monitoring the abyss

In which we describe genetically based human character deficiencies, explain why the "stimulus package" is actually an anti-stimulus package (unless you are extremely wealthy and an investment banker), set forth the path by which the world economy can be saved and predict the future. (Can you tell I am running on four hours sleep and coffee?)

At the end of the article, please support our advertisers, who offer various assorted pitchforks, along with torches made from sticks, rags and pine-tar.

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[work in progress]

The (alleged) goal of trillion dollar stimulus packages is to put capital into the hands of people who need it, to spur the economy. Of course, that is only if you do not understand the carry trade or failed to pay any attention to Japan's two lost decades. Otherwise, you might have a different opinion as to motives behind trillion dollar bailouts of insolvent "capitalists." (And if you can find an actual capitalist anywhere on Wall Street or in Washington D.C., please tell me who this person is and what he or she has done to prove it.)

We, of course, do not know if capitalism actually works, as we have never tried it. Ever since Alexander Hamilton bought up the Continental Army debt for pennies on the dollar and then arranged for the new government to pay the debt at face value, the U.S. government has been an instrument designed to keep the public working in behalf of banking oligarchs (save for the occasional push-back by populists such as Andrew Jackson, who have consequently become footnotes in American history). But, I digress.

As we have seen in my earlier posts, money is an artificial human construct that facilitates cooperative undertakings. Its artificiality allows great abuse of any monetary system by those who both understand the system and have access to sufficient capital and political leverage to utilize their knowledge.

Before moving on, please consider this "thought" question: Would your comparative wealth and power be greater (i) as a privileged member of any pre-19th Century monarchy; or (ii) as a senior participant in Goldman-Sachs, JP Morgan Chase or related financial entities? In which institution would you yield more power over the masses? In which institution would you have a greater personal share of the GDP?

Now, let's consider the purpose and function of the trillion dollar bailouts. Under any reasonable theory or definition of capitalism, capitalists are entitled to the benefits of their "good" investments; and must suffer the losses of their "bad" investments. As every major financial institution is (or at least was, pre-bailout) insolvent, in a functional capitalist society, these entities, their employees, their investors and all of their fellow-travelers would now be paupers. You may read this in Ayn Rand, or wherever it is that you turn to for economic theology.

Since these entities are not only still in business, but are experiencing huge profits, something other than "capitalism" is obviously the basis of our economic policy.

While the actual number of dollars involved is not relevant, the pro-rata comparison of wealth IS relevant. That is to say, printing $1 trillion is not meaningful if everyone will get an equal share of the $1 trillion, because all you have done is establish $1 million as the benchmark for a loaf of bread. But, if you give Wall Street $999,000,000,000 and the rest of the public $1,000,000,000, you have obviously shifted the Buying Power to Wall Street. A loaf of bread now costs $1 million, but most of the public cannot afford a loaf of bread.

If you want to stimulate the economy, you have got to put money in the hands of consumers. The way to do this is to print money and hand it out on the street corner. Or, you know, you could print money and have people do some work for it, and then give them money. Presto-Chango, instant economy. (See pre-World War II economy of Germany, per our earlier posts.) But, apparently the collective world governments could not find anyone who would take money for free, or even in exchange for actual labor, so they found it necessary to pay investment bankers a 20% bonus to take as much money as they possibly can gorge themselves on, in order to put money in the hands of consumers.

Understand what this means. It means the government selects certain individuals and INSISTS THEY TAKE MORE MONEY. And to incentivize it, they offer to pay them even more money just TO TAKE THE MONEY.

And I know, you are shaking your head right now, thinking that I really should have gotten more sleep last night and less coffee this a.m.

What are you going to do if someone will PAY YOU to TAKE MORE MONEY? Oh, my god! You are going to take all the money you can possibly get your hands on, because that means More Profits for You.

Since you don't believe anyone would do such a thing, go do a google search and find Nouriel Roubini's excellent recent article on the carry trade and the global bubble. As he shows, investment bankers now borrow money from the Fed and the U.S. Government at a rate approaching NEGATIVE 20% interest. That is -- the borrowers are PAID to take the money.

Don't you wish it had worked that way when you bought your home or car? Yay!

Now if someone is paying an investment bank to take money as it spills off the printing press, it is because They Have A Job To Do. They must "invest" all that money.

Well, here is the problem. Real investments involve real work in the real world that results in making stuff so there can be a return on investment. But, investment bankers do not know any people who can actually do real work. So, all they can do is make highly risky speculative investments that are bound to fail.

They can't very well "derivatize" and "securitize" right now because, hey, the SEC, the FBI and actual members of the public are beginning to look at those transactions with a rather jaundiced view.

So, what to do. Notwithstanding that no money exists for borrowers to pay interest on the money they are about to invest (so the investments are doomed to fail spectacularly), they must now invest in speculative investments, because secure investments of this magnitude do not exist.

The closest thing to a "safe" speculative investment is not an investment in actual human effort -- which would stimulate the economy -- but an investment in commodities, which are a "known quantity." A loan for a business is rather iffy, because the business may or may not successfully produce a marketable product. Whereas commodities already exist, they don't have to be manufactured.

Of course, commodities are absolutely worthless without demand; and there is no demand unless there are workers to work with the commodities and turn them into something useful, so commodieis are also a losing gamble. Because when you invest in commodities, you drive the price of the commodities up. This means actual working people (say, manufacturers and the like) can no longer afford the commodities because they don't have enough money to buy them.

And, of course, that is because "pro-rata" we gave all the newly printed money to the one group of people that does not actually produce anything of value. So, do you spy "bubble in the making" once again?

Random quasi-statistic: At the time of WWII, the percentage of the US GDP generated by the financial sector was around 4%. Today it is around 44%. And all that increased percentage represents activity that does not "make" anything, but rather, moves numbers around on computer screens. Go look it up.

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