Think back to the neo-liberal glory years when every ‘right thinking’ person could see clearly that governments simply had to be shrunk and their spending and debt reduced. Isn’t it interesting that this was also the era when the old limits on bank leverage - how much the banks could print – were removed. It was also the era, or the dawn of it at least, of the vast increase in personal debt. Debt was regarded as a mark of being savvy. The slick people knew how to move money from one card to another, how to juggle zero percent interest rate deals, how to use the equity in one property to buy another and then another.
Governments, right thinking people insisted, had to be less in debt. And yet those same right thinking people also felt it was very fine, if not desirable, for both banks, businesses and ordinary people to get in to more and more debt. People ‘taking on debts’, that a generation earlier would have been seen as far too high a proportion of their incomes, was not only encouraged by lenders, it became a vital and explicit part of the almost universally accepted economic and political model. The consumer had to consume. And since wages were not shooting up, debt had to instead. We personally got into deeper and deeper debt. Mostly to the banks who themselves increasingly issued and carried more and more debt on less and less capital. Think about RBS. For a century it was s small, rather staid Scottish bank. How did it go from that to a globe bestriding behemoth in a little over a decade? The answer is debt. RBS was the poster boy for using the debt markets for funding.
It is the simultaneity of the two convictions – that government debt is bad and those who don’t or won’t see this are misguided, even dangerous, socialists, statists or worse, Keynesian! While those who advocate the free flow and use of private debt are thrusting, financial geniuses – that makes me wonder.
When governments print up money there is a chorus of disapproval. Yet when banks leverage more lending and debt into the financial system, there is hardly a murmur. If anything is said it is usually along the lines of, ‘Isn’t it good to see bank lending recovering’. People seem to be encouraged to see these two actions, government printing and bank leveraging, as quite different.
Are they? It seems to me they not. I see them as almost the same. Certainly one prints money the other creates debt. But both ‘money’ (government printed money) and credit/debt (issued by private institutions) are both ways of increasing the supply of “tokens of credit” in to the economy. Both kinds of ‘money’ can be used to purchase goods and services, both can be used as collateral to get either cash or more credit. Both are held by banks and are regularly exchanged one for the other. Government’s print money. Banks print credit/debt. Government debts are analogous to bank leverage. Both are ways of talking about the ratio of debt to underlying ‘capital’ or productive, profit making capacity.
It seems to me, the main difference is who issues them. One is public the other is private. And therein, I think, lies the real ideological battle of our time.
When experts from the financial world warn darkly about the dangers of governments printing up money, what are they really saying? They would claim they are simply speaking out, trying to protect us from weak, stupid or power hungry politicians who will ruin our economy with their incontinent money printing. But given that these same financial experts are often drawn from banks who we now know spent a decade incontinently printing up credit/debt, one has to question their honesty or their understanding, or perhaps both.
I think it might be helpful for us to wonder if, when bankers complain about governments printing, they are merely trying to talk down the actions of their main competitor in the money printing business. The real argument between government and market, isn’t about how much is being printed – after all the banks are terribly keen for money to be printed whenever they need some government hand outs – no, the real argument, I think, is over who should control the printing – governments or banks. Public or private. What we are really talking about is a battle over the privtization of the money supply and who has the power to control it.
In the era when the bulk, or at least a very large percentage, of the over all money supply was made of government printed ‘money’ and privately created credit/debt was, by contrast, relatively small, governments controlled the money supply and thus the macro-economic conditions of the economy. They were in charge. The modern, neo-liberal, free market era from Thatcher and Reagan onwards to today, has challenged if not actually changed this.
It has been an article of free-market faith that governments and politicians cannot be trusted to manage the economy because they cannot be trusted not to print willy-nilly, for the buying of political popularity and to enrich their in-group friends at the expense of the rest of us who have to suffer their currency printing and debasement. The flip side of this belief is that the Free-market, of which the banks are a major and controlling force, can be trusted to ‘print’, ( create and leverage credit/debt) sensibly and for their ‘printing’ to be for the greater good of the market and all those who sail in her.
Of course, I fail to see any actual evidence to say that the private sector/ markets/ banks are any better, or any more disciplined about printing up credit than governments are about printing money. The Great Depression was very clearly the result of ‘the market’/ the banks printing up far too much credit. The Great Depression the US was not the result of the government of the day having printed up too much money. The banks had created too much debt/credit and allocated it unwisely. Ourn present crisis was precipitated by the exact same creation of too much credit, too poorly alloacted and all too often granted fraudulently.
However, we are not talking about proof and logic here. We are talking about ideology and the struggle for power. The fightis between the ‘old’ order of supreme power being vested in government along with the ideal (even an unrealized ideal has value) of democratic accountability and control of those governments, and supreme power being moved to the market which is not democratic and in which we, as people, have no controlling say at all.
Leaving the facts where they are traditionally left – in the ignored margins – the free-market world view says Governments will not allocate for sound economic reasons but always for shallow reasons of self interest and maintaining their own power, while the market/banks will allocate for growth and prosperity for all. If you believe this then it does make sense to try every way you can to reduce the size and role of governments and to diminish the importance of their ability to create and allocate the money supply, and to turn this function over to the markets as far as is possible.
That means to run the markets on their own currency with as little recourse as possible to government money. This was done. The shadow banking system and debt markets are the result. It means removing from government as many funding powers as possible and turning these over to the markets. What this means is that instead of a government funding the building of lets say a hospital in the way it might once have done, by printing up government money to pay for it, the government no longer prints but now goes to the markets to ‘borrow’ money – which means the banks create the money supply in the form of credit/debt. The banks print not the government. Only they call it elverage as if this makes it all right. Nasty dirty government printing. Nice clean, powerful and profitable bank leverage. See how wonderful the new one is and how grubby the other?
And if you also privatize ‘health’ itself, turning it from a government service, a vertiable drain on productiveity, and turn it into a pofitable, market industry – of course call it a service industry for the sake of sounding ‘caring’ – and viola what was once a ‘drain on the markets’ is now a porfitable part of those markets. It’s a win, win win. Down comes taxes, shrivel goes the state and up goes the stock markets as more businesses make more profits. And behind the scenes the market now not only has captured the power to create the ‘money’ it also has a far greater influence of how much gets allocated and spent where.
This is not economics. it is politics and ideology. It is a struggle for power. Specifically for power to be removed from government and governance and put instead into markets and management. Voter power is to be eclipsed by consumer power. Sound reasonable? ”Express yourself in the market place.” How much power do you have? How does one dollar one vote sound?
Having achieved much of this ideological and actual shift in the last few decades, the next logical step is to import this logic and the people who believe in it, in to the ‘enemy’ camp – IE government. A difficult step. But fortune smiles upon the determined and the present crisis has had several silver and gold linings. One of the most threatening, to my mind, is the invention of the idea of the ‘Technocratic government of national unity.” A new vocabulary to allow new forms of power to slide in with as little friction as possible. What is a technocratic government? Is it elected? No it is not. Is such a form of government democratic? No it is not. Of course it is only temporary. Of course. But will such ‘temporary’ ‘governments’ become regular, ‘temporary’measures, each time something ‘difficult’ or unpopular ‘as’ to be forced through? A precedence has been set.
Who will deicide when the next ‘technocratic’ government is essential? Will it be you? No. By definition it will not be you. ‘Technocratic’ means putting hand picked rulers in place ‘temporarily’ when democratic voting does not seem to be coming to the decisions the markets deem essential and desirable. How long do you think till the next crisis and the next technocratic interregnum it will surely ‘require’?
A concluding thought.
Credit/debt backed ‘money’, the type which banks ‘print’ and control makes up the bulk of the present global money supply. This is power. As it was before the great Depression so it is again today. It is power that thought it was ascendant. Until the brittleness of their debt backed model of fiat, free-market debt backed money, imploded in on itself in 2008-09.
The crisis made one thing clear – debt backed, market fiat money, is not yet robust enough to survive without a central bank to issue national money in times of crisis of market confidence. Or to put it another way the markets – mainly the big financial players, the banks, funds and insurance companies - suddenly realized that what their system, their currency did not have but in times of crisis badly needed, was a system of central, back-stop banks.
Well they have them now.
One way of looking at event of the last two years is to see the role and allegiance of the central banks changing. Ask yourself – who do the central banks work for? Is it you and your welfare that they concern themselves with primarily? Or have the central banks come to see their role as defending the integrity, profit and power of the system of banks which preside over the markets and the market’s debt backed wealth?
I suggest it is at least worth considering who ‘our’ central banks now work for. I personally think they no longer work for us, for the nations and peoples whose names they still carry, but are now increasingly a part of a non-national, global system. Is this so ridiculous? Well who runs the central banks? How many of them are former employees of the big banks? Are the central banks and those in them controlled by elected governments or have they become increasingly ‘independent’?
Such a useful word ‘independent’. We are encouraged to think it means independent of any outside influence. An impartial, Solomon-like force. Sadly that is clearly not what our central banks are or how their independence was initially conceived. Their ‘independence’ was ‘independence from’ governments. Think back, ‘indepedence form governemtn’ was what was trumpeted. Nothing was said about their relation to the markets was it?
The global banking system now, has was it lacked in 2009 – a system of central banks to back-stop it.
I know Basel III is supposed to change it all. WAKE UP! They are already gutting it. Weakening collateral and capital rules even before it comes in to force.
I know there are new proposals for how to wind up big banks that might fail. I have read those proposals. They are hollow. I will write about them soon
These are, as I said in the title – just thoughts. Small and incomplete ones. Thoughts in progress. I offer them in hopes they might be useful spurs to better thoughts and provide a starting place for those better informed to offer correctives and alternatives. I look forward to reading them