This page has been archived and commenting is disabled.
QBAMCO On Nominalists, Realists, And The Madness Of 'Chicago Plans'
The blinding nominal light of a Dow Jones Industrial Index near pre-crisis highs is enough provocation for most of the well-assuming US citizenry to 'believe'. Ahead of the third and final Presidential debate this evening, QBAMCO's Paul Brodsky and Lee Quaintance distill the listening audience into Realists and Nominalists. The critical difference between the two, which is described below, is hidden notably from view as the rhetoric within the institutionalized process of vetting and voting for our next President is narrowly focused, intentionally avoiding any major sticking points that will really bring change. As a result, they note, public policy and the people picked to craft and execute it have become anodyne; further implying that regardless of the outcome of the election, inflation will be the accepted manner of de-leveraging to be pursued; but the re-awakening of the so-called 'Chicago Plan' does acknowledge that significant monetary change is likely (for better or worse).
Via QBAMCO: The Realist
On the eve of this evening’s US presidential debate and with two weeks to go before the election, we thought it would be fitting to publicly endorse our favorite candidate – the Realist.
The political dynamic of our time may be reduced to intense operational pragmatism posing as extreme social idealism. Election and appointment processes have become highly institutionalized and very specific in calculating odds. This explains the ever-narrowing window of acceptable public rhetoric. In this hyper self-conscious, real-time, meta social environment, public language or innuendo that threatens a generally accepted framework of expectations risks sudden castigation by society and its media…and risks political defeat.
One might argue that what was once a necessary improvement of decorum – increased political correctness by those on the public stage that influence and hopefully reflect a more aware, inclusive, and tolerant society – has morphed into a political imperative for stage management and policy setting. The business of politics, like the business of commercial enterprise, now relies very much on not surprising or upsetting a defined constituency.
Our politicians and policy makers are thus trained and instructed to play the odds, to stay on script, and to continually appeal to their bases. Only once loyalties from the low-hanging fruit are locked-in may they then try to extend support among independents – comprised in their eyes as nettlesome “brain dead” voters without the good sense to pay attention until the election draws nigh and nettlesome objective voters that don’t get the joke (those that actually pay attention to issues and do not hear enough substance during the campaigns to persuade them either way). It would be a tough course for thoughtful and courageous policy makers to navigate. So tough, in fact, that only the hyper-political need apply.
As a result, public policy and the people picked to craft and execute it have become anodyne. The impact of the consequent politically-correct policies on the disaggregated governed seems both ironic and predictable: increasing economic and social instability. Our leaders are dividing us with idealism and conquering us with vote counting. And yet…we all know it’s fake. The whole affair smacks of pro wrestling.
Be that as it may, it would seem the best bet, in fact the only logical bet for investors, is to continue wagering on the rational short-term best interests of power – not necessarily those currently in power or those that want to take it from them. Nothing else matters, practically speaking. All promises and articulated intentions not fully aligned with their short-term interests should be thought of as hollow rhetoric meant for their part-time peeps looking to wave their flags for a winning team every four years.
As it relates to US economic policy, the presidential election matters very little (as Mr. Schumer says, the Fed has become the “only game in town”). As we have written, the most politically expedient way to de-leverage banks and households so that economic activity can increase is through currency dilution, not by permitting long periods of austerity. The Fed as an institution will keep printing at the behest of politicians and major banks (its shareholders) until there is publicly recognized inflation. After all, managing inflation expectations has long been the explicit target of central bankers across all self-identifying conservative and liberal administrations.
Below we divide economic observers into two categories, Realists and Nominalists, in the current environment:
- Realists – those who advocate for the expansion of exchange value of the aggregate money stock via an increase in the value of each monetary unit (deflationists)
- Nominalists – those who advocate for the expansion of exchange value of the aggregate money stock via an increase in the number of monetary units (inflationists)
The great divide seems to be properly delineated on most fronts:
- Unlevered savers, wage-earners, the 99%, etc. are all Realists (unknowingly perhaps). They benefit from a rising exchange value of the currency unit (i.e. they are structurally long the currency unit)
- Bankers, unreserved leveragers of all stripes and those that benefit from leveraging are Nominalists. They are either monopoly producers and distributors of fiat currency or direct beneficiaries of the process as levered entities (i.e. they are structurally short the exchange value of the currency unit)
President Obama, Governor Romney and Chairman Bernanke are proven Nominalists (implying most of the electorate is unaware or indifferent as to the purchasing power of their wages and savings). This further implies that regardless of the election outcome, inflation will be the accepted manner of de-leveraging to be pursued.
A recent IMF working paper called “The Chicago Plan Revisited” (embedded below) is making its way to our in-box because it discusses a return to fully-reserved banking systems – a policy for which we have long strongly advocated. The paper discusses replacing the current monetary arrangement – using unreserved private bank system credit as money – with money directly sponsored and distributed by federal governments.
We would see such an action as an important first step towards lasting economic solvency and sustainability. We have argued formally since 2006 that unreserved bank credit inflation/deflation and the bubbles/resource misallocations it promotes are more injurious to the workings of the real economy than generally recognized. As it stands in the current regime, “money” is lent into existence by banking systems and it needs not reserves. This creates a shortage of actual money in the economy relative to the amount of credit extended and debt assumed (i.e. leverage). The imposition of rules that would require banks to lend only the media that they can source is a foundation for economic stability and efficient resource allocation, in our view.
There is a catch to this proposition however, which, if left unchecked, would ensure its demise: there would be no check on government spending. In other words, technically the fiscal agent (i.e. the federal government) could itself spend money into existence with no objective restraint. If past is prologue, this would ensure a swift end to the monetary system. We would argue there would have to be one of three restraints and/or conditions imposed to ensure ongoing credibility of the scrip:
- Gold would need to float freely and not be taxed, as it is today, so that it offers an unadulterated safe-haven savings outlet for those who fear the eventual diminution of purchasing power (thereby acting as a natural disciplinary threat to fiscal profligacy), or;
- A gold standard would need to be imposed and honestly maintained (perhaps using the devaluation and re-pegging we have often described), or;
- The fiscal/monetary agent would have to suppress the flow of capital into safe-haven assets thought by nervous savers to offer better prospects for future purchasing power retention than traditional financial/leveraged assets (e.g. precious metals, scarce resources and operating utilities).
Nevertheless, the mere existence of the IMF paper seems to acknowledge that significant monetary change is likely. Perhaps that is the real takeaway?
»
- 7702 reads
- Printer-friendly version
- Send to friend
- advertisements -
Fuck you Bernanke!
Does anyone really believe that if the government went to a currency policy that had a gold component to it that they wouldn't massively tax the gains of those who had saw
it coming?
What is a gold bug to do?
Leave the freaking USSA and take their gold with them. That's what I did 3 years ago.
seconded.
Hell....a place where there is no reason.
nationalise the FED, abolish fractional reserve, let the TBTF sink, regulate and abolish the fiat pump. Just do it and don't let Nike say "I invented that!".
And, don't misuse the word "nominalist". In the middle ages it meant "original out of the box thinker", its proponent Abelard invented contrarian philosophy in dark ages Europe. : Understand to believe; not believe to understand as Saint Augustine said!
And...true "nominalism" implied, (it was then a game of words not of deap concepts), subjective thinking, aka individual "free will"; four centuries before Erasmus invented it!
Consequent pearl in his dialectical debate with the conservative fundamentalists : He who speaks in God's name only speaks in his own! ...Now that greatly displeased Bernard of Clairvaux as it implied the Pope was not infallible!
As time has shown the nominalist of that age was more realist than the so called realist who defended God's all seeing wisdom, absolute concepts and absolute truths.
But back to the great IMF resurrection of 1936 logic...lets see if our current economists can think as deeply as that!
Moral of the story,
Oz can exist, Just not in, America's Kansas
Hard to believe that the IMF aknowledges that the CB's are run by people crazier than your basic shithouse rats.
jaromir benes is a czech communist
Um...
Do they really think that the reason we don't already have a full reserve banking system is because people just didn't think of it or were unaware of the advantages? It's been known for hundreds of years. We don't have a full reserve system because the parasitic class; the vested interests do very well thank you from the fractional reserve.
And here we go again another version of the Bank Charter of 1844 which was a disaster, and again another theory that the quantity of money drives the economy up or down and forces up the contraction.... Pff.... those guys do not learn.
And no way to constraint the gov spending by forcing the payment of interest, this plan is absolutely pure madness and very inflationary.
If you remove backstop and put all assets of the banker in guarantee against insolvency you have a first step (just like in the XIX Century)
Do like the SCotts in XIX pure private paper money, no need of Gold, no gov intervention, sound system. Cowperthwaite was a Scott, and you can see it in the monetary system of Hong Kong and light regulation.Hong-Kong dollar is a paper non fiat monetary system. The Scotts also had a paper non fiat system.
Gold and Hong Kong dollar bitchez. If everyone had a scottish paper system, no need of Gold. This non interest bearing Gov base money is FUCKING ASSIGNAT, no need to secure the money back and remove it from circulation through future taxes. This is compulsory money just like the 3rd issuance of Greenback paper not backed by Gold interest bearing Gov bonds (first and second issue) during the civil war. Those guys should read about Spaulding about the scandal that was!!!
Those guys at the IMF are nuts!!!!
In all my years I have listened to many thousands of people from across all social levels and I have never heard any human speak like Obama. So I suspect he is lying whenever he says anything. And Romney well he has the countenance of a habitual masturbater.
The age of presidents is past.
The age of open source software as a governing mechanism is now.
No. End GOVERNING completely. NOBODY, and certainly no "fictitious entity" like "government" or "corporation" has any freaking right to "govern" me... or anyone else.
Why do people debate HOW they should be enslaved. How revolting! Just say no... just say I do not consent to be governed. I certainly don't consent, and never have!
I must say, I am very happy to see ZH is bringing the full reserve system up for discussion. I am a part of a group which has been looking into this idea for quite some time. The paper of Benes and Kumhof supports our view of the effects of implementing the full reserve system as opposed to the fractional reserve system.
We have been looking around for objective arguments against full reserve. If you ZH followers have any thoughts on that, it would be very interesting to hear what you have to offer...
Speaking of idiocracy in Chicago: http://www.huffingtonpost.com/2012/10/18/cook-county-bullet-tax-to_n_1978916.html
Even if the inflationists worst fears are realized with a debt-free govt. currency and the irresponsible behavior of politicians leads to an erosion of purchasing power. Even if the congress decides to use this new tool to buy votes, create pork, and maintain the culture of corruption. Even if all these things and more are inevitable under a commonwealth debt free currency, HOW CAN THAT NOT BE PREFERRABLE TO A PRIVATELY CONTROLLED, BANK ISSUED DEBT BASED MONETARY UNIT THAT WILL SURELY AND PERPETUALLY COLLAPSE THE ENTIRE ECONOMY UNDER THE WEIGHT OF UNREPAYABLE DEBT??
IS THERE A SINGLE WORKABLE ARGUMENT THAT SUPPORTS THE IDEA THAT ALLOWING BANKS TO ISSUE DEBT BASED MONEY WITHOUT LIMIT CAN DO ANYTHING BUT DESTROY OUR ECONOMY AND CREATE A "TOO BIG TO FAIL" RULING CLASS WHO, WITH THE STROKE OF A PEN, MAY LITERALLY BUY UP THE WORLD?
Sorry for the caps, but seriously, what possible monetary system would NOT be better than what we have? Fucking tally sticks and tulips would be better. We have allowed parasties to write themselves a blank check and are now terrified of taking it away from them. Can anything be more ridiculous than that?