Dr. Keynes Was Right

It's the Distribution, Stupid
MARCH 7, 2012 9:44AM

Left Wing Preverts!

Rate: 3 Flag

"You prevert!"  Thus spake the redneck.  Sometimes unintended consequences are also perverse.  That's the topic.

The EU is all aflutter, and took 200 points off the Dow yesterday, although as I type pre-market open is up.  We'll see.  The Prosperity Through Austerity folks have been getting (nay, generating) some Bad News of late.  Country by country, austerity is causing contraction, not the Visit of the Confidence Fairy that the Austrians have always fantasized.  Growth requires $$$ in the hands of consumer, period.  There is no supply side stimulus.  Give lots o money to a cabal of that already has lots o money, and what happens?

Aye, laddy, thar's the rub.  In some WWII movie, a captain says, paraphrasing from dim memory, "an officer has to lead from the front.  You can't push a string."  Which is the folly of supply side zealotry.  Businesses only expand when demand for product exceeds their ability to fulfill it *for some time*.  What this has to do with the various QE ships sailing out of Port Fed for the last few years is this:  The Fed is setting the rest of us up for complete collapse.

Here's the logic (I really can't find a way around it).  By doing two things, 1) driving down interest rates and thus devaluing retail savings and 2) flooding finance with cash, The Fed makes it ever more palatable for those with these soaring cash hoards to seek deflation.  The reason is simple:  a little bit of deflation increases the value of such cash hoards even more than "safe" Treasuries.  Since those who live off interest are slothful by definition, and treat currency as commodity, they seek to increase the value (without providing any economic good, of course) of their holdings at any cost to others.  In fact, to do so must, by definition, everyone else loses.

So, the perversion of unintended consequences here is that the bad guys weren't punished, in fact, they've been bolstered in their life-long effort of those vampire squids to suck the rest of the planet dry.  The only saving grace, which neither I nor anyone else will get to see, is the Final Death Match twixt the Kochs on one side and little Mikey Bloomberg on the other.

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Given that the Fed rate is effectively 0, The Fed still seems to believe that banks, et al, *have to lend*. But, of course, they don't, they can continue to sit on the cash. Which they are. All the yelling from the Prosperity Through Austerity Austrians is just a stalking horse for massive deflation. If you own something, it's in your narrow interest to increase its value, no matter what happens to your fellow citizens. In fact, in a purely Darwinian economics, you want your fellow citizens to be poorer, since that status magnifies your wealth.

And stupid rednecks are easily gulled into voting for Right Wingnuts who are more than happy to oblige.

Another perverse consequence (although likely intended) of not punishing the banksters very much, is now they're setting out to recoup their lost profits from whatever targets remain. Pushing a string, once again.
When the revolution comes, there will be a jubilee. So far, actual performance of the economy has matched my earlier predictions. We will see where it goes from here.
RY, you are correct in your comments. I understand the asset inflation levels of the exotic derivatives has become insane. It's headed for the quadrillions, if if it isn't there already. How much longer before the CDOs, etc. will be valued in the quintillions?
As usual, you've nailed it. It's no consolation to those of us who've already taken a bath, but sooner or later some of the Masters of the Universe are going to have to take one, too. The numbers bandied about defy the imagination, but I've repeatedly come across estimates in the 32 to 50 trillion dollar range.

That's quite a bath. Unfortunately, a lot of babies are going to be thrown out with that bathwater.
Guess it's a good thing my tiny retirement account is still in the bond funds.