Friday, March 11, 2011

FED Says Blah Blah Blah

Edward Harrison has a post over at Naked Capitalism 'explaining' quantitative easing. Although Edward does a good job, that it is as confusing as it is, and that the whole magic show is about keeping the economy growing, like, forever, really gets on my man-boobs.

I've noticed, recently, in my own little way, a beef up in the efforts of those who believe the system is just fine and dandy, to pump out a volume and amount of information designed to bamboozle and smooth. 'It's all under control, go back to bed little children. Look, we can tell this story and chat boring facts until you scream with boredom. Sleep is far preferable.'

There was this Bloomberg article telling us children not to be stupid and start believing the fucking experts. Get a clue, kids! I mean just look at those beautiful numbers! We put in thousands of top dollar hours massaging those beauties to a golden glow and you ungrateful, uneducated morons still feel unsafe!!??? What's an incredibly able and potent elite to do?

And Larry Elliot opined in the Guardian. Break up the big banks. Genius! Oh Larry, you're so fucking bold! Revealing your editorial manhood in all it's inky glory like that ... it makes me tremble. Sadly and depressingly, the comments reveal a lot of support for Larry's proposal. There is still plenty of ignorance out there. It's a worry all right.

Gentlemen, I am a wee nobody from uneducated nowhere, but I beg to differ all the same. Neither my anonymity nor the reach of my voice has any bearing whatsoever on the truth, or otherwise, of what I say. The world is the world is the world, funny money and Amazing Numbers or not. We can spew figures all we want, bewitch the natives with our accountancy chicanery until the crows roost in our ledgers, it isn't going to make a damn bit of difference. Fighting to keep this system upright is fighting to destroy civilization. So, gentlemen, get a fucking clue. You're killing us all.

In case you're wondering... Yes. I am angry.

This is what I posted at Naked Capitalism, indented quotes are from Edward's article.

Bernanke often speaks as if he believes reserves create loans. I prefer Janet Yellen, the Fed Vice Chair, and the way she recently explained how QE is transmitted to the real economy.

What does "create" mean? And why is there debate about this? This is money we're talking about, quite a fundamental part of the economy. You'd think they'd have figured out what's going on in that department by now! It's been a few years after all.

Truth is, we cannot know where the money goes. It gets squirted into the ocean of the economy then disperses. What are the effects of such squirting? "How long is a piece of string," is the rhetorical answer.

In actual fact, all QE2 does is drain the real economy of interest income by swapping an interest-bearing government liability for a non-interest bearing government liability. This decreases aggregate demand in the economy. So the real economy effects of QE are to slightly lower aggregate demand. This is offset by changing interest rate expectations, which alter private portfolio preferences and risk premia, leading to credit growth, leverage and speculation, forces which should pump up the real economy.

So what's the net effect, what's the net out here? We're reducing aggregate demand since lower interest rates mean those who earn money from money have less income (what proportion of the economy lives this way?) while borrowing and taking risks become 'cheaper' which pumps the economy into more activity. Is that a zero? Are we in equilibrium at long last? (That was a joke, by the way.)

Follow the money, huh? Problem is, we can't. Where it goes is secret, or more prosaically, is impossible to follow since the dosh has no serial numbers, and if it does, its journeying is not tracked throughout the system. Anonymity and all that. So any technical ability economists might otherwise have to say clearly what is going on is profoundly hampered. No one can follow the money, such is forbidden by the mechanics of the system. So right where it really matters we have guess work in place of certainty. Not even the FED is aware of what is going on.

Reserves create loans? Fascinating choice of words. Borrowers create loans by being, to some degree, credit worthy (although we all know how the rules are bent there). Banks lend to borrowers to earn money, and reserves ... well, they can be massaged, right? No people on earth as creative as modern accountants, the way I figure it. And obviously, if banks don't lend they don't make a profit. Banks are businesses; they have to make a profit. Profits from money creation. Money making money making money, AS DEBT. And then there's Ben B saying we should scrap the reserve requirement. Go Ben! It's all a joke anyway, right!?

The article is a good tracking of bullshit and jargon, in which obviously impossible Perpetual Growth is an unquestionable given. It's as if the real world doesn't have any relevance at all. So the article fails to address what really matters and what this is all about; globally sustainable management of resources. Why would humanity want anything else? Tracking how numbers are added to accounts then saying 'it does some opposite stuff out there, somehow' is, forgive me, a waste of time.

We are in a sixth extinction event. All living systems are in a state of decline. We have peak oil and peak everything else and yet we pontificate endlessly on how many dollars can dance at the tip of an economy. We are f*cking insane. The environment does not care two hoots about our imaginary numbers that we can't even track anyway. You're right Ben. It is all a joke. Let's scrap it and start again.

In the end money is for buying and selling stuff. We need a simple system everyone and their Grandma can understand. The opening comment says it all, "Going to have to read this thru about 4 more times to wrap my head around it, but thanks for covering it." Such confusion should not be necessary and is evidence of subterfuge and hoodwinking. Money is addition, subtraction, and percentages (and percentages only until we get rid of usury). That's it. Or that should be it.

Right now the system is based on debt, but needn't be. A professor of economics I have come to respect, Franz Hoermann, says we are transitioning from 'money as a good' to 'money as information.' That's a phrase that makes a lot of sense to me. We, as a species, are culturally addicted to a particular way of seeing ourselves and society generally, call it the Myth of Age, or the Story of the Times. It includes things like 'earning a living,' 'survival only of the fittest,' 'I'm all right, Jack,' 'there's no such thing as a free lunch,' 'objective facts,' 'hard science,' and so on. This story is crumbling. It requires a stiff and permanent hierarchy keeping the dumb dumb and the good information only in the hands of the elite. But nothing lasts forever. The bumps and the Information War we are experiencing are the outer signs of this change, the closing of one chapter and opening of another. Actually, more than a chapter. A book is closing.

We are beginning to write a new story which has cooperation, trust, and abundance at its heart. Debt-money will be unnecessary, will seem like a cruel joke, once we have taught ourselves, in as open and egalitarian a way as possible, how to set up a truly democratic system, political and monetary, that fosters cooperation and renders 'growth' unnecessary. What a wonderful world that would be.