Im Gespräch: Sean Corrigan “G20-Meeting - not more than symbolism“

G20-Leaders are meeting in London to find “global solutions for global problems“. Sean Corrigan, Chief Investment Officer of Diapason Commodities is sceptical.

Does anyone really believe that it will deliver anything more substantial than a communiqué couched in terms so general that each country can go away and do what it had intended to do anyway, he asks.

If the State intrudes too much it risks discouraging genuine entrepreneurship and instead fostering a whole barn full of suckling calves who can never be successfully weaned off the teat of Other People's Money, he explains in reference to monetary and fiscal stimuli.

The solution for the crisis: Simply make banks and other financial institutions abide by the same property laws as other firms and individuals and abolish their legal privilege of adulterating our money through the act of making unbacked loans. Remove all state support - implicit or otherwise - and make them convince their customers - -just as BASF or BMW have to do - that they are trustworthy and their services are worthwhile. The follies of the past quarter-century would soon disappear if we did that.

Financial- & commodity markets seem to find their bottoms, finally. What's your take, would you buy now?

In the last few months of 2008, commodities overshot to the downside even more than they did in the last run to their July peak in relation to world trade volumes. Since then they have broadly traded a range. Their first big move will come when sentiment shifts decisively to worrying about what the medium term consequences of the vast fiscal and monetary extravagance will be for the real value of your money. As for equities, it is clear that everyone wants the excuse to buy - but this can only now be justified across the asset class on the same grounds as commodity purchases made in advance of clear signs of a pick-up in the real economy - namely that one is worried about the effect of official policy on the value of fixed income, for example.

G20-Leaders are meeting in London to find “global solutions for global problems“ - is this more than just symbolism?

It is hard not to be cynical about the whole exercise in saying that it is largely being carried out for cheap, domestic political reasons - -especially where its over-eager host, Mr Brown is involved. Does anyone really believe that it will deliver anything more substantial than a communiqué couched in terms so general that each country can go away and do what it had intended to do anyway?

Does it make sense to revive a broken system that was based on easy money, greed, leverage, price bubbles, overconsumption, asymmetric incentives, manipulated exchange rates as well as misguided regulators and dozy politicians?

Not really. No-one wants to face up to the awful truth that it is both our monetary system and its corrupting interaction with the populist Provider State which is the cause of our woes. Their can be no honest business or honest politics while both can pay their way with dishonest money.

The crisis might be solved by ultra-low interest rates, quantitative easing - also known as printing money - and spending huge amounts of borrowed public money, many mainstream economists and politicians explain. Do you buy it?

Even we Austrians - for all we are scorned as ‘liquidationists' - see little merit in a destructive, finance-led deflation, but the idea that to save banking you have to save the biggest, most venal and most irresponsible banks, or that the cure for over-spending and over-indebtedness is to encourage more of the same is a dangerous nonsense.

This might be the right cure for a liquidity crisis. But is this not a solvency crisis?

Fractional reserve banks are inherently insolvent, so yes!

Does the attempt to avoid the need for debt restructuring by spending trillions in public funds increase the likelihood that that the economic downturn will be prolonged.

That is very much a risk. If the State intrudes too much - both by absorbing too much of the nation's savings and by picking winners and losers in the battle for survival on the basis of cheap political calculation - it risks discouraging genuine entrepreneurship and instead fostering a whole barn full of suckling calves who can never be successfully weaned off the teat of Other People's Money.

There might be a risk of “underacting“ while “a small fiscal expansion has only small effects“ others explain. What about the danger of a monetary and fiscal overkill?

I think this is much the greater risk. Narrow money supply - with or without adjustments for price rises - is growing at an inordinate pace in China, the US and all of Western Europe already - -even before the effects of ‘quantitative easing' - that, is, of monetizing government debt - make themselves felt. We are potentially storing up tremendous problems for the future.

Does it make sense to subsidize the scrapping of cars - or is it populist nonsense by wasting money for an ageing industry with huge overcapacities in the short run, while risking a huge shortfall in demand thereafter?

It's always good when the government steals a little less of your money, but that should, of course, be matched by an offsetting reduction in expenditures. What it really shows is that at the right price, there is still an enormous appetite for goods (something only a Keynesian could doubt). Thus, if prices were allowed to fall - that is, if markets for cars, houses, clothes, iron ore, machine tools - -were allowed to clear, business would soon revive.

Do monetary and fiscal stimuli, by making their way through to the real economy, distort the efficient allocation of capital?

Of course. The so-called ;helicopter drop; is a myth. As Richard Cantillon pointed out nearly three hundred years ago, what matters is who gets the money first and how he decides to spend it. Governments can simply not restore the status quo ante - something which is not in any case advisable.

Obviously there is a need for more regulation. But who should be scrutinized? Banks, Insurance Companies, Hedge-Funds, Rating Agencies, ….?

This too is a red-herring. Simply make banks and other financial institutions abide by the same property laws as other firms and individuals and abolish their legal privilege of adulterating our money through the act of making unbacked loans. Remove all state support - implicit or otherwise - and make them convince their customers - -just as BASF or BMW have to do - that they are trustworthy and their services are worthwhile. The follies of the past quarter-century would soon disappear if we did that.

Who should do it an how (avoiding too much regulation)? Supra national regulators ~ IMF/World Bank/BIS?

That might seem a high ideal, but it misses the point both that such bodies are composed of the same members of the political elite as the rest (and would become packed with ex-investment bankers also, if the importance of their role were to expand!) and also that they would have no effective way of enforcing their discipline on - e.g. - the United States.

And who gets in the way of exploding public debts?

The main beneficiaries of these are the politicians and their core supporters. The rest of us will have to pay the price and no amount of finger-wagging from the IMF or the BIS is likely to alter that

There is a lot of talk about tax heavens. Is tax competition not the most efficient way to discipline public finances?

This is just cheap populism again - - the old trick of finding some hated ‘Other' to disparage when you are failing at home. But far too many countries hate the idea of that very capital accumulation which lifts not just those funds' owners, but everyone's living standards when they are applied in an entrepreneurial fashion. The idea that a man cannot legally seek to minimize the protection money he has to pay the local warlord shows how far we have come from the ideal that thye state is the servant of the people to the sorry opposite where all our labours are the fiefdom of the Great Collective.