Main Edition
US
FR
NYPD scuffle with members of the Occupy Wall Street (Spencer Platt/Getty Images)
This year’s banking crisis was never going to be 2008 redux — more like 2008, the sequel. And while the immediate crisis initially seemed to pass, as JP Morgan CEO Jamie Dimon said in his annual letter to shareholders, the deeper turmoil “is not yet over” and “there will be repercussions from it for years to come”.
In one respect, the collapse of both Silicon Valley Bank and Credit Suisse were isolated, one-off events that have now been contained. Both were badly-run banks ripe for a fall: Credit Suisse because it had squandered investors’ faith; SVB because regulators had let problems fester for a long time. Quick and aggressive actions by both the Swiss and American authorities rapidly staved off crisis. Nevertheless, the runs on these banks are better seen as symptoms of an underlying disease that continues to fester.
Only yesterday, a spooked IMF correctly interpreted SVB and Credit Suisse’s fate as the sign of things to come: the edge of a coming economic storm whipped up by a decade of geopolitical fragmentation and cheap money. Now, the overdue attempt to reverse this course has slowed the global economy, possibly to the point of recession.
Unlike the 2008 crash, this does not follow an era of prosperity, but rather 15 years of monetary chaos. Before 2008, the West had experienced a long period that came to be called The Great Moderation. The neoliberal model, so widely adopted in the post-Cold War era, had substituted fiscal for monetary policy as the prime lever of economic management, diminishing the role of politicians in favour of central banks. Over three decades, a mix of steady growth, short and shallow recessions, rising wealth and tame inflation was lionised by economists as their profession’s triumph; the Nobel Laureate Robert Lucas declared in 2003 that “the central problem of depression-prevention has been solved”.
Yet ordinary people always saw there was something fishy in this triumphalism. The steady inflation underpinning it actually owed less to clever macroeconomic management than to the return of China and the deeper integration of developing countries into the world economy. Coinciding with this globalisation was the biggest migration in human history, as literally billions of people left their farms for the burgeoning cities of the developing world. This swelled the global labour pool by several orders of magnitude, luring a tide of investment away from the developed countries as firms sought cheap labour. In Western countries, profits boomed but the job market did not.
So when the crash happened in 2008, there was a moment when it seemed the model might come in for profound change. But cheap labour meant cheap money. With inflation kept low by repressed labour costs, central banks were free to flood the markets with money, inflating asset values and thereby creating a wealth effect that boosted demand sufficiently to bring the economy out of recession. Depression was averted, the economy was back on its feet, and the authorities celebrated their triumph.
However, a model in which the rich got richer and everyone else got by was obviously bad for social cohesion, and the decade which followed the crash produced an upsurge of protest, populism and anti-establishment politics on both Right and Left. This political revolt had its financial analogue in Bitcoin, which exploited cheap money policies to produce assets which, by having their supply fixed, could only rise in value. The grassroots financial innovation exposed the central bankers’ strategy as little more than old-fashioned currency debasement.
Not that any of this bothered central banks. For a start, political stability wasn’t in their mandates, so they looked on the wave of protests and violent rhetoric with equanimity. One would have thought that asset-price inflation might at least have come onto their radars since it was baking inflationary pressures into the economy. With the rising cost of assets falling heavily on workers who were trying to buy houses, or businesses that had to pay rising rents, anything which restored the bargaining power of labour would release that pent-up demand. But again, central bankers waved off these concerns.
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
SubscribeThe longer you postpone the crash, the greater the impact. The pressure builds and builds while you employ tricksy mechanisms to overcome momentary problems – say, borrowing to pay off borrowing – in an attempt to stave off political blow-back, but eventually an unexpected problem causes a cascading series of other problems which swamp the economy. You were probably best served by letting the first problem do its damage and wearing the political pain, instead of putting a patch on it and then patches on subsequent problems until the economy is made up of patches and becomes a banana republic.
The electoral cycle is too short to allow that and there is no Thatcher on the horizon.
nice
Could not agree more. In business, if costs start to catch up and threaten to overtake revenues, there are two possible responses. The first is to fiddle about and salami slice a few budgets, trim the marketing spend, make a few people at the coal face redundant. The second is to smell the coffee and take on the cost base, cutting to well below the most likely revenue outcome. The first works for a bit, but all the people are unsettled, because they know full well that one slice will follow another. In effect, management is kicking the can down the road. The second is nasty, brutal and short, but provides a much better platform for growing from the base of the curve. And the people left are much more likely to buckle down.
Speaking of can kicking, Graeme. Here in Victoria we are in debt to the tune of billions, and we have several major projects on the go which are also in the billions. The state government (who did all the spending) don’t want to count those costs in our imminent budget, so they have “put on hold” the projects to push out the costs to 12 months down the track. Not sure exactly what “put on hold” means, but I would take an educated guess that it means “kick the can down the road.” And when they catch up with the can, you can bet your bottom dollar (or someone else’s dollar since you’re talking government money) the costs will have increased. Shambles.
Speaking of can kicking, Graeme. Here in Victoria we are in debt to the tune of billions, and we have several major projects on the go which are also in the billions. The state government (who did all the spending) don’t want to count those costs in our imminent budget, so they have “put on hold” the projects to push out the costs to 12 months down the track. Not sure exactly what “put on hold” means, but I would take an educated guess that it means “kick the can down the road.” And when they catch up with the can, you can bet your bottom dollar (or someone else’s dollar since you’re talking government money) the costs will have increased. Shambles.
The electoral cycle is too short to allow that and there is no Thatcher on the horizon.
nice
Could not agree more. In business, if costs start to catch up and threaten to overtake revenues, there are two possible responses. The first is to fiddle about and salami slice a few budgets, trim the marketing spend, make a few people at the coal face redundant. The second is to smell the coffee and take on the cost base, cutting to well below the most likely revenue outcome. The first works for a bit, but all the people are unsettled, because they know full well that one slice will follow another. In effect, management is kicking the can down the road. The second is nasty, brutal and short, but provides a much better platform for growing from the base of the curve. And the people left are much more likely to buckle down.
The longer you postpone the crash, the greater the impact. The pressure builds and builds while you employ tricksy mechanisms to overcome momentary problems – say, borrowing to pay off borrowing – in an attempt to stave off political blow-back, but eventually an unexpected problem causes a cascading series of other problems which swamp the economy. You were probably best served by letting the first problem do its damage and wearing the political pain, instead of putting a patch on it and then patches on subsequent problems until the economy is made up of patches and becomes a banana republic.
That comment about Bitcoin, that fiat money has been being created so freely since 2008 that anything with a fixed or limited supply went up in price, is about the best summing up of the effects of QE and associated policies. Housing and land go up, of course, and if you can offshore jobs to places with a vast labour pool like China and India, wages don’t go up.
If you’re relying on wages to pay for accommodation, you’re squeezed. And squeezed.
That comment about Bitcoin, that fiat money has been being created so freely since 2008 that anything with a fixed or limited supply went up in price, is about the best summing up of the effects of QE and associated policies. Housing and land go up, of course, and if you can offshore jobs to places with a vast labour pool like China and India, wages don’t go up.
If you’re relying on wages to pay for accommodation, you’re squeezed. And squeezed.
Very odd to me that there’s no discussion here of the traditional understanding of inflation (as expressed by Milton Freedman) as a ‘monetary phenomenon’. Massive and unprecedented levels of government spending financed essentially by the creation of new money out of thin air has consequences. Governments narrowly define inflation by looking only at small cherry-picked basket of consumer spending – allowing them to ignore the initial impacts – house prices and the stock market. Anyone who’s shopped for a house knows that money is not worth what it used to be – not even close. Governments and the media ignore this obvious inflation and encourage people to think that they’re getting wealthier as their houses double and triple in ‘value’ – but think again – the house is the same house it was before. The money is worth less. Why are people so fixated on crypto currencies and taking such huge risks? To avoid this stealth form of taxation. Why does the rest of the world so desperately want a new reserve currency? Because the US has debased its currency at their expense.
“Inflation is taxation without legislation” was also Friedman, and sun’s up some of your post quite well.
loss of faith in fiat lux? wait until you see the loss of faith in fiat nox, bitcoin.
“Inflation is taxation without legislation” was also Friedman, and sun’s up some of your post quite well.
loss of faith in fiat lux? wait until you see the loss of faith in fiat nox, bitcoin.
Very odd to me that there’s no discussion here of the traditional understanding of inflation (as expressed by Milton Freedman) as a ‘monetary phenomenon’. Massive and unprecedented levels of government spending financed essentially by the creation of new money out of thin air has consequences. Governments narrowly define inflation by looking only at small cherry-picked basket of consumer spending – allowing them to ignore the initial impacts – house prices and the stock market. Anyone who’s shopped for a house knows that money is not worth what it used to be – not even close. Governments and the media ignore this obvious inflation and encourage people to think that they’re getting wealthier as their houses double and triple in ‘value’ – but think again – the house is the same house it was before. The money is worth less. Why are people so fixated on crypto currencies and taking such huge risks? To avoid this stealth form of taxation. Why does the rest of the world so desperately want a new reserve currency? Because the US has debased its currency at their expense.
Great article, but you need a few more paragraphs on CBDCs and the coming attacks on cash and crypto. A sequel maybe?
…and the potential for AI to suppress wages by destroying jobs.
Indeed, There are suggestions that the failures of SVB and Credit Suisse were ‘engineered’ as a smoothing of the way to the introduction of CBDCs. “Look at those unscrupulous banks, how they can’t be trusted with your money. Much better to use our CBDC, it’s fully backed by the state”.
I can see the ad campaign now.
…and the potential for AI to suppress wages by destroying jobs.
Indeed, There are suggestions that the failures of SVB and Credit Suisse were ‘engineered’ as a smoothing of the way to the introduction of CBDCs. “Look at those unscrupulous banks, how they can’t be trusted with your money. Much better to use our CBDC, it’s fully backed by the state”.
I can see the ad campaign now.
Great article, but you need a few more paragraphs on CBDCs and the coming attacks on cash and crypto. A sequel maybe?
Three things most people don’t know about money in bank accounts…
#1. It’s not yours.
#2. It’s not there.
#3. It’s not money.
Love that!
True money fan..
The other two are wrong but money in deposit accounts is definitely there and definitely money. You can buy with a debit card. And that’s the definition of money – as a medium of exchange.
No it’s not there, at least not all of it, because the bank has used it to invest elsewhere. And then it makes you pay for giving it a free loan. Probably the best business model known to man. Until, of course, there’s a run on the bank and the emperor is seen to have no clothes.
No it’s not there, at least not all of it, because the bank has used it to invest elsewhere. And then it makes you pay for giving it a free loan. Probably the best business model known to man. Until, of course, there’s a run on the bank and the emperor is seen to have no clothes.
Love that!
True money fan..
The other two are wrong but money in deposit accounts is definitely there and definitely money. You can buy with a debit card. And that’s the definition of money – as a medium of exchange.
Three things most people don’t know about money in bank accounts…
#1. It’s not yours.
#2. It’s not there.
#3. It’s not money.
Fascinating article, more of this please!
Fascinating article, more of this please!
The author, nor anyone above, seems to realize that “printing” $5 trillion to quell the public during pandemic lockdowns is the root cause of this latest bout of inflation. When the Fed shouted from the rooftops that interest rates will be raised, everyone with half a functioning brain knew that bond prices would then plummet, except, apparently, the management at SVB.
The real issue that politicians don’t want to reveal is that we are paying the interest on our debt with more debt every year, to pay for all our pet social programs and other goodies. The $31 trillion debt balloon (125% of GDP) in the U.S. will eventually pop and then everyone must look into the mirror and blame themselves for not realizing some very basic principles, such as you can’t keep spending more than you earn for ever and ever.
Yet there are so many brazenly asserting that ‘we’ can.
‘A Government is not a household,’ they claim – as if to a stupid child. Christina Kirchner and Robert Mugabe no doubt took the same view.
It’s always been the case that bonds roll over. Paying them back in full earlier rather than later would actually be more costly given that inflation eats away at the repayment over time. Sometimes the original debt is expunged only after decades.
The metric should be cost of repayments vs income tax.
But when bank assets are marked to market and the market is falling, that may not be viable..
But when bank assets are marked to market and the market is falling, that may not be viable..
Look at the debt situation of Japan, and they are not imploding p
Yet there are so many brazenly asserting that ‘we’ can.
‘A Government is not a household,’ they claim – as if to a stupid child. Christina Kirchner and Robert Mugabe no doubt took the same view.
It’s always been the case that bonds roll over. Paying them back in full earlier rather than later would actually be more costly given that inflation eats away at the repayment over time. Sometimes the original debt is expunged only after decades.
The metric should be cost of repayments vs income tax.
Look at the debt situation of Japan, and they are not imploding p
The author, nor anyone above, seems to realize that “printing” $5 trillion to quell the public during pandemic lockdowns is the root cause of this latest bout of inflation. When the Fed shouted from the rooftops that interest rates will be raised, everyone with half a functioning brain knew that bond prices would then plummet, except, apparently, the management at SVB.
The real issue that politicians don’t want to reveal is that we are paying the interest on our debt with more debt every year, to pay for all our pet social programs and other goodies. The $31 trillion debt balloon (125% of GDP) in the U.S. will eventually pop and then everyone must look into the mirror and blame themselves for not realizing some very basic principles, such as you can’t keep spending more than you earn for ever and ever.
We’ve got 15 years worth of mispriced bonds that were immediately impaired by both inflation and interest rate rises. These underpin the balance sheets of most of the banks and pension funds. The mispricing was created by QE with forced purchase of bonds not priced to the prevailing interest rates of the time – that ZIRP – QE combo. It was a way of inflating away the losses by transferring them to bonds. Unfortunately, all it was doing was temporally separating the theft by the very wealthy via their banks and the crystallisation of the loss when the overvaluation of these assets is realised years after the fact, and the associated bankruptcies as the bonds are marked to market and runs on the banks ensue. It’s all deliberate, it’s all been blatantly going on and regarded as “normal”. Now they have already taken all the money and the masses are left to pick up the liabilities via bail-ins or bail-outs. There will be no prosecutions or clawbacks of their ill-gotten gains.
Asset taxation now – it’s the only solution, as interest rate rises will only partly help.
We’ve got 15 years worth of mispriced bonds that were immediately impaired by both inflation and interest rate rises. These underpin the balance sheets of most of the banks and pension funds. The mispricing was created by QE with forced purchase of bonds not priced to the prevailing interest rates of the time – that ZIRP – QE combo. It was a way of inflating away the losses by transferring them to bonds. Unfortunately, all it was doing was temporally separating the theft by the very wealthy via their banks and the crystallisation of the loss when the overvaluation of these assets is realised years after the fact, and the associated bankruptcies as the bonds are marked to market and runs on the banks ensue. It’s all deliberate, it’s all been blatantly going on and regarded as “normal”. Now they have already taken all the money and the masses are left to pick up the liabilities via bail-ins or bail-outs. There will be no prosecutions or clawbacks of their ill-gotten gains.
Asset taxation now – it’s the only solution, as interest rate rises will only partly help.
it isn’t the difference in wealth that matters. It is the difference in power to bring about change. Voting has become irrelevant because the rich now control what the politicians do.
it isn’t the difference in wealth that matters. It is the difference in power to bring about change. Voting has become irrelevant because the rich now control what the politicians do.
Missing from this article is any discussion of those people who have borrowed to buy assets – most notably younger people who borrowed at near 0% to buy their own home. It is not politically acceptable to most of the electorate that these people, many who now have children, are evicted from their homes because they can’t finance a loan that they should never have been lent. This government possibly and definitely the next government will have to choose between over extended homeowners or the banks.
Possible.
What is going to be even more interesting I think is the effect of cases such as my own.
I’m 55 and almost have an empty nest. My home would be perfect for a young family starting out and it is likely too big for me alone or with my fiance. I would consider selling it in a few years but then I would have to walk away from a 2.8% mortgage and likely into something closer to 6%, basically doubling my monthly payment. Even renting an apartment at this point would be far higher than what I pay on my mortgage.
There are a whole lot of people like me. Our mortgages are so cheap that we do not see the upside to selling out homes, we stay put. That locks up a good piece of the housing market that should be adjusting.
I’ll second that. I see this first hand in the housing market in eastern PA. The resales of homes have frozen up for this very reason – but i feel something is going to break soon – probably the economy
I’ll second that. I see this first hand in the housing market in eastern PA. The resales of homes have frozen up for this very reason – but i feel something is going to break soon – probably the economy
In the US at least, mortgages are fixed.
Every new mortgage has a new.rate, changing from earlier ones
After the inflation and meltdown of the early 1980s, adjustable-rate mortgages became common. But the passage of time seems to have obliterated the idea.
Every new mortgage has a new.rate, changing from earlier ones
After the inflation and meltdown of the early 1980s, adjustable-rate mortgages became common. But the passage of time seems to have obliterated the idea.
Possible.
What is going to be even more interesting I think is the effect of cases such as my own.
I’m 55 and almost have an empty nest. My home would be perfect for a young family starting out and it is likely too big for me alone or with my fiance. I would consider selling it in a few years but then I would have to walk away from a 2.8% mortgage and likely into something closer to 6%, basically doubling my monthly payment. Even renting an apartment at this point would be far higher than what I pay on my mortgage.
There are a whole lot of people like me. Our mortgages are so cheap that we do not see the upside to selling out homes, we stay put. That locks up a good piece of the housing market that should be adjusting.
In the US at least, mortgages are fixed.
Missing from this article is any discussion of those people who have borrowed to buy assets – most notably younger people who borrowed at near 0% to buy their own home. It is not politically acceptable to most of the electorate that these people, many who now have children, are evicted from their homes because they can’t finance a loan that they should never have been lent. This government possibly and definitely the next government will have to choose between over extended homeowners or the banks.
the word ” bank” is in itself misleading: there are different banks that gain revenue from different parts of the financial market places: Goldman Sachs is not Nat West, and the digital retail banks are not JP Morgan, and Rothschild is not Soc Gen., any more that The European Central Bank is not The Bank of Toytown… oops, may have got that wrong.
international equity market functionality is, as I have said before, akin to a train… no matter how modern and advanced, it still has metal wheels and runs on tracks and is 19th Century technology.
No better illustration of the dysfunctionality of equity markers is the ” value” given to non profit making tech businesses and the fact that Tesla is ‘ n times’ more ‘ valuable’ than Toyota.
These are the danger signals akin to being able to sell a $5 note to someone who will pay $50 for it, and believe in it, its value and valuation.
Equity market , and also bond, currency and commodity market volatility can and is driven by prop, hedge and vulture funds manipulating market ” certainty” weaknesses, but most significantly by the ” certainty” that there will always be counterparties who will give the raiders their certainty profit, by taking the opposite positions in order to ” defend” said equity, bond, currency and/or commodity.
long only, pension and life funds are easy victims as they have to ” defend” stability, in the latter two cases on long term actuarial bases.
Index and tracker funds merely enhance ” volatlility profit raids” by pushing downwards manipulation down and upwards up.
retail Bank accounting conventions are also outdated, for example, allowing banks to lend ” n” times assets, that are not actually theirs, but demand customers have 100% asset coverage for secured loans.
The next financial crash, however, will not be banks, but non life reinsurers and their reinsurers, as a stone age business, staffed by the people who cannot get jobs or careers anywhere else, and propped up by Warren Buffett, in global denial of the tumultuous losses building up via global disaster claims, whose volume far outstrips premium income.
Watch this space…
How long have ‘we’ got?
Ah.. the 64k dollar question.. now valued, of course $374,000 dollars!
Ah.. the 64k dollar question.. now valued, of course $374,000 dollars!
How long have ‘we’ got?
the word ” bank” is in itself misleading: there are different banks that gain revenue from different parts of the financial market places: Goldman Sachs is not Nat West, and the digital retail banks are not JP Morgan, and Rothschild is not Soc Gen., any more that The European Central Bank is not The Bank of Toytown… oops, may have got that wrong.
international equity market functionality is, as I have said before, akin to a train… no matter how modern and advanced, it still has metal wheels and runs on tracks and is 19th Century technology.
No better illustration of the dysfunctionality of equity markers is the ” value” given to non profit making tech businesses and the fact that Tesla is ‘ n times’ more ‘ valuable’ than Toyota.
These are the danger signals akin to being able to sell a $5 note to someone who will pay $50 for it, and believe in it, its value and valuation.
Equity market , and also bond, currency and commodity market volatility can and is driven by prop, hedge and vulture funds manipulating market ” certainty” weaknesses, but most significantly by the ” certainty” that there will always be counterparties who will give the raiders their certainty profit, by taking the opposite positions in order to ” defend” said equity, bond, currency and/or commodity.
long only, pension and life funds are easy victims as they have to ” defend” stability, in the latter two cases on long term actuarial bases.
Index and tracker funds merely enhance ” volatlility profit raids” by pushing downwards manipulation down and upwards up.
retail Bank accounting conventions are also outdated, for example, allowing banks to lend ” n” times assets, that are not actually theirs, but demand customers have 100% asset coverage for secured loans.
The next financial crash, however, will not be banks, but non life reinsurers and their reinsurers, as a stone age business, staffed by the people who cannot get jobs or careers anywhere else, and propped up by Warren Buffett, in global denial of the tumultuous losses building up via global disaster claims, whose volume far outstrips premium income.
Watch this space…
It’s hard to imagine that governments like in the US, where debt to GDP hit 130% in 2020, mind inflating away their troubles. It mainly hurts savers and the elderly–not anybody they care about.
It’s hard to imagine that governments like in the US, where debt to GDP hit 130% in 2020, mind inflating away their troubles. It mainly hurts savers and the elderly–not anybody they care about.
Bit hazy and simple IMO – must be a lot of these articles as i always make the same observation: world economy is north of 450 trillion in total asset values. Approx 20% of this is traded in some way or other either via stock exchanges or included in a countries GDP – the rest is working assets – ranging from London mansions to The Pioneer Chicken Stand. So any movement is going to be proportionally small with so many feedback loops. When you factor in the willingness of govts to spent others’ money to cushion the worst effects on the precariat i think the Cassandras need to look elsewhere for the coming catastrophe. The environment (not warming) a novel pathogen or good old fashioned war are far likely to get us before the bankers’ folly does.
Bit hazy and simple IMO – must be a lot of these articles as i always make the same observation: world economy is north of 450 trillion in total asset values. Approx 20% of this is traded in some way or other either via stock exchanges or included in a countries GDP – the rest is working assets – ranging from London mansions to The Pioneer Chicken Stand. So any movement is going to be proportionally small with so many feedback loops. When you factor in the willingness of govts to spent others’ money to cushion the worst effects on the precariat i think the Cassandras need to look elsewhere for the coming catastrophe. The environment (not warming) a novel pathogen or good old fashioned war are far likely to get us before the bankers’ folly does.
“Over three decades, a mix of steady growth, short and shallow recessions, rising wealth and tame inflation”
I do not remember the late 70s and 1980s as being characterized by shallow recessions and tame inflation
The 70s and 80s were more than three decades ago.
His starting point was the 3 decades prior to the 2008 crash, so 1978
His starting point was the 3 decades prior to the 2008 crash, so 1978
The 70s and 80s were more than three decades ago.
“Over three decades, a mix of steady growth, short and shallow recessions, rising wealth and tame inflation”
I do not remember the late 70s and 1980s as being characterized by shallow recessions and tame inflation
Really good article. The case for a ‘rebalancing’ clear and strong, but perhaps overall stronger on diagnosis than prognosis. No mention of impact of AI growth, or more immediately potential conflict in South China Sea and how economies are already beginning to factor this into some assumptions.
Or a Heraclitus* put it so well: “War is the father of all things”.
(*535-475 BC.)
Perhaps, but it’s an extremely harsh father.
Perhaps, but it’s an extremely harsh father.
Or Avian flu which is starting to claim lives around the world
Or a Heraclitus* put it so well: “War is the father of all things”.
(*535-475 BC.)
Or Avian flu which is starting to claim lives around the world
Really good article. The case for a ‘rebalancing’ clear and strong, but perhaps overall stronger on diagnosis than prognosis. No mention of impact of AI growth, or more immediately potential conflict in South China Sea and how economies are already beginning to factor this into some assumptions.
Ludwig von Mises is the man to read. The Austrians will have their day.
Yes, him and Schumpeter.
And Kipling, with his ‘Gods of the Copybook Headings’.
Yes, him and Schumpeter.
And Kipling, with his ‘Gods of the Copybook Headings’.
Ludwig von Mises is the man to read. The Austrians will have their day.
An excellent article on what has led us to where we are today however why no mention of the flight to gold as a way of protecting against central bank largesse? Gold is at record highs in many currencies and everything points to it going higher given the woeful macro backdrop.
Indeed. And all the planning by the global south and east for the use of gold in new digital currencies and trading forums as they shake off the dollar. End of an era!
Indeed. And all the planning by the global south and east for the use of gold in new digital currencies and trading forums as they shake off the dollar. End of an era!
An excellent article on what has led us to where we are today however why no mention of the flight to gold as a way of protecting against central bank largesse? Gold is at record highs in many currencies and everything points to it going higher given the woeful macro backdrop.
We’ve got to protect the CEOs, the globalists, the rentiers, the moneyists, the stock holders and the plutocrats in general! To hell with working people.
Spoken like Harry Lime!
Spoken like Harry Lime!
We’ve got to protect the CEOs, the globalists, the rentiers, the moneyists, the stock holders and the plutocrats in general! To hell with working people.
Economics is the consequence of the choices made by billions of individuals and businesses driven by fear and greed. The generalisations used by economists depend upon being able to group those participants into herds that display a common behaviour. If you can identify the herds you then have to take account of the fact that its choices can flip from being driven by fear to greed and vice-versa. A far more painstaking analysis is needed to make predictions.
I am alarmed that any economist can make such comments on Bitcoins without the caution that if fear drives the price down you can get into the situation of no one putting the new money into it that is needed to pay anyone getting out of it. The investment the holders have depend entirely on the willingness of new buyers to pay them out. The money that has been spent in the past has gone into funds like Tether. At least $100 billion must be invested by them in US debt, owned by a quite small herd of perhaps 1,000 participants. Enough to destabilise finance and politics if that herd gets a voice.
The idea that 400 PhD economists at the Fed (most of whom have never held down a job in the real world in their lives) can fine tune the most complex economy in the world with their economic models and a single blunt instrument – short-term interest rates – is so ludicrous that it beggars belief.
As you say, an economy is “the consequence of the choices made by billions of individuals and businesses driven by fear and greed”. The central bankers in their ivory towers have to maintain the delusion that they are in control for as long as possible. But when it finally becomes clear that these emperors have no clothes, it’s game over for all of us.
Interest rates are to a very large extent driven by country’s bond markets, pricing and associated hedging positions, so central banks are way more reactive than proactive, as Governments get themselves into big problems if they attempt to ” face up against” bond markets… Truss was a good example. Most people, not least on this medium simply do not know that the old days, pre electronic trading, are no longer with us, and bear no resemblance to todays markets.
Interest rates are to a very large extent driven by country’s bond markets, pricing and associated hedging positions, so central banks are way more reactive than proactive, as Governments get themselves into big problems if they attempt to ” face up against” bond markets… Truss was a good example. Most people, not least on this medium simply do not know that the old days, pre electronic trading, are no longer with us, and bear no resemblance to todays markets.
The idea that 400 PhD economists at the Fed (most of whom have never held down a job in the real world in their lives) can fine tune the most complex economy in the world with their economic models and a single blunt instrument – short-term interest rates – is so ludicrous that it beggars belief.
As you say, an economy is “the consequence of the choices made by billions of individuals and businesses driven by fear and greed”. The central bankers in their ivory towers have to maintain the delusion that they are in control for as long as possible. But when it finally becomes clear that these emperors have no clothes, it’s game over for all of us.
Economics is the consequence of the choices made by billions of individuals and businesses driven by fear and greed. The generalisations used by economists depend upon being able to group those participants into herds that display a common behaviour. If you can identify the herds you then have to take account of the fact that its choices can flip from being driven by fear to greed and vice-versa. A far more painstaking analysis is needed to make predictions.
I am alarmed that any economist can make such comments on Bitcoins without the caution that if fear drives the price down you can get into the situation of no one putting the new money into it that is needed to pay anyone getting out of it. The investment the holders have depend entirely on the willingness of new buyers to pay them out. The money that has been spent in the past has gone into funds like Tether. At least $100 billion must be invested by them in US debt, owned by a quite small herd of perhaps 1,000 participants. Enough to destabilise finance and politics if that herd gets a voice.
A lot of us never did trust the central bankers. I started my career in the 80s with the Plaza Accord, Black Monday and the crazy if instructive rise and fall of Japanese property and share prices.
A lot of us never did trust the central bankers. I started my career in the 80s with the Plaza Accord, Black Monday and the crazy if instructive rise and fall of Japanese property and share prices.
Tim Morgan has a very comprehensive take on what is to come https://surplusenergyeconomics.wordpress.com/2023/04/12/253-how-has-it-come-to-this/
Thanks for sharing that – very well written post.
Thanks for sharing that – very well written post.
Tim Morgan has a very comprehensive take on what is to come https://surplusenergyeconomics.wordpress.com/2023/04/12/253-how-has-it-come-to-this/
A point I think this article misses, is that asset valuation has a powerful subjective component to it. The house is a great example. I have a house in Pennsylvania and another in Colorado. They are essentially the same and although nice, neither is particularly fancy.
The one in Colorado is “worth” three times as much as the one in Pennsylvania. And the answer is simple, Colorado is more beautiful and breathtaking.
Now wether or not asset evaluation should have such a strong subjective element is a great philosophical question. But whether or not it should or shouldn’t, it does.
And predicting such subjective valuations is tricky—especially over time—as von Mises pointed out a long time ago. A friend had a cell phone in the eighties ‘cause he needed it for his contracting company. It cost him $600/month for the service. And very few people were willing to place that value on a cell phone line at the time. Now had they been $25/month I imagine a few more of us would have had one back then.
And in Colorado during the eighties, my house would have been worth half what my Pennsylvania house was worth. And yet Colorado was probably even more beautiful and breathtaking back then as there were fewer tourists around. And certainly fewer home owners like me.
My point is: expecting government, or some team of experts (Davos anyone?), to manage the economy is asking too much. And that cuts both ways. To suppose that macro-economic tinkering is either making or breaking our economic conditions is supposing too much.
A point I think this article misses, is that asset valuation has a powerful subjective component to it. The house is a great example. I have a house in Pennsylvania and another in Colorado. They are essentially the same and although nice, neither is particularly fancy.
The one in Colorado is “worth” three times as much as the one in Pennsylvania. And the answer is simple, Colorado is more beautiful and breathtaking.
Now wether or not asset evaluation should have such a strong subjective element is a great philosophical question. But whether or not it should or shouldn’t, it does.
And predicting such subjective valuations is tricky—especially over time—as von Mises pointed out a long time ago. A friend had a cell phone in the eighties ‘cause he needed it for his contracting company. It cost him $600/month for the service. And very few people were willing to place that value on a cell phone line at the time. Now had they been $25/month I imagine a few more of us would have had one back then.
And in Colorado during the eighties, my house would have been worth half what my Pennsylvania house was worth. And yet Colorado was probably even more beautiful and breathtaking back then as there were fewer tourists around. And certainly fewer home owners like me.
My point is: expecting government, or some team of experts (Davos anyone?), to manage the economy is asking too much. And that cuts both ways. To suppose that macro-economic tinkering is either making or breaking our economic conditions is supposing too much.
Spinning plates. Those that spin the plates are less clever these days. Lazy too. If one crashes to the ground in pieces they erect another one. I think of WWII. Depression years in the 30s. Austerity. All of a sudden the world builds thousands of fighters and bombers, hundreds of ships, munitions. We’ve got CBDC now really. Promises to pay bits of paper. Worth nothing if the promises are broken. Even the rich can’t spend a billion worthless bank notes. Can’t eat gold. When will food become a currency?
Spinning plates. Those that spin the plates are less clever these days. Lazy too. If one crashes to the ground in pieces they erect another one. I think of WWII. Depression years in the 30s. Austerity. All of a sudden the world builds thousands of fighters and bombers, hundreds of ships, munitions. We’ve got CBDC now really. Promises to pay bits of paper. Worth nothing if the promises are broken. Even the rich can’t spend a billion worthless bank notes. Can’t eat gold. When will food become a currency?
Thank you – a thought-provoking article. I am relatively new to Unherd, so I don’t know if this is asking for something that already exists, but it seems to me that Brexit was an earlier expression of extreme dissatisfaction for the same reasons, voiced by a generation who don’t ‘get’ crypto. I would be delighted to hear your views, even if expressed here previously.
Thank you – a thought-provoking article. I am relatively new to Unherd, so I don’t know if this is asking for something that already exists, but it seems to me that Brexit was an earlier expression of extreme dissatisfaction for the same reasons, voiced by a generation who don’t ‘get’ crypto. I would be delighted to hear your views, even if expressed here previously.
Kinda makes you understand why the governments and the central bankers are so determined to control or eliminate crypto.
I agree too that the next crisis, which may well be coming at us like a freight train, and how the pols handle it will make a huge difference to any kind of political stability moving forward.
There were already rumblings about the bailout of SVB and protecting the very very well off depositors. I think the only thing that kept it from becoming a political firestorm was the linkage to paying people’s salaries and to startups. Had it all been just VC money there would have been a major backlash I think.
Kinda makes you understand why the governments and the central bankers are so determined to control or eliminate crypto.
I agree too that the next crisis, which may well be coming at us like a freight train, and how the pols handle it will make a huge difference to any kind of political stability moving forward.
There were already rumblings about the bailout of SVB and protecting the very very well off depositors. I think the only thing that kept it from becoming a political firestorm was the linkage to paying people’s salaries and to startups. Had it all been just VC money there would have been a major backlash I think.
‘For a start, political stability wasn’t in their mandates, so they looked on the wave of protests and violent rhetoric with equanimity’
I’m sorry. But our central bank is the bank of England is it not? It does not have the stability OF ENGLAND in its mandate? Just wtf. Why the f*ck not?
Why is this guy saying watch bitcoin? It’s origins are dubious, it’s useless if there is no power, it’s volatile to many, many things itself. I watch the gold price as a doom indicator, not bitcoin. I’m not sure about the bitcoin part. I’m probably wrong.
Using bitcoin as an alternative form of custody for cash makes sense when current custodial options start looking less sensible. Critics typically focus on bitcoin’s shortfalls as another form of currency or payment system. The developed world doesn’t need another payment system…we have plenty. Central banks are threatened by bitcoin’s attractiveness as an alternative form of custody for cash. This is probably why they’re trying to get ahead of it by issuing their own digital currency.
Bitcoin is also like a decentralized central bank. It possesses similar characteristics to central banks, e.g., custody, issuance, committee rule, to name a few. This is another good reason to try to eliminate Bitcoin before people start envisioning a much bigger role for it in the financial landscape. Unfortunately, I think governments and central banks will ultimately prevail in their quest to kill Bitcoin. Ethereum might survive due to its blockchain applicability, which few central bankers or government officials even understand.
Still nobody knows where it comes from, if the banks wanted it dead it would be gone by now surely, saying that government and bankers don’t understand block chain is rather stupid, they can hire the smartest people as they like, a currency that allows capital flight in such a way is never good. Especially at the moment with the dollar facing problems.
Also, on reflection, RF. Seen those initials before. Are you Mr foghs sock puppet? How many you got?
Still nobody knows where it comes from, if the banks wanted it dead it would be gone by now surely, saying that government and bankers don’t understand block chain is rather stupid, they can hire the smartest people as they like, a currency that allows capital flight in such a way is never good. Especially at the moment with the dollar facing problems.
Also, on reflection, RF. Seen those initials before. Are you Mr foghs sock puppet? How many you got?
Using bitcoin as an alternative form of custody for cash makes sense when current custodial options start looking less sensible. Critics typically focus on bitcoin’s shortfalls as another form of currency or payment system. The developed world doesn’t need another payment system…we have plenty. Central banks are threatened by bitcoin’s attractiveness as an alternative form of custody for cash. This is probably why they’re trying to get ahead of it by issuing their own digital currency.
Bitcoin is also like a decentralized central bank. It possesses similar characteristics to central banks, e.g., custody, issuance, committee rule, to name a few. This is another good reason to try to eliminate Bitcoin before people start envisioning a much bigger role for it in the financial landscape. Unfortunately, I think governments and central banks will ultimately prevail in their quest to kill Bitcoin. Ethereum might survive due to its blockchain applicability, which few central bankers or government officials even understand.
‘For a start, political stability wasn’t in their mandates, so they looked on the wave of protests and violent rhetoric with equanimity’
I’m sorry. But our central bank is the bank of England is it not? It does not have the stability OF ENGLAND in its mandate? Just wtf. Why the f*ck not?
Why is this guy saying watch bitcoin? It’s origins are dubious, it’s useless if there is no power, it’s volatile to many, many things itself. I watch the gold price as a doom indicator, not bitcoin. I’m not sure about the bitcoin part. I’m probably wrong.
NAT WEST NEXT?
Why Nat West, just out of interest? It’s almost half state-owned, so why would it go under?
Perhaps a malicious rumour from the “horse’s mouth” because as you correctly say HMG owns 43% of it.
Marshall Wace have taken a.64% short position…
Otherwise known as “The Kiss of Death”?
Otherwise known as “The Kiss of Death”?
Marshall Wace have taken a.64% short position…
Yeah, the whole us bank index looks ropey as hell, I’m intrigued as to why nat west. There’s a lot of rumours about at the moment as to how this will pan out and what might crash next, I’ve come across anywhere else saying Nat West yet.
Perhaps a malicious rumour from the “horse’s mouth” because as you correctly say HMG owns 43% of it.
Yeah, the whole us bank index looks ropey as hell, I’m intrigued as to why nat west. There’s a lot of rumours about at the moment as to how this will pan out and what might crash next, I’ve come across anywhere else saying Nat West yet.
Didn’t the Viz comic used to call it Knat West.?
Why Nat West, just out of interest? It’s almost half state-owned, so why would it go under?
Didn’t the Viz comic used to call it Knat West.?
NAT WEST NEXT?
‘This swelled the global labour pool by several orders of magnitude’. To me this means multiplied it by at least 100, maybe 1000, maybe more. Rapley can’t mean that, surely?
He might, in the pure sense of freely available surplus labour.
Yes. I wondered how many orders og magnitude he was talking about. Perhaps, by “orders of magnitude”, he just means “a lot”
It leaves me wondering what credence to give the article, I’m afraid.
He might, in the pure sense of freely available surplus labour.
Yes. I wondered how many orders og magnitude he was talking about. Perhaps, by “orders of magnitude”, he just means “a lot”
It leaves me wondering what credence to give the article, I’m afraid.
‘This swelled the global labour pool by several orders of magnitude’. To me this means multiplied it by at least 100, maybe 1000, maybe more. Rapley can’t mean that, surely?
Methinks this is exactly what the Bitcoiners and other cryptos had in mind when they came out of the woodwork after ’08. Jolly good: a real-world counterbalance to the banker powers-that-be. . . now apparently a functional element of counterbalance in the real world, instead of a mere gleam in quasimoto’s eye.
Methinks this is exactly what the Bitcoiners and other cryptos had in mind when they came out of the woodwork after ’08. Jolly good: a real-world counterbalance to the banker powers-that-be. . . now apparently a functional element of counterbalance in the real world, instead of a mere gleam in quasimoto’s eye.
The only workable solution to fix this is a move from primarily taxing income to primarily taxing net worth – asset taxation now!
I think you underestimate the scope of the problems.
I think you underestimate the scope of the problems.
The only workable solution to fix this is a move from primarily taxing income to primarily taxing net worth – asset taxation now!
“Unless and until central banks convince everyone they are more committed to bringing down inflation than to protecting asset-values, cryptocurrencies will continue to prosper.”
It isn’t cryptocurrencies as a class that ‘will continue to prosper’ but bitcoin which has a finite number of coins written in to its program and a near impossibility to increase that amount. My understanding is that for all the rest an infinite number coins can be created in the crypto currency world with little or no de facto ability of current holders to do much about it. The distinction between bitcoin and the rest is both necessary and critical: bitcoin can reflect the continuing money printing of central bankers by going up in price; other crypto currencies have the ability simply to ape central bank policies and print to infinity. Not understanding the distinction could mean the loss of your shirt. (And there are those who say governments will find a way to snuff out bitcoin but put that to one side.)
Bitcoin halves every six years? I think it is, so it doesn’t inflate, but it only has so many times it can do that I believe. I can’t remember the count we are on now, I haven’t done the bitcoin rabbit hole for a while. That is an opinion, I’d have to go read it about again to check. But it’s all about the halving, I’m sure its not built into it though to be like an infinite system you can keep using. I’m sure it has so many cycles then nobody knows.
Bitcoin halves every six years? I think it is, so it doesn’t inflate, but it only has so many times it can do that I believe. I can’t remember the count we are on now, I haven’t done the bitcoin rabbit hole for a while. That is an opinion, I’d have to go read it about again to check. But it’s all about the halving, I’m sure its not built into it though to be like an infinite system you can keep using. I’m sure it has so many cycles then nobody knows.
“Unless and until central banks convince everyone they are more committed to bringing down inflation than to protecting asset-values, cryptocurrencies will continue to prosper.”
It isn’t cryptocurrencies as a class that ‘will continue to prosper’ but bitcoin which has a finite number of coins written in to its program and a near impossibility to increase that amount. My understanding is that for all the rest an infinite number coins can be created in the crypto currency world with little or no de facto ability of current holders to do much about it. The distinction between bitcoin and the rest is both necessary and critical: bitcoin can reflect the continuing money printing of central bankers by going up in price; other crypto currencies have the ability simply to ape central bank policies and print to infinity. Not understanding the distinction could mean the loss of your shirt. (And there are those who say governments will find a way to snuff out bitcoin but put that to one side.)
Sadly, the mismanagement is almost assured.
Sadly, the mismanagement is almost assured.
This article probably couldn’t go into the details of MBSs in 2008 or mark-to-market long bonds in the case of SVB, but I find the analysis overly general. As a Canadian I am just grateful for a tightly regulated banking oligopoly that avoided 2008, where the central bank has stopped raising interest rates, where there is full employment even with a population increase last year of a net million.
The cycle of debasement of government money will never end, it’s baked into the thesis of government money, history proves this beyond all doubt.
Bitcoin is the off-ramp.
“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.
Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become “profiteers,” who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
-John Maynard Keynes, The Economic Consequences of the Peace