The Knave New World

In 2007, Alan Greenspan published a fascinating book that chronicled not only his own life, but the life of the monetary world in which he grew up,  and in which he ultimately played a major role as Chairman of the Federal Reserve.

  https://www.amazon.com/Age-Turbulence-Adventures-New-World/dp/0143114166  

Mr. Greenspan’s keen observation of contemporary monetary history is demonstrated throughout the book. On page 92, Alan had this to report about the legendary Reagan tax cuts of the 1980’s:

“The cornerstone of the Reagan tax cuts was a bill that had been proposed by Congressman Jack Kemp and Senator William Roth. It called for a dramatic three-year, 30 percent rollback of taxes on both businesses and individuals and was designed to jolt the economy out of its slump, which was now entering its second year. I (Greenspan) believed that if spending was restrained as much as Reagan proposed, and as long as the Federal Reserve continued to enforce strict control of the money supply, the plan was credible, though it would be a hard sell. This was the consensus of the rest of the economic board as well.

But (David) Stockman (Reagan’s Budget Director) and Don Regan, the incoming treasury secretary, were having doubts. They were leary of the growing federal deficit, already more than $50 billion a year, and they began quietly telling the President he ought to hold off on tax cuts. Instead, they wanted him to try getting Congress to cut spending first, then see whether the resulting savings would allow for tax reductions.”

Well good luck with that!

And gollee, that was about 39 years ago, and about 20 trillion $$ of federal deficit ago. . .

Ronald Reagan, God bless ‘im, was the last of the Mohicans of old-style let’s-try-to-balance-the-budget school.

Yet we still pay lip-service to that principle.

But--let's face it-- those days are gone forever. They went out with with saddle oxfords and gumball machines and  Archie Bunker and 1-cent lollipops and debits on the left with credits on the right that balanced each other out.

Now Reagan, God rest his soul,  is no longer with us, nor Kemp,  and the world is a totally different place. Ronald Reagan was the last of a balancing breed that has vanished into fiscal history.

The cowboy hero has ridden into the sunset.

David Stockman is, however, still with us, and still living in the past,  still harping, God bless ‘im, on old-hat financial and fiscal responsibility. Good luck with that, Dave!

https://www.deepstatedeclassified.com/dsd20190426/

In his most recent newsletter, David Stockman posted this assessment of our present situation:

“The Main Street economy is failing. But the Wall Street fantasy is thriving. You can lay responsibility for this dangerous disconnect at the doorstep of the Eccles Building.

The Federal Reserve’s extreme monetary central planning regime long ago disabled capital markets and destroyed price discovery.

Bubble Finance has euthanized workers and savers and lobotomized traders and speculators.

And our monetary central planners know it.”

While Mr. Stockman’s assessment may very well be true, it may also be irrelevant.

The world . . . as it always does and always has, has changed.

Tap your ruby slippers together, David.

and close your eyes and realize: We’re not in Kansas any more. All the rules have changed. Take off your rose-colored glasses.

We’re not wheelin’ and dealin’ in ole Wall Street any more, or Peoria or Pittsburgh or Palm Springs. Now we are in, as Aldous Huxley once said, a Brave New World. . .

A world in which monetary markets and price discovery are no longer the primary determinants in the money game. . . a world that has, yes Virginia, yes Alice and yes Dorothy, been commandeered by a thunderous consumerist horde who have no wish to be bound by these old financial fuddy-duddy obsolete principles, a world that has been fundamentally transformed by Keyneseian realpolitic and by the pragmatic keep-bailing-this-boat central bankers of the world with their legions of yassah data-crunching technocrats to maintain the welfare of us all.

And we will never go back.

Because money itself is, and always has been, truth be told, worthless, being nothing more than klinky coins that can get you a wad of chewing gum, or paper bills that can get you a sugar-high from a vending machine, or electrons that can get you a charged-up night on the town, or a day in the sun, a week at Disney if you’re lucky, and a health-insured, social-security certified lifetime in this knave new world.

The “Capitalism” of Adam Smith and John Stuart Mill and Jacob Marley and JP Morgan and even Warren Buffet has . . . gone the way of the buffalo.

Now it’s just benevolent electrons whirling around the world taking care of everybody.

And when you finally see the writing on the wall, Dave, look at those deficits and . . . read ‘em and weep. Nobody cares about deficits any more.

The central bankers of the world will never have to face the music of fiscal responsibility that keeps ringing in your ears.

We’re never going back to the old balancing acts. Where we’re headed is. . . everybody gets a meal-ticket as long as all’s quiet on the Western front and the red sun still rises in the east. Welcome to the knave new world.

Glass half-Full

This is for the birds

I thought I’d take a gander

at our nation’s slow meander

into polarized politics’ clown’d identities,

as chronic deficits  drain our amenities.

Meanwhile back at the ranch

not much chance in extending an olive branch

in  the present  state of our union,

cuz our leaders share no communion.

They find it advantageous to split  into camps

which somehow blows out our Liberty lamps.

So obsessed with the clown scenario showdown,

congress anoints the annual guvmint shutdown,

until  the farcical politics runs its course

while our nation’s deficit’s on a runaway horse.

Someday no credibility will be left in the US dollar

as Fed and Treasury in red ink they waller.

Someday dollars will be valued as turds,

cuz their politicking's all for the birds.

Glass half-Full

Austerity or Stimulus?

Well this is an improvement.

When I was still a gleam in my daddy's eye, Germany fought a world-sized war against France. But now, in 2017, all the obsolete ideology that then fueled both fanaticisms--fascist v. communist--has withered down into a battle of ideas.

Fiscal ideas, like whether budgets should be balanced, or put on hold until things get better.

From a Peace vs. War standpoint, I'd say that delicate balancing act is an improvement, wouldn't you? Budgets and Economic Plans are, theoretically, much more manageable than tanked-up military campaigns.

Now Germany and France-- those two nation-state heavyweights whose fiscal priorities set the course for the rest of Europe--they are getting along just fine now. They expend financial energies trying to keep the whole of Europe humming along on all cylinders. Budget deficits that drag down Euro economies are generated mostly in the lackadaisical southern economies--Greece, Italy and Spain.

But those two mid-continent economic heavyweights--France and Germany, function as fiscal opposites, polarizing European values and budget priorities in opposite directions. They are two very different countries; and yet Germany and France are not as opposite as they used to be. A lot has changed since they finally made peace back in 1945.

At the time of that last Great War, early 1940's, Germany was suffering through the death-throes of a dying monarchy. What was left of the Kaiser's authoritative legacy had been lethally manipulated into a world-class death regime by a demonic tyrant who wore an odd, obnoxious little mustache on his flat German face.

France up to that time was still stumbling through a sort of awkwardly adolescent stage, having booted their kings and queens out back in the early stages of the industrial revolution, and then replacing, in stages, the ancient monarchy with a struggling new Republic.

What the French did as the 18th-century came to a close was similar to what we Americans did, but different. We had ditched King George III in 1776. The French cut off Louis XVI in 1792. On the other side of the Rhine, the Germans kept their Wilhelm top dog hanging on a thread until the Allies ran him down in 1918.

We Americans did a whole new thing after we rejected the old wineskins of monarchic government back in 1776; we had a lot going for us--a vast, nearly-virgin continent that stretched out for 3000+ miles, with plenty of room to grow, and to expand our new-found explorations for Life, Liberty and Pursuits of Happiness.

The Europeans--neither the French nor the Germans--did not have all that fruited-plains expansion space like we had. They were cramped up over there in the Old World.

Having wielded a fierce guillotine ruthlessness upon their king and queen, the French tried to spread the wealth all around, ensuring that everybody got a chunk of it. They had wrung a blood-stained liberte from the palaces of privilege in 1789. Over the course of the next century and a half, they generally moved leftward the whole time, toward an egalitarian idea of solidarity.

The Germans have always tended toward authoritarian leadership, which is one reason why Hitler was able to pull off the abominations that he did. But we Allies put that to an end in 1945.

Thank God.

Now in the post-WWII Europe, the Germans have turned out to be pretty good kids on the block, considering all that had happened back in the day. The last 3/4 of a century has seen a remarkable recovery. They went through some serious changes, rebuilding after losing two wars, and then being divide into two different countries.

Since 1990, when Germany became united again into one country, those krauts have established a pretty impressive record. They now have the strongest, most stable economy in Europe. One reason it turned out this way is: the Germans have historically been, by necessity, very disciplined, rational people and they know how to get things done.

The French are different from that. You gotta love the French. As the Germans have made the world a better place with their great music (Bach and Beethoven), the French have brightened and lightened our worldly life with their very lively, expressive and impressionistic art, coupled with their unbridled Joie de vivre. And let's not forget the original architectural piece-de-resistance of the Western World. It was French creativity married to inventive 19th-century industrialism that brought us the Eiffel Tower in 1889.

The French do progress with style and artistry; the Germans get it done with impressive efficiency and precision.

As an American who has geneologic roots in both cultures, this fascinates me.

Their two different attitudes about generating prosperity also encompass, respectively, their approaches to solving money problems.

Or more specifically. . . solving "lack of money" problems.

A new book, Europe and the Battle of Ideas, explains how these two nations, as the two polarizing States of modern Europe, each lead in their own way to set policy, together, for solving Europe's financial problems. Their tandem leadership is enhanced by their two very different strategies.

The simplest way to describe their treatments of European deficits is this:

The Germans are into Austerity; the French are into Stimulus.

Or to put it into a classic perspective:

The Germans want to balance the books, thereby squeezing all governments and banks into economic stability. The French want the assets to get spread around so everybody can have a chunk of it.

How do I know anything about this?

This morning I saw Markus Brunnermeier being interviewed; he is one of the authors of the new book, Europe and the Battle of Ideas.

https://www.socialeurope.eu/2017/02/europes-future-will-settled-battle-ideas/

In this fascinating, very informative interview, the questions are being posed by Rob Johnson, President of Institute for New Thinking, whatever that is.

Together, these two guys explore the two basic problem-solving approaches to working out Europe's economic deficiencies. And it just so happens that the two main strategies are related to those two old nationalized culture, described above, between Germany and France.

Sounds simplistic perhaps, but this comparative analysis makes a lot of sense when you hear these two knowledgable men talk about the present condition of economic Europe.

So, rather than try to explain it to you, I'll simply leave you with this list of characteristics, as identified by. Mr Markus Brunnermeier. The list identifies how each country's budgetary priorities contributes to a strategy for solving Europe's fiscal woes. My oversimplified version of it looks like this:

France Germany

1.Stimulus 1.Austerity

2.Liquidity 2.Solvency

3.Solidarity 3.Liability

4.Discretion 4.Rules

5.Bail-out 5.Bail-In

Consider these two lists of national characteristics as two different strategies for solving large-scale economic problems.

Here are a few notes I made while watching Mr. Johnson interview Mr. Brunnermeir:

For French, the problem is always liquidity. Stimulus will flush money out of markets again.

Germans see problems as solvency difficulty. Fix the fundamentals. Don't throw good money after bad.

French: If you see it as a liquidity problem, just bail them out.

German: If you see it as solvency problem, Bail in, to avoid future hazards. Bail-in means: Bond holders who essentially gambled with a country or bank and then reap the gains on upside-- they should take losses on downside.

There was a radical shift in attitudes in Europe over the Cyprus bank crisis in spring 2013. Who pays? Who covers the losses?

. . . Bail-in or bail-out?

French fear systemic risk so they tend toward governmental bail-outs.

The Germans, on the other hand, see crisis as an opportunity to address and solve the systemic deficiencies. So penalize the depositors/ investors; others will learn from that, and you will have bank-runs in other places. Such circumstances provide incentives for institutions and individuals to take responsibility for their own actions and investments.

Just how the Europeans get all this worked out, we shall see in the days ahead. And the working-out may provide some lessons for all of us.

Smoke

The Minotaur is dead; long live the Minimal

The surprise ending in this book is that Yanis Varoufakis, the presumed leftist former finance minister of Syriza Greece, says it has to be the United States to lead the way of fixing the world's financial mess.

He's been called a Marxist, but Mr. V is not calling for revolution; he's not advocating, as Marx did, that the workers of the world expropriate the "means of production", meaning the industrial infrastructure that makes the economic world go around.

He's not looking to the European Union for truly effective financial leadership. He's not even looking to China (the most likely candidate) to grab the baton of world demand-driven economic vitality and run with it.

He says, at the end of his book, The Global Minotaur, that it has to be the USA to repair the international financial disaster.

The United States was, after all, largely responsible for the post-WWII arrangement (which he calls the Global Minotaur) that propelled, then ultimately toppled in 2008, the economic stability of the world.

The US had accepted the reins of power for internationally reconstructive wealth-generation in the aftermath of World War II. At the 1944 financial summit in Bretton Woods, New Hampshire, the seeds were sown, through a meeting of Allied minds, for worldwide reconstruction and recovery from the devastation of war. This actually worked out quite well for about thirty years for most countries who were involved, until about 1971.

In that year, President Nixon, in an effort to arrest the US's unraveling surplus, announced that our Treasury would no longer sell gold for dollars. Thus did the USA, the principle player and beneficiary of post-WWII world reconstructive prosperity, set in motion the demise of its own international hegemony.

The worldwide financial tailspin that resulted from America's abandoning the gold standard set in motion a debilitating chain of destructive financial consequences, beginning in the 1970s.

The wizardry of world-conscious financial minds, however, had constructed a financial framework for "recycling" capital around the world. When those minds had conferred in 1944, much was agreed upon. But there was, at the Bretton Woods conference, a divergence of strategic proposals for effectively restructuring the world's capitalism. The famous (or infamous, depending on your economic worldview) John Maynard Keynes proposed an international policy that would include automatic mechanisms for recycling surpluses between rich nations and poor nations.

Mr. Keynes, genius that he was, was not able to convince the assembled heads of State and their finance people to accept his plan. Instead, the Bretton Woods conferees devised their dollar-pegged arrangement according to a proposal from an American, Harry Dexter White. This settlement positioned the United States pretty much in charge of things.

The demand-generating, growth-driven Bretton Woods agreement was humming right along until 1971 when Nixon's announcement about the gold window amounted to throwing a monkey wrench in the works of world currency valuations.

As burgeoning trade deficit and fiscal deficit began to debilitate American purchasing power, our financial and political heavyweights were nevertheless still adept at reconfiguring the Global Plan for economic development in a way that sustained our yankee advantage. Some exploitive characteristics of the new deficit-driven (instead of surplus-driven) financial machination rendered the whole Bretton Woods arrangement as a beastly, power-obsessed system rigged for devouring foreign assets to enrich US corporations and "Wall Street."

Hence, the analogy of the Minotaur, a mythical flesh-eating creature of ancient Greek mythology, was chosen by Mr. Varoufakis as the central force of his narrative.

The imagery works adequately for the purposes of Mr. Varoufakis treatise, because there are some parallels between the mythical, terrible man-bull beast that feasted on young virgins, compared to the US-driven Global Plan for sucking up 60-80% of the world's capital for a very long time. With Mr. Harry Dexter White's plan, tweaked and fortified along the rocky paths of the 1970's, '80's and '90's by Mr. Volcker, Mr. Greenspan, and President Reagan, the recycling plan for surpluses morphed into a reversal of the Bretton Woods Agreement. So it still favored American interests with exorbitant privilege that arose from managing the world's reserve currency. Thus was the good ole USA sitting' on top of the world, even though our trade and fiscal deficits were expanding in leaps and bounds; the Minotaur was gorging on debt, and so were most Americans.

So after the stagflationary 1970's, we were able to rig the game of international capital flows so that the lion's share (the minotaur's share) of world capital just kept coming back in yankee directions.

Which worked well until about, you know, 2008.

With all the world-friggin' capital recycling that had been humming along through the '80s, '90s, 2000's, the wizards of wall street managed to concoct up a handful of magical innovative financial instruments to keep themselves gainfully occupied and the stock markets thoroughly inebriated. Dubbed MBSs, CDOs, derivatives, and credit default swaps, these wonder working financial "innovations" kept the profits rolling along to the tune of billions. Until 2008.

By that time, the real industrial-based, home-building, retail-flourishing music of sound economy was screeching to a grinding halt; suddenly myriads of those fancy high-steppin' financial dancers found themselves with no musical chair to sit in, and no way to repay all those millions of $$$ they had borrowed to purchase all those perpetual motion money-machine MortgageBackedSecurities, CollateralizedDebtObligations, CreditDefaultSwap-protected HFT electronic and/or sometimes paper fragile financial instruments.

So the Wall Street guys came out of the 2008 financial meltdown with a tarnished reputation because what had been a fairly constant flow of world capital came to, like, a standstill.

At which time, according to Mr. V's book, Mr. Summers, Mr. Geithner and a few of their cronies cooked up a plan to keep the whole perpetual motion money-making machine cranking along like nothing had really happened, which is what, in some ways, we're still operating under, a little like smoke and mirrors as they used to say back in the day (the '80's-90s.)

Now looking back on it all, the international financial infrastructure for continuous capital and liquidity around the world actually worked reasonably well for one hell of a long time--even when, in the 1970's the big sugar daddy US of A started to slide into major deficit territory (on both fronts: trade and fiscal).

It was only (in my opinion) at the end of the big Capital flow run, in the dozen years 1998-2008, that the US-led machine became what might be called predatory. 'Twas then I saw a long-bearded guy on the street in Seattle with a sign that said Send Banksters to Jail.

Which is why--the predatory attribute-- I suppose, Mr. Varoufakis, used the flesh-feasting Minotaur analogy for his treatise.

But the US-driven plan for world hegemony was no cannabilistic beast. That's a little bit like overkill, Mr. V, isn't it?

More like a couch potato with a credit card.

A very good read, though, Yanis--your treatise, The Global Minotaur.

Here's the book excerpt that I found most interesting. (This pertains to President Reagan's policies in the 1980's)

From chapter 7:

"As for the actual ideals underpinning free market fundamentalism, their fate was identical to that of Marxism in Moscow:

they (the ideals of free market fundamentalism, -ed.) became the first victims of its political champions' rise to power. Indeed, when, in 1981, Ronald Reagan entered the White House, he spoke the language of supply-side economics, balanced budgets, the withering of big government (ironically, an expression first coined by Marx), etc. However, after a few months of toying with such policies, and once unemployment skyrocketed in 1981, Reagan performed an abrupt U-turn (just as Lenin had done by adopting his New Economic Policy the moment he discovered that socializing the factories did not work as well as planned). Instead of shrinking government and balancing the budget, the president put his foot on the accelerator. The twin deficits (trade and fiscal, -ed.) ballooned and, as a result of his unbridled Keynesian practices, unemployment shrank and the Global Minotaur was on its merry way."

So, considering Mr. Varoufakis' book conclusion that the US should lead the way out of our worldwide money Crisis, I'm wondering if he, (ironically) like so many libertarians on the internet, is looking for another "Reagan"? to take the ball and run with it toward our new goalposts for some kind of demand-generating, surplus-recycling 21st-century game plan for the nations of the world.

Glass Chimera