Sell on News posted a very interesting piece at MacroBusiness. Overruled is short and worth reading in its entirety. (h/t) Yves Smith)
Here is a teaser.
Sell on News develops the idea of money as rules to include "meta-money," the result of financial innovation such as derivates.
That is the world we are now in. It is why such huge distortions are appearing in areas like quantitative easing, extremely low interest rates, an ailing cost of capital, the hankering after something solid in precious metals like gold and silver, equity markets whose pricing seems strange. Governments have given up oversight of the financial markets, handing it over to the traders. We must now suffer the consequences as the traders try to outdo each other in an infinite game of pass the parcel. Or, more accurately, taking out bets on who will pass the parcel to whom.
The conclusion?
That is the world we are now in. It is why such huge distortions are appearing in areas like quantitative easing, extremely low interest rates, an ailing cost of capital, the hankering after something solid in precious metals like gold and silver, equity markets whose pricing seems strange. Governments have given up oversight of the financial markets, handing it over to the traders. We must now suffer the consequences as the traders try to outdo each other in an infinite game of pass the parcel. Or, more accurately, taking out bets on who will pass the parcel to whom.
Eventually, I suspect, GFC version 2 will come along, and the rules will finally collapse. Governments will have to come in and re-set them. There will be a huge re-regulation backlash. But how is it that governments allowed it to get to this stage? What ever happened to governing?
I agree with the notion that money is rules. Money is not a thing or a set of things, it is essentially an idea. This idea is one of the greatest intangible inventions of humankind, like markets. Money and markets go together like horse and carriage or ox and plow. Once there was a domesticated horse, it was a simple step to the carriage. Same goes for ox and plow. But horses, oxen, carriages and plows are real things. Money and markets are not. Automobiles are horseless carriages, and tractors are ox-less plows. No great imaginative jump. But money and markets have evolved in ways that could never be imagined or anticipated, and only on the basis of transforming rules.
Money and markets just took a fiant step as ideas and the global financial crisis was the result of an failure to harness those ideas sufficiently. The question is now that the genie is out of the bottle, whether it can be controlled.
