Thursday, March 21, 2019

Politics Has Failed, Now Central Banks Are Failing

Recall that news could only travel as fast as a ship between seaports or a horse on the colonies' minimalist roads, and it took days to travel between Boston, Philadelphia and New York, and much longer to reach Williamsburg and Charleston and points west. Communications were slow and limited, and this makes the rapid change of the political tide even more extraordinary.
Are we in a pre-revolutionary era? Here's clue #1: politics has failed. When the political process can no longer fix what's broken, politics has failed. When entire classes of citizenry no longer feel represented, politics has failed. When the system delivers a steadily declining standard of living to the bottom 80% of households, politics has failed.
Clue #2: having failed, the political machinery passed the baton to the central bank, which attempted to fix what's broken by creating money out of thin air."Free" money and low-cost credit has always been viewed as the go-to fix for whatever's broken, because it's, well, free to the issuing central state and politically popular (everybody loves free money, free bread and free circuses).
This political expediency works for a time--hence it's popularity throughout history-- but eventually the asymmetries, perverse incentives and unintended consequences pile up and the entire financial system capsizes.
Clue #3: America's monetary substitute for political process has failed. The failure isn't visible to those paid not to look at centralized failure, but it's visible to objective observers. Glance at the chart below: the Federal Reserve has announced it will end reducing its "emergency response to save the world" balance sheet in September 2019, leaving it roughly $3 trillion larger than it was a decade ago in the pre-crisis definition of "normal."
This exceedingly modest reduction has been called "normalization," and so the end of "normalization" means we're back to normal, right?
Calling the extraordinarily abnormal balance sheet "normal" doesn't magically render it normal.
Central banks only have a few levers, and when they lower interest rates and buy assets, they're only temporarily propping up a failing system: they've fixed nothing. Huge swaths of the populace are still unrepresented; parasitic elites still dominate the financial and political systems; wealth and income inequality has been greatly accelerated; the majority of people are still losing ground and their wealth/income are increasingly precarious.
Revolutions are manifestations of dynamics that have been festering beneath the surface for decades. Those benefiting from a failing status quo--the top 5% that dominate finance, government, the media, think tanks, philanthro-capitalist foundations, higher education and the national defense/healthcare cartels--all reckon that since the system works great for me, it works great for everyone.



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