In capitalism, one of the most important fundamentals is that of price discovery being a natural occurrence determined between supply and demand among producers and consumers. But for centuries this natural facet of free markets has been stymied due to political agendas, and corporate manipulation.
And with the advent of central banks, who have used their power over money supplies and interest rates to skew the natural course of all price discovery, and determine winners and losers in the ‘free markets’, their inevitable failures are now leading financiers and economists within their sphere to blame the tools of the market as the problem, and not their own actions and policies.
Which suddenly leads us to their next scheme, and one that is an attempt to stave off the bubbles and debt traps they have created for themselves and all of society… the ending of both cash and capitalism completely, and moving towards a 100% mandated economy run by a combination of the state and the banks.
In essence, the implementation of fascism.
However, the challenge is that ongoing flow of QEs prevents rationalization of excess capacity (in turn created through the process of preceding three decades of leveraging) whilst also precluding acceleration of demand (both household and corporate), as private sector visibility declines. Hence declining velocity of money requires an ever rising level of monetary stimulus, which further depresses velocity of money, and requiring even further QEs. Also as countries compete in a diminishing pool by discounting currencies, global demand compresses, as current account surpluses in these countries rise not because of exports growing faster than imports but because imports decline faster than exports. This implies less demand for the global economy.
Hence, there is an urgent need to either allow nature to take its course (i.e. re-set the business cycle by either closing excess capacity or writing down debt) or re-assess the nature and type of QEs used. We maintain our view that it is highly unlikely that CBs would be prepared to accept the inevitable and stop “managing business cycles”. If nothing else the consequences of re-setting the cycle (either demand or supply) are perceived to be socially and politically unacceptable.
We believe that the path of least resistance would be to effectively ban capitalism and by-pass banking and capital markets altogether. We gave this policy change several names (such as “Cuba alternative”, “British Leyland”) but the essence of the new form of QE would be using central banks and public instrumentalities to directly inject “heroin into blood stream” rather than relying on system of incentives to drive investor behaviour.
Instead of capital markets, it would be governments that would decide on capital allocation, its direction and cost (hence reference to British Leyland and policies of the 1960s). It could involve a variety of policy tools, with wholesome titles (i.e. “Giving the economy a competitive edge”, “Helping hard working American families” or indeed recent ideas from the British Labour party of “People’s QE”). Who can possibly object to helping hard working families or improving productivity? – Zerohedge
The reasons behind the concepts of banning cash and banning capital markets is due to the fact that people, both savers and consumers, don’t always participate in markets as central banks and governments desire them to. After 9/11, the very first thing that President George W. Bush asked Americans to do was to go out and keep spending, because it is usually during crises and traumatic events that people pull back from un-necessary spending and instead save their money in case the crisis remains active.
Since 2008, quantitative easing and zero interest rate policies were intended to allow consumers to borrow like there was no tomorrow, and to keep buying the goods the corporate world wanted them to. But as jobs, wages, and price inflation became real road blocks for Americans to follow these desired policies of the establishment, the banks are coming to feel that they may have no choice but to take decision making completely out of the hands of the people, and implement a completely fascist economy where not only is production controlled by the state, but what consumers can and may buy with the money they are allowed to earn is as well.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.