"In German, borrowing is 'schulden', [the same word for] guilt. There is an attitude that if you have to borrow, there is something wrong with you."
"There is a culture of business owners acknowledging and rewarding the efforts of the workforce," says Andreas Woergoetter, head of country studies at the OECD's economics department. No wonder, then, that Germans work fewer hours than most.
School finishes at lunchtime across much of Germany due to what Mr Woergoetter calls a "societal preference", designed to allow children to spend more time with their families.
Strong employment protection legislation and a degree of trust on behalf of the workforce in well-capitalised companies that had not over-borrowed, meant the Social Democratic government was able to use its close ties with labour unions to push for moderation in wage inflation.
The reforms laid the foundation for a stable and flexible labour market. While unemployment across Europe and the US soared during the global downturn, remarkably the jobless number in Germany barely flickered.
"Half of all youngsters in upper secondary school are in vocational training, and half of these are in apprenticeships," says Mr Woergoetter.
Apprentices aged 15 to 16 spend more time in the workplace receiving on-the-job training than they do in school, and after three to four years are almost guaranteed a full-time job.
And in Germany, there is less stigma attached to vocational training and technical colleges than in many countries.
"They are not considered a dead end," says Mr Woergoetter. "In some countries, company management come from those who attended business school, but in Germany, if you're ambitious and talented, you can make it to the top of even the very biggest companies."
The German education system, therefore, provides a conveyor belt of highly skilled workers to meet the specific needs of the country's long-established and powerful manufacturing base, which is rooted in the stable, small-scale family businesses that have long provided the backbone of the economy.
While the rest of Europe gorged on cheap credit throughout the 1990s and 2000s, German companies and individuals refused to spend beyond their means. One reason for this, says David Kohl, deputy chief economist at Frankfurt-based Julius Baer bank, is that real interest rates in Germany remained stable, unlike those in other European economies.
"In the UK, Italy, Spain and Portugal, for example, higher inflation meant real rates moved down, so there was a huge incentive to borrow money," he says.
*****************
The U.S. Treasury has published an economic report that levels rare U.S. government criticism at Germany; it contends that the country's export-driven strategy has hurt the eurozone and the world economy. See the BBC's October 30 report for details. Given that Germany has been chiefly responsible for propping up the eurozone and by extension the world economy, I take the criticism with a grain of salt.
Perhaps as a mild editorial comment on Treasury's report the same BBC news page features a link to another report on Germany, one filed August 15, 2012 by BBC Business Reporter John Anderson, and headlined German economic strength: The secrets of success. This post leads with quotes I pulled from the report.
While the vast differences between the geographic size and population of the USA and Germany have to be taken into account, I think it would be hard for many Americans to read Mr Anderson's report without feeling shame and bitterness about what our cultural, educational, and business models have wrought for us -- and for our children.
I hope you will read the entire report.
.
Wednesday, October 30
Monday, October 28
Deliverance
PUNDITA: Are things getting clearer?
MICHAEL WRIGHT: Sure, now that I know my finances are run by a ghost, a pampered man-eating dog and a 300 year old paradox.
PUNDITA: Don't forget Frank, and remember it's not the paradox; it's attempts by the Federal Reserve to reverse engineer the paradox. And I don't think Petunia ever actually ate anyone, except Frank, the first Frank, but then it is a dog eat dog world.
MICHAEL: I think you should bring Mrs LeVoon back for an encore performance. Have her give the Fed another talk.
PUNDITA: Zut Alors! Madame, not Mrs. I could manage one or two sentences in her patois but no more, not without study if I didn't want the linguists and ethnologists jumping on me.
MICHAEL: A couple sentences is all you'd need. "Hear what I'm telling you. Shut it down."
PUNDITA: You wouldn't want to shut down this nation's central bank even if you could; it performs a critical function in a banking system that writes a huge volume of loans. The problem is that the Fed is suffering from a severe case of mission drift. It was supposed to perform its function for the banks and advise the federal government on the state of American business cycles. It went from advising to managing the business cycles, which it renamed "the economy," to something like a priestly caste.
All that keeps the caste at bay is Petunia, or at least that's the way it was until the 2008 financial crisis. Now the Federal Reserve wants to do Treasury's job on the excuse that it can't manage internal monetary policy if it can't also manage external policy. Yet if the Fed keeps on using the banking system as a tool of monetary policy there's not going to be any system left to speak of.
MICHAEL: You've just told me that this mission drift worked out to tremendous power. The Fed is now like a fourth branch of government. You're mistaken if you think the economists there would voluntarily give up that much power, even if they saw the error of their ways.
PUNDITA: The only power they have is what bankers have given them. The bankers got dependent on the Fed then addicted to the Fed's cheap loans. Like all addicts they fed their addiction even when it became self destructive. The bankers need to attend AA/NA meetings to see how it's done, then set up their own support groups. Stand in front of a microphone and admit that without divine intervention they're powerless to fight their addiction to the Fed's cheap money.
MICHAEL: I'd like to see you in the White House for a year.
PUNDITA: Why only a year?
MICHAEL: That's all it would take you.
PUNDITA: Everything you like about my approach to problem solving would be destroyed by bringing it into the political system.
MICHAEL: I don't agree but I have a question about the Fed. Do you think it played a role in the 2008 financial crash?
PUNDITA: Yes, a big role.
MICHAEL: How so?
PUNDITA: That's a shaggy dog story.
MICHAEL: Here we go.
PUNDITA: No no, there's no dogs in the story.
MICHAEL: So you're telling me it's a dog of a story. All right, I'll play.
PUNDITA: In the 1970s I saw James Dickey act out a shaggy dog story on the Johnny Carson show --
MICHAEL: The Deliverance author?
PUNDITA: The poet and novelist, yes. It was the one about the man who's told that his suit jacket sleeve, the left one, is a little shorter than the right one. The man pulls his right arm back into the right sleeve a little, to make it look as if the right sleeve is even with the left sleeve. Then someone else points out that the right sleeve looks a bit shorter than the left sleeve. So the man pulls his left arm a little out of the left sleeve, in another attempt to even up the appearance of the sleeve lengths. Then someone else points out that the other sleeve looks shorter, so he pulls that arm even farther back inside the sleeve.
It went on and on like that. Dickey ended up with both arms inside his suit jacket, with the empty sleeves flopping around.
I almost died laughing but when I thought about how U.S. monetary policy works, the internal policy, I said, "Oh no. It's the shaggy dog suit jacket story."
The Federal Reserve keeps trying to balance the economy between inflation and deflation but there are too many variables to get a balance, so they're always overshooting or undershooting the mark, then trying to correct the imbalance, and it goes on and on. A classic example is what happened in 2001. The Fed decided that the manufacturing numbers looked squishy --
MICHAEL: So you didn't make up that part.
PUNDITA: Well I made up Frank squatting on the chart but yes that happened; that's how the snowball started rolling downhill. Out of concern that the data portended a recession, the Fed cut the target for I think the Federal Funds Rate or one of the rates that the Fed targets control.
Here the Fed was following what had become traditional macroeconomic policy. The general idea is to make it cheaper for banks in the Federal Reserve system to borrow from the Fed, so they'll write more loans to business; this to encourage business expansion, including hiring, thus warding off a recession.
It didn't work out that way. Why? For one reason, because Fed watchers in the business, investment, and banking sectors -- and they're all Fed watchers -- were very familiar with the traditional Fed policy. They saw the rate cut and wondered if the Fed knew something about the state of the economy that they didn't, even though there was no recession. So they pulled back on investing, hiring, loan writing, and borrowing. That meant the Fed had to cut the rate again.
MICHAEL: I don't think I want to hear the rest of this story.
PUNDITA: The second round of interest rate cuts worried Fed watchers even more so they cut back more on hiring and so on. So the Fed had to cut the target rate again in another attempt to overcome fears about a recession. By this time the Fed was probably cutting all the interest rate targets they could; in any case that's how it ended up.
By the third or fourth cut the consumer got worried that the economy was tanking and pulled back on spending. So then the Fed had to cut the rates again.
It went on and on like that. The Federal Reserve cut the rate seven times. Then 9/11 struck, so then the Fed really did have something to worry about. By then the interest rates were nearing bottom but the Fed had no choice other than to cut the rate again, and again, in the same year. This put interest rates in 2001 to their lowest in 40 years.
Nine times, Michael, nine times those clowns at the Fed tried to even up the sleeves.
By October 2001 a former Fed economist, Lacy Hunt, who'd gone to work for an investment firm, had looked at the data. Hunt said wait a minute; the private sector doesn't have the balance sheet capacity to take on more debt, and the banking system is in the same boat -- it can't write more loans. Not at the level the Fed had envisioned that all the rate cuts would stimulate.
But the Fed's mathematical models had excluded the kind of data that Hunt studied. That's not all the models excluded. The slashed interest rates had plummeted the income that Americans received from their savings accounts and other savings instruments. And not only individuals; business and institutions that parked a chunk of their money in cash and near cash were now staring at the prospect of losing money if inflation heated up.
That put all those Americans in a fix. Either they could start paying down debt with their savings, which meant they could be losing money if interest rates on the debt continued to move toward zero. Or they could start speculating with the money in the attempt to offset their losses from much lower interest income and from possible inflation.
The inflation never did materialize -- not in the areas that the Fed was watching for such signs. The inflation was building in a way the Fed's mathematical models hadn't taken into account -- in the highly speculative, overpriced debt consolidation instruments known as derivatives that shadow banks and brokerage firms were packaging and selling to pension funds, retirement accounts, bankers, retail investors, and state and local governments.
MICHAEL: The Fed needs to be shut down. If there's some critical function it handles, start a new agency to handle just that function.
PUNDITA: It's not going to happen, for the same reason I don't think the banking system will be nationalized in the United States. It makes it possible for the White House and Congress to shift a great deal of blame.
MICHAEL: You don't think nationalizing the Federal Reserve would help?
PUNDITA: That would be putting the foxes directly in charge of the chicken coop, and again, that would make the federal government directly responsible for serious miscalculations by the Fed economists.
Anyway, by doing everything to ward off a recession in 2001, the Fed created a recession that year. That set up conditions for an even bigger recession. Yet to this day they can't confront what they wrought by trying to even up the sleeves.
MICHAEL: I guess the Fed's math also missed signs of the 2008 crash.
PUNDITA: Even if they saw the signs, what were they supposed to do? Call for audits of the banks? Tell the SEC to start audits? Go to Congress? All or any of that would have set off panic in the bond and stock markets. That would have led to runs on banks.
But it had all started years earlier. If James Dickey had lived to see the nine interest rate cuts in 2001 he would have put his arms inside his suit jacket and waggled the empty sleeves.
There could be a moral to this shaggy dog story, only I don't know what it is.
MICHAEL: The moral is that once you put clowns in a canoe and send them down the river they're up the creek no matter what they do.
PUNDITA: [laughing] Deliverance! Wasn't it two canoes?
MICHAEL: Not on the way back.
.
Tuesday, October 22
"Look at the charts, Frank." U.S. monetary policy gone to the dogs.
It's come to my attention that many people are confused about U.S. monetary policy, viewing it as an arcane and even magical preoccupation of economists whose mysterious and seemingly arbitrary decisions greatly affect the financial affairs of ordinary Americans. Actually, the workings of U.S. monetary policy are easy to understand if you know there are actually two policies: the internal policy, which is controlled by Frank, who works for the Federal Reserve, and external policy, enforced by Petunia, who works for Treasury.
These policies don't so much work in tandem as coexist in an uneasy detente that has been broken on occasion, like the time Petunia ate Frank. It's okay. The Fed got a replacement and there'd been more than one Frank before then, just as there's been more than one Petunia since. It was her first day of work, the handler accidentally let go of her leash. Since then the Fed has employed scouts to make sure Frank and Petunia aren't being walked at the same time.
And no, the handler wasn't fired. He was given a promotion.
Frank
Now who is Frank? He's a chihuahua and the linchpin of the system by which the Federal Reserve Open Market Committee settles their disagreements about the meaning of U.S. economic indicators. They spread all the statistical charts on a large conference table, put Frank on the table, then say, "Look at the charts, Frank."
(Some of the charts are actually graphs but this is a superfluous detail from Frank's point of view.) Then the committee members take notes on Frank's expression as he looks at each chart. Then they figure an average of their impressions of his expressions to determine where to set interest rate targets.
If that sounds like a screwy system it's an improvement on the old system. The FOMC used to slaughter a chicken on a full moon night at a parking lot in Northeast Washington and read its entrails. But there were always fights: You kill the chicken this time. No I killed it two times ago.
Finally they hired a Voodoo practitioner who called herself Madame LeVoon to kill the chicken. That system of reading economic indicators lurched along for a time. Then Madame LeVoon lost money in a stock market downturn that was a direct result of the Fed's misreading of entrails. The next time she saw the committee she said, "Hear what I'm telling you. A dog could read the signs better."
Of course they didn't hear. The next morning a member of the FOMC broke his leg in a freak fall. The next morning another member broke his arm in a freak car accident. That afternoon the FOMC members who weren't wearing a plaster cast, their hearing much improved by then, went to a pet store and bought the first dog they saw, which was a chihuahua.
That's how the new system started; again, there have been a number of Franks since then. Also that's where the economic slang term "squishy" comes from, as in "The manufacturing sector numbers for this quarter are squishy." Sometimes they forget to walk Frank before a meeting. It's not like a tiny dog can hop off a high conference table to scratch at the door. Papers spread around the table, you get the picture.
But then they have to note which chart Frank chooses to squat on. So you would think they wouldn't forget to walk Frank, and sometimes they don't forget. These are the times when a scout reports that Petunia is being walked. As to why they don't simply take Frank to an executive washroom at those times -- because the same system tends to generate the same mindset, no matter how different the people. There are always fights: You take Frank to the washroom this time. No I took him two times ago.
In the end, let him do his business on a chart if he can't wait.
Petunia
Who is Petunia? She stands four feet high and looks something like a cross between an English mastiff and a cougar. If that sounds like a strange dog, you should see some of the creatures that defend currencies of other major trading nations.
The first Petunia went to work for Treasury in 1973. This was when the Bretton Woods monetary system ended. At that time Treasury set up a department to enforce the new external U.S. monetary policy, which boiled down to a simple mandate: No central bank tries to dump the U.S. dollar, no central bank gets hurt.
Petunia, her handler and pilot are the only employees in the department. She has her own jet plane, Air Force Petunia, which by tradition is piloted by a member of the family in the Appalachian Mountains that breeds and raises Petunias.
All Petunias are very intelligent. Mastiffs were originally used to guard large English estates, so the dogs were bred to have a fine sense of judgment; after all it wouldn't do to mistake a new vicar paying a courtesy call for a poacher. Because of this inbred intelligence and because cougars are very shrewd, Petunias are only taught three commands: "Snarl," "Sit for bacon," and "Don't eat the U.S. President or the dog groomer," with the rest pretty much left to their judgment.
As to why there's no command not to eat the Treasury Secretary, in the earlier years it was concerns about KGB infiltration, then later moles for China's government. For this reason there are entirely separate elevator systems at Treasury. Petunias are bright but they can make mistakes.
Petunia and the East Asian Financial Crisis
It so happens that the second command taught to Petunias was the biggest factor in the Asian Financial Crisis spilling out of Asia. It all started when some central bankers in ASEAN countries began ruminating in front of a microphone about making the Japanese Yen their major reserve currency instead of the U.S. dollar. This activated Petunia. She was only supposed to frighten a few Asian bankers and heads of state but when it came time to give the stand-down command her handler, who was new at the job, said, "Sit for biscuit."
When she wouldn't obey what sounded to her ears like gibberish the handler whapped her on the nose with a rolled up newspaper.
Try to put yourself in Petunia's place to understand why references to the department manual were no use after that. Finally the handler got a choke leash on her and yanked her aboard her plane, all the while hissing, "Bad dog!" at her.
When the pilot heard her whimpering he threw the handler off the plane. Then he translated her yips and whines into a flight plan and jetted her to various financial centers, with layovers at the farm in the Appalachians so she could get moral support from family and friends.
(These layovers explain why, as Larry Summers told the BBC's Katty Kay this March, what had started as a financial crisis in East Asia seemed to die down for a time before suddenly appearing in another country outside Asia.)
What the handler should have done immediately was phone the White House for help; instead, he followed Air Force Petunia around the world on commercial flights -- first class airfare, I might add, which of course he charged to his expense account. It was only when Petunia began chasing traders around the floor of the New York Stock Exchange that he threw in the towel.
President Bill Clinton personally gave the correct stand-down command. Then using three pints of bacon ice cream -- two pints for Petunia and one pint for Bill to keep up his strength through the ordeal -- he coaxed her into his limousine. She was returned to Treasury no worse for wear if you don't count a case of injured pride.
No, the handler wasn't fired. He was transferred to a desk at State where he helped write U.S. trade policy on China.
Speaking of Larry Summers, there were rumors at the time that Petunia bore a striking resemblance to him, but then for years there were rumors she was the spitting image of George Soros. Having seen the present Petunia I can tell you that she looks nothing like either man. I also saw photographs of earlier Petunias, which the handler has preserved in a beautiful gold-embossed album. Here the best I can say is that when you've seen one photo of a strange looking dog wearing an enormous hand-washed, hand-ironed pink satin bow you've pretty much seen them all.
Pundita's Adventures Researching U.S. Monetary Policy
As to how I know about Petunia -- in the same way I know that the Ghost of 1929 haunts the Federal Reserve building in Washington after midnight. Late last year I decided to research U.S. monetary policy in depth. This kind of research always involves field work. Lucky for you Pundita is a master of disguises when it comes to field work. This gave me great insight into the way America's finances are actually run, which I've been able to pass along to you in several posts this year.
I can't reveal much about my disguise at Treasury except to say that when your only coworkers are a dog and a man who is devoted to the dog, you tend to be talkative with the dog groomer. This might be why Petunia gets a shampoo at least twice a week, which by the way she very much enjoys.
With regard to my research at the Federal Reserve, again I can't reveal much about my disguise but I will observe that when your system of analyzing the economy boils down to a game of Pin the Tail on the Donkey you might as well make it a real party. Who's the first person you call when you want to plan a party? The party planner, of course. And everyone in an office loves the party planner because they get to choose what kind of ice cream and cake they want and pick out decorations and party prizes. This means party planners always get the run of an office.
So to answer Sleepless before she sends another email: yes, with my own eyes I have seen the Ghost of 1929. As to how I know it's that particular ghost and not any ghost, in the same way I know that the racket the ghost makes after midnight is the sound of 40,000 1930s-era bank teller windows slamming shut at the same time. There's a mathematician who likes to burn the midnight oil at the Fed and who's on speaking terms with the ghost. My own view is that it never pays to get conversational with a ghost. But the mathematician told me the story when I promised there would be strawberry ice cream for everyone after the next FOMC meeting. And yes, I also saw Frank while I was at the Fed.
Pundita Meets the World's Big People
I also attended the World Economic Forum in Davos-Kloster, Switzerland. As to how I managed to crash that gathering of the world's Big People, again I can't reveal much but I will say that this year at Davos it helped to wear 30 pounds of 24 karat gold jewelry borrowed from Charlotte ("Remember, you break it, you own it"), an I.D. tag that read "Tajikistan" and to be accompanied by two nervous-looking young men from the City of London who kept telling the hall monitors, "She's looking for the sessions on oil and gas exploration and how to buy some banks."
See this is one reason not to get conversational with a ghost. I don't think the Ghost of 1929 recognized me underneath my fetching ethnic disguise when it showed up at Davos, or it might have asked what the party planner was doing there. Anyhow, as I mentioned in April, the big news to come out of this year's Davos confab, which you will only read about here, is that the ghost put in an appearance.
So much for the belief that the ghost won't appear in Switzerland because it's scared of Swiss bankers. Maybe at one time it was scared of them but obviously no more. Here I should add that very few at Davos actually saw the ghost. It made its presence felt though odd squeaking noises that one attendee, a student of the French Revolution, identified as the sound of a portable guillotine slowly being wheeled into place, and by uproarious laughter.
Battles With Wall Street Zombies
I also went to Manhattan to investigate the financial sector, which is part of U.S. monetary policy on account of the U.S. banking system was converted into a monetary tool decades ago, with the results you see today.
I don't think it would do any harm to reveal that for this phase of my research I joined the midnight shift of a crew that cleans offices in Wall Street firms. No names, but I can tell you these firms are part of what's known as the Global Shadow Banking System -- this being the system of non-bank financial institutions that offer banking services.
It was actually the shadow banking system, not what passes for the U.S. banking system, which crashed in 2008, even though several banks were and still are part of the shadow system. The crash caught economists in government and the financial sector unawares, partly because nobody thought to figure rehypothecation into their calculations. And Frank, bless his heart, can't read equations. So it wasn't until 2010 that two guys at the International Monetary Fund figured out that everyone had underestimated the size of the U.S. part of the shadow banking system by 5 trillion dollars. (I am not making that part up.)
The other part was that the math wizards who designed the hideously complex mortgage derivatives trades didn't understand the mortgage business, and the people who sold these derivatives didn't understand the math behind them but were too proud to admit this. (I am not making that part up, either.)
Happily, the globe was saved from crashing by a series of massive taxpayer-funded bailouts led by American taxpayers. However, government explanations to the American Little People about why it was vital that their tax money bail out banks and insurance companies they'd never heard of on account of these firms weren't located in the USA tactfully avoided mentioning the zombie problem.
This problem was first described by an American professor, who was trying to explain to the public in plain English why FDIC insurance paid by banks for decades hadn't been enough to cover losses in the crash of the savings and loan banking industry in the 1980s. The losses had to be covered by the taxpayer because the S&L industry was too big to be allowed to fail. The professor explained that the bailout had created zombie banks: banks that were deader than a doornail but which carried on an undead existence of sorts by feeding on the living taxpayer.
The same problem emerged from the bailout of the shadow banks. And so the truly hair-raising phase of my field work. It's one thing to deal with a ghost, but fending off the undead and trying to vacuum carpets at the same time while the crew boss shrieks, "Nobody bump into the supercomputers!" calls for the reflexes of a ninja.
But from this adventure I can report that the zombies on Wall Street, which by the way has become a euphemism for the Global Shadow Banking System, are still undead and well.
Pundita Joins a Cult
After completing my investigation in Manhattan it was home to Washington. I returned the gold jewelry intact to Charlotte. Of course she got it assayed, just to make sure. Speaking of Charlotte, to keep the peace I corrected my "Tofu and the Police State" post after she read that I'd termed her gambling "illegal." If you say you've never heard of a possum that can read -- how else could she work an Ouija board? She told me that none of her gambling was illegal; that what I considered illegal was actually unorthodox gambling. She got that from reading that IMF chief Christine Lagarde had called the Fed's massive quantitative easing experiment "unorthodox" monetary policy.
Then I transferred my field work to the world's Little People. This was how I discovered that many Americans belong to a pagan cult. I personally witnessed their bizarre rituals, which involve bowing to an image of a sacred cow and chanting, "I must go into debt to get a good education so I can get a good job and spend my way into bigger debt so I can save my way to being rich when I'm old enough to wear Depends diapers."
I will tell you I was so shocked by this display that I nearly blew my cover when I gasped, "Have you all lost your mind?"
I diverted attention from the gaffe by thundering in Hungarian, "Take me to your leader or I'll rat you out to the Secret Service for running a Ponzi scheme!"
(Amazing but true, the Secret Service got involved in investigating Ponzi schemes. This happened when the schemes began proliferating like mice in the wake of 9/11, which saw the FBI greatly occupied with investigating terrorist matters.)
I had to wait some time but finally one night I was ushered into the presence. My jaw dropped at the sight that met my eyes. There was a chihuahua, got up in a tiny powdered wig and velvet waistcoat and seated on a throne.
"Meet our leader, Bernard de Mandeville," whispered one cult member.
I said, "That's not Mandeville. He's dead. He's been dead for 300 years. That's Frank."
Then I grabbed Frank and ran like hell. I returned him to the Fed the next day with the advice to keep a closer eye on him in future. Then the fights started: It's your turn to keep an eye on him. No it was my turn two times ago.
Closing Thoughts
Well I hope all that clears up any confusion about U.S. monetary policy. But I would like to emphasize that not only has Bernard de Mandeville been dead for 300 years, he never advised that governments attempt to reverse engineer the Paradox of Thrift. Nor did he advise that the banking system be virtually destroyed in the service of reverse engineering an economy, as if business cycles were a contraption that could be tweaked whenever it seemed to be malfunctioning.
And if John Maynard Keynes had lived to see middle-income Americans walkinig around in $200 designer jeans and sneakers bought on credit, I think he would have regretted mentioning Mandeville's Paradox of Thrift when he wrote his 1930 "A Treatise on Money." He advised that governments do deficit spending in the face of a looming recession. Governments -- not individuals.
Yes, I understand that most Americans can't read economic indicators in the way Frank can and so can't see signs of a looming recession. But then why do these Americans live as if they can see the signs?
.
These policies don't so much work in tandem as coexist in an uneasy detente that has been broken on occasion, like the time Petunia ate Frank. It's okay. The Fed got a replacement and there'd been more than one Frank before then, just as there's been more than one Petunia since. It was her first day of work, the handler accidentally let go of her leash. Since then the Fed has employed scouts to make sure Frank and Petunia aren't being walked at the same time.
And no, the handler wasn't fired. He was given a promotion.
Frank
Now who is Frank? He's a chihuahua and the linchpin of the system by which the Federal Reserve Open Market Committee settles their disagreements about the meaning of U.S. economic indicators. They spread all the statistical charts on a large conference table, put Frank on the table, then say, "Look at the charts, Frank."
(Some of the charts are actually graphs but this is a superfluous detail from Frank's point of view.) Then the committee members take notes on Frank's expression as he looks at each chart. Then they figure an average of their impressions of his expressions to determine where to set interest rate targets.
If that sounds like a screwy system it's an improvement on the old system. The FOMC used to slaughter a chicken on a full moon night at a parking lot in Northeast Washington and read its entrails. But there were always fights: You kill the chicken this time. No I killed it two times ago.
Finally they hired a Voodoo practitioner who called herself Madame LeVoon to kill the chicken. That system of reading economic indicators lurched along for a time. Then Madame LeVoon lost money in a stock market downturn that was a direct result of the Fed's misreading of entrails. The next time she saw the committee she said, "Hear what I'm telling you. A dog could read the signs better."
Of course they didn't hear. The next morning a member of the FOMC broke his leg in a freak fall. The next morning another member broke his arm in a freak car accident. That afternoon the FOMC members who weren't wearing a plaster cast, their hearing much improved by then, went to a pet store and bought the first dog they saw, which was a chihuahua.
That's how the new system started; again, there have been a number of Franks since then. Also that's where the economic slang term "squishy" comes from, as in "The manufacturing sector numbers for this quarter are squishy." Sometimes they forget to walk Frank before a meeting. It's not like a tiny dog can hop off a high conference table to scratch at the door. Papers spread around the table, you get the picture.
But then they have to note which chart Frank chooses to squat on. So you would think they wouldn't forget to walk Frank, and sometimes they don't forget. These are the times when a scout reports that Petunia is being walked. As to why they don't simply take Frank to an executive washroom at those times -- because the same system tends to generate the same mindset, no matter how different the people. There are always fights: You take Frank to the washroom this time. No I took him two times ago.
In the end, let him do his business on a chart if he can't wait.
Petunia
Who is Petunia? She stands four feet high and looks something like a cross between an English mastiff and a cougar. If that sounds like a strange dog, you should see some of the creatures that defend currencies of other major trading nations.
The first Petunia went to work for Treasury in 1973. This was when the Bretton Woods monetary system ended. At that time Treasury set up a department to enforce the new external U.S. monetary policy, which boiled down to a simple mandate: No central bank tries to dump the U.S. dollar, no central bank gets hurt.
Petunia, her handler and pilot are the only employees in the department. She has her own jet plane, Air Force Petunia, which by tradition is piloted by a member of the family in the Appalachian Mountains that breeds and raises Petunias.
All Petunias are very intelligent. Mastiffs were originally used to guard large English estates, so the dogs were bred to have a fine sense of judgment; after all it wouldn't do to mistake a new vicar paying a courtesy call for a poacher. Because of this inbred intelligence and because cougars are very shrewd, Petunias are only taught three commands: "Snarl," "Sit for bacon," and "Don't eat the U.S. President or the dog groomer," with the rest pretty much left to their judgment.
As to why there's no command not to eat the Treasury Secretary, in the earlier years it was concerns about KGB infiltration, then later moles for China's government. For this reason there are entirely separate elevator systems at Treasury. Petunias are bright but they can make mistakes.
Petunia and the East Asian Financial Crisis
It so happens that the second command taught to Petunias was the biggest factor in the Asian Financial Crisis spilling out of Asia. It all started when some central bankers in ASEAN countries began ruminating in front of a microphone about making the Japanese Yen their major reserve currency instead of the U.S. dollar. This activated Petunia. She was only supposed to frighten a few Asian bankers and heads of state but when it came time to give the stand-down command her handler, who was new at the job, said, "Sit for biscuit."
When she wouldn't obey what sounded to her ears like gibberish the handler whapped her on the nose with a rolled up newspaper.
Try to put yourself in Petunia's place to understand why references to the department manual were no use after that. Finally the handler got a choke leash on her and yanked her aboard her plane, all the while hissing, "Bad dog!" at her.
When the pilot heard her whimpering he threw the handler off the plane. Then he translated her yips and whines into a flight plan and jetted her to various financial centers, with layovers at the farm in the Appalachians so she could get moral support from family and friends.
(These layovers explain why, as Larry Summers told the BBC's Katty Kay this March, what had started as a financial crisis in East Asia seemed to die down for a time before suddenly appearing in another country outside Asia.)
What the handler should have done immediately was phone the White House for help; instead, he followed Air Force Petunia around the world on commercial flights -- first class airfare, I might add, which of course he charged to his expense account. It was only when Petunia began chasing traders around the floor of the New York Stock Exchange that he threw in the towel.
President Bill Clinton personally gave the correct stand-down command. Then using three pints of bacon ice cream -- two pints for Petunia and one pint for Bill to keep up his strength through the ordeal -- he coaxed her into his limousine. She was returned to Treasury no worse for wear if you don't count a case of injured pride.
No, the handler wasn't fired. He was transferred to a desk at State where he helped write U.S. trade policy on China.
Speaking of Larry Summers, there were rumors at the time that Petunia bore a striking resemblance to him, but then for years there were rumors she was the spitting image of George Soros. Having seen the present Petunia I can tell you that she looks nothing like either man. I also saw photographs of earlier Petunias, which the handler has preserved in a beautiful gold-embossed album. Here the best I can say is that when you've seen one photo of a strange looking dog wearing an enormous hand-washed, hand-ironed pink satin bow you've pretty much seen them all.
Pundita's Adventures Researching U.S. Monetary Policy
As to how I know about Petunia -- in the same way I know that the Ghost of 1929 haunts the Federal Reserve building in Washington after midnight. Late last year I decided to research U.S. monetary policy in depth. This kind of research always involves field work. Lucky for you Pundita is a master of disguises when it comes to field work. This gave me great insight into the way America's finances are actually run, which I've been able to pass along to you in several posts this year.
I can't reveal much about my disguise at Treasury except to say that when your only coworkers are a dog and a man who is devoted to the dog, you tend to be talkative with the dog groomer. This might be why Petunia gets a shampoo at least twice a week, which by the way she very much enjoys.
With regard to my research at the Federal Reserve, again I can't reveal much about my disguise but I will observe that when your system of analyzing the economy boils down to a game of Pin the Tail on the Donkey you might as well make it a real party. Who's the first person you call when you want to plan a party? The party planner, of course. And everyone in an office loves the party planner because they get to choose what kind of ice cream and cake they want and pick out decorations and party prizes. This means party planners always get the run of an office.
So to answer Sleepless before she sends another email: yes, with my own eyes I have seen the Ghost of 1929. As to how I know it's that particular ghost and not any ghost, in the same way I know that the racket the ghost makes after midnight is the sound of 40,000 1930s-era bank teller windows slamming shut at the same time. There's a mathematician who likes to burn the midnight oil at the Fed and who's on speaking terms with the ghost. My own view is that it never pays to get conversational with a ghost. But the mathematician told me the story when I promised there would be strawberry ice cream for everyone after the next FOMC meeting. And yes, I also saw Frank while I was at the Fed.
Pundita Meets the World's Big People
I also attended the World Economic Forum in Davos-Kloster, Switzerland. As to how I managed to crash that gathering of the world's Big People, again I can't reveal much but I will say that this year at Davos it helped to wear 30 pounds of 24 karat gold jewelry borrowed from Charlotte ("Remember, you break it, you own it"), an I.D. tag that read "Tajikistan" and to be accompanied by two nervous-looking young men from the City of London who kept telling the hall monitors, "She's looking for the sessions on oil and gas exploration and how to buy some banks."
See this is one reason not to get conversational with a ghost. I don't think the Ghost of 1929 recognized me underneath my fetching ethnic disguise when it showed up at Davos, or it might have asked what the party planner was doing there. Anyhow, as I mentioned in April, the big news to come out of this year's Davos confab, which you will only read about here, is that the ghost put in an appearance.
So much for the belief that the ghost won't appear in Switzerland because it's scared of Swiss bankers. Maybe at one time it was scared of them but obviously no more. Here I should add that very few at Davos actually saw the ghost. It made its presence felt though odd squeaking noises that one attendee, a student of the French Revolution, identified as the sound of a portable guillotine slowly being wheeled into place, and by uproarious laughter.
Battles With Wall Street Zombies
I also went to Manhattan to investigate the financial sector, which is part of U.S. monetary policy on account of the U.S. banking system was converted into a monetary tool decades ago, with the results you see today.
I don't think it would do any harm to reveal that for this phase of my research I joined the midnight shift of a crew that cleans offices in Wall Street firms. No names, but I can tell you these firms are part of what's known as the Global Shadow Banking System -- this being the system of non-bank financial institutions that offer banking services.
It was actually the shadow banking system, not what passes for the U.S. banking system, which crashed in 2008, even though several banks were and still are part of the shadow system. The crash caught economists in government and the financial sector unawares, partly because nobody thought to figure rehypothecation into their calculations. And Frank, bless his heart, can't read equations. So it wasn't until 2010 that two guys at the International Monetary Fund figured out that everyone had underestimated the size of the U.S. part of the shadow banking system by 5 trillion dollars. (I am not making that part up.)
The other part was that the math wizards who designed the hideously complex mortgage derivatives trades didn't understand the mortgage business, and the people who sold these derivatives didn't understand the math behind them but were too proud to admit this. (I am not making that part up, either.)
Happily, the globe was saved from crashing by a series of massive taxpayer-funded bailouts led by American taxpayers. However, government explanations to the American Little People about why it was vital that their tax money bail out banks and insurance companies they'd never heard of on account of these firms weren't located in the USA tactfully avoided mentioning the zombie problem.
This problem was first described by an American professor, who was trying to explain to the public in plain English why FDIC insurance paid by banks for decades hadn't been enough to cover losses in the crash of the savings and loan banking industry in the 1980s. The losses had to be covered by the taxpayer because the S&L industry was too big to be allowed to fail. The professor explained that the bailout had created zombie banks: banks that were deader than a doornail but which carried on an undead existence of sorts by feeding on the living taxpayer.
The same problem emerged from the bailout of the shadow banks. And so the truly hair-raising phase of my field work. It's one thing to deal with a ghost, but fending off the undead and trying to vacuum carpets at the same time while the crew boss shrieks, "Nobody bump into the supercomputers!" calls for the reflexes of a ninja.
But from this adventure I can report that the zombies on Wall Street, which by the way has become a euphemism for the Global Shadow Banking System, are still undead and well.
Pundita Joins a Cult
After completing my investigation in Manhattan it was home to Washington. I returned the gold jewelry intact to Charlotte. Of course she got it assayed, just to make sure. Speaking of Charlotte, to keep the peace I corrected my "Tofu and the Police State" post after she read that I'd termed her gambling "illegal." If you say you've never heard of a possum that can read -- how else could she work an Ouija board? She told me that none of her gambling was illegal; that what I considered illegal was actually unorthodox gambling. She got that from reading that IMF chief Christine Lagarde had called the Fed's massive quantitative easing experiment "unorthodox" monetary policy.
Then I transferred my field work to the world's Little People. This was how I discovered that many Americans belong to a pagan cult. I personally witnessed their bizarre rituals, which involve bowing to an image of a sacred cow and chanting, "I must go into debt to get a good education so I can get a good job and spend my way into bigger debt so I can save my way to being rich when I'm old enough to wear Depends diapers."
I will tell you I was so shocked by this display that I nearly blew my cover when I gasped, "Have you all lost your mind?"
I diverted attention from the gaffe by thundering in Hungarian, "Take me to your leader or I'll rat you out to the Secret Service for running a Ponzi scheme!"
(Amazing but true, the Secret Service got involved in investigating Ponzi schemes. This happened when the schemes began proliferating like mice in the wake of 9/11, which saw the FBI greatly occupied with investigating terrorist matters.)
I had to wait some time but finally one night I was ushered into the presence. My jaw dropped at the sight that met my eyes. There was a chihuahua, got up in a tiny powdered wig and velvet waistcoat and seated on a throne.
"Meet our leader, Bernard de Mandeville," whispered one cult member.
I said, "That's not Mandeville. He's dead. He's been dead for 300 years. That's Frank."
Then I grabbed Frank and ran like hell. I returned him to the Fed the next day with the advice to keep a closer eye on him in future. Then the fights started: It's your turn to keep an eye on him. No it was my turn two times ago.
Closing Thoughts
Well I hope all that clears up any confusion about U.S. monetary policy. But I would like to emphasize that not only has Bernard de Mandeville been dead for 300 years, he never advised that governments attempt to reverse engineer the Paradox of Thrift. Nor did he advise that the banking system be virtually destroyed in the service of reverse engineering an economy, as if business cycles were a contraption that could be tweaked whenever it seemed to be malfunctioning.
And if John Maynard Keynes had lived to see middle-income Americans walkinig around in $200 designer jeans and sneakers bought on credit, I think he would have regretted mentioning Mandeville's Paradox of Thrift when he wrote his 1930 "A Treatise on Money." He advised that governments do deficit spending in the face of a looming recession. Governments -- not individuals.
Yes, I understand that most Americans can't read economic indicators in the way Frank can and so can't see signs of a looming recession. But then why do these Americans live as if they can see the signs?
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Friday, October 11
More on the rule of law and a road map to a police state
As I noted in the post about the original police state and the rule of law, the United States is fast approaching the outer banks of its success as a democracy because its form of government has generated such a huge body of laws. Even with the use of private contractors, even if the U.S. population is doubled through fast-tracked citizenship for immigrants, we are running out of adults to administer all the legislation churned out at the federal, state, and municipal levels of government.
Yet this problem is not even publicly acknowledged because the rule of law is above debate in the United States.
If I recall there are certain anarchists who argue in principled fashion against the rule of law but I think any solutions they propose as a substitute are utopian. It's much the same with Libertarians; they want fewer laws, less regulation, smaller government, but they do not question the necessity for the rule of law. And they have no alternative to propose to this rule.
As for the rest of the American body politic, in this regard it evokes the parable of the man who loses his keys in a darkened house, but searches outside for them because the light is better out there. All national political debates about the size of U.S. government are ridiculous because they don't grapple with the inherent contradiction between the demand for smaller government and the very foundation of the United States government -- the rule of law, which of necessity requires regulatory regimes to oversee the laws, thus inexorably increasing the size of government.
In the earlier post I alluded to a possible way out of the conundrum: make a clear distinction between the principle of the rule of law and a literal rule by endless legislation. Yet putting the distinction into practice would, I think, mean a radical change in American politics.
But even if the debates got on track, even if a temporary moratorium on lawmaking could be enacted in the effort to slow the rate of legislation -- or if some kind of patchwork solution could be created, such as making a law that before a new law and its regulatory regime are created, an old one has to be retired, this would not address one of the most troubling negative consequences of an unrestricted rule of legislation:
The United States isn't a closed system; the very success in the USA of relying on a rule of law to protect freedom has been replicated in virtually every free country during the past century. Moreover, those nations that still have authoritarian governments are pressured by the U.S. and other major democratic governments to adopt or more broadly adopt the rule of law. The pressure is not only in the form of jawboning. Any government that wants greater say in global trade issues must work toward implementing or expanding the rule of law in its country.
If all that sounds like a great idea, there is a catch. The rule of law is being converted into a global regulatory regime with totalitarian implications. This regime is based on applying the rule of law to legislation written by groups of nations and legislative bodies over which Americans (and no single peoples) have any control.
And yet the very Americans who complain the loudest about this burgeoning global regulatory regime are the same Americans who would defend the rule of law with their lives! Something has to give here, or something has to be clarified and very quickly.
There is another problem with an unrestricted rule by legislation, which I mentioned in the earlier post. Once there's a regulation for everything you're looking at a society of lawbreakers. That state of affairs is a road map to a police state.
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Yet this problem is not even publicly acknowledged because the rule of law is above debate in the United States.
If I recall there are certain anarchists who argue in principled fashion against the rule of law but I think any solutions they propose as a substitute are utopian. It's much the same with Libertarians; they want fewer laws, less regulation, smaller government, but they do not question the necessity for the rule of law. And they have no alternative to propose to this rule.
As for the rest of the American body politic, in this regard it evokes the parable of the man who loses his keys in a darkened house, but searches outside for them because the light is better out there. All national political debates about the size of U.S. government are ridiculous because they don't grapple with the inherent contradiction between the demand for smaller government and the very foundation of the United States government -- the rule of law, which of necessity requires regulatory regimes to oversee the laws, thus inexorably increasing the size of government.
In the earlier post I alluded to a possible way out of the conundrum: make a clear distinction between the principle of the rule of law and a literal rule by endless legislation. Yet putting the distinction into practice would, I think, mean a radical change in American politics.
But even if the debates got on track, even if a temporary moratorium on lawmaking could be enacted in the effort to slow the rate of legislation -- or if some kind of patchwork solution could be created, such as making a law that before a new law and its regulatory regime are created, an old one has to be retired, this would not address one of the most troubling negative consequences of an unrestricted rule of legislation:
The United States isn't a closed system; the very success in the USA of relying on a rule of law to protect freedom has been replicated in virtually every free country during the past century. Moreover, those nations that still have authoritarian governments are pressured by the U.S. and other major democratic governments to adopt or more broadly adopt the rule of law. The pressure is not only in the form of jawboning. Any government that wants greater say in global trade issues must work toward implementing or expanding the rule of law in its country.
If all that sounds like a great idea, there is a catch. The rule of law is being converted into a global regulatory regime with totalitarian implications. This regime is based on applying the rule of law to legislation written by groups of nations and legislative bodies over which Americans (and no single peoples) have any control.
And yet the very Americans who complain the loudest about this burgeoning global regulatory regime are the same Americans who would defend the rule of law with their lives! Something has to give here, or something has to be clarified and very quickly.
There is another problem with an unrestricted rule by legislation, which I mentioned in the earlier post. Once there's a regulation for everything you're looking at a society of lawbreakers. That state of affairs is a road map to a police state.
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Singularism?
A reader took up my challenge to find a term that was more descriptive than "economic collectivism." She pointed out that what I'd described wasn't so much collectivism, in the sense of the many folded into a group, as "singularism" in the sense of the many being conceived of as a single entity; e.g., the Statistical Person, the Economy. She pointed out that this view was closer to totalitarian than collectivist.
These are interesting observations, particularly because the denunciation of collectivism as a great evil, by observers as diverse in their politics as Ayn Rand and George Orwell, is clearly more of an indictment of totalitarian government than state-enforced interpretations of collectivism -- or at least as much as an indictment.
However, I shy away from associating totalitarianism with the over-application of statistical reasoning because it would have to go through several steps to end up as a justification for totalitarian government, wouldn't it?
With regard to the term singularism: I checked a few dictionary definitions, which differ slightly but which can be boil down to "any philosophy that explains phenomena from a single principle" (Collins Dictionary)
But the phenomenon I'm describing is basically psycho-epistemological one, not philosophical. It's a mindset that arises from mentally jamming a tremendous amount of diverse statistical data into a single concept, such as "the economy." I think the mindset, when translated into economic policies, veers toward the collectivist viewpoint. So while I might get an argument from the reader and others, at this point I prefer economic collectivism to singularism, although I thank the reader for her suggestion.
I realize I was the one who started this discussion but it's beginning to remind me of a scene in the movie "Ladyhawk." The evil bishop's soldiers shout curses at the drunken overseer of a rundown monastery as they fall off a rickety collapsing footbridge. He shouts back, "I'm a monk, not an architect!"
I'm a pundita, not a scientific epistemologist. If you're happier with economic singularism, or economic statisticalism, or econo-singular statisticalism, or tofu, just so you're in the ballpark about what I mean by economic collectivism.
I'm simply trying to move us from point A to point B, then we can all get on with our lives. My discussion of what I've termed economic collectivism is to identify a big hidden obstacle standing in the way of sorting out America's financial problems: the public's unawareness of the tendency for fiscal and monetary policymakers to overly rely on statistical reasoning when crafting policies.
So there's the over-reliance, and the public unawareness of this. So this is actually a two-part problem. The over-reliance part is for scientific epistemologists to grapple with. I'm interested in the second part. But having pointed out the obstacle in the "Economic Collectivism" posts, I'm content to proceed to the next milepost.
This is not to discourage suggestions, by the way. I'd be glad to see a better term than economic collectivism. But there's another problem with singularism. The term is now being used to describe a kind of quasi-religious or philosophical view that humanity is set to make a singular leap in consciousness because of our machines, or something like that.
It seems the idea has attracted several techie types and it's becoming controversial in some quarters. I think Wikipedia might have an article on the term, as it's applied in this case. Anyhow, I wouldn't want economic collectivism to be confused with that interpretation of singularism.
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These are interesting observations, particularly because the denunciation of collectivism as a great evil, by observers as diverse in their politics as Ayn Rand and George Orwell, is clearly more of an indictment of totalitarian government than state-enforced interpretations of collectivism -- or at least as much as an indictment.
However, I shy away from associating totalitarianism with the over-application of statistical reasoning because it would have to go through several steps to end up as a justification for totalitarian government, wouldn't it?
With regard to the term singularism: I checked a few dictionary definitions, which differ slightly but which can be boil down to "any philosophy that explains phenomena from a single principle" (Collins Dictionary)
But the phenomenon I'm describing is basically psycho-epistemological one, not philosophical. It's a mindset that arises from mentally jamming a tremendous amount of diverse statistical data into a single concept, such as "the economy." I think the mindset, when translated into economic policies, veers toward the collectivist viewpoint. So while I might get an argument from the reader and others, at this point I prefer economic collectivism to singularism, although I thank the reader for her suggestion.
I realize I was the one who started this discussion but it's beginning to remind me of a scene in the movie "Ladyhawk." The evil bishop's soldiers shout curses at the drunken overseer of a rundown monastery as they fall off a rickety collapsing footbridge. He shouts back, "I'm a monk, not an architect!"
I'm a pundita, not a scientific epistemologist. If you're happier with economic singularism, or economic statisticalism, or econo-singular statisticalism, or tofu, just so you're in the ballpark about what I mean by economic collectivism.
I'm simply trying to move us from point A to point B, then we can all get on with our lives. My discussion of what I've termed economic collectivism is to identify a big hidden obstacle standing in the way of sorting out America's financial problems: the public's unawareness of the tendency for fiscal and monetary policymakers to overly rely on statistical reasoning when crafting policies.
So there's the over-reliance, and the public unawareness of this. So this is actually a two-part problem. The over-reliance part is for scientific epistemologists to grapple with. I'm interested in the second part. But having pointed out the obstacle in the "Economic Collectivism" posts, I'm content to proceed to the next milepost.
This is not to discourage suggestions, by the way. I'd be glad to see a better term than economic collectivism. But there's another problem with singularism. The term is now being used to describe a kind of quasi-religious or philosophical view that humanity is set to make a singular leap in consciousness because of our machines, or something like that.
It seems the idea has attracted several techie types and it's becoming controversial in some quarters. I think Wikipedia might have an article on the term, as it's applied in this case. Anyhow, I wouldn't want economic collectivism to be confused with that interpretation of singularism.
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Thursday, October 10
One Solution For 1,000 Problems: Part 4 of Money, Wealth, and You
Adverse Feedback Loops a.k.a. Vicious Cycles
Economists and leaders in the two major U.S. political parties make the same mistake when they debate the best way to create financial security for Americans. No matter how different their views on America's economic troubles they believe that job opportunities and business growth are the basis of security for the individual and the society as a whole.
The mistake is that the individual's sense of security is derived as much or more from his ability to hoard a portion of his wealth than his earning income. In a modern society this translates into hoarding of money. But Americans aren't allowed to hoard money, not without severe penalties. The attempt to offset or evade the penalties diverts large amounts of time from Americans' personal and work responsibilities, causes them a host of emotional disorders and stress-related illnesses.
Those who blame all this on the uncertainties of life in a capitalist economic system are off the mark. Humans are built to take an incredible amount of uncertainty in stride, thanks in part to our nomadic past and experience with the vagaries of weather and ground water supplies during the earliest farming eras. Yet it's just because of the uncertainties that accompany the struggle to survive that humans learned to hoard wealth as protection against unpleasant surprises.
Here "wealth" simply means an abundance, not a numerical amount. A billionaire has more wealth than someone earning far less, but an abundance of money -- what money an earner has left over after all his expenses is met -- is an abundance, whether it's a billion dollars or ten.
Hoarding of a portion of abundance allows humanity to face life's unpleasant surprises with resilience. So when the hoarding instinct is repeatedly frustrated, a society begins experiencing many problems in many directions.
There's another reason capitalism isn't the culprit. Republicans argue that with enough free-market capitalism supported by low rates of taxation the American economy can generate enough job opportunities to provide a reasonable level of employment security for the individual.
The argument ignores the fact that capitalism ceased to be the driving force in U.S. fiscal and economic policies after the collapse in 1973 of the Bretton Woods agreement, which had established a new international monetary system for the post World War Two era. The system, which was based on fixed exchange rates for currency, was replaced with floating exchange rates. This meant that the U.S. government and Federal Reserve's struggle to maintain the U.S. dollar's status as the world's major reserve currency superseded all other macroeconomic and financial considerations, including capitalism.
The Democrats are also off the mark when they argue that taxation is the way to provide security in the form of financial safety nets for all Americans. The argument ignores the fact that if you inject a tremendous amount of insecurity into the society by taxing virtually every aspect of money, this when added to uncertainties about employment sets in motion a vicious cycle:
1. The more uncertain their hoard of wealth and job opportunities, the more people will seek a secure source of income. This leads to more and more people who seek a reasonably guaranteed income in the form of employment with the government.
2. The more people employed by government, the more taxes need to be levied to support the government workforce.
3. The more taxes levied, the more people look at the erosion of their wealth and protest.
4. The protests lead government to impose taxes on more and more types of saving and spending as the way to avoid steeply increasing the payroll tax. This sneaky means of raising revenue created a tax code so complex that maybe only 1,000 accountants in the entire United States fully understand it, which only adds to the insecurities of people trying to hoard a few bucks.
5. The more types of taxes levied, the more insecure people become when faced with no way to protect their wealth or nail down guaranteed employment.
Return to #1 and repeat the cycle.
The cycle set in motion other vicious cycles that today negatively impact every aspect of American society. Not the least has been the erosion of the U.S. republic. A republic is a rule of the people, but whoever heard of a long-lived ruler who couldn't protect his wealth? Power, governing power in a republic, comes not from the point of a gun but from the crushing power of wealth. Only when Americans as individuals have the ability to preserve their wealth can they as a collective rule.
One Solution For 1,000 Problems
If you accept all the above for the sake of discussion, the method for breaking the vicious cycle is pretty simple: Give people want they want. Give them a reliable, hassle-free means to protect their wealth. How to do this? Find an American banker who's spitting mad at the Federal Reserve and the U.S. federal government -- and there must be at least, well, however many bankers there are right now in the United States -- who are that mad, and talk him (or her) into trying something new for a change, like this:
Set up a liquid savings account for individuals that would require a token minimum to open the account and be like a regular savings account in all other respects except for two unique features:
1) The bank pays a baseline interest on the deposits that never changes, remaining static at anywhere between 3.5 and 5 percent (I like 4 percent).
2) Either by increasing the interest it pays above the baseline or through offering gifts or services, the bank pays enough on the savings account to offset increases in the cost of living.
So, this account is designed to allow for the preservation of wealth, which is why the bank should call it a "wealth account" to distinguish it from a regular savings account, which does not protect the savings from erosion through increases in the cost of living.
Can a bank offer that kind of account without the need to change laws? A bank can pay any rate of interest on savings accounts it finds prudent.
As to what banker in his right mind would find it prudent under present Federal Reserve monetary policy to pay out such a high baseline rate of interest --
1. The banker who knows that a bank that offered a wealth account would be so well capitalized it would be far less dependent on the Federal Reserve system.
2. The banker who knows that the present state of computer technology would allow a bank to compete with credit card companies, payday loan companies, pawn shops and other non-bank types of companies that cater to individuals who need 'tide-over' loans ranging from a few days to a month. The bank could charge less in interest than the payday loan companies and still charge more than it could on mortgage loans. In this way the bank could make up in volume with tide-over loans what mortgage loan business it would lose by charging a higher interest on those loans to offset the higher interest paid on the wealth account.
If readers are shocked that I would suggest a bank become a 'loan shark' -- then you would really be in for a shock if you studied the Wikipedia article on payday loans (these types of loans aren't necessarily tied to a payday repayment). Payday loan companies are filling a critical need at this time in the United States.
For instance, consider the number of natural disasters that afflict the continental USA; barely a month goes by that one region or another isn't being hit with wildfires, floods, blizzards, tornadoes, and hurricanes. All those disasters can temporarily prevent employed people from getting to work from a period of few days to a few weeks. Many of those people don't have savings, don't have a line of credit with a bank, and so the only way many of them make ends meet until they get back to work is through the payday loan companies.
The banks abandoned this field of emergency loans. They need to retake it. By doing so, they will win customer loyalty and establish the physical bank as a kind of community center.
Moreover, the banks can do something that the payday loan companies and other non-bank lending companies can't: offer financial advice to payday loan 'addicts' to help them break out of the payday loan cycle.
3. The banker who figures out how gifts and services can win loan customer and depositor loyalty, and build community. The sky's the limit when it comes to the kind of services that banks could provide in order to compensate savers for increases in the cost of living. This community building would also provide the bank with dedicated lobbyists. As banks became more and more distant from the public they turned more and more to high-priced lobbyists to help them fight excessive regulations. How many billions of dollars have banks spent in this fashion during the past decade, when they could have gotten the lobbying done for free?
Restoring the Banking System
A healthy banking system is the lifeblood of a modern society, yet the U.S. banking system is in effect dead because it became an instrument of U.S. monetary and fiscal policies. The lack of a genuine banking system is killing American business, American capitalism, and has greatly weakened the entire U.S. society.
There is only one way to restore the banking system, and that is by providing individuals with a reliable means to preserve their wealth and keep it liquid; i.e., readily available for use.
Render Unto Caesar
By all means the interest income on a wealth account should be taxed in the same way that income on a regular savings account is taxed. Tax-free and tax deferred methods of saving give the government additional avenues by which to impose regulations and expand their regulatory and oversight regimes.
Would the Wealth Account Kill Wall Street?
At this point some who follow such matters might say I've come up with a way to put a crimp in the shadow banking system. The shadow banking system is not going away, and for the same reason that gambling casinos will always survive. There are always people willing to take very great risks for a chance at a very high return on their money -- and there's nothing wrong with that. The wrong part happens when an entire society is forced to act in that fashion just in the attempt to stay above water.
Nor would a wealth account collapse Wall Street or the credit card companies. Wall Street is dominated by institutional investors: hedge funds, pension funds, business and government corporations, and so on. The institutional investor will always have good reasons to park money in stocks -- and bonds.
And the individual would not throw away all his credit cards once he had a wealth account. There will always be times when people need more quick cash than their bank is willing to lend them and who'll accept high interest rates to get the money.
The Psychological Benefits
A wealth account help cure a range of money-related neuroses, including the attempt to provide an illusion of wealth through a kind of self-inflicted Ponzi scheme -- a scheme built on borrowing from one credit card to keep up payments on others.
The existence of a wealth account would also tamp down fears that create market bubbles and resultant panics, and which make Americans easy victims of true Ponzi schemes and other illegal scams.
It would also tamp down the devastating gambling fever that in effect taxes Americans at astronomical rates via lotteries, and which diverts Americans from building wealth and becoming genuine investors, as distinct from being driven into high-risk securities, many of which are nothing more than legalized gambling.
The above says nothing about the great psychological value of having a simple avenue to building wealth and protecting it. In many cases, everything from substance abuse to divorce to stress-related psychological and physical disorders is rooted in fears about money that can be traced to the inability to hoard it.
Even character flaws that manifest in petty theft, cheating on exams, and lying to procure employment will lessen once people have a sense of security about their savings. It's hard to develop good character while standing on quicksand. That's what it feels like to people at the mercy of mysterious and seemingly arbitrary economic decisions that keep moving the goal posts on the field of wealth creation and protection.
Render Unto Economists That Which is the Economy
As to whether the wealth account would be inflationary or deflationary: gee, someone said that if you start sailing the ocean eventually you'll fall off the edge of the earth. I guess there's nothing for it but to get in the boat and start sailing, and see what happens. [flipping a pen in the air] I am not in the mood today to discuss the Paradox of Thrift or what economists think about the economy.
Technical Difficulties
I have made the wealth account sound simple to set up but there are technical difficulties. For instance, half the planet would want to open a wealth account as soon as it was advertised. And I wouldn't want to be a teller at the bank on the first day the account was offered. It would be like Wal-Mart on Black Friday multiplied by every other Black Friday going back to the first one.
Logistics would be only one of the technical difficulties. Nothing that couldn't be ironed out, but here is where the bank could run into legal issues because I think the ironing would involve setting up conditions for who could open the account. Yet I don't like the idea of a credit union offering the wealth account; I'd like to see a bank offer it. Ah well, what are law firms specializing in banking regulations for?
The Greatest Benefit for the Individual and Society
The pivotal problem is that every time Americans turn around their money hoard is a little less. Even if you put the hoard under a mattress its value is eroding with every hike in taxes and the cost of living. As to the argument that pay raises or higher business profits offset the hikes: the reasoning would hold true only if no employee was ever fired, no business ever had to take a cut in profits, the cost of living never increased for anyone, and life never sprung expensive surprises.
The wealth account would be the basis of true wealth preservation for the individual. The person's savings would not need to be supplemented by investments and tax schemes that the individual hopes will offset the erosion of his wealth. So the account would be a real savings account, as distinct from the faux ones that Americans are offered now.
But the greatest benefit? Predictability. More than the interest income from the account, the depositor would be able to predict that the principal would be roughly worth as much five years into the future. That ability to predict is the basis of something called "long-range planning." This kind of planning should be the reward of living in a free country, an advanced, wealthy society. Instead, Americans have been thrown into the same situation that bedevils peoples in unfree societies, in the poorest ones: things are so uncertain that people don't like to plan, or invest, beyond the short term. This prevents the society from advancing, which only entrenches short-range thinking. It's a vicious cycle, and one that is very hard to break.
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Economists and leaders in the two major U.S. political parties make the same mistake when they debate the best way to create financial security for Americans. No matter how different their views on America's economic troubles they believe that job opportunities and business growth are the basis of security for the individual and the society as a whole.
The mistake is that the individual's sense of security is derived as much or more from his ability to hoard a portion of his wealth than his earning income. In a modern society this translates into hoarding of money. But Americans aren't allowed to hoard money, not without severe penalties. The attempt to offset or evade the penalties diverts large amounts of time from Americans' personal and work responsibilities, causes them a host of emotional disorders and stress-related illnesses.
Those who blame all this on the uncertainties of life in a capitalist economic system are off the mark. Humans are built to take an incredible amount of uncertainty in stride, thanks in part to our nomadic past and experience with the vagaries of weather and ground water supplies during the earliest farming eras. Yet it's just because of the uncertainties that accompany the struggle to survive that humans learned to hoard wealth as protection against unpleasant surprises.
Here "wealth" simply means an abundance, not a numerical amount. A billionaire has more wealth than someone earning far less, but an abundance of money -- what money an earner has left over after all his expenses is met -- is an abundance, whether it's a billion dollars or ten.
Hoarding of a portion of abundance allows humanity to face life's unpleasant surprises with resilience. So when the hoarding instinct is repeatedly frustrated, a society begins experiencing many problems in many directions.
There's another reason capitalism isn't the culprit. Republicans argue that with enough free-market capitalism supported by low rates of taxation the American economy can generate enough job opportunities to provide a reasonable level of employment security for the individual.
The argument ignores the fact that capitalism ceased to be the driving force in U.S. fiscal and economic policies after the collapse in 1973 of the Bretton Woods agreement, which had established a new international monetary system for the post World War Two era. The system, which was based on fixed exchange rates for currency, was replaced with floating exchange rates. This meant that the U.S. government and Federal Reserve's struggle to maintain the U.S. dollar's status as the world's major reserve currency superseded all other macroeconomic and financial considerations, including capitalism.
The Democrats are also off the mark when they argue that taxation is the way to provide security in the form of financial safety nets for all Americans. The argument ignores the fact that if you inject a tremendous amount of insecurity into the society by taxing virtually every aspect of money, this when added to uncertainties about employment sets in motion a vicious cycle:
1. The more uncertain their hoard of wealth and job opportunities, the more people will seek a secure source of income. This leads to more and more people who seek a reasonably guaranteed income in the form of employment with the government.
2. The more people employed by government, the more taxes need to be levied to support the government workforce.
3. The more taxes levied, the more people look at the erosion of their wealth and protest.
4. The protests lead government to impose taxes on more and more types of saving and spending as the way to avoid steeply increasing the payroll tax. This sneaky means of raising revenue created a tax code so complex that maybe only 1,000 accountants in the entire United States fully understand it, which only adds to the insecurities of people trying to hoard a few bucks.
5. The more types of taxes levied, the more insecure people become when faced with no way to protect their wealth or nail down guaranteed employment.
Return to #1 and repeat the cycle.
The cycle set in motion other vicious cycles that today negatively impact every aspect of American society. Not the least has been the erosion of the U.S. republic. A republic is a rule of the people, but whoever heard of a long-lived ruler who couldn't protect his wealth? Power, governing power in a republic, comes not from the point of a gun but from the crushing power of wealth. Only when Americans as individuals have the ability to preserve their wealth can they as a collective rule.
One Solution For 1,000 Problems
If you accept all the above for the sake of discussion, the method for breaking the vicious cycle is pretty simple: Give people want they want. Give them a reliable, hassle-free means to protect their wealth. How to do this? Find an American banker who's spitting mad at the Federal Reserve and the U.S. federal government -- and there must be at least, well, however many bankers there are right now in the United States -- who are that mad, and talk him (or her) into trying something new for a change, like this:
Set up a liquid savings account for individuals that would require a token minimum to open the account and be like a regular savings account in all other respects except for two unique features:
1) The bank pays a baseline interest on the deposits that never changes, remaining static at anywhere between 3.5 and 5 percent (I like 4 percent).
2) Either by increasing the interest it pays above the baseline or through offering gifts or services, the bank pays enough on the savings account to offset increases in the cost of living.
So, this account is designed to allow for the preservation of wealth, which is why the bank should call it a "wealth account" to distinguish it from a regular savings account, which does not protect the savings from erosion through increases in the cost of living.
Can a bank offer that kind of account without the need to change laws? A bank can pay any rate of interest on savings accounts it finds prudent.
As to what banker in his right mind would find it prudent under present Federal Reserve monetary policy to pay out such a high baseline rate of interest --
1. The banker who knows that a bank that offered a wealth account would be so well capitalized it would be far less dependent on the Federal Reserve system.
2. The banker who knows that the present state of computer technology would allow a bank to compete with credit card companies, payday loan companies, pawn shops and other non-bank types of companies that cater to individuals who need 'tide-over' loans ranging from a few days to a month. The bank could charge less in interest than the payday loan companies and still charge more than it could on mortgage loans. In this way the bank could make up in volume with tide-over loans what mortgage loan business it would lose by charging a higher interest on those loans to offset the higher interest paid on the wealth account.
If readers are shocked that I would suggest a bank become a 'loan shark' -- then you would really be in for a shock if you studied the Wikipedia article on payday loans (these types of loans aren't necessarily tied to a payday repayment). Payday loan companies are filling a critical need at this time in the United States.
For instance, consider the number of natural disasters that afflict the continental USA; barely a month goes by that one region or another isn't being hit with wildfires, floods, blizzards, tornadoes, and hurricanes. All those disasters can temporarily prevent employed people from getting to work from a period of few days to a few weeks. Many of those people don't have savings, don't have a line of credit with a bank, and so the only way many of them make ends meet until they get back to work is through the payday loan companies.
The banks abandoned this field of emergency loans. They need to retake it. By doing so, they will win customer loyalty and establish the physical bank as a kind of community center.
Moreover, the banks can do something that the payday loan companies and other non-bank lending companies can't: offer financial advice to payday loan 'addicts' to help them break out of the payday loan cycle.
3. The banker who figures out how gifts and services can win loan customer and depositor loyalty, and build community. The sky's the limit when it comes to the kind of services that banks could provide in order to compensate savers for increases in the cost of living. This community building would also provide the bank with dedicated lobbyists. As banks became more and more distant from the public they turned more and more to high-priced lobbyists to help them fight excessive regulations. How many billions of dollars have banks spent in this fashion during the past decade, when they could have gotten the lobbying done for free?
Restoring the Banking System
A healthy banking system is the lifeblood of a modern society, yet the U.S. banking system is in effect dead because it became an instrument of U.S. monetary and fiscal policies. The lack of a genuine banking system is killing American business, American capitalism, and has greatly weakened the entire U.S. society.
There is only one way to restore the banking system, and that is by providing individuals with a reliable means to preserve their wealth and keep it liquid; i.e., readily available for use.
Render Unto Caesar
By all means the interest income on a wealth account should be taxed in the same way that income on a regular savings account is taxed. Tax-free and tax deferred methods of saving give the government additional avenues by which to impose regulations and expand their regulatory and oversight regimes.
Would the Wealth Account Kill Wall Street?
At this point some who follow such matters might say I've come up with a way to put a crimp in the shadow banking system. The shadow banking system is not going away, and for the same reason that gambling casinos will always survive. There are always people willing to take very great risks for a chance at a very high return on their money -- and there's nothing wrong with that. The wrong part happens when an entire society is forced to act in that fashion just in the attempt to stay above water.
Nor would a wealth account collapse Wall Street or the credit card companies. Wall Street is dominated by institutional investors: hedge funds, pension funds, business and government corporations, and so on. The institutional investor will always have good reasons to park money in stocks -- and bonds.
And the individual would not throw away all his credit cards once he had a wealth account. There will always be times when people need more quick cash than their bank is willing to lend them and who'll accept high interest rates to get the money.
The Psychological Benefits
A wealth account help cure a range of money-related neuroses, including the attempt to provide an illusion of wealth through a kind of self-inflicted Ponzi scheme -- a scheme built on borrowing from one credit card to keep up payments on others.
The existence of a wealth account would also tamp down fears that create market bubbles and resultant panics, and which make Americans easy victims of true Ponzi schemes and other illegal scams.
It would also tamp down the devastating gambling fever that in effect taxes Americans at astronomical rates via lotteries, and which diverts Americans from building wealth and becoming genuine investors, as distinct from being driven into high-risk securities, many of which are nothing more than legalized gambling.
The above says nothing about the great psychological value of having a simple avenue to building wealth and protecting it. In many cases, everything from substance abuse to divorce to stress-related psychological and physical disorders is rooted in fears about money that can be traced to the inability to hoard it.
Even character flaws that manifest in petty theft, cheating on exams, and lying to procure employment will lessen once people have a sense of security about their savings. It's hard to develop good character while standing on quicksand. That's what it feels like to people at the mercy of mysterious and seemingly arbitrary economic decisions that keep moving the goal posts on the field of wealth creation and protection.
Render Unto Economists That Which is the Economy
As to whether the wealth account would be inflationary or deflationary: gee, someone said that if you start sailing the ocean eventually you'll fall off the edge of the earth. I guess there's nothing for it but to get in the boat and start sailing, and see what happens. [flipping a pen in the air] I am not in the mood today to discuss the Paradox of Thrift or what economists think about the economy.
Technical Difficulties
I have made the wealth account sound simple to set up but there are technical difficulties. For instance, half the planet would want to open a wealth account as soon as it was advertised. And I wouldn't want to be a teller at the bank on the first day the account was offered. It would be like Wal-Mart on Black Friday multiplied by every other Black Friday going back to the first one.
Logistics would be only one of the technical difficulties. Nothing that couldn't be ironed out, but here is where the bank could run into legal issues because I think the ironing would involve setting up conditions for who could open the account. Yet I don't like the idea of a credit union offering the wealth account; I'd like to see a bank offer it. Ah well, what are law firms specializing in banking regulations for?
The Greatest Benefit for the Individual and Society
The pivotal problem is that every time Americans turn around their money hoard is a little less. Even if you put the hoard under a mattress its value is eroding with every hike in taxes and the cost of living. As to the argument that pay raises or higher business profits offset the hikes: the reasoning would hold true only if no employee was ever fired, no business ever had to take a cut in profits, the cost of living never increased for anyone, and life never sprung expensive surprises.
The wealth account would be the basis of true wealth preservation for the individual. The person's savings would not need to be supplemented by investments and tax schemes that the individual hopes will offset the erosion of his wealth. So the account would be a real savings account, as distinct from the faux ones that Americans are offered now.
But the greatest benefit? Predictability. More than the interest income from the account, the depositor would be able to predict that the principal would be roughly worth as much five years into the future. That ability to predict is the basis of something called "long-range planning." This kind of planning should be the reward of living in a free country, an advanced, wealthy society. Instead, Americans have been thrown into the same situation that bedevils peoples in unfree societies, in the poorest ones: things are so uncertain that people don't like to plan, or invest, beyond the short term. This prevents the society from advancing, which only entrenches short-range thinking. It's a vicious cycle, and one that is very hard to break.
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Tuesday, October 1
The Road to Sanity: Part 3 of Money, Wealth, and You
It so happens that the one thing the social science of economics and its mathematical models can't take into account about money is human nature's view of it. No need to wonder, then, why American society has gotten progressively weirder as economics came to dominate U.S. government policymaking and then the entire culture.
So now that we've heard in earlier Pundita posts from Guardians of the Economy, Financial Stabilizers and a bona fide Guardian of the Sacred Cow, it's time to consider what human nature thinks of money and more specifically, wealth. For this we need to take a journey back in time -- way back, but first a brief stop at the Charlie Rose Show.
How Gloria Steinem made another feminist vanish into thin air
Several months ago Charlie Rose interviewed Gloria Steinem and another feminist, a much younger woman, whose name I don't recall for reasons that will quickly become evident. Every time Gloria spoke she was accompanied by loud clicking sounds, which the microphone amplified. The sounds were made by her wrist ornaments every time she gestured with her hands -- and she never stopped gesturing while she spoke.
She might have been wearing similar ornaments on her neck that contributed to the noise every time she moved her head; I can't recall for certain, but the point is that whether by design or unconsciously Gloria Steinem was deploying a very ancient means for being recognized as an authority. This rendered the other feminist at Charlie's interview table well nigh invisible -- to the point where if you paid me I couldn't recall her name even though it was flashed on the TV screen almost every time she spoke.
The Original Savings Account
Gloria's use of the noise of her ornaments to signify that she was the authority on feminism makes sense, if you think it through. When our race formed into large tribes the last word about a decision that affected the entire tribe couldn't be left to the person who could shout the loudest. There was always some fool who could shout louder than anyone else. Another means had to be found to establish whose opinion should carry the greatest weight at tribal council.
Then as now money talks and the ability to create wealth, which in its most basic and key meaning is simply abundance, does a better job of shouting than the human vocal cords. Before the days of currency, people wore their wealth in the form of whatever was considered to represent a prized store of value. The tradition of wearing a family's wealth probably still exists in remote regions of the world because I met with instances of it little more than a quarter century ago.
I don't know why men began piling the family wealth on their wives instead of wearing it themselves but that's what happened. (There must have been fights at first: You wear the family fortune today, dear. No you wear it; I have to milk the goat.) Maybe it was because the men didn't want to be burdened by wearing all that stuff while they hunted and fished. It might have been a way of thanking the wife for her abundance in producing children. And maybe it was a way for males to signify that they too produced abundance, the signs of which they gifted to the mother to their children. Maybe it was all these reasons and others.
In any case, what we moderns consider feminine ornamentation is actually humanity's original savings account, which did double duty as a badge of authority.
Telling the Wise One from the Fools
To cut a story, establishing authority for final decisions in the tribe worked out to which wife jangled, clacked, or clicked the loudest. Because a wife couldn't make that much noise wearing only one or two metal bangles, clamshells or a few beads or whatever, this signified her husband didn't yet have sufficient wisdom to make a decision that affected the entire tribe's welfare. But the wife who wore, say, 20 bangles on each arm could make enough racket to wake the dead just by waving Hello. This served as a polite but constant reminder to the rest of the tribe that her husband could provide the wisest counsel because he had a demonstrated ability to produce great abundance.
The recognition of the crucial links between the ability to produce great abundance, the need to accord this ability deference in the governing process, and the tribe's survival formed human nature's view of wisdom and wealth and inextricably bound the two concepts together.
For many thousands of years things bumped along according to the savings account jangling method of quickly distinguishing the fools from the wise.
Then history happened.
The Treasury
In the really old days people didn't live very long so family fortunes weren't that large. But as a longer life span evolved, and maybe also as our race became less nomadic and took up farming, the wisest man's wife had to be built like a Sherman tank just to walk under the weight of her husband's abundance. I wouldn't be surprised to learn that the wheel was invented to truck around wives wearing a 300 pound savings account.
Finally things got to the point where some genius suggested that what the tribe needed was a treasury -- a central place to store accumulated wealth. Thanks to the copycat aspect of human nature this idea took off with other tribes as well.
Trouble soon followed.
I don't mean to imply that the establishing of treasuries was a monolithic or sudden occurrence around the world. As I noted even in this era there are probably tribes that still keep to the old ways. But the idea caught on or was independently conceived in many regions over time.
The treasury was an inevitable development. Yet this marked the weakening of the link between physical wealth and wisdom. Whereas the link had been very concrete when people were a literal bank, it became increasingly abstract when wealth was put in a building.
The storehousing of wealth made it harder to spot at a glance or a hearing who was wise, wiser, and wisest. And the storehousing tended to downgrade the importance attached to wisdom. The parable "The King and the Golden Goose" illustrates this. The process of creating wealth takes work, which produces experience, which produces wisdom. The physical signs of wealth symbolize this. Yet once the product of work became abstract, greed for the product lowered the value of wisdom. And so the unwise king killed the goose that laid golden eggs on the assumption he could obtain all the riches at once.
Another downside to the building of treasuries was that separating the physical wealth from the person who owned it made it easier to rationalize the plunder of wealth and the killing of other humans in the process.
More Trouble
Treasuries led to all other sorts of trouble, although I don't know whether this was a chicken or egg situation -- whether large-scale armed conquests led to the building of more treasuries or whether the conquests geared up just because there were treasuries to raid. The story probably varied from region to region and era to era.
But I will say there is something about putting stuff in a building and marking it off limits without permission to enter that seems to trigger a blip in the male brain. Men could see the same amount of treasure walking around on women and not think anything of it, but give the treasure its own room and limit entry, and this is a recipe for trouble.
Eventually, in different parts of the world where treasuries were set up, the keepers of the treasury -- all men -- starting lording it over everyone else in the tribe. They wanted to be the only people who could wear stuff from the treasury. Then they started claiming they had a divine dispensation to wear the stuff. Then they claimed they were actually gods. Then they wanted everyone to bow down to them because they were the only wise people in the tribe. Then they wanted their families to inherit control of the treasury. It just went on and on.
Anyhow, humanity somehow survived the introduction of the treasury, but the ultimate price was that human nature found it much harder to maintain a standard for telling the wise ones from the fools.
War and More Degeneration of the Wisdom Standard
The rise of large-scale armed conquests meant that wealth could be stolen in increasingly large amounts. This placed human nature in another quandary when it came to identifying the wise ones. The ability to steal large measures of wealth signified cunning and even bravery. But possession of piles of stolen loot didn't necessarily indicate wisdom -- especially when rule over the hoard was inherited. In that event a complete idiot could be in possession of great wealth.
I'm not sure how human nature handled this new wrinkle, although it's likely the rise of bureaucracies and royal retinues was at least in part an attempt to patch over the problem of idiots in control of a kingdom's wealth. (Don't worry that he's an idiot; we're his brain.)
Faux Signs of Wisdom
Then, about 300 years ago, a new trouble launched -- in Europe, although it quickly spread to America.. The trouble was fake jewelry. By the way I don't think it's an accident of history that around the same time fake jewelry came into widespread use in the West the study called economics began to greatly interest Western governments.
It's not as if fake jewelry was introduced in that era; the ancient Romans made pretty good paste gems. But whether the Roman art was lost and rediscovered around 300 years ago or independently discovered at that time (probably historians of jewelry making know the answer), there might have been an impetus in Europe around that time to produce paste gems if economists were giving bad advice to kings, or if inbreeding in royal families was producing a lot of fools for royal heirs, or both those problems were in effect..
The problem with having a fool for a king is that he doesn't necessarily recognize wise advice from his retainers. Maybe that's where the saying, "A fool and his money are soon parted" comes from. If a fool blew through the royal treasury he still had to keep up the appearance that he possessed great wealth. That's where paste gems would have come in handy.
In any case, word got out about the newfangled fake gems. So then people cooked up the story that they wore paste because the real gems they possessed were now worth so much money they had to be kept under lock and key. That malarkey appealed to the copycat aspect of human nature. Soon, many members of the aristocracy were wearing paste gems. Social climbers followed suit. Then it was everybody's turn to be a posturing phony.
Fake jewelry was renamed "costume" jewelry in a nod to its widespread acceptance as a socially acceptable artifice.
By the time of the Art Deco period during the Roaring 1920s, costume jewelry made for women's party attire had become such an art that only a jeweler might be able to tell the difference between good paste gems and the real thing. This meant that people who hadn't a clue about how to produce wealth were able to wear signs that they had much wisdom, and often getting away with the masquerade.
A man could go far in society by draping his wife with good paste gems and setting himself up as an authority on amassing wealth. Fake credentials and fraudulent experts abounded. The U.S. stock market crash of 1929 saw many of the authorities losing their shirts, which left human nature even more confused about how to tell the fools from the wise ones.
By the time the French fashion designer Coco Chanel popularized the wearing of gobs of obviously fake jewelry with women's daytime attire, the entire concept of wealth as a guide to a person's wisdom had gone out the window. Any fool could Put on the Ritz and do so without even trying to pretend to wealth.
By the post-World War Two era economic theories had come to dominate the thinking about wealth in modernized societies. Individual wisdom was no longer necessary for humanity's survival, and neither was individual wealth; the science of economics and collective efforts would make the entire society wealthy. If you couldn't be personally wealthy it didn't matter because you could be glamorous and chic; Chanel's dressing herself and her rich clients in fake jewels and simply cut suits that could be easily copied by mass manufacturers of cheap costume jewelry and ready-to-wear suits was a way of saying all this.
Wisdom was dead. Long live cleverness, convenience, and revolving store credit.
The Recent Past
Human nature -- still with us after all these millennia, as the Gloria Steinem story illustrates -- rebelled at modernity's complete destruction of any handy way to tell the fools from the wise. The rebellion manifested in odd and even tragic ways, bubbling up like ash belched by a dormant volcano. Here are but just a few signs of the inferno buried under modernity in the USA:
Take, for example, Them. By the late 1950s in America self-published books and pamphlets began appearing in suburban mailboxes to warn that a cabal of super-rich, super-smart people was plotting to take over the world. By the late 1960s Them had been joined by a large cast of aliens and monsters, all looking like normal people until they suddenly showed their true form and leaped on the unsuspecting. A soap opera about an outwardly normal upper income family of vampires on Long Island made it onto national daytime TV.
The word "phony" crept more and more into the American lexicon.
Housewives whose husbands made a good salary began showing up at the shopping mall dressed like overgrown children -- in baggy sweatshirts and jeans -- and wearing not a bangle to jangle, even though they had a box full of real jewelry gifted by their husbands. What use was it to parade the stuff if it had no real meaning anymore?
A husband would come home from work to face a red-eyed wife sitting next to mounds of used Kleenex and snarling through three martinis, "You don't love me anymore."
The husbands took refuge with their secretaries. Wives burned their bras. The divorce rate skyrocketed. Women went to work in business offices and became shopaholics on credit, amassing piles of cheap costume jewelry. Then they wept when saw their wedding band, a vestige of a symbol of wisdom, at the bottom of a jewelry box. Then they went into psychotherapy.
Yes, all things told, human nature hasn't had a good hair day in modern society for at least a century. Come to think of it, human nature in many parts of the world probably hasn't had too many good hair days during the past 5,000 years.
If by now you're getting the impression that a major preoccupation at the back of your brain is trying to tell the wise ones from the fools -- I don't think we have a one-track 'unconscious' but the issue seems to be high on our list, given its importance to our survival.
What Are the Wise Men Saying Today?
So we return to the present era, which finds grown American men, now relegated to the status of children sitting outside the circle at the tribal council, hanging on every word issued by the wise men at the Federal Reserve Open Market Committee, then spending weeks dissecting the meaning of every word uttered by these paragons of wisdom and impatiently waiting for the next utterance.
The paragons are currently wondering, according to Bloomberg News, if they made a mistake by basing their decision to taper quantitative easing on the nation's official unemployment rate, which turned out to be a poor indicator of economic improvement because it doesn't reflect that many Americans have simply given up looking for work. Ah! The wise ones are wondering. What could that mean?
And we disapprove of the mullahs' rule over Iran.
Closing Thoughts
I repeat: The recognition of the crucial links between the ability to produce great abundance, the need to accord this ability deference in the governing process, and the tribe's survival formed human nature's view of wisdom and wealth and inextricably bound the two concepts together.
Again, I repeat: it was the recognition of all this which was a key to humanity's survival. And this is as true for the individual as for the group.
There is no way to separate the two concepts for survival purposes. The desire for wisdom unsupported by the work that produces an abundance degenerates into intellectualism. The work for wealth unsupported by the desire for wisdom degenerates into an accounting of possessions.
Whenever peoples in earlier times forgot this or didn't learn it, at the least they suffered badly and at worst their societies quickly died off. That modern peoples have not been taught this explains the staggering number of neuroses and personal tragedies that are connected with money. The road to sanity for American individuals, and for the nation, starts with recognizing one of human nature's hard-won keys to survival.
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So now that we've heard in earlier Pundita posts from Guardians of the Economy, Financial Stabilizers and a bona fide Guardian of the Sacred Cow, it's time to consider what human nature thinks of money and more specifically, wealth. For this we need to take a journey back in time -- way back, but first a brief stop at the Charlie Rose Show.
How Gloria Steinem made another feminist vanish into thin air
Several months ago Charlie Rose interviewed Gloria Steinem and another feminist, a much younger woman, whose name I don't recall for reasons that will quickly become evident. Every time Gloria spoke she was accompanied by loud clicking sounds, which the microphone amplified. The sounds were made by her wrist ornaments every time she gestured with her hands -- and she never stopped gesturing while she spoke.
She might have been wearing similar ornaments on her neck that contributed to the noise every time she moved her head; I can't recall for certain, but the point is that whether by design or unconsciously Gloria Steinem was deploying a very ancient means for being recognized as an authority. This rendered the other feminist at Charlie's interview table well nigh invisible -- to the point where if you paid me I couldn't recall her name even though it was flashed on the TV screen almost every time she spoke.
The Original Savings Account
Gloria's use of the noise of her ornaments to signify that she was the authority on feminism makes sense, if you think it through. When our race formed into large tribes the last word about a decision that affected the entire tribe couldn't be left to the person who could shout the loudest. There was always some fool who could shout louder than anyone else. Another means had to be found to establish whose opinion should carry the greatest weight at tribal council.
Then as now money talks and the ability to create wealth, which in its most basic and key meaning is simply abundance, does a better job of shouting than the human vocal cords. Before the days of currency, people wore their wealth in the form of whatever was considered to represent a prized store of value. The tradition of wearing a family's wealth probably still exists in remote regions of the world because I met with instances of it little more than a quarter century ago.
I don't know why men began piling the family wealth on their wives instead of wearing it themselves but that's what happened. (There must have been fights at first: You wear the family fortune today, dear. No you wear it; I have to milk the goat.) Maybe it was because the men didn't want to be burdened by wearing all that stuff while they hunted and fished. It might have been a way of thanking the wife for her abundance in producing children. And maybe it was a way for males to signify that they too produced abundance, the signs of which they gifted to the mother to their children. Maybe it was all these reasons and others.
In any case, what we moderns consider feminine ornamentation is actually humanity's original savings account, which did double duty as a badge of authority.
Telling the Wise One from the Fools
To cut a story, establishing authority for final decisions in the tribe worked out to which wife jangled, clacked, or clicked the loudest. Because a wife couldn't make that much noise wearing only one or two metal bangles, clamshells or a few beads or whatever, this signified her husband didn't yet have sufficient wisdom to make a decision that affected the entire tribe's welfare. But the wife who wore, say, 20 bangles on each arm could make enough racket to wake the dead just by waving Hello. This served as a polite but constant reminder to the rest of the tribe that her husband could provide the wisest counsel because he had a demonstrated ability to produce great abundance.
The recognition of the crucial links between the ability to produce great abundance, the need to accord this ability deference in the governing process, and the tribe's survival formed human nature's view of wisdom and wealth and inextricably bound the two concepts together.
For many thousands of years things bumped along according to the savings account jangling method of quickly distinguishing the fools from the wise.
Then history happened.
The Treasury
In the really old days people didn't live very long so family fortunes weren't that large. But as a longer life span evolved, and maybe also as our race became less nomadic and took up farming, the wisest man's wife had to be built like a Sherman tank just to walk under the weight of her husband's abundance. I wouldn't be surprised to learn that the wheel was invented to truck around wives wearing a 300 pound savings account.
Finally things got to the point where some genius suggested that what the tribe needed was a treasury -- a central place to store accumulated wealth. Thanks to the copycat aspect of human nature this idea took off with other tribes as well.
Trouble soon followed.
I don't mean to imply that the establishing of treasuries was a monolithic or sudden occurrence around the world. As I noted even in this era there are probably tribes that still keep to the old ways. But the idea caught on or was independently conceived in many regions over time.
The treasury was an inevitable development. Yet this marked the weakening of the link between physical wealth and wisdom. Whereas the link had been very concrete when people were a literal bank, it became increasingly abstract when wealth was put in a building.
The storehousing of wealth made it harder to spot at a glance or a hearing who was wise, wiser, and wisest. And the storehousing tended to downgrade the importance attached to wisdom. The parable "The King and the Golden Goose" illustrates this. The process of creating wealth takes work, which produces experience, which produces wisdom. The physical signs of wealth symbolize this. Yet once the product of work became abstract, greed for the product lowered the value of wisdom. And so the unwise king killed the goose that laid golden eggs on the assumption he could obtain all the riches at once.
Another downside to the building of treasuries was that separating the physical wealth from the person who owned it made it easier to rationalize the plunder of wealth and the killing of other humans in the process.
More Trouble
Treasuries led to all other sorts of trouble, although I don't know whether this was a chicken or egg situation -- whether large-scale armed conquests led to the building of more treasuries or whether the conquests geared up just because there were treasuries to raid. The story probably varied from region to region and era to era.
But I will say there is something about putting stuff in a building and marking it off limits without permission to enter that seems to trigger a blip in the male brain. Men could see the same amount of treasure walking around on women and not think anything of it, but give the treasure its own room and limit entry, and this is a recipe for trouble.
Eventually, in different parts of the world where treasuries were set up, the keepers of the treasury -- all men -- starting lording it over everyone else in the tribe. They wanted to be the only people who could wear stuff from the treasury. Then they started claiming they had a divine dispensation to wear the stuff. Then they claimed they were actually gods. Then they wanted everyone to bow down to them because they were the only wise people in the tribe. Then they wanted their families to inherit control of the treasury. It just went on and on.
Anyhow, humanity somehow survived the introduction of the treasury, but the ultimate price was that human nature found it much harder to maintain a standard for telling the wise ones from the fools.
War and More Degeneration of the Wisdom Standard
The rise of large-scale armed conquests meant that wealth could be stolen in increasingly large amounts. This placed human nature in another quandary when it came to identifying the wise ones. The ability to steal large measures of wealth signified cunning and even bravery. But possession of piles of stolen loot didn't necessarily indicate wisdom -- especially when rule over the hoard was inherited. In that event a complete idiot could be in possession of great wealth.
I'm not sure how human nature handled this new wrinkle, although it's likely the rise of bureaucracies and royal retinues was at least in part an attempt to patch over the problem of idiots in control of a kingdom's wealth. (Don't worry that he's an idiot; we're his brain.)
Faux Signs of Wisdom
Then, about 300 years ago, a new trouble launched -- in Europe, although it quickly spread to America.. The trouble was fake jewelry. By the way I don't think it's an accident of history that around the same time fake jewelry came into widespread use in the West the study called economics began to greatly interest Western governments.
It's not as if fake jewelry was introduced in that era; the ancient Romans made pretty good paste gems. But whether the Roman art was lost and rediscovered around 300 years ago or independently discovered at that time (probably historians of jewelry making know the answer), there might have been an impetus in Europe around that time to produce paste gems if economists were giving bad advice to kings, or if inbreeding in royal families was producing a lot of fools for royal heirs, or both those problems were in effect..
The problem with having a fool for a king is that he doesn't necessarily recognize wise advice from his retainers. Maybe that's where the saying, "A fool and his money are soon parted" comes from. If a fool blew through the royal treasury he still had to keep up the appearance that he possessed great wealth. That's where paste gems would have come in handy.
In any case, word got out about the newfangled fake gems. So then people cooked up the story that they wore paste because the real gems they possessed were now worth so much money they had to be kept under lock and key. That malarkey appealed to the copycat aspect of human nature. Soon, many members of the aristocracy were wearing paste gems. Social climbers followed suit. Then it was everybody's turn to be a posturing phony.
Fake jewelry was renamed "costume" jewelry in a nod to its widespread acceptance as a socially acceptable artifice.
By the time of the Art Deco period during the Roaring 1920s, costume jewelry made for women's party attire had become such an art that only a jeweler might be able to tell the difference between good paste gems and the real thing. This meant that people who hadn't a clue about how to produce wealth were able to wear signs that they had much wisdom, and often getting away with the masquerade.
A man could go far in society by draping his wife with good paste gems and setting himself up as an authority on amassing wealth. Fake credentials and fraudulent experts abounded. The U.S. stock market crash of 1929 saw many of the authorities losing their shirts, which left human nature even more confused about how to tell the fools from the wise ones.
By the time the French fashion designer Coco Chanel popularized the wearing of gobs of obviously fake jewelry with women's daytime attire, the entire concept of wealth as a guide to a person's wisdom had gone out the window. Any fool could Put on the Ritz and do so without even trying to pretend to wealth.
By the post-World War Two era economic theories had come to dominate the thinking about wealth in modernized societies. Individual wisdom was no longer necessary for humanity's survival, and neither was individual wealth; the science of economics and collective efforts would make the entire society wealthy. If you couldn't be personally wealthy it didn't matter because you could be glamorous and chic; Chanel's dressing herself and her rich clients in fake jewels and simply cut suits that could be easily copied by mass manufacturers of cheap costume jewelry and ready-to-wear suits was a way of saying all this.
Wisdom was dead. Long live cleverness, convenience, and revolving store credit.
The Recent Past
Human nature -- still with us after all these millennia, as the Gloria Steinem story illustrates -- rebelled at modernity's complete destruction of any handy way to tell the fools from the wise. The rebellion manifested in odd and even tragic ways, bubbling up like ash belched by a dormant volcano. Here are but just a few signs of the inferno buried under modernity in the USA:
Take, for example, Them. By the late 1950s in America self-published books and pamphlets began appearing in suburban mailboxes to warn that a cabal of super-rich, super-smart people was plotting to take over the world. By the late 1960s Them had been joined by a large cast of aliens and monsters, all looking like normal people until they suddenly showed their true form and leaped on the unsuspecting. A soap opera about an outwardly normal upper income family of vampires on Long Island made it onto national daytime TV.
The word "phony" crept more and more into the American lexicon.
Housewives whose husbands made a good salary began showing up at the shopping mall dressed like overgrown children -- in baggy sweatshirts and jeans -- and wearing not a bangle to jangle, even though they had a box full of real jewelry gifted by their husbands. What use was it to parade the stuff if it had no real meaning anymore?
A husband would come home from work to face a red-eyed wife sitting next to mounds of used Kleenex and snarling through three martinis, "You don't love me anymore."
The husbands took refuge with their secretaries. Wives burned their bras. The divorce rate skyrocketed. Women went to work in business offices and became shopaholics on credit, amassing piles of cheap costume jewelry. Then they wept when saw their wedding band, a vestige of a symbol of wisdom, at the bottom of a jewelry box. Then they went into psychotherapy.
Yes, all things told, human nature hasn't had a good hair day in modern society for at least a century. Come to think of it, human nature in many parts of the world probably hasn't had too many good hair days during the past 5,000 years.
If by now you're getting the impression that a major preoccupation at the back of your brain is trying to tell the wise ones from the fools -- I don't think we have a one-track 'unconscious' but the issue seems to be high on our list, given its importance to our survival.
What Are the Wise Men Saying Today?
So we return to the present era, which finds grown American men, now relegated to the status of children sitting outside the circle at the tribal council, hanging on every word issued by the wise men at the Federal Reserve Open Market Committee, then spending weeks dissecting the meaning of every word uttered by these paragons of wisdom and impatiently waiting for the next utterance.
The paragons are currently wondering, according to Bloomberg News, if they made a mistake by basing their decision to taper quantitative easing on the nation's official unemployment rate, which turned out to be a poor indicator of economic improvement because it doesn't reflect that many Americans have simply given up looking for work. Ah! The wise ones are wondering. What could that mean?
And we disapprove of the mullahs' rule over Iran.
Closing Thoughts
I repeat: The recognition of the crucial links between the ability to produce great abundance, the need to accord this ability deference in the governing process, and the tribe's survival formed human nature's view of wisdom and wealth and inextricably bound the two concepts together.
Again, I repeat: it was the recognition of all this which was a key to humanity's survival. And this is as true for the individual as for the group.
There is no way to separate the two concepts for survival purposes. The desire for wisdom unsupported by the work that produces an abundance degenerates into intellectualism. The work for wealth unsupported by the desire for wisdom degenerates into an accounting of possessions.
Whenever peoples in earlier times forgot this or didn't learn it, at the least they suffered badly and at worst their societies quickly died off. That modern peoples have not been taught this explains the staggering number of neuroses and personal tragedies that are connected with money. The road to sanity for American individuals, and for the nation, starts with recognizing one of human nature's hard-won keys to survival.
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Sunday, September 29
Breakfast at Tiffany's (Updated)
Earlier this year, after I mentioned the ghost that prowls the Federal Reserve building in Washington after midnight, Sleepless in St. Louis asked if I'd known this by contacting the ghost through my famous Ouija board. No, and I'm afraid my relationship with the Spirit World has not been too good in recent years.
There was the time I was trying to investigate the Burned Korans Incident at Bagram Airfield on account of an unnamed NATO official had insisted to the Associated Press, at the conclusion of an official inquiry, that no Korans were burned. While pursuing a line of speculation I asked Ouija to tell me the temperature and amount of snow on the ground at Bagram on the date of the alleged Koran burning.
My spirit contact, a dipsomaniac Prussian general, replied with the number of frostbite victims in Napoleon's army at the Russian Front.
From this I gathered the Spirit World doesn't appreciate being used as an intelligence asset. Then there was the unfortunate business with Charlotte. It turns out that a rule for getting along with the Spirit World is never leave a possum alone with an Ouija board.
"I was just trying to contact my departed mother." More like her departed bookie. But then I never told you about the dark side of the possum member of my foreign policy team. As to what a possum can possibly do with unorthodox gambling proceeds -- I have no idea, unless a possum inveigles a softhearted human to hire a limousine to drive her to Tiffany's in Chevy Chase.
As soon as they see the limo: Quick, get the velvet pillow and the donut!
They stock up every morning on her favorite, Krispy Kreme lemon donuts, just in case she decides that today is the day she'll have breakfast at Tiffany's.
Awright, Pundita. Stop it. Just stop it. Back to work. Oh but wait, I see I've run out the clock on researching banking regulation issues, at least for one day. What a shame.
Update
Charlotte was a bit put out with me after she read that I'd termed her gambling "illegal" in the first version of this post. (If you've never heard of a possum who can read, well you're hearing of one now. How else could she work an Ouija board? She told me her wagers were "unorthodox." You know where she got that from, right? Of course, from reading that IMF chief Christine Lagarde had termed Ben Bernanke's massive quantitative easing program "unorthodox" monetary policy. [sighing]
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There was the time I was trying to investigate the Burned Korans Incident at Bagram Airfield on account of an unnamed NATO official had insisted to the Associated Press, at the conclusion of an official inquiry, that no Korans were burned. While pursuing a line of speculation I asked Ouija to tell me the temperature and amount of snow on the ground at Bagram on the date of the alleged Koran burning.
My spirit contact, a dipsomaniac Prussian general, replied with the number of frostbite victims in Napoleon's army at the Russian Front.
From this I gathered the Spirit World doesn't appreciate being used as an intelligence asset. Then there was the unfortunate business with Charlotte. It turns out that a rule for getting along with the Spirit World is never leave a possum alone with an Ouija board.
"I was just trying to contact my departed mother." More like her departed bookie. But then I never told you about the dark side of the possum member of my foreign policy team. As to what a possum can possibly do with unorthodox gambling proceeds -- I have no idea, unless a possum inveigles a softhearted human to hire a limousine to drive her to Tiffany's in Chevy Chase.
As soon as they see the limo: Quick, get the velvet pillow and the donut!
They stock up every morning on her favorite, Krispy Kreme lemon donuts, just in case she decides that today is the day she'll have breakfast at Tiffany's.
Awright, Pundita. Stop it. Just stop it. Back to work. Oh but wait, I see I've run out the clock on researching banking regulation issues, at least for one day. What a shame.
Update
Charlotte was a bit put out with me after she read that I'd termed her gambling "illegal" in the first version of this post. (If you've never heard of a possum who can read, well you're hearing of one now. How else could she work an Ouija board? She told me her wagers were "unorthodox." You know where she got that from, right? Of course, from reading that IMF chief Christine Lagarde had termed Ben Bernanke's massive quantitative easing program "unorthodox" monetary policy. [sighing]
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Saturday, September 28
War by another name. "Goodbye, globalization. Hello, Balkanization."
Financial Times, March 23, 2013:
Apple tax probe helps drive to build consensus on global regimeMiyanville via USA Today, September 27, 2013:
"... He said: “It is a trade war by another name – fought with income tax policies rather than tariffs. You can't assert leadership in moving to a more economically neutral and appropriate paradigm if you are knee deep in the game.” ... Big companies with well-known brands are exposed to the risk of a consumer backlash if they pay little corporate tax in countries where public opinion is running strongly against tax avoidance. In extreme cases, changing their business models in a way that exposes them to larger tax bills ..."
Amazon, Apple face more international taxes in EuropeBloomberg/Business Week, September 19, 2013:
It's no day at the plage operating a giant, successful, multinational American company, once you've run up against some very un-American notions about tax policy from abroad. Such as the "data tax" on Amazon, Apple, Facebook and Google, about to be proposed by France for adoption by the European Union.
Apparently, France would like to impose a data transmission tax on those companies -- and only those companies -- because they are the dominant platforms for Internet usage in Europe just as they are in the US, but they are "non-European," that is, American. Their dominance therefore prevents European competitors from emerging from obscurity. (How taxing the most popular sites will make other sites more popular with consumers is not clear.)
A French member of the European Parliament tells the Wall Street Journal that a data tax should be imposed because the European nations have become "just the puppets of financiers and multinationals." [...]
The Fed wants bigger cushions for U.S. units of Deutsche Bank and others.
The world’s biggest banks paint on a vast canvas. Many operate with a single, global balance sheet, raising money where it’s cheapest and investing it where it earns the highest return. So in certain countries, banks can have more liabilities than assets. Regulators allow them a free hand on the assumption that if one of their national operations runs into trouble, the home office will quickly route it all the funds it needs.
Daniel Tarullo doesn’t think that’s such a good idea. And as the point person for regulation on the Federal Reserve’s Board of Governors, he has sway in saying no. Tarullo is part of a wave of national regulators who are “ring-fencing” national banking operations -- insisting that they have a thick cushion of capital locally. The Fed doesn’t want to have to beg other central banks for help if a foreign bank in the U.S. suffers a funding crisis. Goodbye, globalization. Hello, Balkanization.
In December the Fed proposed a rule, shaped by Tarullo, that would require the U.S. units of foreign commercial and investment banks to have assets on their books well in excess of their borrowings as a buffer against losses. They can still lend and invest abroad. But the value of all the subsidiaries’ assets, whether inside or outside the U.S., has to be greater than their liabilities such as bonds, repo borrowings, or bank deposits they’ve taken in.
Although the U.S. wasn’t the first country to propose ring-fencing, the move stirred opposition because the U.S. is a vital market for global banks and, traditionally, a defender of the free flow of money across borders. Michel Barnier, the member of the European Commission who oversees financial services, wrote to Fed Chairman Ben Bernanke earlier this year that the plan could trigger an international backlash and “fragmentation of global banking markets.” What seemed to bother him most was that the Fed didn’t trust its foreign counterparts. “Trust among regulators,” he wrote, is “essential.” [...]
Ya mean there's no currency war?
Responding to a critic who disputes my claim that Ben Bernanke's quantitative easing experiment is a form of currency war. I'll grant there are different schools of thought on the issue. In February, when the issue heated up, The Economist jumped into the fray with the headline Phoney Currency Wars: The world should welcome the monetary assertiveness of Japan and America. The World Socialist Web Site retorted with G20 Issues Empty Declaration Against Currency War
But the G20 confab in Moscow in February settled the debate. The G20 members decreed that it's not currency war if a currency's value is driven down by a government in the effort to address purely national needs. That shut up the ASEAN members who were complaining that Japan's massive QE program, which copies the Fed's, is currency war.
Now let's see how we can amplify on the G20 clarification of currency war by putting it in a sentence. The Nazi annexation of Poland was not war; it was simply that Germans needed more space.
[flipping a pen in the air] My critics can do better than this.
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But the G20 confab in Moscow in February settled the debate. The G20 members decreed that it's not currency war if a currency's value is driven down by a government in the effort to address purely national needs. That shut up the ASEAN members who were complaining that Japan's massive QE program, which copies the Fed's, is currency war.
Now let's see how we can amplify on the G20 clarification of currency war by putting it in a sentence. The Nazi annexation of Poland was not war; it was simply that Germans needed more space.
[flipping a pen in the air] My critics can do better than this.
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Friday, September 27
Thank God for Bach
Whatever possessed me to take on the chore of explaining the new era in plain English? Next time, Pundita, why don't you try something simple, like organizing an expedition to Mars? My poor brain; all it wants to do is go outside and play. The only way I'm keeping it from staging a rebellion is by piping in Johann Sebastian Bach's compositions. Such an orderly man. Such an orderly life. Do you know why Bach lived an orderly life? Because he was smart. He never took on more than he could chew.
Yet what use is whining at this stage? In the immortal words of Dave Ronfeldt, onward. Where's the link to his blog? But then I'm sick of links; I have them piled to the ceiling. It's the Two Theories Blog. Why not four theories? Awright, Pundita, don't take out your bad mood on Dave. Do you know what people are doing right now my city, in Washington, DC? Smart people? They're sitting in outdoor cafes, sipping margaritas and enjoying the glorious Indian summer evening.
[flipping a pen in the air]
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Yet what use is whining at this stage? In the immortal words of Dave Ronfeldt, onward. Where's the link to his blog? But then I'm sick of links; I have them piled to the ceiling. It's the Two Theories Blog. Why not four theories? Awright, Pundita, don't take out your bad mood on Dave. Do you know what people are doing right now my city, in Washington, DC? Smart people? They're sitting in outdoor cafes, sipping margaritas and enjoying the glorious Indian summer evening.
[flipping a pen in the air]
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Remember: economics is bloodless. A lesson from the U.S. Federal Reserve's role in the uh, "Arab Spring"
Law professor and political scientist Stephen F. Diamond was clearly
unaware that there's no blood in economics when he lit into the
Wall Street Editorial Board this July for recommending (on the Fourth of July, no
less!) the installation of a Pinochet knockoff in Egypt to stabilize the
Egyptian economy. After summarizing the atrocities committed by the
Pinochet regime Steve wrote:
"Either the Journal has been struck by some kind of severe cognitive disorder that allows it to paint over the history of one of the most brutal regimes to have ever ruled or they really mean it. If the former, they owe their readers and the Chilean and Egyptian people an apology and should retract the statement. If the latter, then they are in fact the leading edge of a new fascism emerging here in America."
Steve needs to get with the program. In the new global order there is no such thing as fascism. As I explained in
the Brave New Global Economy post, the only types of government are a) economically stable ones and b) unstable ones. Secondly, the WSJ board was just trying to be helpful, as this passage from the editorial indicates:
"Washington can also do more to help Egypt gain access to markets, international loans and investment capital."
That's the ticket! Emerging economies can't prosper unless you first provide them with enough jobs, and you can't create enough jobs unless the economies increase their "foreign direct investment." From that viewpoint it makes sense to recommend the installation of a leader who will delete statistical anomalies that make a big deal about not wanting to accept economic prescriptions that are good for their economy.
If Steve wants to argue that it wasn't statistical aggregates Pinochet deleted, it was people -- ah, but if those people have no real existence apart from the economic collective, well, you hire workers from the low-income demographic to mop up the blood, then you talk about the benefits of applying your mathematical models to the next generation of statistical aggregates.
I don't think it's much of a digression to mention that if the Wall Street Journal is actually interested in helping Egyptians, it would ask Federal Reserve Chairman Ben Bernanke to stop his quantative easing experiment to stabilize the U.S. economy -- or as IMF chief Christine Lagarde calls it, "unorthodox monetary policy."
Now why would stopping QE help the Egyptians? QE is not all that unorthodox; only the huge dollar amount and long duration of Ben's version of QE is unorthodox. QE is known by another name: exporting your government's debt. This practice can have all kinds of weird consequences, as happened in the region that in the old era was called MENA -- Middle East North Africa. Take one example, summarized in Stephen Maher's November 2011 piece for Monthly Review titled The Political Economy of the Egyptian Uprising:
"In the year leading up to the revolutionary uprising, food prices in Egypt jumped another 30 percent, despite increased government subsidies put in place after the 2008 riots. This rapid rise in prices was at least partially driven by the decision of the United States Federal Reserve to undertake a nearly $2 trillion Quantitative Easing program, flooding the market with liquidity and inflating the prices of assets valued in dollars. This meant a sharp rise in commodity prices, which hit poorer countries the hardest.
[...]
Seeking to stabilize the system in the midst of the 2009 crisis, Western financial institutions simply relocated it: the uprisings that spread across [MENA] were partly fueled by this spike in inflation (the inflation rate in Egypt doubled in 2009)."
So to bring the Wall Street Journal Board up to speed: Augusto Pinochet didn't have to deal with Bernanke's QE experiment; if he had, whatever improvements in Chile's economy that came from his ramming through economic reforms wouldn't have happened. Instead, he would have found himself in the same boat as the Gamalists: frantically trying to bail out an ocean of liquidity spewing from the Federal Reserve.
While I'm on the subject of Egypt, I might as well mention another point to the WSJ Board. There's a widely held theory in Egypt (and here at Pundita blog) that the Gamalists were booted out of the government just because they were devotees of the very same economic prescription that the WSJ now recommends for Egypt.(1) The Gamalists had to go because their "neoliberal" economic practices (and the cronyism that evolved from it) were threatening the land holdings and business enterprises of Egypt's generals. From that point of view, which is also my point of view, the ouster of Gamal's father, Hosni Mubarak, was just collateral damage in the purge of the Gamalists.
After the coup the generals reinstalled in Egypt's government those neoliberals who'd learned to play ball. However, they're still up against the Fed's QE program, which hasn't abated ostensibly because it still hasn't met the Fed's economic targets.
Exporting your government's debt is another way of saying that you're driving down the cost of your nation's currency so that other countries will import more of your goods. The theory is that this practice will bouy your stricken economy. However, the theory was never meant to be applied during a catastrophic financial crisis that engulfs many of the world's nations.
Bernanke overlooked this striking fact, with the result that his experiment bouyed not the U.S. economy but the U.S. dollar and specifically currency and commodity speculators here and around the globe. The result was that the U.S. dollar became a hot commodity fueling a U.S. stock market boom -- and the collapse of more than one government in MENA.
Ironically both the Tunisian and Egyptian regimes at the time of their ouster were pursuing the very economic policies that the Wall Street Journal wants an Arab version of Pinochet to ram through in post-Gamalist Egypt. The WSJ Board might want to put that bit of recent history in their pipe and smoke it.
The grim reality is that the Gamalists had been caught in a vise of events. Even as early as 2010 they'd realized they had to ease up on the pace of neoliberal reforms -- not to placate the generals but because the reforms hadn't translated into enough jobs fast enough, leaving many Egyptians still stuck in dire financial straits. Yet the Gamalists found themselves frantically bailing water as Egypt (along with many other emerging economies) took the full brunt of Federal Reserve monetary policy.
One more point: The passage I skipped over in the Maher quotes mentions an argument by David Harvey, author of The Enigma of Capital, which is that "capital cannot solve its crisis tendencies but merely moves them around," as Maher puts it. I haven't read Harvey's book but if he (or Maher) is trying to pin Bernanke's manic quantitative easing on capitalism, he'd get an argument from me. The huge size of Ben's experiment tags it as straight-out currency warfare gussied up in fancy economic jabber.
1) DON'T click on that link unless you know a lot about the controversies surrounding neoliberal policies or else you'll get completely confused. I just grabbed that illustration at random, for readers who're unaware that the real target of the 'revolution in Cairo' was the Gamalists.
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"Either the Journal has been struck by some kind of severe cognitive disorder that allows it to paint over the history of one of the most brutal regimes to have ever ruled or they really mean it. If the former, they owe their readers and the Chilean and Egyptian people an apology and should retract the statement. If the latter, then they are in fact the leading edge of a new fascism emerging here in America."
Steve needs to get with the program. In the new global order there is no such thing as fascism. As I explained in
the Brave New Global Economy post, the only types of government are a) economically stable ones and b) unstable ones. Secondly, the WSJ board was just trying to be helpful, as this passage from the editorial indicates:
"Washington can also do more to help Egypt gain access to markets, international loans and investment capital."
That's the ticket! Emerging economies can't prosper unless you first provide them with enough jobs, and you can't create enough jobs unless the economies increase their "foreign direct investment." From that viewpoint it makes sense to recommend the installation of a leader who will delete statistical anomalies that make a big deal about not wanting to accept economic prescriptions that are good for their economy.
If Steve wants to argue that it wasn't statistical aggregates Pinochet deleted, it was people -- ah, but if those people have no real existence apart from the economic collective, well, you hire workers from the low-income demographic to mop up the blood, then you talk about the benefits of applying your mathematical models to the next generation of statistical aggregates.
I don't think it's much of a digression to mention that if the Wall Street Journal is actually interested in helping Egyptians, it would ask Federal Reserve Chairman Ben Bernanke to stop his quantative easing experiment to stabilize the U.S. economy -- or as IMF chief Christine Lagarde calls it, "unorthodox monetary policy."
Now why would stopping QE help the Egyptians? QE is not all that unorthodox; only the huge dollar amount and long duration of Ben's version of QE is unorthodox. QE is known by another name: exporting your government's debt. This practice can have all kinds of weird consequences, as happened in the region that in the old era was called MENA -- Middle East North Africa. Take one example, summarized in Stephen Maher's November 2011 piece for Monthly Review titled The Political Economy of the Egyptian Uprising:
"In the year leading up to the revolutionary uprising, food prices in Egypt jumped another 30 percent, despite increased government subsidies put in place after the 2008 riots. This rapid rise in prices was at least partially driven by the decision of the United States Federal Reserve to undertake a nearly $2 trillion Quantitative Easing program, flooding the market with liquidity and inflating the prices of assets valued in dollars. This meant a sharp rise in commodity prices, which hit poorer countries the hardest.
[...]
Seeking to stabilize the system in the midst of the 2009 crisis, Western financial institutions simply relocated it: the uprisings that spread across [MENA] were partly fueled by this spike in inflation (the inflation rate in Egypt doubled in 2009)."
So to bring the Wall Street Journal Board up to speed: Augusto Pinochet didn't have to deal with Bernanke's QE experiment; if he had, whatever improvements in Chile's economy that came from his ramming through economic reforms wouldn't have happened. Instead, he would have found himself in the same boat as the Gamalists: frantically trying to bail out an ocean of liquidity spewing from the Federal Reserve.
While I'm on the subject of Egypt, I might as well mention another point to the WSJ Board. There's a widely held theory in Egypt (and here at Pundita blog) that the Gamalists were booted out of the government just because they were devotees of the very same economic prescription that the WSJ now recommends for Egypt.(1) The Gamalists had to go because their "neoliberal" economic practices (and the cronyism that evolved from it) were threatening the land holdings and business enterprises of Egypt's generals. From that point of view, which is also my point of view, the ouster of Gamal's father, Hosni Mubarak, was just collateral damage in the purge of the Gamalists.
After the coup the generals reinstalled in Egypt's government those neoliberals who'd learned to play ball. However, they're still up against the Fed's QE program, which hasn't abated ostensibly because it still hasn't met the Fed's economic targets.
Exporting your government's debt is another way of saying that you're driving down the cost of your nation's currency so that other countries will import more of your goods. The theory is that this practice will bouy your stricken economy. However, the theory was never meant to be applied during a catastrophic financial crisis that engulfs many of the world's nations.
Bernanke overlooked this striking fact, with the result that his experiment bouyed not the U.S. economy but the U.S. dollar and specifically currency and commodity speculators here and around the globe. The result was that the U.S. dollar became a hot commodity fueling a U.S. stock market boom -- and the collapse of more than one government in MENA.
Ironically both the Tunisian and Egyptian regimes at the time of their ouster were pursuing the very economic policies that the Wall Street Journal wants an Arab version of Pinochet to ram through in post-Gamalist Egypt. The WSJ Board might want to put that bit of recent history in their pipe and smoke it.
The grim reality is that the Gamalists had been caught in a vise of events. Even as early as 2010 they'd realized they had to ease up on the pace of neoliberal reforms -- not to placate the generals but because the reforms hadn't translated into enough jobs fast enough, leaving many Egyptians still stuck in dire financial straits. Yet the Gamalists found themselves frantically bailing water as Egypt (along with many other emerging economies) took the full brunt of Federal Reserve monetary policy.
One more point: The passage I skipped over in the Maher quotes mentions an argument by David Harvey, author of The Enigma of Capital, which is that "capital cannot solve its crisis tendencies but merely moves them around," as Maher puts it. I haven't read Harvey's book but if he (or Maher) is trying to pin Bernanke's manic quantitative easing on capitalism, he'd get an argument from me. The huge size of Ben's experiment tags it as straight-out currency warfare gussied up in fancy economic jabber.
1) DON'T click on that link unless you know a lot about the controversies surrounding neoliberal policies or else you'll get completely confused. I just grabbed that illustration at random, for readers who're unaware that the real target of the 'revolution in Cairo' was the Gamalists.
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Thursday, September 26
Housekeeping Notes
Last night I mistakenly posted a draft of O Brave New Economy! instead of the final version. The mistake was corrected at 2:20 this afternoon. The post has a linked list of all the earlier ones in the economic collectivism - police state series. The grand total for the series is 7.
A few days ago I revised From Tofu to Police State; with regret I deleted most of the discussion related to the foreign policy team because it distracted from the theme of the post, which was to expand on the definition of economic collectivism. I also gave the post a place (#4)in the ECPS series.
I reopened the comment section and it was immediately hit by waves of spam. I've kept the section closed for most of this blog's existence, which has spared me a great deal of hassle, and I might have to close it again, or else set up a lot of hoops to jump through, which discourages many readers from posting a comment. For now the section is open.
.
A few days ago I revised From Tofu to Police State; with regret I deleted most of the discussion related to the foreign policy team because it distracted from the theme of the post, which was to expand on the definition of economic collectivism. I also gave the post a place (#4)in the ECPS series.
I reopened the comment section and it was immediately hit by waves of spam. I've kept the section closed for most of this blog's existence, which has spared me a great deal of hassle, and I might have to close it again, or else set up a lot of hoops to jump through, which discourages many readers from posting a comment. For now the section is open.
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Wednesday, September 25
O Brave New Global Economy! Part 7 of "From Economic Collective to Police State" (REVISED 2:20 PM 9/26)
The Language of the New Order
The first thing about surviving the new order is to learn the basics of the lingo. This is so you don't stick out like a sore thumb from the economic collective and get mistaken for a statistical anomaly:
1. The U.S. republic is now the economy. By the way it's gauche for an American to put "U.S." before his own economy; only demographics in other economies should do that. To distinguish your demographic's economy from others you can refer to it as "the domestic economy."
2. There is no more "world." There is now the global economy. The only people who can use "world" are high caste demographics who must dumb down explanations about the new order for lower castes. (It is out of bounds to ask why there are castes in an economic collective.)
3. Global economic regions are no longer referred to by their geography. There are now only two regions: mature economies and emerging economies (or emerging markets if you're talking fast.)
4. There are no more countries or nations; there are economies, which in a nod to convention can keep their old national designations; e.g., Canadian economy, Mexican economy.
5. Because there are no more nations there are no more political definitions for types of government; e.g., democratic, fascist, socialist, absolute monarchy, etc. There are financially stabilized economies and financially unstable ones.
6. It's rude to refer to a demographic as "people."
To make sure you know how to use the basic phrases, here is an example of how they can be used in actual sentences. The following is from an official statement by U.S. Director of National Intelligence James Clapper. He was responding to published evidence that the U.S. government is using NSA surveillance to conduct "economic espionage" against other countries. James explained that the government does no such thing:
Another example, taken from a profile of economist and undersecretary for international affairs at Treasury, Lael Brainard:
The brass tacks of the new era
For any reader who should ask whether this new lingo is the way they always talked at the IMF -- yes, and at central banks and other economically oriented institutions that have clout with governments. It's just that the IMF's traditional way of dealing with underdeveloped nations is now the way, period. The catch, as I explained in the last post, is that the IMF way is famously ruthless -- famous among underdeveloped peoples as they used to be called.
And so this March we saw the developed peoples of Cyprus staging protests when they found to their bewilderment that their bank accounts had been frozen without warning. They thought things like that are only supposed to happen to underdeveloped peoples. And we saw BBC news anchor Katty Kay demanding of economist Larry Summers that he explain whether the Cypriot Solution would be applied to Americans. As I recounted in the August 21 post, after a fling at playing Zen Master Larry got down to brass tacks:
The first thing about surviving the new order is to learn the basics of the lingo. This is so you don't stick out like a sore thumb from the economic collective and get mistaken for a statistical anomaly:
1. The U.S. republic is now the economy. By the way it's gauche for an American to put "U.S." before his own economy; only demographics in other economies should do that. To distinguish your demographic's economy from others you can refer to it as "the domestic economy."
2. There is no more "world." There is now the global economy. The only people who can use "world" are high caste demographics who must dumb down explanations about the new order for lower castes. (It is out of bounds to ask why there are castes in an economic collective.)
3. Global economic regions are no longer referred to by their geography. There are now only two regions: mature economies and emerging economies (or emerging markets if you're talking fast.)
4. There are no more countries or nations; there are economies, which in a nod to convention can keep their old national designations; e.g., Canadian economy, Mexican economy.
5. Because there are no more nations there are no more political definitions for types of government; e.g., democratic, fascist, socialist, absolute monarchy, etc. There are financially stabilized economies and financially unstable ones.
6. It's rude to refer to a demographic as "people."
To make sure you know how to use the basic phrases, here is an example of how they can be used in actual sentences. The following is from an official statement by U.S. Director of National Intelligence James Clapper. He was responding to published evidence that the U.S. government is using NSA surveillance to conduct "economic espionage" against other countries. James explained that the government does no such thing:
We collect this information for many important reasons: for one, it could provide the United States and our allies early warning of international financial crises which could negatively impact the global economy. It also could provide insight into other countries' economic policy or behavior which could affect global markets.So one of the nice things about the new order is that no matter what kind of compromising situation you're caught in you can draw yourself up to your full height and say, 'I didn't do that. I'm doing research to help stabilize the global economy.'
Another example, taken from a profile of economist and undersecretary for international affairs at Treasury, Lael Brainard:
Brainard has since served as the principal policy adviser to Secretary Geithner on international economic matters at the Treasury Department. Treasury describes her role as advancing the Administration's agenda of strengthening U.S. leadership in the global economy to foster growth, creating economic opportunities for Americans, and addressing transnational economic challenges, including development and climate change.If you want to learn more of the new lingo and how to use it in sentences you can plow through the Dodd-Frank Act, provided you have a team of attorneys specializing in financial regulations to translate for you. Or you can study the transcript of Lael's recent analysis for the Council of Foreign Relations of the global and domestic economies.
The brass tacks of the new era
For any reader who should ask whether this new lingo is the way they always talked at the IMF -- yes, and at central banks and other economically oriented institutions that have clout with governments. It's just that the IMF's traditional way of dealing with underdeveloped nations is now the way, period. The catch, as I explained in the last post, is that the IMF way is famously ruthless -- famous among underdeveloped peoples as they used to be called.
And so this March we saw the developed peoples of Cyprus staging protests when they found to their bewilderment that their bank accounts had been frozen without warning. They thought things like that are only supposed to happen to underdeveloped peoples. And we saw BBC news anchor Katty Kay demanding of economist Larry Summers that he explain whether the Cypriot Solution would be applied to Americans. As I recounted in the August 21 post, after a fling at playing Zen Master Larry got down to brass tacks:
In a world where my spending is your income -- if every person, if every nation, tries to save more it just lowers everyone's income.
Those who read the August 21 post know Larry's reply is straight out of the Federal Reserve's playbook of reverse-engineering the 300-year old Paradox of Thrift. But if Larry's words also sound familiar to readers of dystopian fiction -- does this ring a bell?
Huxley didn't see himself as a prophet, from what I read about the novel in Wikipedia; he wrote it to poke fun at H.G. Wells' rosy view of humanity's future. I'll bet that once totalitarian dictatorships gained steam in the 1930s readers of Brave New World stopped chuckling and so did Huxley.
The totalitarian states were in great measure a panic reaction to the Great Depression. Then, as now, it all comes down to the simple fact that by any which way a government must maintain social order in the face of perceived chaos arising from financial catastrophe.
To expand on Larry's answer he was saying two things:
1. Damnation visits those who hoard money in savings accounts instead of spending or investing it to help their economy weather a recession.
You will notice he said nothing about the laundering of ill-gotten money or about Russian oligarchs stashing loot in Cypriot banks; it could have been a bunch of Princeton professors for all he cared. Nor did he mention anything about offshore accounts or tax havens. Offshore or onshore makes no difference to Guardians of the Sacred Cow. Sin is sin, no matter who commits it or why. And the greatest sin is harming so much as a hair on the Sacred Cow's hide, this cow being known as the Paradox of Thrift. To be precise, the cow is the belief that it's possible to perpetually stave off an economic depression by fiddling with the monetary policy to reverse-engineer the paradox.
Makes no matter that the paradox is nonsense or as it's known to attorneys and logicians a reductio ad absurdum argument. Nor does it matter that reverse-engineering the paradox did nothing to stave off a second Great Depression, which the Fed recast as a Great Recession by shifting around a few percentage points and fiddling with statistics. What matters is if you kill a sacred cow the world will end and then we'll all go straight to hell.
2. Larry was also signifying that a new global order had launched. In the new order no distinction is made between developed and underdeveloped peoples if actions by either demographic threaten to upset the global apple cart, which economists are trying with all their might to keep from toppling again.
(That the same basic monetary policies in force prior to 2007 helped topple the apple cart in the first place and are still in force today -- don't try to confuse a Guardian of the Sacred Cow with facts.)
Yes, Americans will be treated in the same way as the Cypriots if they have deposits in a 'bad' bank that's considered by a domestic or international regulatory agency to be Too Systemically Important to Fail or Too Globally Systemically Important to Fail. And the authorities for treating everyone the same are right there in Title II of the Dodd-Frank Act and buried somewhere in its international version, if the G20 Financial Stability Board ever gets around to writing up the manual.
Closing Thoughts
Well, there's nothing left for me to do except give Shakespeare almost the last word in this series on the economic collective and the police state. The title of Huxley's Brave New World is a play on a hilarious scene in The Tempest: having been raised on an island isolated from Civilization Miranda cries out in joy at her first sight of it, which happens to be drunk sailors piling out of their shipwrecked vessel:
O wonder!
How many goodly creatures are there here!
How beauteous mankind is! O brave new world,
That has such people in't.
And so we find, at the end of all the charts and graphs, that the brave new global economy is the same as the brave new global economy of the Bard's day: a bunch of rascals putting on airs
********************
Earlier Posts in the Series
America is becoming a police state. What's the solution?
From Economic Collective to Police State: Once Americans ceded control over their financial affairs they lost control of everything else
The Guardians of the Economy make their move
From Tofu to Police State (More about economic collectivism)
Modern U.S. lawmaking and the original police state
To maintain the World State's Command Economy for the indefinite future, all citizens are conditioned from birth to value consumption with such platitudes as "ending is better than mending," "more stitches less riches", i.e., buy a new item instead of fixing the old one, because constant consumption, and near-universal employment to meet society's material demands, is the bedrock of economic and social stability for the World State.That's from a synopsis of Aldous Huxley's Brave New World, written in 1931 and published in 1932, just as the Great Depression was hunkering down for the long haul.
Huxley didn't see himself as a prophet, from what I read about the novel in Wikipedia; he wrote it to poke fun at H.G. Wells' rosy view of humanity's future. I'll bet that once totalitarian dictatorships gained steam in the 1930s readers of Brave New World stopped chuckling and so did Huxley.
The totalitarian states were in great measure a panic reaction to the Great Depression. Then, as now, it all comes down to the simple fact that by any which way a government must maintain social order in the face of perceived chaos arising from financial catastrophe.
To expand on Larry's answer he was saying two things:
1. Damnation visits those who hoard money in savings accounts instead of spending or investing it to help their economy weather a recession.
You will notice he said nothing about the laundering of ill-gotten money or about Russian oligarchs stashing loot in Cypriot banks; it could have been a bunch of Princeton professors for all he cared. Nor did he mention anything about offshore accounts or tax havens. Offshore or onshore makes no difference to Guardians of the Sacred Cow. Sin is sin, no matter who commits it or why. And the greatest sin is harming so much as a hair on the Sacred Cow's hide, this cow being known as the Paradox of Thrift. To be precise, the cow is the belief that it's possible to perpetually stave off an economic depression by fiddling with the monetary policy to reverse-engineer the paradox.
Makes no matter that the paradox is nonsense or as it's known to attorneys and logicians a reductio ad absurdum argument. Nor does it matter that reverse-engineering the paradox did nothing to stave off a second Great Depression, which the Fed recast as a Great Recession by shifting around a few percentage points and fiddling with statistics. What matters is if you kill a sacred cow the world will end and then we'll all go straight to hell.
2. Larry was also signifying that a new global order had launched. In the new order no distinction is made between developed and underdeveloped peoples if actions by either demographic threaten to upset the global apple cart, which economists are trying with all their might to keep from toppling again.
(That the same basic monetary policies in force prior to 2007 helped topple the apple cart in the first place and are still in force today -- don't try to confuse a Guardian of the Sacred Cow with facts.)
Yes, Americans will be treated in the same way as the Cypriots if they have deposits in a 'bad' bank that's considered by a domestic or international regulatory agency to be Too Systemically Important to Fail or Too Globally Systemically Important to Fail. And the authorities for treating everyone the same are right there in Title II of the Dodd-Frank Act and buried somewhere in its international version, if the G20 Financial Stability Board ever gets around to writing up the manual.
Closing Thoughts
Well, there's nothing left for me to do except give Shakespeare almost the last word in this series on the economic collective and the police state. The title of Huxley's Brave New World is a play on a hilarious scene in The Tempest: having been raised on an island isolated from Civilization Miranda cries out in joy at her first sight of it, which happens to be drunk sailors piling out of their shipwrecked vessel:
O wonder!
How many goodly creatures are there here!
How beauteous mankind is! O brave new world,
That has such people in't.
And so we find, at the end of all the charts and graphs, that the brave new global economy is the same as the brave new global economy of the Bard's day: a bunch of rascals putting on airs
********************
Earlier Posts in the Series
America is becoming a police state. What's the solution?
From Economic Collective to Police State: Once Americans ceded control over their financial affairs they lost control of everything else
The Guardians of the Economy make their move
From Tofu to Police State (More about economic collectivism)
Modern U.S. lawmaking and the original police state
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