Forward to the Past with Deflation economics
Having burned close to $30 trillion worldwide since 2008, banks and tax collectors are now keen to burn paper money for good. But that will make flat economies dive further. A strong Dollar, eurozone QE, Troika fiscal obsessions, and élites trying various ways out of neoliberal dysfunction. Does anyone know what they’re doing? The Slog offers an interpretation.
Cast your minds back to those days of yore when The Great Satan was Inflation…to those times when the inflation of the Nation was deemed equal to the funny of the money. Do you remember when governments would fall if annual inflation crept beyond 8%….those years when La Thatch of Blue Rinse was not for turning?
Oh, that heady decade: the austerity we had to go through – the cuts we had to endure – in order to walk tall with low inflation and no National Debt.
But lo – what siren voices now beseech us to defeat the New Even Greater Satan of Deflation? Why, they are none other than the Mermen of Mammon descended from La Thatch…those who blub at the very mention of her name. Those who tell us that we must not have deflation – and let’s ignore the National Debt, because we’re paying it back. (Actually we aren’t – but hey, what does Let’s Pretend win? Let’s Pretend wins General Elections!)
However, I’d like to leave to one side why – in classic Orwellian terms – Oceania has done a 180 degree U-turn twice in he last 35 years, and instead ponder a likely outcome of the switch from in to de: how this New Future will change forever our nostalgia about the past.
“I can remember when,” the old satirical sketch had it, “Yer could go ter London, stay in’t Ritz for a week, and still have change out of sixpence”.
But that memory will become unsustainable, in favour of:
“You young-uns,” says the new script, “Yer’ve gorrit soooo lucky: yer can stay in’t Ritz for a week, and still have change out of 5p….I tell yer, yer don’t know yer born. I my day, if yer gave a waiter at the Ritz 5p as a tip, ‘e’d chuck it in yer face”.
Of course, the problem for the Young’uns will be that they’re earning a penny a month as shoe-shine boys in Piccadilly.
All of this leads me to ask, “With that level of deflation in currencies, surely the National Debts of all those currencies become (in real purchasing – ie, ‘owing’ – terms) even more unrepayable than they were before?” And the answer is “Correct”.
The Dollar, however, is getting stronger…ie, worth more…partly as a result of false optimism about the US economy, and lack of trust in any other currency…and for all I know, a little judicious manipulation thrown in for good luck and another poke in Putin’s eye on the petrodollar.
So in real-terms, US National Debt is getting bigger.
Draghi’s three-pronged answer to this from the euro-perspective is QE (inflationary), screw labour’s wages (deflationary) and tighten up tax collection so as to reduce the black market.
But if you tighten up on the payment rules, the tax take may go up, but the consumption levels in countries like France, Italy and Greece will plummet still further. And that of course leads to economic stagnation….and further deflation.
The Western banking authorities (who seem not to be authoritative about anything, and mendacious about everything) are – amazingly – saying they want 100% of all purchases to be electronic by 2017…or 2016, depending on which source you least distrust.
The Troika has already told France to reduce the amount payable in cash to suppliers or workers – and France has rolled over: a raft of Acts quietly passed late last year have all become law within the last three months. Cash payable to a sole trader has – literally – been decimated.
The banks will save trillions in transmission charges by rushing this through. You can also see what’s in it for sovereign tax collectors….but not for the economy – or us, naturally. And at first sight, you can’t see what’s in it for the fiscal, debt-ridden Exchequers…because tax hikes alone won’t even make a dent in the sovereign debt.
But when one thinks about the close relationship between bankers and politicians, it is – let’s face it – much easier to progress a bailin when all the cash at the bank is electronic and all the customers are, um, creditors.
Let me attempt a summary if I can.
Myriad false starts, green shoots, turned corners and other clichés have been applied to the Western economies that include the US, the UK and the eurozone. They all turn out, when examined, to be lies (Italy, Schäuble, US unemployment), overdependent on one income source (UK, Greece), or a mirage created by money-shifting as applied by the ECB (Spain, Portugal).
None of the ludicrously optimistic growth figures factor in the following: Chinese slowdown, vulnerable banks identified by stress tests, Greek default, lack of credit for business investment, and falling pdi levels relating to consumer purchasing levels.
Zirp is still with us, and effectively slashing consumption among the more comfortably retired….a large demographic – and the only one that doesn’t need credit.
The actual number of bankruptcies in the EU has slowed over the last six months….thanks to new laws pushed through in haste by the EC/ECB axis designed to call bankruptcies something else.
And so, to counter this deflationary outlook, the US is letting the Dollar ride high – while the EU and UK are looking to further cut wage levels and decrease smalltime tax evasion.
Well that all seems to make eminent sense. I just don’t know what all the fuss is about. The BSDs are quite happy to pauperise every consumer – and destroy every economy – on the planet; just so long as the banks, the sovereigns, the bourse movers and those behind the Gated Communities are safe, well and eminently supplied with servants….whom they can eat if times get a little tight here and there.
I know this will evoke howls of self-righteous rage from the Elders of Pluto conspiracy segment of opinion, but there is no conspiracy here. There are merely perhaps 2-3000 people between a rock and a hard place. Neoliberal business is looking for ways out, and the politicians’ job is to claim the rocks are cushions, and the ground is a luxury King-sized bed.
But the bottom line is this: their system doesn’t work, and they haven’t a clue what to do about it beyond postponement.
I understand perfectly well why some commentators here and elsewhere think the postponement period is infinite, but I assure you – it isn’t. For there are other parts of the world called Russia, South America, India and China; and these brothers have had enough. So too have the people of Greece and Italy. Within a year at most, a good many more French citizens will feel the same.
There is no way out for those running the snake-oil stall. Wealth isn’t trickling down, growth isn’t eternal, society does indeed exist, and interest rates will rise in the end.
Nobody knows what will ignite the flame: a default, a bank falling over, defensive rate rises, defiance of the EU, violence in the American underclass, or a major health event caused by the decline in social health provision or an influx of escapees from Jihadism. The only certainty is that something will: something always does.
Last night at The Slog: IQ is so yesterday darling….now it’s IA
The Slog 