Financial World - The Most Elementary Question Must Not Be Asked
Stock-Markets / Financial Markets 2014 Dec 07, 2014 - 03:11 PM GMTBy: Raul_I_Meijer
We’re in dire need of fresh blood and smart new ideas to clean up the mess the present ideologies and their puppets and puppetmasters have created. The present crew has made a neverending series of ‘mistakes’, intentional or not, and they are dead set on making more, if only because they refuse to change the tack that led to all these ‘mistakes’.
I say mistakes because that’s what they are from the point of view of all those who live in the real economy, not because I think the puppetmasters are mistaken from their own point of view. After all, all they do, literally all they do, is take care of their own interests. Where they will find themselves mistaken is down the line, when there is no longer a functioning real economy, and they will of necessity end up going down with it.
However, even though you wouldn’t say it to look at America and Europe these days, we don’t need to be puppets to any masters. I know, I know, most of you don’t even recognize yourselves as puppets – yes, you -. You believe most of what you read, or at least enough to keep going on the beaten track. And they’re good at making you believe. They’ve gotten a lot better at it ever since you were born, whenever you were born.
You only need to listen to things like this week’s US jobs report, which has the media falling over each other and themselves to declare victory. But which, when you take a good look, declares no such thing. And we’ve been going on this road for many years now, a road defined by debt on one side and propaganda on the other, and we stick to it because we are promised on a 24/7 basis that it will lead to growth, which is always just around the corner. Growth is the magic word.
But why do we need growth, and do we even need it at all? That is a question which is considered blasphemous anathema by the current class of economists and leaders. Still, and maybe especially for that reason, it is a question that needs to be asked, perhaps THE question. Because the past 10, 20 or even 40 years have not actually delivered any growth, once you look beyond the propaganda, and the added debt.
And when you add that debt to the equation, they’ve brought the real economy the opposite of growth, while handing the puppet masters unequaled riches. In a nutshell, the past 40 years or so have given us added layers of gadgets at the price of unaffordable education and health care, the price of a deteriorating real economy. And that is just the start of the way down.
Growth is a topic I’ve written a lot about over the years, too much to even try and find it all back again. Here are a few samples. From November 14 2011:
The Growth Paradigm Has Become An Embarrassment
It’s high time to come clean, to stop the incessant lying. To stop pretending things are a bit hard right now, but otherwise just fine. They’re not. Extend and pretend works only so long. Then it snaps back in your face with a vengeance. That’s why the bond markets are so successful in bringing down Italy and Greece. Not because the ECB doesn’t step in, since that would only serve to cover up reality for a little bit longer, but because they’ve both lied for so long about their real predicaments.
No, just stop lying. The consequences and challenges will be formidable, but they’ll be that anyway. You can’t cover up the debt and the losses forever. And the chances of growing your economies out of the cesspit are zero, if not below.
One thing no more lying will achieve is this: it will re-establish confidence in the markets -or what’ll be left of them-. And isn’t that what you guys always say you want to accomplish? Well, I can assure you, it’s the only way to do it: cut the fairy tales. Take a breath of fresh air and get to work. Do something real and rewarding for a change, and for a living.
Oh, and one other thing that must stop something urgent: stop talking about economic growth. There ain’t none, and we need to wonder hard and loud why we still and always unquestioningly assume and accept that we need it. No, the Greek economy will not grow its way out of its misery. Neither will Italy’s, or France’s or America’s. There’s too much debt to grow out of.
But perhaps this is hard to fathom without resorting to more philosophical questions. For those of you who’ve never read or heard Professor Albert Bartlett’s work on exponential growth (since that is what we’re talking bout), get moving. Bartlett is a physicist. That means he’s an actual scientist, and capable of understanding the inevitable endgame of exponential growth. People like Papademos and Monti, as well as just about any political and economic leader on the planet, don’t understand the science involved. Either that or they’re willfully blind to it.
And there’s another layer to the question, one that goes beyond the easy to understand impossibility of endless and eternal growth. That is, when we look around our respective places on the planet, why do we think we need to grow more? Why do we feel we haven’t grown enough? And perhaps more quintessential: what is it that we want to grow into? At what point, if we do want more growth, will it be enough for us? Have we even thought about that?
We are fed the constant growth story because it is indeed a necessity in our present system. When all money issued carries interest i.e. is issued as debt, you will need to grow your GDP at least as much as that interest rate to play even. Just as easy to understand as the exponential growth conundrum. Or so you would think.
But that doesn’t mean that you can always keep issuing enough money to meet your interest payment requirements. Not when a huge part of it is issued as for instance mortgage loans, but very few people buy homes. Not when money is created when banks issue fresh credit to industries, but industries find no market for their products and instead contract.
In other words: if we don’t grow, we will shrink. And that, we are told, is the very definition of armageddon. But why couldn’t we shrink a little and still be comfortable? In theory we could perhaps, but first of all the human mind isn’t made for shrinkage, and second the money we create as credit is virtual, and can disappear as fast as it was created, and into the same nothingness.
If we would for instance consciously choose to shrink by 5%, we’d run a very real risk that we would cause 50% of the money to vanish. The system based on credit will have the tendency to go down like so many dominoes. It has very little resilience and is thus enormously fragile, something we don’t pay attention to when we have growth, and are therefore not prepared for when we no longer do.
And from April 22, 2013:
The only good thing about all this is that if and when it becomes clear that there is no growth left in the system, all its one-dimensional advocates, from both the Spend! and the Cut! parties, will disappear into a great void. They have no idea what to do without growth. There is no economics class that teaches them, and they don’t have the brains to come up with an answer themselves.
Indeed, perhaps it’s even true that a “not necessarily growth” situation, simply of its own accord, selects for other “leaders”. That power hungry psychopaths, in all the various degrees to which they float to the top of the dungheap, are wiped out and alienated by such a situation.
That could be a very good thing. It’s on the way there, however, that we will see unimaginable damage, mayhem and bloodshed. The forever and always growth classes have an iron grip on everyone’s lives. If only because everyone believes them. Still, just because they can’t change their ways and views doesn’t mean you can’t. You can see quite easily that, in a material sense, you have more than enough already.
And many of you have clued in to the destruction ever more growth brings to your children’s living world (not to mention their brains). Unfortunately, quite a few then fall for the “more growth, but more greener” delusion. Or some steady state one (we don’t do steady, we don’t stand still).
When you get down to the heart of it, the only reason we need more growth is to pay off our debts. Which we owe largely to the same small group of rich, psychopathic and powerful that incessantly repeats the “need for growth” message, and makes sure it’s the only message available out there. But we will have to have the discussion some day, and it won’t be initiated by the people and powers that rule our societies today; that one’s up to us.
It’s a very simple discussion. You can start it today with Krugman or one of his alleged adversaries: Why do you advocate economic growth? Why do you see a period of non-growth or shrinkage as a necessary evil that needs to be brought down to its knees at – quite literally – all cost?
And what is it you want to grow into? Can you explain that? I’ve never seen that properly defined. Isn’t it perhaps true that if you don’t know the answer to that question, you are by definition blindly chasing a mirage? If you don’t know where you’re going, or why you’re going there, why go at all? Or is that still the sort of issue that can easily be swept under the carpet as “commie”?
So it’s refreshing to see this week a German economist and banker, Dr. Ulrich Salzer, thanks to Tyler Durden, going down that same line of questioning. These questions are long overdue. It’s not just one school of economics or the other failing us, it’s the entire field. Any field that refuses to ponder its most essential questions is per definition dead and useless.
Physicists can explain any time of day why we need Newton’s gravity and Einstein’s relativity in order to make sense of the world, and if anyone can prove them wrong, they’d be welcomed. Economists cannot explain we we need growth, it’s simply assumed to be a given.
Deficit Spending And Money Printing: A German Point Of View
The leading macroeconomic Nobel-Laureates, the Central Bankers as well as most Politicians have reduced their economic judgment on how to get the economies in Europe and Japan back to sustainable growth on just two recipes: public investments in infrastructure to be financed by additional public debt and, second, an expansive money market policy based on printing more money and reducing interest rates to zero or even beyond zero to negative rates!
And if the capital markets don’t swallow additional public debt, then the Central Banks will step in eagerly as Investors – regardless if this is in line with their statutes!
The expected results, backed by the leading macroeconomic wisdom, should be to kick-start economic growth, to induce private industry to invest and banks to lend to private investors, and thereby to reduce unemployment, and get deflationary tendencies back to an inflation rate that is now officially regarded as ideal if it oscillates around 2 % p.a. When and why this “two-percent” benchmark was introduced for the first time I can’t remember, but everybody today takes it for granted and repeats it like as an undisputed target of Central Bank’s money market policy. Included in this assumption is ever more public debt as the guarantor for lasting GDP-growth!
I never understood why macroeconomics should be regarded as an academic discipline if it is in practice reduced to these rather simple theories of how to handle a recession or even deflation! Maybe Alfred Nobel was just as clear-sighted as I am, and consequently never introduced a Nobel-prize for economics. That was done after his death by the Central Bank of Norway, which also contributed the required funds. It still does so, and not the Nobel foundation!
My personal advice is to stop handing out any more Nobel-prizes for economics to any more American professors on any new theory how to steer economic development and sustainable economic growth, because none of them has ever worked.
There is a lot of blame offloaded onto Maynard Keynes by critics of the present ruling opinion of more deficit spending by governments. But I don’t believe that Keynes would approve any of today’s Nobel-Laureates who saw no other way out of recession than by money printing in unlimited amounts and years of deficit spending by already over-indebted economies. According to Keynes public investment on deficit could be regarded as an “ultima ratio” to re-kick-start a slow economy, but he would never have advised any government that is already highly indebted to increase this debt even more!
In his theory, deficit-spending should be a limited action in time and amounts, and directly afterwards this debt should be repaid by the additional tax income from the stronger revenues of industry and private individuals who have profited from the intervention of the State.
But what our economists and central bankers are recommending nowadays is completely different from “short-term-kick-starts” – our systems are so full of the sweet drug of government deficit spending that (like a drug-addict) it constantly needs heavier doses of the same drug!
It was not long ago that the American Treasury Secretary publicly blamed Germany for not using its remaining credit standing for another round of deficit-spending in order to help Italy, France and other Southern European countries. As if more public debt and burning straw in Germany would have any impact on the southern countries’ economies without any serious political and economic reforms in those countries themselves to fight the weakness at its real source!
As long as our “economy doctors” don’t know anything better than to prescribe more drugs instead of getting the patient off the needle and help him to abandon the ever increasing drug doses, we will never get our economies “back to normal”!
We should never forget that at least the European economies had no real problem as long as the public debt to Gross National Product ratio remained within the Maastricht limits of 60% and before liquidity in the banking sector was multiplied without limit, thereby creating big bubbles in the financial assets of the banks which finally led to the financial crisis of 2008.
Japan is the very best example to prove that the therapy of deficit spending and money printing is dangerously wrong: it is now 25 years since Japan has adopted this cure. If anybody needs proof that the prescription was unprofessional and ineffective, he should look at the results to the Japanese economy and its public debt. Although hundreds of billions of Dollars have been spent during this period on programs to stimulate the Japanese economy the effect was that Japan fell from one recession into the next depression and the public debt ratio to GNP has meanwhile reached the astronomic bench mark of 230% (!!), which is double that of Greece and four times higher than the Maastricht criterion!
I am certain that Maynard Keynes would turn in his grave if he knew to what extent his theory was misinterpreted and misused! Of course it’s a big temptation for every politician to utilize the sweet but toxic medicine of deficit spending and more public debt rather than to introduce hard reforms on public budgets, on social spending and other benefits to their voters.
It’s also a big mistake that European governments have disregarded the traditional role of the European Central Bank as the watch-dog against inflation. In creating the ECB, Germany never consented that it should have more responsibilities and more authority than the Deutsche Bundesbank ever had.
It’s just like with deficit spending Keynes had recommended under certain conditions: it may be acceptable if the Central Bank acts as “Lender of last resort” in case of actual liquidity crisis. But this should be strictly on short-term basis. What we experience today is completely contrary to the German (maybe not the U.S.) understanding of the role of the Central Bank. The ECB has now assumed a role not only to protect the value of our common currency against inflation but also to take action as if it is responsible to create economic growth and full employment with instruments like money printing, zero interest rates and unlimited investments in bonds which the free market is rejecting.
We pay a high price for the chimera that we need constant economic growth and that it is a stigma if our GDP-growth is only 1.5% p.a. Can’t we accept that after 50 years of undisturbed peace and continuous prosperity we have reached a certain degree of personal satisfaction where we don’t need a new car every year, another cell-phone, additional furniture, more TV-sets, more laptops etc, etc. Why do we insist upon economic growth, if we don’t actually need the products which are additionally produced every year?
Is it really worth it to increase the already heavy burden of public debt, which our children must service someday, by accepting even more debt in a vain effort to increase public demand? Let’s instead be happy with zero GDP growth, zero inflation and zero growth of public debt! That could be a more rational solution. Why don’t we consider it?
You almost have to step outside of economics, even out of the financial world as a whole, to pose what is the most elementary question about our economy today. That can’t be right.
The most elementary question is not how we can achieve growth, it’s whether we need growth, and what we would need it for that is important enough to destroy our entire societies and economies for. As Salzer says: “Why do we insist upon economic growth, if we don’t actually need the products which are additionally produced every year?” The most elementary question is as simple as that.
I can finish this the way I started it: we need new ideas, new paradigms, to replace the ones that have gotten us the cesspool we find ourselves in, despite the false signals debt and propaganda provide us with. We’re in dire need of fresh blood and smart new ideas to clean up the mess the present ideologies and their puppets and puppetmasters have created.
By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)
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