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Guest Post: The Cantillon Effect

Tyler Durden's picture




 

Submitted by John Aziz of Azizonomics

The Cantillon Effect

Expansionary monetary policy constitutes a transfer of purchasing power away from those who hold old money to whoever gets new money. This is known as the Cantillon Effect, after 18th Century economist Richard Cantillon who first proposed it. In the immediate term, as more dollars are created, each one translates to a smaller slice of all goods and services produced.

How we measure this phenomenon and its size depends how we define money. This is illustrated below.

Here’s GDP expressed in terms of the monetary base:

Here’s GDP expressed in terms of M2:

And here’s GDP expressed in terms of total debt:

What is clear is that the dramatic expansion of the monetary base that we saw after 2008 is merely catching up with the more gradual growth of debt that took place in the 90s and 00s.

While it is my hunch that overblown credit bubbles are better liquidated than reflated (not least because the reflation of a corrupt and dysfunctional financial sector entails huge moral hazard), it is true the Fed’s efforts to inflate the money supply have so far prevented a default cascade. We should expect that such initiatives will continue, not least because Bernanke has a deep intellectual investment in reflationism.

This focus on reflationary money supply expansion was fully expected by those familiar with Ben Bernanke’s academic record. What I find more surprising, though, is the Fed’s focus on banks and financial institutions rather than the wider population.

It’s not just the banks that are struggling to deleverage. The overwhelming majority of nongovernment debt is held by households and nonfinancials:

The nonfinancial sectors need debt relief much, much more than the financial sector. Yet the Fed shoots off new money solely into the financial system, to Wall Street and the TBTF banks. It is the financial institutions that have gained the most from these transfers of purchasing power, building up huge hoards of excess reserves:

There is a way to counteract the Cantillon Effect, and expand the money supply without transferring purchasing power to the financial sector. This is to directly distribute the new money uniformly to individuals for the purpose of debt relief; those with debt have to use the new money to pay it down (thus reducing the debt load), those without debt are free to invest it or spend it as they like.

Steve Keen notes:

While we delever, investment by American corporations will be timid, and economic growth will be faltering at best. The stimulus imparted by government deficits will attenuate the downturn — and the much larger scale of government spending now than in the 1930s explains why this far greater deleveraging process has not led to as severe a Depression — but deficits alone will not be enough. If America is to avoid two “lost decades”, the level of private debt has to be reduced by deliberate cancellation, as well as by the slow processes of deleveraging and bankruptcy.

 

In ancient times, this was done by a Jubilee, but the securitization of debt since the 1980s has complicated this enormously. Whereas only the moneylenders lost under an ancient Jubilee, debt cancellation today would bankrupt many pension funds, municipalities and the like who purchased securitized debt instruments from banks. I have therefore proposed that a “Modern Debt Jubilee” should take the form of “Quantitative Easing for the Public”: monetary injections by the Federal Reserve not into the reserve accounts of banks, but into the bank accounts of the public — but on condition that its first function must be to pay debts down. This would reduce debt directly, but not advantage debtors over savers, and would reduce the profitability of the financial sector while not affecting its solvency.

 

Without a policy of this nature, America is destined to spend up to two decades learning the truth of Michael Hudson’s simple aphorism that “Debts that can’t be repaid, won’t be repaid”.

The Fed’s singular focus on the financial sector is perplexing and frustrating, not least because growth remains stagnant, unemployment remains elevated, industrial production remains weak and America’s financial sector remains a seething cesspit of corruption and moral hazard, where segregated accounts are routinely raided by corrupt CEOs, and where government-backstopped TBTF banks still routinely speculate with the taxpayers’ money.

The corrupt and overblown financial sector is the last sector that deserves a boost in purchasing power. It’s time this ended.

 

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Tue, 08/07/2012 - 12:31 | 2685026 francis_sawyer
francis_sawyer's picture

 Bono (during pause in concert ~ flapping fingers together): "Everytime I flap my fingers together like this ~ a child starves in Africa"

Irishman in Audience: "Well foogin stop doin' it then"!

Tue, 08/07/2012 - 12:35 | 2685043 NotApplicable
NotApplicable's picture

I love that story.

Also, it's good to see Mr. Cantillon grace these pages. His observations have held up well over time.

As for the Modern Jubilee? Like they'll ever let that happen!

It isn't like debt slavery is an accidental occurrence.

Tue, 08/07/2012 - 12:41 | 2685065 Cognitive Dissonance
Cognitive Dissonance's picture

"It isn't like debt slavery is an accidental occurrence."

Mrs. Cog likes to say......"It was on accident".

Tue, 08/07/2012 - 17:04 | 2685802 BigJim
BigJim's picture

This Aziz fellow certainly is prolific... and worth reading, too.

But his surprise that financiers are mainly concerned with the wealth of... financiers... seems a tad naive.

Tue, 08/07/2012 - 18:35 | 2686006 Aziz
Aziz's picture

Don't worry. I'm feigning surprise. Nothing will ever surprise me after this.

Wed, 08/08/2012 - 04:40 | 2686956 falak pema
falak pema's picture

Don't age too fast, it ain't good for your arteries.

Keep in mind that all empires end and new ones rise.

It's tuff to be in the wrong place at the wrong time. The Oligarchs think that NY and London will be the places to be. I hope they don't kill their own comfy nests thru their infighting which will get ominous. Witness Standard Charters and ECB vs Merkel. 

The sheeple stay sheeple if they don't know how to become people and win their freedom back! 

Tue, 08/07/2012 - 13:15 | 2685150 EmileLargo
EmileLargo's picture

Bono the tax dodger inventing new schemes daily to screw you with NEW taxes to feed the starving children of Africa. Why doesn't this hypocrite offload half of his considerable wealth before opening his fucking mouth?

Tue, 08/07/2012 - 15:43 | 2685599 Aziz
Aziz's picture

Bono and his friends Bob Geldof, Bill Gates, George Soros, Alan Greenspan and George W. Bush are some of the biggest scammers around.

Tue, 08/07/2012 - 18:57 | 2686073 ncdirtdigger
ncdirtdigger's picture

When that douche gives away all his money, and renounces all his future earnings over the poverty level, then maybe I'll give a chit about what he says. Meanwhile, I'll just pirate his music and chuckle.

Tue, 08/07/2012 - 16:24 | 2685710 MillionDollarBoner_
MillionDollarBoner_'s picture

Where you went wrong.

You put "financial sector" and  "solvency" in the same sentence....

Tue, 08/07/2012 - 12:33 | 2685028 LawsofPhysics
LawsofPhysics's picture

The answer to the question as to why Ben injected the new money into those TBTF banks and financial houses has to do with the true vlaue of the underlying collateral behind the "assets" on those balance sheets.  Just like Ben's Ph.D. the true value of those books and paper is closer to zero.

Moreover, those financial houses own your "representation".  Regulatory and representitive capture, period.  

Tue, 08/07/2012 - 13:44 | 2685213 A Nanny Moose
A Nanny Moose's picture

But they are happy now. The new reformed Ben says Happiness counts.

Tue, 08/07/2012 - 12:33 | 2685038 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

Come the fuck on, fill my ears with honey.

Tue, 08/07/2012 - 13:02 | 2685117 LawsofPhysics
LawsofPhysics's picture

Well said, how about simply marking all this shit to market and letting the chips fall where they may.  The world war never ended, as many are about to learn the hard way.

Tue, 08/07/2012 - 12:35 | 2685044 Cognitive Dissonance
Cognitive Dissonance's picture

"Expansionary monetary policy constitutes a transfer of purchasing power away from those who hold old money to whoever gets new money."

Theft by any other name is still theft. Protect yourself.

Tue, 08/07/2012 - 12:36 | 2685049 bank guy in Brussels
bank guy in Brussels's picture

The populist solution above

« ... directly distribute the new money uniformly to individuals ... »

QE for everyone ... stop all those complaints about the banks because 'I got mine, too'

QE not only to infinity, but for infinite everyone

Tue, 08/07/2012 - 13:03 | 2685074 francis_sawyer
francis_sawyer's picture

I think that would be fucking hilarious... I'd buy a ticket to that ride...

Here's the scenario...

~~~

- Give every America $100,000 (or some pre-set ratio of aggragate National Debt, divided by population)

- Let 'em do whatever the hell they want with it... (pay off debt, buy guns, get a sweet ride, blow it on hookers, prep, WTFever)...

- Require them to report that amount on their tax returns the following year (same way as happens in debt restructuring deals or laterally, certain bankruptcy arrangements)

- Watch all hilarity ensue

Tue, 08/07/2012 - 13:12 | 2685144 QQQBall
QQQBall's picture

and illegals too?

Tue, 08/07/2012 - 13:38 | 2685192 francis_sawyer
francis_sawyer's picture

Yeah baby... Let the currency flow... (black market & whatnot)... Why not learn the lesson of the fallacy of 'central planning' firsthand?... Light the bonfire...

 

Tue, 08/07/2012 - 13:52 | 2685241 JohnKozac
JohnKozac's picture

francis, $100,000 ?!  Are you kidding? I haven't even received my $3,000 from those cheap bast*rds. If someone else buys my Thinga----- beofrem y "free money" comes in, I'll be very sad.

Tue, 08/07/2012 - 15:41 | 2685260 francis_sawyer
francis_sawyer's picture

Of course I'm kidding...

I just like playing out the END GAME to every hypothesis... francis_sawyer is like a Rand Corporation, CFA, Bilderberg Group, Club of Rome, Trilateral Commision, UN, etc. all by my lonesome...

Except for all the ped.o.filia & blood sacrifices & all that shit that they need to do to get their dicks hard...

Tue, 08/07/2012 - 12:36 | 2685051 bnbdnb
bnbdnb's picture

Never. Gonna. Happen.

The next twenty years of debt jubilees will occur in funerals.

Tue, 08/07/2012 - 12:47 | 2685081 qussl3
qussl3's picture

Not student loans you wont.

Tue, 08/07/2012 - 12:56 | 2685109 WillyGroper
WillyGroper's picture

You just hit the coffin nail in the head!

Tue, 08/07/2012 - 12:38 | 2685055 duo
duo's picture

he stole my idea from a few weeks back.  Overnight, put an extra zero in all savings and cheking accounts.  The add two zeros to the monthly EBT (food stamp) payout.  Then watch the fun.

Tue, 08/07/2012 - 12:50 | 2685095 Jason T
Jason T's picture

don't go there .. http://www.youtube.com/watch?v=Fg6J1Skptbs .. but it would be fun(ny)

Tue, 08/07/2012 - 12:40 | 2685064 buzzsaw99
buzzsaw99's picture

The Cantillon effect only works if everyone keeps accepting joobux for goods and services. I suspect that won't always be the case.

Tue, 08/07/2012 - 12:41 | 2685067 bank guy in Brussels
bank guy in Brussels's picture

This John Aziz - Steve Keen idea of printing up QE money for everyone, reminds of what was proposed decades ago in

The famous President Jimmy Carter speech in the 1970s, 'Inflation is Our Friend':

President Jimmy Carter:

« Good evening. ... Our economic system is screwed, blued and tatooed! We just have to face the fact that there is simply no way to fight inflation ... That’s why, tonight, I want you to try to look for in inflation, an entirely new word: Inflation is our friend.

For example, consider this: ... If current trends continue, the average blue-collar annual wage in this country will be $568,000. Think what this inflated world of the future will mean – most Americans will be millionaires. Everyone will feel like a bigshot. Wouldn’t you like to own a $4,000 suit, and smoke a $75 cigar, drive a $600,000 car? I know I would!

But what about people on fixed incomes? They have always been the true victims of inflation. That’s why I will present to Congress the 'Inflation Maintenance Program', whereby the U.S. Treasury will make up any inflation-caused losses to direct tax rebates to the public in cash.

Then you may say, "Won’t that cost a lot of money? Won’t that increase the deficit?" Sure it will! But so what? We’ll just print more money! We have the papers, we have the mints. I can just call up the Bureau of Engraving and say, "Hi! This is Jimmy. Roll out some of them twenties! Print up a couple thousand sheets of those Century Notes!" Sure, all these dollars will cause even more inflation, but who cares? Everyone will be a millionaire!

In my speech last week, I said that America would have to undergo an austerity program, but since this revolutionary new approach welcomes inflation, our economy will be free to grow, and we can spend, spend, spend! I believe the watchwords ... should be 'Let’s Party!' »

- President Jimmy Carter, as played by Dan Ackroyd on 'Saturday Night Live', episode 4, season 4

Tue, 08/07/2012 - 12:46 | 2685079 Aziz
Aziz's picture

Point is, inflation is theft if someone is getting the money first (Cantillon Effect). It is not theft if everyone gets the same amount of money at the same time just to make the relative debt level smaller in comparison to income.

Anyway, I doubt the Fed will take Keen's idea seriously, mainly because the banks that contribute to the Fed system love getting the money first and having society's purchasing power transferred to them.

Tue, 08/07/2012 - 14:37 | 2685348 MachoMan
MachoMan's picture

How is it not theft to sacrifice future generations' economic chances or abilities?  To deplete resources now to ensure a harder struggle by others later?  To punish prudent savers in favor of imprudent financial prolifigacy?

The problem lies at the very foundation of the premise...  you can't nuance it to be moral...

Tue, 08/07/2012 - 16:38 | 2685744 MillionDollarBoner_
MillionDollarBoner_'s picture

Yeah, well, its their fault they weren't born sooner.

Shit happenz!

Tue, 08/07/2012 - 17:15 | 2685824 BigJim
BigJim's picture

  How is it not theft to sacrifice future generations' economic chances or abilities? 

That's the whole point of this type of jubilee.

EVERYONE gets a lump sum. Anyone in debt has to pay off their debts with it. Anyone not in debt gets to spend the money how they like.

As debts are paid off, the income streams to banks from interest will dry up and a lot of banks will go bust... which is what would happen if/when the size of the finance sector is reduced to its rightful size (ie, the size it would be if it provided only those services that a free market demanded)

Yes, it's inflationary, but at this point we can either have i) biflation as debtors go bust, banks get bailed out and wind up owning even more of reality than they do now, or ii) we shrink the portion of GDP that debt (and debt servicing) now occupies, and the economy moves on.

Ideally after such a jubilee, a free banking system will be implemented and Federal Reserve and its legal-tender fiat FRNs will be a thing of the past.

Hell, a man can dream, can't he?

Wed, 08/08/2012 - 09:45 | 2687328 MachoMan
MachoMan's picture

So...  let me get this straight.  Because the people/entities who behaved imprudently (and illegally in some instances) did so to such a large extent and/or confusing extent (securitization/derivatives), we are to simply print money, send it to debtors, who then are forced to pay back the imprudent lenders?  Really?  This is our master plan?

What the hell happened to sacking up and calling a spade a spade?  Why don't we liquidate the creditors, pull their charters, and ban improvident individuals from participating in the industry in the future if not sending anyone who performed an illegal act to the pokey?  Why don't we call this new fangled contraption the ponzi scheme it is and close up shop?

If one of the problems with the lack of formation of capital is that the present market/environment is inconsistent and risk averse participants cannot guess where it is headed, then how would a helicopter drop to the plebs help that consistency?  Why wouldn't we simply use a solution that already has a regulatory, legal, and market structure?  Why do we need to appeal to some convoluted inflationary scheme to "fix" things?

The other issue is that the jubilee presented isn't anything of the sort...  we're going to print $1.1m for every taxpayer?  Just hand it out tomorrow?  The author proposed far less...  amounting to a pimple on the ass of a debtor...  that isn't any jubilee, it's simply a direct cash infusion to prop up creditors...  http://www.usdebtclock.org/

Another issue is that just because you pay down debt, doesn't mean that your monthly payments decrease in the slightest...  e.g. a mortgage.  Most consumer stuff (credit cards, student loan debt, etc.) probably will, but I didn't see that specified in this proposal.

Tue, 08/07/2012 - 17:58 | 2685926 Bob Sacamano
Bob Sacamano's picture

No way they will give the same amount to everyone (some are more equal than others) -- it does not fit the redistribution agenda.

Tue, 08/07/2012 - 12:48 | 2685089 Piranhanoia
Piranhanoia's picture

The jubilee wrapped in securitization.  The machines that wrote the law and forced their congressslave to vote for it began with extortion as the prime directive.  When the regulations were subsituted for RICO,  they had everything they needed to prevent the forgiveness of debt.   If anything better explains why seemingly rational beings are acting without conscience, this is the most reasonable explanation.   "We will blow everything up and we can prove you caused it",  signed,  your friend Jamie.

Tue, 08/07/2012 - 12:49 | 2685091 Darth Mul
Darth Mul's picture

And after the Jubilee?

The money in the pocket of Worker, what remains, will be worth less, while large banks, spokes on the wheel emanating from the world's central banks...  will be made 'solvent' and thus, eager to extend credit to Worker's Deadbeat Alcoholic Nephew, who works for Goldman Sachs as an FC, placing bets against various CDOs Goldman sold to PensionFund.

The problem with hitting the reset button on a crap machine is you're going to have to keep on doing it.

Private central banks issuing and fractionally lending fiat currency, and the ownership thereof by a small minority, is per se flawed, per se unfair, and forgiving debt periodically merely extends the life of the system, and allows the theft of more and more real wealth/value by banks from workers.

 

No, my good man - you are still treating symptoms and overlooking disease.

 

In any event, odious debt, such as that held by banks creating money based on money that isn't even theirs... engenders no obligation of repayment.

 

The magick spell needed is to get several million people to stop paying their credit cards and school loans and to stop paying their taxes.

 

But no one's talking about that.  People are talking about horseshit.

 

Which is, of course, what those controlling central banks want.

 

Bitches.

 

 

 

 

Tue, 08/07/2012 - 13:37 | 2685190 shovelhead
shovelhead's picture

IRS SWAT Team arriving in 3...2...1...

Tue, 08/07/2012 - 14:03 | 2685268 XitSam
XitSam's picture

The IRS has a SWAT team? That's just crazy talk!

Tue, 08/07/2012 - 12:51 | 2685099 buzzsaw99
buzzsaw99's picture

the pharisees never did like the joobilee

Tue, 08/07/2012 - 13:04 | 2685121 francis_sawyer
francis_sawyer's picture

You're on fire 2day buzz... lol

Tue, 08/07/2012 - 14:15 | 2685300 viahj
viahj's picture

yeah, he has both synapses firing in unison

Tue, 08/07/2012 - 12:51 | 2685100 Madcow
Madcow's picture

Slate explains why gold is a lousy investment

http://www.slate.com/blogs/moneybox/2012/08/07/gold_isn_t_a_safe_investm...

 

Tue, 08/07/2012 - 13:21 | 2685156 XitSam
XitSam's picture

What a dipshit article. First they are confusing wealth preservation with investing. Second, they say financial innovation isn't always bad since it gave us TIPS and if you don't trust government TIPS they can take anything you own anyway.  Well, the inflation in TIPS is controlled by the government so that argument fails. Further, people trusted Roosevelt in 1933 that the actions he took were necessary, trust is not the case in this day and age. Third, they say gold may be more or less expensive in the future so it is not a good investment. That's backwards, gold is the reference, it is the fiat currency that is changing in value. Fourth, go back to sleep sheeple and keep buying equities, let the central banks buy all that worthless "tradition".

Sorry for ranting, shit articles like this make me nuts.

Tue, 08/07/2012 - 15:44 | 2685605 Aziz
Aziz's picture

Yglesias is a funny guy, but I don't think it's intentional.

Tue, 08/07/2012 - 15:50 | 2685622 XitSam
XitSam's picture

I didn't even look to see who wrote it. That explains a lot.

Tue, 08/07/2012 - 12:52 | 2685102 JR
JR's picture

The current ‘banner’ under which the financial elite have seized total control over the state, the budget and the economy has been ‘change’.

The Ascendancy of a Criminal Financial Elite

The Two Faces of a Police State: Sheltering Tax Evaders, Financial Swindlers and Money Launderers while Policing the Citizens

by Prof. James Petra | August 07, 2012

Never in the history of the United States have we witnessed crimes committed on the scale and scope of the present day by both private and state elites.

An economist of impeccable credentials, James Henry, former chief economist at the prestigious consulting firm McKinsey & Company, has researched and documented tax evasion. He found that the super-wealthy and their families have as much as $32 trillion (USD) of hidden assets in offshore tax havens, representing up to $280 billion in lost income tax revenue! This study excluded such non-financial assets as real estate, precious metals, jewels, yachts, race horses, luxury vehicles and so on. Of the $32 trillion in hidden assets, $23 trillion is held by the super-rich of North America and Europe .

A recent report by a United Nations Special Committee on Money Laundering found that US and European banks laundered over $300 billion a year, including $30 billion just from the Mexican drug cartels.

New reports on the multi-billion dollar financial swindles involving the major banks in the US and Europe are published each week. England ’s leading banks, including Barclay’s and a host of others, have been identified as having rigged the LIBOR, or inter-bank lending rate, for years in order to maximize profits. The Bank of New York, JP Morgan, HSBC, Wachovia and Citibank are among scores of banks, which have been charged with laundering drug money and other illicit funds according to investigations from the US Senate Banking Committees. Multi-national corporations receive federal bailout funds and tax exemptions and then, in violation of publicized agreements with the government, relocate plants and jobs in Asia and Mexico.

Major investment houses, like Goldman Sachs, have conned investors for years to invest in ‘garbage’ equities while the brokers pumped and dumped the worthless stocks. Jon Corzine, CEO of MF Global (as well as a former CEO of Goldman Sachs, former US Senator and Governor of New Jersey) claimed that he “cannot account” for $1.6 billion in lost client investors funds from the collapse of MF Global in 2011.

Despite the growth of an enormous police state apparatus, the proliferation of investigatory agencies, Congressional hearings and over 400,000 employees at the Department of Homeland Security, not a single banker has gone to jail

Read on to the conclusion:

http://www.globalresearch.ca/index.php?context=va&aid=32220

Tue, 08/07/2012 - 16:48 | 2685766 MillionDollarBoner_
MillionDollarBoner_'s picture

Jail is for the "little people " ;o)

Tue, 08/07/2012 - 12:53 | 2685104 El
El's picture

This is a moral hazard whether for banks or for the individual. Money given by the Fed or government isn't free and this idea is just another take on a redistribution of wealth. Once again we think punishing the savers and those who live within their means and rewarding those who don't is a good idea?

How about this...if you simply cannot pay your bills, go bankrupt and learn something from your mistakes (namely, living within your means). If you can pay them, stop whining about your debt problem and stop incurring more debt. It's just a thought...

Tue, 08/07/2012 - 13:10 | 2685138 pods
pods's picture

That is a great line of thinking for an individual.

If society did that in numbers, this system would implode faster than it is now.

Our money supply needs to be expanded exponentially YoY.  

That simply is how the system works.

So if everyone were to live within their means, they would in effect destroy the system.

And that would make me happy.

pods

Tue, 08/07/2012 - 13:24 | 2685160 JR
JR's picture

Agree El, erasing mortgage and credit card debt for select borrowers is just more wealth redistribution with the same socialist results – the little Red Hen will refuse to voluntarily bake more bread that others can eat free at her expense unless forced to do so by government coercion.

Ron Paul has the answer. As he says:  “This is not rocket science, it is Economics 101. All it would take is for government to get out of the way.”

The man-who-should-be-president calls for a fundamental shift in our philosophy of government if we’re to avoid the economic cliff looming ahead.

“If we simply allowed markets to work free of governmental or Federal Reserve interference, bad dept would be liquidated relatively quickly and malinvestment would be curtailed. Scaled-back regulations would encourage businesses to expand. Lower taxes would jump start investment and spur job creation… There would be some short term pain, of course, but only by allowing the bubble to burst and bad debt to liquidate can we ever hope to begin building a real economy again.”

In short, steps that take us back to economic reality are the only way to “avoid having America become the next Greece.”

Tue, 08/07/2012 - 16:51 | 2685773 MillionDollarBoner_
MillionDollarBoner_'s picture

But, but,but... America is the new Greece! 

Tue, 08/07/2012 - 13:00 | 2685116 Renewable Life
Renewable Life's picture

Capitalism and Democracy died on the same day in this Country, it was the day, Hank Paulson got down on his knees and begged Nancy Pelosi to support an unlimited, no strings attached bailout of every bank and banker CEO in this Country and beyond!! And she along with the rest of the US Congress, and the President of the United States, went along with it!

They will look back on that very day, and mark it in history, as the day America died as a Democractic Republic based on free market Capitalism!!!

And the real beauty of it is........both parties where equally guilty in this death sentence, they both agreed 100% on the path forward!! There was no difference when it really mattered, and there is still no difference today!!

Tue, 08/07/2012 - 13:12 | 2685142 pods
pods's picture

What are you smoking?  The US has not had a free market in about a hundred years, if not longer.

pods

Tue, 08/07/2012 - 13:02 | 2685118 Abraxas
Abraxas's picture

I can't take any more of these charts! I just can't.

Tue, 08/07/2012 - 13:02 | 2685119 extendedorder
extendedorder's picture

If they did that, the 'crackup boom' as LvMises called it would immediately ensue. The sheeple would realize, that money is worthless bits in a computer, the demand for money would collapse.

Tue, 08/07/2012 - 13:03 | 2685120 Thisson
Thisson's picture

MISH has already commented that the Keen proposal won't work: http://globaleconomicanalysis.blogspot.com/2012/07/steve-keen-goes-off-deep-end-with-debt.html 

A better solution is to repeal the 2005 amendments to the bankruptcy code and liquidate excess debt.

Tue, 08/07/2012 - 13:06 | 2685125 Shizzmoney
Shizzmoney's picture

The Fed Reserve wants to control the velocity of money and investment.  Where people spend it, how it is spent, and what it is spent on.

They know if they can't, the Fed eventually, ceases to exist.  Plain and simple.

Tue, 08/07/2012 - 13:16 | 2685152 GeezerGeek
GeezerGeek's picture

Aziz writes, near the end, "The Fed’s singular focus on the financial sector is perplexing and frustrating, not least because growth remains stagnant, unemployment remains elevated, industrial production remains weak and America’s financial sector remains a seething cesspit of corruption and moral hazard..."

It may be frustrating, since most of us would like to see the rule of law prevail, but anyone with half a brain would not be perplexed. Growth remains stagnant because of governmental policies. Unemployment remains elevated because, in many ways, of governmantal policies. Industrial production remains weak, to a significant degree, because - guess what? - governmental policies regulating the environment, pay scales, etc. make manufacturing in the U.S. a losing proposition. Yes, there are many in the financial sector deserving jail time. They are matched, or exceeded, by those in positions of political/governmental power who have worked diligently to destroy the non-service economy. Clean air and clean water are wonderful, but there has to be a balance between the environment and jobs that produce stuff.

If the people ever get a handout like that described, the first items purchased should be pitchforks, buckets of tar and tons of feathers.

Tue, 08/07/2012 - 13:30 | 2685177 haskelslocal
haskelslocal's picture

Regulatory issues are ignored in TBTF banks. Regulatory concerns are ignored by mega corporations. Regulatory issues are implemented as anti-competitive tools to shut down small business and competion against corpratism.

It is not the government that is your problem. It is the ones that implement the government that is your problem.

There is always a need to protect and limit the use of resorces. Regulate, like a hose with a nozzle. Yet I agree. Do not stiffle with a preventive plug.  

Tue, 08/07/2012 - 14:26 | 2685326 shovelhead
shovelhead's picture

Funny thing about those regulations though...

They always manage to get the hose pointed in the direction that the campaign contributions come from.

Since our law makers are very busy fellows, most of those regulations are written by those who will be 'regulated' resulting in heavy iron manacles for the small competitor while the established favored wear a fine gold wire braclet.

A much better outcome is to let the marketplace decide who produces more value per unit on a level playing field.

Laws never stopped a pick-pocket but removing his hand certainly will. Fewer laws but with strict and serious punishment for those who disregard them is the real issue.

Not an entirely novel concept, I admit, but one that is conspicuous in it's absense in the FIRE industry.

A Granny growing a cannabis plant in her back yard for her neuralgia will do time long before the guys who stole Granny's pension.

Both 'crimes' are regulated.

Not working out so well.

Tue, 08/07/2012 - 14:39 | 2685385 scatterbrains
scatterbrains's picture

speaking of which, my local mom and pop lawn mower repair shop owner told me by 2015 little sheeps and peons wont be allowed to buy repair parts for their small engine powered tools. The regulations are written such that it says everything is prohibited in every way short of going to home depot/lowes and buying new replacement power equipment... oh and to rid the country of mom and pop shops they're requiring 100k software upgrades or shut down and go out of business... or some such.

 

Tue, 08/07/2012 - 13:19 | 2685153 ebworthen
ebworthen's picture

The FED is reflating the 2008 bubble.

The first bubble "worked" 2001-2008, until it didn't.

The current bubble via bailouts for TBTF banks, QE's, ZIRP, increasing M2, currency swaps, etc. is being re-blown to reflate equities and housing (the same latex as last time).

Hubris is one of the most devastating of tragic flaws.

The FED is a Greek Tragedy in progress.

Tue, 08/07/2012 - 13:41 | 2685201 bankruptcylawyer
bankruptcylawyer's picture

those holding 'old money' in the largest amounts own the capital , and rents its out . their ownership is a continued guarantee of recieving the largest streams of 'new money'.

 

this is generally the case, but there are different owners of old money. and of course, entire industries rise (if there is novel demand ) or die ( if they are outsourced or replaced in some other manner by a novel industry domestically )

 

so you have foreigners and robots  that account for the destruction of 'old money'. and you have banks and outsourcing/importing industries that account for the destruction of the 'old money' . and of course the banks and importers and outsourcers are , at this point, very 'old money' themselves.

 

the old money of non-financial industry in the u.s. that remains competitive is net-net ahead of the game, just by surviving, they retain their position of strength vis-a-vis the increasingly impoverished masses who work for 'new money' in order to eat and have a roof over their head. .

 

 

Tue, 08/07/2012 - 13:43 | 2685211 edifice
edifice's picture

GDP expressed in terms of total debt: Very telling chart, even though these are Fed data. What they're calling a "recovery" is just a dead-cat bounce to zero (or even negative territory).

Tue, 08/07/2012 - 13:45 | 2685217 dcb
dcb's picture

this is exactly corrent, and more proof that the fed is a client of the big banks, dirk benzimer (sp) does a great job of explaining capitial flows and how it benefits the financial scetor in his lecture on the institute of new economics web site a real must see. it is in the berlin paradise lost conference section

Tue, 08/07/2012 - 13:57 | 2685253 bankruptcylawyer
bankruptcylawyer's picture

you cannot have your cake and eat it to.

 

a real jubilee would result in a crash of the banking system, which i'm all for. but you must realize, the small banks are already going out of business and being bought up by the big banks. how do you concieve of such a jubilee that is passed by congress without the approval of jpmorgan? Such a jubliee would either not occur, or it would occur by placing jpmorgan as perhaps the only too big too fail bank left in control of all america.

that could happpen.more likely, you will have to end the federal reserve charter to implement such a jubilee in a meaninful manner.

that doesn't seem all that likely until things get ALOT worse. in america.

it's not so bad being a bannanas republic, because at least we still have bannanas .

 

Tue, 08/07/2012 - 15:00 | 2685471 falak pema
falak pema's picture

lol your bananas are in n inflation not that it matters. 

Tue, 08/07/2012 - 14:10 | 2685286 JOYFUL
JOYFUL's picture

This ship runs onto shoals as soon as it weighs anchor...to imply that a korrupt agency of the moneypower can be reformed or redirected into safer territory by it's dispersing fiat currency in a different direction is akin to suggesting that sharks patrol swimming areas because their presence would discourage any misuse of the facilities by the public.

...The Fed’s singular focus on the financial sector is perplexing and frustrating, not least because growth remains stagnant, unemployment remains elevated, industrial production remains weak...

There's nothing perplexing about the Feds' focus when yu understand that it is very much in keeping with it's [real] mandate that all of the symptoms described just grow worse instead of better.

In fact, to ignore that it is an outpost of a foreign power, imposed upon the Merikan political structure by dual-citiizened agents tasked with funneling the labors of the authentic citizens into the pockets of offshore terrorist states is a fatal endorsement of the situation of the present moment - in which the usurpers have reached the final stage of the planned demolition of the western experiment in plurality. "Jubilees" offer up no means of interfering with their plans.

It was the great man[Cantillon] himself who explained that debts, including State debts, cannot be counted as part of the wealth of a country, and through his precise observations of statist poltroons like Newton and Law, gained access to a much firmer understanding than Mr Aziz to the limits of top-down, imposed 'solutions' to the fiscal affairs of nations.

The so-called "Cantillon Effect" is one of the least significant teachings of the Master Empiricist - many of which far exceed the grasp of 'modern economists' and the paymasters that they toady to today...yu can be sure that he would have treated the serial shenanigans of these Shalomsters with the same coolheadedness he had for Laws' ponzi schemes...cash out his profits and convert them to gold, then exit prior to the collapse!

Tue, 08/07/2012 - 19:57 | 2686226 JR
JR's picture

Great post, JOYFUL  And I might add that scholarly research regarding Leviticus 25: 9-17 can find no evidence that a “Jubilee” ever materialized.

Findings: “The Year of Jubilee was meant to be celebrated every 50 years. It included canceling all debts, freeing all slaves, and returning to its original owners all land that had been sold. There is no indication in the Bible that the Year of Jubilee was ever carried out.”

If Israel had followed this practice faithfully, IMO, it would have become a society without permanent property – which might have worked for ancient Israel at the time in that it was a like-minded communal people ruled under the one sovereign God – although knowing human nature as we do, highly doubtful even at that.  But can you imagine engaging a Jubilee in multicultural America or secular Israel today?

Tue, 08/07/2012 - 14:59 | 2685448 falak pema
falak pema's picture

You don't get it Aziz, the real issue today is the Cantiflas effect; around the world in eighty days in an Oligarchy baloon fed on fiat bubble-o-nomics...that's what this current global trend is all about.

We're in Jules Verne's novel that anticipates the global world of the flying baloon fed on fiat print to infinity in Zirp hopium. 

Tue, 08/07/2012 - 17:05 | 2685805 pragmatic hobo
pragmatic hobo's picture

"... as more dollars are created, each one translates to a smaller slice of all goods and services produced ..."

this is true only if the new money is distributed through the economy.

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