“Ignorance is refuge from reality. Willful ignorance is refuge from reason”. – Anonymous
INFANTILE OBSESSIONS WITH FAIRNESS
Wealth and income inequality are neither abnormal nor abhorrent. The tug of war between labor and capital is normal and equilibrium seeking. Excessive regulation distorts the mechanism.
QUESTION: How to maintain wages/employment in an economy when; (a) jobs are being off-shored, automated, mechanized; (b) the supply of workers is increasing?
WHAT IS MONEY?
I think the most interesting facet of monetary policy, is how ‘money’ is created. The majority of ‘money’ circulating through a modern economy is commercial bank credit. I would hazard an educated guess, that roughly 3-5% of ‘money’ in a modern economy is physical, centrally minted, notes and coins, of little-to-no intrinsic value. To make matters worse, if a government decides to increase spending, and isn’t willing to raise taxes, it issues debt instruments, and borrows at interest from investors. I ask the question. If commercial banks can create ‘money’ and profit from this mechanism by loaning credit that didn’t exist prior to the loan (financial chicanery), why does a government bother issuing treasury instruments, considering they must be paid back at interest?
NOTE: The secular bull market for U.S. treasuries has enabled Washington to wage wars throughout the decades without having to substantially raise taxes. Had they needed to do so, I hazard a guess it wouldn’t have been as popular, per se, as taxing future generations in the form of higher borrowing costs.
ZERO INTEREST RATE POLICY
If you want a prime example of flawed neo-Keynesian monetary policy, look no further than Japan. Their central bank, the Bank of Japan, monetizes the majority all of their government debt. Their financial future looks bleak. This brings up the topic of ‘Negative Interest Rate Policy’.
NIRP, QE, THE TREASURY AND THE FEDERAL RESERVE
The FED rate will not rise. Too much leverage and debt. Nothing new there. It will create NIRP to keep the ponzi going. At a certain negative rate, however, a socioeconomic cataclysm will manifest. People will rush to paper. Banks go on holiday. Only plausible scenario. You lose. Haircut. Bail-ins.
Another problem is the cost of servicing the mountain of U.S. debt securities. If the yield across the board turned negative, what sensible market actor would continue to buy U.S treasuries? I’m postulating that the FED or other intermediaries will be forced to buy in order to keep the ponzi wheels turning. Therefore, the FED would need to add negative yielding debt securities onto its balance sheet.
THE PROBLEMS WITH GROSS DOMESTIC PRODUCT
GDP metrics do not take into account the quality of growth. Our myopic pursuit of GDP growth has lead us into this toxic quagmire of debt and stagnation. Major demographics are slowing down, which entails peak consumption, along with peak private credit. So desperate to keep the charade alive, major central banks have engaged in ZIRP, and soon I believe, NIRP. I can’t foresee another course. They are figuratively building train tracks over an endless canyon. A colossal deleveraging is imminent. But first, the FED’s balance sheet must expand beyond 4.5 trillion, and initiate QE(x) and NIRP. When confidence is lost in credit and fiat currencies, we will likely pendulum swing back into hard assets and things of real worth.
QE4 and beyond, NIRP, these are the signs of something worse to come in my opinion, perhaps hyperinflation. This mad science experiment, as far as my limited outsider knowledge can foresee, may well usher in a cashless society and simultaneously put an end to USD hegemony. An economic collapse would likely mark the turning point on the geopolitical chess board, on a scale not seen since WWII. In this ‘death of money’ scenario, gold may also be made illegal. It has been done before! Once cash is dead, you can’t take your ‘money’ out of the bank. You will have no recourse. What value is gold if it is illegal, and you are being carted off to a FEMA camp for political dissidence?
Without freedom, without liberty, no amount of gold will make a difference. If the largest and most powerful nations in the ‘West’, the U.S, U.K, Germany, France, etc, (whatever the hell the ‘West’ means, it certainly isn’t an ethnically homogeneous, single financial and political entity) fail to preserve their precious rights and liberties they have stockpiled over the centuries, who will be left to pick up the torch? China? Can you hear my epic laughter cascading throughout the universe and parallel dimensions?
The United States of America is already in a state of emergency, has run consistent budget deficits to fund its disastrous military misadventures, and is one major catastrophe away from turning into a twenty-first century technocratic dictatorship.
My real question is; will war precede the economic collapse, or will it be the other way around?