Fools’ Days.


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.

 ***

Patrice Ayme

Tags: , , ,

9 Responses to “Fools’ Days.”

  1. Old Geezer Says:

    Let us hope that democracy, rather than falling apart, comes together FOR ONCE and establishes a system for the people and not just the plutocrats.

    Fractional Reserve Banking is the world’s oldest and only officially sanctioned Ponzi scheme. In fact, it gives Ponzi a bad name, for he was only a small time operator.But, when kept in check and insured as it was here before that great democrat Bill Clinton signed the bill deleting Glass-Steagall and banning regulation of derivative trading, it served us pretty well for half a century.

    However, those 50 years were years of “growth” especially in Europe which had been flattened in WWII. By the 70s, our high cost labor was displaced by the new Europe (who in return has been displaced by the Chinese). Capitalism waves no flag – only the flag of PROFIT, and moves on when costs so dictate.

    The question I have been pondering (and with no answer) is whether Capitalism as we have come to know it, can serve us in the half century to come, where the will be NO GROWTH, maybe even SHRINKAGE?

    The earth, having been ruthlessly exploited for 300 years, is saying, “Sorry, we’re closed.”

    And she’s not reopening anytime soon.

    We need another plan. Will it include fractional reserve banking?

    Like

    • Patrice Ayme Says:

      Dear OGP: Many points you touch upon here, and so did I in essay after essay. A few remarks (most I believe I made over the years):

      1) The main complaints of Greco-Roman intellectuals, under the Antonine emperors (Gibbon and others naive imperialists view that time as the greatest of Rome) was that :”THE WORLD IS GETTING OLD
      Why? It was harder and harder to get yields, especially in mines. We have clearly reached this stage. See fracking and ultra extreme fossil fuel drilling, with the BP, Chevron and (the on-going) TOTAL disaster in the North Sea.

      2) You are right. Clinton was clearly much less of a democrat than the four republican presidents who preceded him (and that includes Nixon!). The fact so called democrats cannot see this means they are fake too. No wonder Obama took Larry Summers as (chief!) economic adviser.

      3) There is feudalization going on. True plutocrats fear real change, such as technological change; that is why Roman emperors deliberately blocked it. Under the Franks, technology was advantaged again: the Franks became the hard edge of the Roman army for two centuries, precisely because of their weapons. For centuries after the Islamist empires took much of the world over, the Franks actually exported their steel weapons to the Islamists! (So much for Damascus steel!)

      4) Right you are about Ponzi and fractional reserve. Fractional Reserve banking ought to be PUBLIC. As it is, it’s used by a few private individuals who have captured the state.

      5) Now the way out of the ecological crisis is not to shrink. Contrarily to what all too many pseudo ecologists think. Shrinking means billions killed, civilization going back to Dark Ages (maybe for good, and certainly for millennia). The way out is precisely what plutocracy detests, namely, revolutionary technological change. The California law forcing electric utilities to get 30% from renewables by 2020 is a very good law, by the way. If we got electricity 100% from renewables (and I include nuclear in this, because, in practice, the right nuclear techs are renewable), we could sustain civilization indefinitely. What gov Brown is saying about all this makes sense (Schwarznegger was not bad either, that way).

      Obama’s true direction is harder to fathom. Cutting money to some major big science in recent weeks (Mars, Neutrino Observatory) was not smart.

      One way to keep having money for super science is to save in the military-industrial area, by cooperating with Franco-Britannia. It seems to me that for fighter-bombers and rockets, Obama should rise the white flag, and go to the French (who have better tech). (Liquid hydrogen) Ariane V could launch human crews any time one screws the right capsule on top. As the Rafale and Ariane could be modernized and americanized, that does not mean American tech would disappear, quite the opposite. (The French, after they fail in graphite-gaz, swallowed their pride, and bought basic nuke tech from Westinghouse… Although (already) Nobel Irene Joliot Curie had discovered/invented nuclear energy in 1936-1937, and the French military nuclear program was launched in 1938…)

      The reverse trade could be made about drones (where Franco-Britannia is developping its own independent means, at great cost, althogh the USA is ahead).

      Anyway… Now the Obamas are claiming they thought about going Medicare/Medicaid only, when they saw all the opposition. Next they are going to claim they never wanted to triple troops in Afghanistan, that they wanted to multiply by 1/3, not 3… Obama ought to read the right things more carefully, in a more timely manner…
      PA

      Like

  2. Old Geezer Says:

    But CAN we have growth WITHOUT raping the planet more? We have no experience in this regard. For the past 250 years we have been transporting carbon from below sea level to the atmosphere. Each westerner has between 25 and 50 “energy slaves” to do his work for him. Try pushing your car to work. There are 2000 hours of pushing in every barrel of oil.

    And GDP is a rotten measuring stick. There are better ways to measure happiness (pursuit of), satisfaction, etc etc. other than how much crap one can buy or accumulate, how big a house, fancy a car, etc etc.

    High time we figured this out, because we are entering into a period of lower carbon use.

    Thank goodness.

    Like

    • Patrice Ayme Says:

      Dear OGP: Partly unrelated; GDP can be different from GNP, a lot. The latter is more than 10% greater for France, although they are roughly the same for the UK: that means French companies are avoiding France as a locale of business.

      France is always a good counter-example to plenty of things. She maintains a way of life arguably richer than in the USA (free health, free schools, so far rock solid retirements, plenty of vacations), but while using, per unit of nominal GDP, only one third of the CO2 the USA, Australia and Canada waste…

      And it’s only partly about nuclear energy. It’s mostly about efficiency, including going all electric… no coincidence Denmark and Israel are heading the same way…

      Going all electric, with solar PV in the tropics, has a great future… Simply the West should resist Chinese dumping… Let alone IP theft…
      PA

      Like

    • Patrice Ayme Says:

      Dear OGP: To answer the question (I forgot!), yes we can grow without raping the planet more, but it depends upon switching out of the present decaying energy system. Efficiency is abysmal, as it is, with less than 14% in what I call Absolute Worth Energy (AWE). Swirching out will not just allow further growth, but it will be growth itself.
      The Greco-Roman empire missed the transition enough to make itself vulnerable to plutocracy, theocracy, and invasions that further destroyed the global economy (in particular when the Vandals occupied Africa for a century, cutting off the food procurement system of Italy).
      PA

      Like

  3. Old Geezer Says:

    Well, Obama missed his big chance for a CCC type program to build solar electrics in the Utah/Nevada desert. Would have employed tens of thousands. Would end up with free electricity to power homes as well as the cars of the future.

    So sad.

    Like

    • Patrice Ayme Says:

      dear OGP: What are you alluding to? (Sometimes I miss important news.) OK, I get it now.

      In general, Obama is very good at missing big chances. He could have come in, extend Medicare and Medicaire in the first five minutes, by decree. The Congress he controlled would have signed the next day (or at least it would have if Obama had balls, like Thatcher). Health problem solved.

      Afghanistan: he should have divided the troops by 3, not multiplied by 3. Ah, the math, so complicated: divide, multiply, whatever…
      Banks Too Big To Fail: he could have done whatever needed to be done with them: first make them smaller.

      Stimulus: he could have made it enormous. Indeed. CCC all over the place; high speed trains, solar plants…

      However truth is Obama is small time. He knows how to navigate, supremely. He is the best at that. But he is not the supreme philosopher king he needs to be. As we know even Krugman does not get it, as much as is needed.

      California’s in place a 30% renewables by 2020 for electrics is an excellent plan, even better than what the EU has in place (I think?). And it can be done, by leveraging from natural gas, says Brown, who does not know a thing, but admits it, and means well…

      Overall, one should stop playing nice with China, its IP theft, and the opening of the public markets, and stopped being nice with the plutocrats… what you and others call “CAPITALISM”… Except of course, the greatest detentors of capital, human and financial, are the states. The real problem is that they are led by the nose by the plutocrats (private individuals).

      A Chinese minister just admitted as much: China TBTF banks are making free money on everybody’s back, the PRC ought to do something about it… the difference with Obambi, is that the PRC is going to do something about it.
      PA

      Like

  4. Old Geezer Says:

    All good points, PA. Moving on to your next essay.

    Like

  5. Recording Equipment Says:

    Recording Equipment…

    […]Fools’ Days. « Some of Patrice Ayme’s Thoughts[…]…

    Like

What do you think? Please join the debate! The simplest questions are often the deepest!

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s


%d bloggers like this: