The day of foolish jokes. I already wrote about Cosmic Inflation last week. What’s the joke in that? That a problem, the apparent synchronization of the universe over distances so great that light could never have covered them, is solved by an even more deeply mysterious, if not outright disturbing solution, Cosmic Inflation.
Solving one problem, with a worse problem is no solution, in my not so humble opinion. But that is exactly what has been done with finance, then the economy, and now the world. The biggest joke of them all?
Throwing Money At Banks To Make Us Richer?
Please don’t laugh. This is the solution that (supposedly left wing economist such as) Paul Krugman and the head of the central bank of the USA (“Fed”), Bernanke have found. OK, the latter hired the former at Princeton, so they are related. They keep on exploiting this curious notion, because that is the only thing they can do.
Now it is duplicated by the European Central Bank (“ECB”). It works. The ECB lends money for (basically) free to banks. More than a trillion euros, to hundreds of European banks, and counting. Then the idea is that the banks would buy government bonds.
Europe is like the USA. Except in the USA, one has these rather fake states. In Europe, the states are actually nations, with full democratic systems therein. Or nations made of unions of nations, such as Spain (Basques, Catalans therein), or the United Kingdom (as its name indicates).
Of course the head of the ECB was a partner at Goldman Sachs, that means he is from the New York financial aristocracy. Same for Krugman and Bernanke. When Krugman sees the Manhattan skyline from his first class seat, once a week or so, tears well up, and he celebrates what he calls “the most beautiful city in the world“. In New York the notion of beauty itself is being leveraged.
OK. Let’s be serious. Jokes are best, when one sobers up. Krugman and company’s argument has been that the economy is in a Liquidity Trap. Krugman talks about that every day, like the crow croaks in the tree, every day.
A Liquidity Trap is a situation in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence to stimulate economic growth. A liquidity trap arise when people, or companies hoard cash because they expect adverse events such as deflation, insufficient aggregate demand, or war. Characteristic of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in general price levels.
Generally, historically speaking, when central banks lend money to private banks at lower interest rates, the banks lend more to the enthusiastic rabble, and the economy rebounds. However, it may happen that the rabble, or the banks, feel mournful, refuse to play, and reject spending, even if the central banks lends at zero interest rates (or even negative, below the inflation rate, as not only Japan has been doing). This is the Liquidity Trap.
The Fed has been reacting by buying all sorts of unworthy assets. That supports the price of these unworthy assets, preventing, short term, runaway deflation. Another thing it does is that, as many as these unworthy assets belongs to Banks Too Big To Fail (BTBF), it supports these banks and their plutocratic managements (“My friend!” used to cry out Obama, each time he evoked Jamie Dimon, the Deimon at the head of the biggest BTBF)
In other words the Fed supports the powers that be.
Well, that’s a joke.
Why? Because supporting the powers that be, fosters the very problem, plutocracy, that caused the problem, dejection, not to say depression. People do not support the economy, because the economy does not support them. They are too indebted (much more than in 1929, the last time the global economy crashed, for that same reason. I will show the graph another time).
Just go back to the definition of a Liquidity Trap. It’s a consequence of the expectation of greater problems. At least Wikipedia has it that way. Krugman does not have it anyway, he just has it. He wants to fix it, by throwing more money at it, through the banks. If Pluto is not nice, make him nice, by making Him gifts. That’s basic Abrahamism: if the boss wants to kill your son, just appease him, and offer your son, saying it’s not what it looks like. I read it in the Bible (hey, I have a copy at home. Not as much fun as Tacitus’ “The Annals Of Imperial Rome“, but still fun).
So what is really going on?
Irrelevant, frivolous elections are coming in France and the USA. Obama and Romney in the USA, Hollande and Sarkozy in France. Basically the same program, a program the commons cannot inflect.
In the USA Obama runs with his proudest achievement: Romneycare, also known as Obamacare.
In France, both the conservatives (starting in 1973), and the Socialists (after 1980) invented a system where the government financed itself by asking the plutocrats for money. The plutocrats accepted. Not out of generosity, but out of interest. It is the existence of that interest which makes borrowing more expensive than taxes.
It is also addictive. The French Socialists, main promoters of the European Monetary Union (“EMU”), presented the same system of borrowing instead of taxing, to finance the states of the EMU. This way, they were sure to get the support of the plutocracy.
So now the plutocrats are coming and asking for what they were after, their interest. The learned to have it easy: no need to finance the real economy. Their friends the politicians created a wondrous loop for them. Now the Fed and the ECB have even free money for them.
Very serious economists’ now share this opinion of mine; see http://economix.blogs.nytimes.com/2012/03/29/who-captured-the-fed/. (Simon Johnson from MIT was chief economist at the IMF, and has long advised a rather deaf U.S. Congress.)
Thus here we are, and the situation is roughly the same, in the USA or in Europe.
What is really going on is that it is not just a liquidity trap. It’s a technology trap, as we are fast reaching the end of the present energy system, without an alternative (this happened last around 1300 CE; the population soon crashed by half in Europe).
What is going on now is not just a Liquidity Trap, it is also a globalization trap: globalize Pluto, enslave the People. Also, particularly in Europe, a plutocratic trap: the more one claims to help the people, the more one helps what oppresses society, the banks. And, worse of all, it’s an ecological trap, for the whole biosphere.
What is going on, is the greatest joke of all. A few small men, knowing basically nothing, are supposed to take all the decisions, have all the ideas. And what they know best, is how to look good, and how to lie to get elected. What a joke.
But don’t be surprised if democracy falls apart. Among other things. And that will be no joke.