Tuesday, April 30, 2013

Why Does an Industry That Is More Trouble Than It's Worth, RUN All the Real Industries?

Commentary by Roger Erickson

We've become captives of our own guard dogs? Here's another example.

April 29-30, 2013 | International Finance Corporation | Washington, D.C.

Fascinating conference. So why on earth is it hosted by the International Finance Corporation? Why, instead, isn't the IFC a cheap office in the basement of some farmhouse? Why are fiat currency financiers present on so many of the panels? The fiat counters are directing the sources of fiat? It makes my head spin. Isn't that perverting the very definition of fiat?

Ok, here's my question, again: Why does an industry that is more trouble than it's worth, have so much parasitic, constraining influence over all the real industries????

Just how backwards do we have EVERYTHING? 180 degrees?


A retired GOP Senator recently let slip a remarkably simple truth, at a not-for-attribution DC meeting. When asked how we'd square national security needs with the need to balance the national budget he blurted out: "The [national] budget debate is a cop-out."

He then went on to say that we'd do things the way we'd always done things. "We [in Congress] listen, and then decide what needs to be done. Then we Appropriate the funding to do it. End of story."

Amazingly, there wasn't a word of response said in the conference. No one asked any further budget questions, and so the topic was just ignored ... waiting for the next Deficit Terrorist to bring it up again, at a personally profitable time.
You rarely hear this discussed in the press, but regardless of the BS spewed during political campaigns, the experienced Congresspeople sitting on Appropriations Committees know how things actually work. They just go on deciding what needs to be done, and generating national currency as an automatic consequence, where the currency is just one bit of the data thrown off by the real activities taking place. Try imagining fiat currency as the "heat signature" of reality. It's an incidental consequence, not the initiating causality.

Our electorate and press - and seemingly half our politicians - don't seem to bother defining the very words they themselves use. It's no wonder that so much non-sense comes out of their mouths. Let's go back to basics. A "fiat" currency is one that is automatically generated to denominate the outcomes of any and all group decisions, NOT the opposite. 

The whole point of a fiat currency is to NEVER let economic tactics or policy be constrained by a lack of liquidity. If a given transaction type is allowed by consensus to occur, then liquidity is guaranteed by the full faith and will of the electorate. That's what a fiat currency does. Summarized, it vastly improves national agility. The simple reality is that every part and parcel of the "Finance Industry" is simply an ex post accounting service, that is created and constantly enlarged by our distributed and aggregate REAL activities. 

It's as though the finance industry were photographers which we have assigned to document and assemble accurate records of our own, adaptive actions. They are there as messenger-boys, to carry feedback, not to own the people generating the feedback.  We own our own feedback, and it must be visible to all, so that all can assist in directing increasingly distributed coordination.

When does a documentary crew transition into owners and directors of an unused movie set? When the real electorate followed by the cameras gets drunk and are found passed out on the curb? Forgetting to generate their own goals, the hapless real people are - temporarily? - "replaced" by "actors" who then act out fantasies - directed by the cameramen - unconnected to the real operations that used to unfold on the ground! The entire Finance Industry is all form, waiting for national function to wake out of it's stupor!

Left unchecked, photography crews in such settings eventually think that THEY dictate reality, instead of them dutifully documenting civic fiat. What's wrong with that kind of motion picture? It soon stops moving in any adaptive direction, since it is directed by random fantasy that is Unnatural rather than being grounded in Natural Selection.

It's your set, America. Start acting like an owner again. Impose your fiat on the financial guard dogs. Start with a muzzle. And downsize the dog house to be smaller than your house.

Better yet, automate the Automatic Fiat accounting functions to a mobile phone app. Then we won't need acting crooks reversing the causality of "God's work," only the occasional electronic bug. Can you imagine a day when a virtual text message is sent to Congress, warning that if unlimited amounts of fiat currency aren't ceded to a cell-phone app, that the entire edifice of human culture will come to an end? Where would the cellphones store all that fiat, and what would they do with it? Mock themselves with addictive, Angry Turds games? And why?

Hopefully, Congress in such an instance wouldn't even blink, and instead would respond to the irritation by simply uploading a replacement operating system for their phones, or maybe just an upgraded app. [Say, why haven't WE just replaced ALL of Wall St.?]

Seriously. The entire Federal Reserve - not to mention Wall St., can be reduced to a Fiat App - tomorrow - and no one but a few megalomaniacs in accounting offices would notice. The rest of us would stumble out of a depressing movie and feel free to direct our own imagination towards speedily solving real national challenges. Then, of course, we could also instantly have full-employment, and get on with our entire nation doing the real work that will make our dreams come true.

Reality. It's more appropriate than acting out random economic delusions.


F. Beard said...

Isn't that perverting the very definition of fiat? Rodger Erickson

Indeed it is. Banks should not have access to a fiat lender of last (or any) resort nor should their deposits be insured by the fiat sovereign nor should they have any other explicit or implicit privileges from the government.

It's worse than the tail wagging the dog; the blood-sucking ticks on the dog are in charge!

Rademaker said...

I wish people would call Wall Street and the City etc by their rightful name. It's the fraud sector, the extortion sector. To call it finance is like saying a brothel is a bar because they serve drinks. People's sense of proportion is completely lost when it comes to the range of activities these institutions engage in.

Roger Erickson said...

F.Beard "Banks should not have access to a fiat lender of last (or any) resort"

I wouldn't go that far, FB. Like any biological process, utility is found within a range of expression, bounded by tolerance limits. If something is useful, just regulate it's tolerance limits, don't throw out bits of the baby with the bathwater. People that recommend excising pounds of functional "flesh" never know what interdependency they're breaking.

F. Beard said...

I should have said "government provided lender of any resort".

Look. It's absurd to think the free market cannot finance itself ethically. And ethically does not include stealing (or at best borrowing without adequate or any compensation) the purchasing power of innocent bystanders.

Roger Erickson said...

?? FB, a public monopoly on fiat currency supply is part & parcel of how a "free" market finances and provisions itself in an organized manner.

Fiat currency is simply public regulation of public credit and publit trust. If we can't cooperate on something so simple, what CAN we hope to organize?

Don't see where you get the idea that group guarantee of regulated liquidity equates to stealing purchasing power. That is conflating two separable topics.

1) stable store of value (no such thing in an evolving world; EVERYTHING is obsolete in short order, including existing generations and all their static & dynamic assets; Best people can do in nimbly trade continuously, so as to keep up with context-dictated options; Access to emerging options is the ultimate definition of "value")

2) Purchasing power of individuals is a dynamic function of [static+dynamic] assets. In an evolving culture and economy, that purchasing power is SUPPOSED to float. Get over it. We have zero predictive power, but potentially infinite adaptive power. No whining, only optimal adaptation. Use your wits, not your complaints - and recruit your communities group intelligence too. The complaints alone constitue a losing strategy offered to a universe that simply does not care.

The only care that exists is our care for one another. Recruit it, and invest in it. It's called the return-on-coordination - and it dwarfs ALL OTHER RETURNS! Any perceived loss of other forms of purchasing power is negligible, so just keep your eyes on the prize.

F. Beard said...

?? FB, a public monopoly on fiat currency supply Rodger Erickson

Certainly the government SHOULD have a monopoly on fiat creation. But it doesn't. Instead, the central bank is allowed to create new fiat and lend or spend it into the economy, mostly for the sake of the banks.

is part & parcel of how a "free" market finances and provisions itself in an organized manner. Rodger Erickson

It's not "free." Instead, business and other so-called "creditworthies" are allowed to borrow new purchasing power into existence and thereby dilute the existing purchasing power of the less or non "creditworthies."

Your beloved money system is rotten every which way from a moral and social stability viewpoint and history proves it.

Roger Erickson said...

Ok, I see where you are coming from.

Yes, every system is vulnerable, and only as good as it's instantaneous regulation.

Yet that's true for every bird flapping it's wings to stay aloft, and every person dynamically utilizing all their 700 or so distinct muscles to walk to the fridge for a beer.

Ditto for cultures. They stay aloft or upright as long as they can, with intermittant stumbles or even periods of voluntary drunkeness or other forms of intoxication.

Do you have another suggestion? One that works any better in actual practice rather than in theory alone? :)

Meanwhile, my stomach is calling for another beer, other organs are saying to not overdue it, & my vestibular system is saying that forward shields are already reduced to 50% capacity and sensor function is unreliable. Nevertheless, the Captain's log indicates a uniquely human pleasure is derived from constantly pushing the system to all discoverable limits, and the practice derived from keeping it upright despite all perturbations.

Captain says the altered awareness of all experienced states will come in handy when unexpected contingencies arive.

So far, she's always been right, so we'll carry on with the string of impaired situations .. despite all grumblings from the last, affronted Vulcan of an otherwise extinct subspecies. Somehow, in this unpredictable world, all predictive logic in actual practice only predicts even earlier demise!

So we're sticking with all wobbly systems, barely held together with baling wire & daily delusions.

(Have you tried beer? The exotic recipe of SOMA also reportedly relieves the stress of experiencing adaptive illogic in action. Rationalize as you will, but please do continue rather than opting out. We're still going - boldly or not - where no logic has ever led. :) )

F. Beard said...

Do you have another suggestion? One that works any better in actual practice rather than in theory alone? :) Rodger Erickson

Well, first we need to clean-up the mess caused by the existing system. The most just way to do that is a universal and equal bailout of the entire population, including non-debtors, with new fiat (preferably Greenbacks) at least until all deposits are 100% covered by reserves. The bailout should be combined with a temporary ban on new credit creation and metered to replace existing credit as it is repaid PLUS a bit more to err on the side of excess money creation.

And after the universal bailout period, when all deposits are 100% backed by reserves, then establish a new Postal Savings Service to provide risk-free fiat storage and transaction services to all citizens for free up to normal household limits. And then announce that government deposit insurance and the lender of last resort will be terminated in 6 months. The announcement would cause a massive run on the banks but who cares since all demand deposits would be 100% covered by reserves?

And then, after the 6-months, allow banks to function as purely private businesses and extend as much credit as they dare with the firm understanding that they and their now voluntary depositors would bear all the risk.

And, in case more endogenous money creation is needed than purely private banks can provide, encourage the use of common stock as a private money form.

Beer's OK and more than OK every now and then.

Roger Erickson said...

All those things have been done, at various times, between 1933 and today. It's perfectly doable in our existing fiat currency system.

Your issues all seem to be with the current management, not the available operations. :)

Everything you want to do is perfectly doable, though maybe not necessary, or even optimal.

All you have to do is fix politics first. With motives conveniently fixed, the existing operations are capable of anything.

F. Beard said...

Well, the capital gains tax on common stock has go if we are to encourage the use of common stock as a private money form. Otherwise, decreases in the value of fiat would register as increases in the value of common stock.

But I really don't think that very many people, including most of the MMT crowd, are willing to put a stake through the heart of the government backed banking cartel yet.

What will be interesting is when price inflation restarts. Will the MMT crowd push for restrictions on bank leverage to save deficit spending or will deficit spending be sacrificed to preserve the ability of the banks to create credit? And no, raising interest rates probably won't be sufficient to curb price inflation since speculators profit off the spread between what they can borrow at and anticipated prices.

Tom Hickey said...

But I really don't think that very many people, including most of the MMT crowd, are willing to put a stake through the heart of the government backed banking cartel yet.

Well, that is the problem, isn't it? It will take a revolution to change that, since these are the people that are in charge nationally and internationally.

Who is going to "bell the cat" and how?

F. Beard said...

Who is going to "bell the cat" and how? Tom Hickey

The problem is "cognitive capture"; most folks literally cannot conceive of a world without banks and credit so they keep trying to fix the unfixable.