Ladies and gentlemen, it’s obvious (to anyone who knows there’s no free lunch) that one way or another this Festival of Funny Money was going to end in tears. And so it flows… but let’s not forget what lead us to this, the problem that lies under all others.
The government can print (base) money from nothing, and they can set interest rates artificially low so as to encourage private banks to create (bank) money from nothing. And governments keep doing it, because it’s so much easier to be elected handing out loaves and fishes, and grants and solar-rooftop-subsidies, in a froth of easy money and rising asset prices. Any fool can spend someone else’s money, especially when the sucker doesn’t even know it was their money.
Thus does inflation steal from all and sundry. Silently.
In the real world, we have to repay our debts. But the world of the ruling class never has to make ends meet. Alan Greenspan admitted that this weekend — effectively announcing that the US is the United States of Wonderland, where no matter how high the debt is they can never default — because they can print money. Helicopter Ben to the rescue!
There is a pot at the end of this rainbow. And it works as well as any superhero or perpetual motion machine.
As soon as money is blinked into existence, it starts to redirect economic activity away from the things that people-who-earned-money thought were useful. Instead the behemoth of mass activity swings towards producing things that those-who-blink-money want… and they come up with unlimited ways to waste money: like giant windmills that stop floods, bicycle paths that prevent cyclones, and ten top techniques to stuff a fertilizing gas down a mineshaft where nothing will ever grow.
But money is created from debt in today’s system, like a chain of endless IOU’s and all good things must come to an end. Since 1982 the bubble has grown, and after 25 years of bubbling, the bubble-weirding came to seem normal. (We could own a house, live in it, and use it to buy a 42 ft cruiser in Florida too.) Finally in 2007 the world private sector ran into debt saturation. And in 2011 it is now obvious that most governments cannot borrow or tax much more either. There are no more stops on this line, buy your tickets for the Fiscal Stimulation Express and watch them find ways to print.
The people are catching on.
We need a special kind of wealth to worry about bad weather 100 years from now.
Thus we arrive at the strangest of moments when the world is figuring out that the forecasts of fire, flood and plague were faked, just as they realize the reassurances about the money were faked too. Disaster is coming, but not because of carbon. We’ve been worried about the wrong tipping point.
Is it a coincidence? A random convergence of delusions? Not so. It takes one falsity to feed the other. We need a special kind of wealth to worry about bad weather 100 years from now. No one was watching the dollars hard enough, rewards for scamming became wildly high compared to the return on whistle-blowing or real journalistic investigation. Corruption reigned across the high end of town. Politicians lied, scientists lost data, bankers mispriced risk and sold it to suckers but were bailed out, and public servants served government instead of the public. Science journals forgot what science was, professors broke laws of reason, and virtually everyone in the old media let them get away with it. Indeed the old-media was busy hacking phones for entertainment.
The youth in London who stole a 50 inch monitor today in a looting fest said he was just taking his banker’s cut. The dumb punters have realized that grand theft is going on, they know that cheats are in charge. The incentive to be honest is not compelling. No, large crimes don’t excuse the small, they should all face the court. But lawlessness is what happens when people know their leaders are not being held to any standards that count.
We all know it’s wrong.
And as far as S&P’s ratings go, the real question is, why wasn’t the USA downgraded to a B minus a decade ago?
This apt email turned up in my intray. You don’t need a Wall St PhD to know the numbers don’t add up.
“If you want to understand the magnitude of the recent debt and budget reduction actions agreed to by Congress and the President, this non-partisan example really puts it in perspective.
U.S. income: $2,170,000,000,000
- Federal budget: $3,820,000,000,000
- New debt: $ 1,650,000,000,000
- National debt: $14,271,000,000,000
- Recent budget cut: $ 38,500,000,000 (about 1 percent of the budget)
It helps to think about these numbers in terms that we can relate to. Therefore, let’s remove eight zeros from these numbers and pretend this is the household budget for the fictitious Jones family:
- Total annual income for the Jones family: $21,700
- Amount of money the Jones family spent: $38,200
- Amount of new debt added to the credit card: $16,500
- Outstanding balance on the credit card: $142,710
Amount cut from the budget: $385″
(H/thanks to Martin S and whomever wrote this).
The only thing that will get us out of this is hard work, hard decisions, and sticking to the rules. But the call will go out for governments to increase regulation, to remove risks, to print money, and to take control of markets. We must be relentless in calling for a return to rule of law, where one rule fits all, and where people who deceive go to court instead of being promoted.
We don’t need new rules, we need to enforce the old ones.