AA: Why so long since the last time?
KH: I was in Montreal for a conference last week, landed in time for the coldest temperature in years. But the snow and the ice on the trees were pretty. Since I got back, it seems that the political climate is warming up in France. The Greeks have a responsive audience here. Everyone says there will be a big fight with Sarkozy in the spring. In the meantime, people have seized on his attempt to remove commercial ads from the public television stations. It’s funny really, the left combining for the right of public TV to sell advertising; but they see it rightly as Sarkozy paying off his chums in the private channels and weakening the revenue base of the public alternative. The whole mechanism of the decision has been exposed to view and the pretense of due procedure gets more ridiculous by the day.
AA: You mean people are going to take to the streets like the Greeks?
KH: Well, one scenario is that the railway men will strike and this will provoke a general strike, with or against the railway men. A passenger in Lyon tried to strangle a SNCF employee last night. Tempers are short. The universities are a powder keg, they have been messed about so much. The professors in some places have refused to hand in marks to the administration, while giving them to the students. Obviously they want the students out on the streets. I think the government knows this; certainly they have shown signs of caving in recently. We probably have the Greek to thank for that.
AA: It’s curious that the markets are bidding up the euro these days. It can’t be that they underestimate the weakness of the European economy. The Germans are going their own way, trading insults with the English. Not much solidarity there. Maybe they feel they gain by maximizing the volatility in exchange rates. This month it’s taking down the pound, after new year it will be the euro. Or are they really stupid enough to see nothing but the figures flashing before their eyes in a given moment?
KH: I always thought that the best way would be to keep a hard euro and let each country float its own politically managed currency. But to reverse Maastricht in that way would take so many deliberations that individual countries will seek their own solutions before it happens, like introducing exchange rate controls. I guess it would also destroy the illusion that Europe could achieve political union through adopting a single currency.
AA: How are you getting on as an international currency dealer?
KH: You’re joking, but I’ve been watching my small portfolio of currencies very closely. I got as much as I could out of sterling, ran down my euro holdings and parked it all in yen and dollars at the beginning of November. The pound has held steady against these in the last two weeks, but it lost 8 centimes against the euro in that time. Already the strong dollar and yen is showing up as reduced exports; and of course there is no knowing what the Fed’s latest monetary policy will do for the exchange rate.
AA: There are only two routes out of such a large credit bubble: hyperinflation and war. It looks like the USA is ready for either or both. Now that the Fed has taken interest rates down to near zero, the only tool it has left is to print money. And I guess you have noticed the warmongering noises over Pakistan. Brown goes out there to say that 75% of the domestic terror threats originate in Pakistan. Do they have no shame? 75%! Where do you get a figure like that from? It’s no different from saying how many minutes it would take Saddam to land a dirty bomb on London. You say that the European elites are worried about people taking to the streets. How many options do they have other than war? Well, hyperinflation would grab people’s attention too. I hope you have your wheelbarrow handy.
KH: I don’t, but I do have a billion Zimbabwean dollar note. But a case can still be made that deflation is the problem, not inflation. I would have thought you might recognize that now that OPEC has cut back on production and the oil price immediately fell! One thing for sure is that the Bank of England is deliberately running down the pound. They announced this week that they would not commit any Treasury funds to its defence. Between the Scylla and Charydis of inflation and deflation…
AA: We’ll see what happens to the dollar oil price. The chattering classes are talking about an early British election. Brown is morally and politically bankrupt and all the Tories can think of is to ape Angela Merkel as Thatcher’s true reincarnation, the angel of tight money. I tell you, the whole lot deserve to be flushed down the sewer. I would leave London, but my kids are doing well at school here.
KH: Same with me in Paris. The women who teach in the public primary schools here are the best on earth. My kid can’t get enough of it. The obvious route for Britain and France is to market their education systems, but the politicians think nuclear submarines and aerospace are more important. They see education as a threat to themselves and they are right to. If it isn’t that, it’s the immigration threat. Just when Asians are switching to British higher education because of the high dollar and euro, the authorities have introduced even more stringent financial controls over foreign students. We may not harass them so much at airports, like the Americans, but we make the bureaucracy a lot harder.
AA: There is no point in trying to discover the rationality of it all. The western ruling classes are going down and they know it. But, before they do, they are going to put out the lights for the rest of us.