Monday, October 8, 2012

Thanks Ben for the stagflation.

Why do we have stagflation? Because the FED views money as simply a numerical unit to be manipulated, not a representation of productive wealth creation and economic efficiency.

Excerpts and edits of a piece by Jeffery Snyder writing about: Central Banks Gone Wild: Money Is Now a Total Fiction

For all intents and purposes, global central banks view "money" as nothing more than "charta", a Latin word for "token"… 
Chartalism in this form is nothing more than a theory that capital can easily be replaced by mere monetary units, as if there is no information content relevant to economic efficiency stored in the flow of capitalized money. Past success in the form of stored "earnings" or "money" is, following this line of inquiry, eminently replaceable by determined government planning. In that way, money is now flowed or channeled on the basis of poor past performance rather than on the basis of good expected future performance. 
Fresh capital in the modern monetary sense is a unit on an accounting statement, devoid of any larger connotation. For investors and the process of investing, however, accounting should have meaning - where a business gets its money matters greatly in the process of investment analysis.
This philosophy thoroughly upends capitalism…

The entire premise of capitalism is the efficient deployment of capital; capital having full meaning absent in the sense of modern money. Capitalists create capital through successful deployment of "money", turning that "money" into true wealth of productive enterprise. That successful deployment of money creates additional capital that can be "monetized" in asset markets, but the number of new monetary units has no basis in trying to predict or determine successful business acumen. That is the traditional role of intermediation. 
In the past four years, central banks have attempted to resurrect economic health by adding new charta to the system with perfect exclusivity biased to institutions and businesses that have destroyed their past stores of capital, despite the very visible fact that said destruction of capital is the quintessential measure of real economy inefficiency.

If the destruction of money has meaning, then so does the creation of money, or at least the methodology of determining how money is acquired. Bernanke's theory, shared by all the major central banks on this globe, is that economies can only recover when capital is disadvantaged in favor of meaningless money. 
The primacy of meaningless money is such that the entire system of savers, the majority of which have created actual capital and acquired value, need to be hamstrung by (zero interest rate policy) ZIRP in favor of institutions that destroyed real capital in the inefficient pursuit of the very policies that central banks directed in the first place. Success is to be shunned and disfavored in the socialized and institutionalized process of debt creation from the very firms that have proven beyond a doubt that they are not capable of maintaining economic efficiency. The ascendancy of chartalism is the only manner in which such a backward system could actually exist. 
Unfortunately, real economies run not on meaningless money, but on sustainable and efficient success. All of these banks and central banks need to emulate the ideals cleverly conjured and portrayed in the Smith Barney TV commercials of decades past, when firms used to "earn" their money. The capital on a bank's balance sheet at one time (before fiat money and transcontinental wholesale money markets) denoted success at intermediating the pool of savings, turning past success into additional future success in a virtuous circle that is the hallmark of every thriving economy in history. In short, money is supposed to be about winners and losers. Economies need to reward the virtue of economic winners and delete the societal and systemic cost of the losers. 
Without monetary meaning, there is no sorting process of winners and losers; there are only losers that are supposed to take comfort in the vacuous experimentations of academic central bankers that passes for progress and evolution. 
More than anything, human nature needs value and meaning in money. Maybe central bankers should try their hands at investing without any meaning to money and capital - it doesn't work. Try as they might, particularly with reducing economic agents to mathematical equations and models, modern mainstream economics has tried to dehumanize the economic and financial system. It certainly makes economics appear more scientific, but ultimately that is just the cloak of self-delusion - models are not science. 
Perhaps central banks have re-invented an achievable means to a healthy economy with meaningless, inhuman tokens, but the results of the past four years, particularly 2011 and so far in 2012, are rather conclusive and unambiguous doubts. It's easy to blame fiscal profligacy for all the current ills, but such bad habits were borne and nurtured by money without any real meaning in the first place - intermediation removed from its eponymous task.

The word debasement itself is not just a semantic accident; it literally means to reduce status or esteem - very human concepts. Welcome to the world where capital, in a still nominally capitalist system, is as pliable and fictionable as TV advertising.

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