtained financing from a Utility Holding Company which likely involved exchanging carbon or renewable energy credits, an arrangement which can be completed under Massachusetts Law. Several other states have put in place such mechanisms, to include California. Cape Wind, when completed, may be the first operational off-shore wind farm in the United States. It is commendable that the Holding Company did this as it was in the best interests of all parties, and will lead to a win-win situation, by carefully matching the potential 420 megawatts, output from Cape Wind, to the load in the area, which is currently met by old inefficient power plants, several of which use bunker oil for the energy source. If this type situation, continues to develop, it will generate new jobs for American’s and a lot of sales tax, to replace the former income tax. Income tax is a form of redistribution of wealth and is the prime tool the government has used to increase its own size while the real economic engine of job production has been neglected in the private sector. The elimination of income taxes, will stimulate massive investments into the U.S., and will level the playing field for domestic businesses, who will no longer pay income taxes, while their foreign competors who bring products and services into the U.S. never did pay income taxes in America! It will be to their advantage to start manufacturing those products here in America. A great deal of the Stimulus money found its way overseas as a result of the existing situation, and the money drain will continue until we eliminate income taxes as I recommend.

    • Bob Feuer

      Jerry,I believe we are on the same page, at least reading from the same book. I have never heard how man plans to transmit back to the mainland grid, the Kwh generated by Cape Wind.twelve miles off shore.The American Monetary Institute has promulgated The American Monetary Act. U.S. Rep. D. Kucinich (D-OH) has recently put forward a bill based based on this act.

    • tadizu

      will you run for office?

    • bsmsnudge

      Interesting; but (there’s always a but) how do you propose the weaning of politicians from their corporate nipple?
      The next “but”; what about the vast evangelical Christian voting base who believe that taxation is good and to be paid.
      “Render therefore unto Caesar the things which be Caesar’s, and unto God the things which be God’s.” Luke 20:25
      Reality is, force, power, money and huge egos; good ideas and common sense curry no favour in the halls of power, because if they did we wouldn’t be where we are right now.

  • flipspiceland

    Wonder how “Saving” ever became a virtue. The gnashing of teeth over the ‘poor’ saver who was screwed more than any others who were profligate in their greed and spending has been a mystery to me.

    Saving, setting aside immediate wants to store up for a rainy day has automatically been assumed to be the prudent thing to do because those who did so in the past were rewarded for their husbandry.

    But there is a huge flaw in the savings thesis: What matters is not Saving but WHAT you save WHAT you store up, WHAT is going to be of value when the time comes to make use of that which you save.

    Many of us thought that Money needs to be saved, fiat money, gold, silver, diamonds anything perceived to be of value today and would hold that value tomorrow or be worth even more. But we gave not much thought to the, say, the price of bread yesterday vs today. IF we look at the evidence before us of the purchasing power of the dollar, we should have known that the buck has lost 90% of its purchasing power over the last few decades. And as such that should have told us that saving money was a folly.

    Those who recognized that fact, one readily available, if they paid any attention at all to VALUE instead of quantity of dollars,
    have done very well and if they continue to recognize that which is intrinsically valuable will do so in the future.

  • Mario Daban

    This guy shouldn’t not be listened to but put in jail.
    The crisis is the result of the banksters and the politicians are jsut their employees so they lower are standards of living to give the banksers billions and billions.
    When will we do something for ourselves?

  • Wise

    This is the global agenda. The elitists at top dont consider themselves British or of whatever country they were born. They are now globalists. Only the Chinese are still Nationalist. I wish the average Brit in the street would wake the hell up and realise this.

  • Solon

    This whole financial crisis is purely and simply theft by a very callous elite who can profit in bad times even more than they can in good times. A consolidation of wealth to keep us all subservient, a game plan that has been around for millenia.
    Seisachtheia is the way to go.

  • Mike Anthony

    Can you please explain why pursuing and obtaining a job overseas would be a solution to a global crisis? I simply do not understand that at all. If it is global, working overseas is not going to help. In fact, it may make my situation worse – I’d then be in a different culture, with an environment I am totally unfamiliar with, trying to make ends meet. I really would like to understand the wisdom of what is meant by this, and, specifically, what countries you are recommending. Thanks so much. I LOVE your site!!!

    • Rolf

      Nothing is easy and 100% sure, but if the economies in the western countries collapse that might not hit your new country if being Chile,India, Peru , China or others as strong economical regarded countries, not so dependant on dollars and then of course per se you will be in a much better situation there when the dollar etc. goes down. Besides , at the moment, the living costs in some of these countries , is just a fraction of that in in USA or EU, just take Equador as a fine example for that and a country you can easily start a new life in and also think of the nice challenges to learn spanish(easy) and a new culture, aspects that are nothing else but positive….

  • j.j.


    i agree, simon

    i’ve been assembling my exit strategies for a few months now .. .. patience is key, but so is time x_x

    i expect to have enough surplus to pick up a subscription to SM:C along the way, though .. .. even if i don’t act immediately, i’m not one to skip an opportunity to see how things get done

    all hail discordia

    [what's happening to the savers is simply a reiteration of a very common (and shitty) theme in life

    when the class bullies need homework answers, they choke it out of the smart, productive kids -- and the irresponsible parties see nothing worrisome

    when one roommate can't pay the rent, the landlord demands that the other more responsible roommate cover the first's share (or otherwise risk eviction) -- and the irresponsible party sees nothing worrisome

    when the slackers at work jeopardize the unit's likelihood of making quota, the boss orders the more diligent workers to make up the difference -- and the irresponsible parties see nothing worrisome

    when unproductive people run out of money, the government taxes the wealthier individuals at higher levels so that the unproductive may retain their quality of life without need for effort or reciprocation -- and many irresponsible parties see nothing worrisome

    this bailout culture has been around since long before the economic crisis -- i for one am ok with letting the losers lose]

    that was my comment on the 1/31 post — it seems more appropriate here

    cheers to effort and productivity

    j.j. from pittsburgh

  • Mike Anthony

    Can you please explain why pursuing and obtaining a job overseas would be a solution to a global crisis? I simply do not understand that at all. If it is global, working overseas is not going to help. In fact, it may make my situation worse – I’d then be in a different culture, with an environment I am totally unfamiliar with, trying to make ends meet. I really would like to understand the wisdom of what is meant by this, and, specifically, what countries you are recommending. Thanks so much. I LOVE your site!!!

  • acudoc

    It’s amazing someone in his position—-WOULD BE IN HIS POSITION. Fractional-reserve banking of a solely debt-based money is fraudulent, not to mention insane. It will destroy us all so that a few fat cats can continue their posh life-styles.

    What the world needs is honest, stand-alone money that does not require promissory notes for its existence, and banks that loan solely from savings with interest rates set in truly free capital markets.

  • LocalHero

    That’s a hoot! A “central banker,” the very people that caused the financial crisis by flooding and then constricting the money supply, tells everybody else to buckle-down & take it.

    What I’d really like to know Simon, is why you would take this scum-bags word as gospel? This clown should be hanging from a street-lamp, not giving speeches.

  • Jon

    Totally Agree!!
    I don’t understand why we don’t take help when its given to us freely. BBC Parliament Broadcast this openly where Lord James of Blackheath explains the UK can have a hand out backed by gold!!

    Keep up the Great work Simon!

  • Brian

    Hi Simon, I’m living in Florida and have a marketing/internet background. Seriously thinking about working overseas. Looking into AZ, New Zealand, Chile, Argentina. I’m male, work from home, like the outdoors and am originally from Ireland. I very much appreciate any input from you – opinions, resources, research etc… Keep up the good work!!

  • celdownunder

    Ok, so this guy has had the courage to voice what has been suspected by ‘thinkers” for some time. It really is a sad state of affairs that so many peoples lives are affected by public servants who really are not serving the public.
    A bit for Brian here,,, hey,, also a celt from Wales to came to New Zealand via Portland Or,,,, respectfully I would encourage you to research NZ really well prior to making a move here-the grass is not always greener. We are now contemplaing Chile!

  • optech

    Keen, honest commentary that strikes home. As a US citizen I believe things can easily keep worsening until, and only until, we prefer brains to bombs, and to this point those who govern clearly view an effectively educated population as a threat to their own agendas. The “military-industrial complex” is in far better shape and focus than in the days of Eisenhower who coined that piercing phrase.
    I’d like to know when, or if, education will be reformed along with US (Un)Health(y) Care(less) coverage and policy for its citizens.

  • richard breed

    Oh Lord Smitherton of Nottingham! Moderators…gadzooks…hope they are young.

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