A long and interesting article has been published by Bill Mitchell entitled "Who is in charge?" It comes in the wake of further sovereign debt problems, most imminently with the so-called PIIGS of Europe. His message is that the classical monetarist knee-jerk reaction, promoted by the corporate media, has become ingrained in people so that both the public and the experts can no longer see that it is indeed just a construct - and a false one at that. Mitchell is promoting his modern monetarist theory (MMT) in which he shows that the idea that government finances are somehow analogous to our personal finances is wholly wrong. If a government has genuine sovereignty, that is, control of its currency, then the idea that it can somehow be bankrupted by the bond markets is false.
Mitchell sees this as one of many economic 'intuitions' that the public has been led to believe. Like I said, it is a long post and I'm no economist, but I am a mathematician so those formulas don't scare me! However, the message seems clear: "Where might we start exposing faulty intuition which allows policy makers to devastate their populations via fiscal austerity packages at the height of a near-depression?"
Well, one thing is the propaganda that if governments just print more money then inflation will rise. What the public is not told is that this convenient see-saw only applies when an economy is near 100% capacity and full employment. But the conviction that printing money is bad has led governments to issue bonds instead, using the temporary income from their sale to finance their spending. But such loans have to be paid back, usually by issuing yet more debt and thereby getting governments into the cycle of indebtedness to bankers. Up to this point it does all sound very similar to our personal finances, should we choose to live a life of indebtedness. However, unlike citizens, a government can create more money. Ironically, this makes the government merely in debt to its central bank rather than to the public (or rather private) bond markets. Mitchell seems to me close here to blaming the economists and the bankers that run government central banks almost as much as those who work for private banks. The Federal Reserve looms large in this debate as having the powers of a central bank yet being a private operation - the Federal Reserve is about as 'Federal' as Federal Express.
By promoting the idea that governments have to issue bonds so that the bond markets can keep a wary eye on government spending is thus a piece of monetarist ideology and not a law of nature. "But the mainstream have such an ideological obsession against government command of resources to pursue a socio-economic program (because such programs are “wasteful”, “inefficient”, “roads to no-where”; “undermine incentives”; “enslave free people”, etc) that they realise they can pull the emotional strings and invoke this faulty intuition in the public."
And here we come to the title of the article: who is really in control here? And as important, what are governments really for? There are many reasons for people to keep an eye on the activities of their government, but for a sovereign nation to tell its people that it is effectively being controlled by private bankers with no interest in their well-being , well, nobody is going to do that. Instead they hide behind false monetarist policies.
This clash of capitalism and sovereignty was bound to happen. The aim of corporations is to grow, the aim of governments is to (supposedly) look after their people. Capitalism accumulates whereas governments redistribute. According to Mitchell, those governments that still control a sovereign currency are lying to their people when they present a false choice between hyperinflation and austerity. The problem that has surfaced in some European countries is that, having joined the Euro, they no longer control their own currency. But the other problem is that governments are being forced to support bankrupt private corporations. The money being created by the likes of the Fed seems to be largely going into filling unquantified losses of private operations. Thus money is being printed but is not going into the economy and hence not stoking up inflation. According to Mitchell's model, in this time of economic slowdown, pouring money into the economy would still not lead to the dreaded inflation but it would relieve the pain and misery of an oncoming depression.
9 Feb 2010
Who is in Charge, Governments or Bankers?
8 Feb 2010
7 US States That Are Sicker Than Europe's PIIGS
The unflattering acronym PIGS, or PIIGS, is starting to take hold as we enter a new sovereign debt crisis in Europe. Now,
PIGS = Portugal, Ireland, Greece and Spain;
PIIGS = Portugal, Iceland, Ireland, Greece and Spain (Iceland is not a member of the EU but is likely to join by 2012);
we could even end up with PIIIGS, which would include Italy.
Investors Crawl Back Into The Market - Don't Do It!
"U.S. stock investors, reeling from four straight weekly losses, are entering the coming week's market torn between confidence in the global economic recovery and fear that foreign governments' actions will bring the rebound to a sudden halt." [MarketWatch]
As is often the case, the best part about MW is the comments section. This is a highly manipulated market and investors are best to ignore much of the news and concentrate on the numbers. Friday's pump in the last hour of the US markets was a return to one of the features of last year's market slump. Just look at this 6-month graph of the SP 500. The market has fallen through its 50-day moving average (now at 1,110) and we are likely to see a testing of the 200-day moving average (at 1,020) sometime this month as options expire. The above article seems another bit of pump-and-dump inspired propaganda. To blame other governments for getting sucked into a 'Made in the USA' monetary collapse seems churlish at best.
7 Feb 2010
20 Reasons Why The Global Debt Time Bomb Will Explode Soon
Paul Farrell seems like one of the few columnists allowed to be down-beat at MarketWatch. His latest doom-laden epistle lists 20 very good reasons why the global economy is going to go bang any time soon. He is not the only one, as he cites both Bloomberg and Forbes publishing similar articles.
The number one reason is the huge amount of debt being accumulated by governments, or rather, by their central bankers who then pass on the debt to the taxpayers. Historical research has shown that once debt reaches 90% of GDP then a country is in serious danger of defaulting and its economy shrinks - switch off the hot air and the balloon quickly shrivels and gravity takes over.
5 Feb 2010
Are You Really Unemployed?
Are you really unemployed? I mean, perhaps you don't have a job but that's no guarantee that you're included in the official government statistics. Today we've had another round of confusing job statistics from the USA. Yes, it's difficult to get an accurate snapshot of a huge economy every month, and yes, the figures do eventually get revised to something approximating the truth (although such revisions never make headline news), but even this official truth is designed to paint the rosiest possible picture.
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