Bloody Shovel 3

We will drown and nobody shall save us


So it seems that the European Central Bank found a way to solve the whole sovereign debt crisis. As told before by that insufferable jew , instead of buying government bonds directly, 'monetizing sovereign debt', they are just funelling cheap money (1% interest) to private banks, who then use the money to buy southern government bonds, driving down the yield, but still getting around 4%, which is a handsome profit. So banks are happy, governments are happy, and the ECB gets to keep the euro.

Funny how Yglesias hates the scheme, because it means that by choosing not do funnel the funds, the ECB can pressure governments into do its bidding. And that's 'evil'. Well he seems to forget the governments can choose to have a budget surplus, which would make them free from ECB meddling. But governments having sound finances is beyond good or evil, its unthinkable.

Funny thing is he also said that he 'suspects' the thing will end poorly. What does it mean he 'suspects'? Means he doesn't know shit. Yet he has a massively popular blog on finance. I used to read a lot on economics, and have a good friend who is an authority on Austrian economic theory. Yet each day it passes this idea gets a stronger hold on me: economics is like theology. Some theories are sounder, some are crazier; yet nobody has the damnest idea. All our economic authorities are just trying shit to see what happens, according to some contested theory that some economist or bureaucrat just came up with. Sometimes it works, sometimes it doesn't.

Well it seems that this particular scheme is working extremely well. Not to say that this is a good thing: the Germans were right that southern governments must reform, stop stealing money and make their populations be productive. Easy money breaks the incentive. But that's a political issue, not economic.

The economic danger we all were told to fear was inflation. Hyperinflation is coming! Your savings to hell! Collapse! Buy a gun and hoard water barrels. Gold!!

Well does anyone even know how inflation happens? How is the particular process, and how it behaves? Well there's dozens of theories. But does anybody in charge really know? Not really. The smartest minds in the world spend all day long, waking up at ungodly hours, working like Roman slaves, all discussing the nature of modern finance. Yet nobody knows shit.

The difference with theology is that Byzantines discussing the sex of angels didn't harm anyone (aside from the cost of opportunity of their time not spent on fighting turks). But discussing the sex of inflation is influencing the world's flows of capital.

We need economic agnosticism or something.


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  • Gold -- the anti-fiat is still near record highs. So, no: it isn't working in the long run. It is, of course, possible to cover any particular deficit with a blast of inflation, and likewise to cover ongoing deficits with ongoing inflation.

    So, yeah, like your Austrian friend I have a theory about inflation. It makes sense to me, anyway. I am putting my money where my mouth is. Gold, gold gold.

  • If you take a look at Japan they've had inflation in the cost of food and energy and deflation in all major assets. For the average this is a slow erosion of their wealth but it's not happening fast enough that people want to dump their currency. The the same process appears to be going on in the US and the EU.

    The net result is to rob normal people of their wealth in a slow fashion.

    • The mistake (one encouraged by governments of course) is for people to think of currency and government debt as "wealth". If you aren't actually hoarding something physical for use later, then you must rely on legal claims to future production. If you save or invest in productive enterprises or assets, then you can be entitled to a share of that future output.

      But currency and government debt is not such an investment, and your counter-party has reserved the unilateral option to devalue the real value of your claims against it by any amount it wants. Even worse, you may see "government debt" as an asset, but then for the government it is a liability which it must satisfy by ... taxing you and your "wealth".

      If you want a financial instrument to behave like you want money to behave, then you could always try to fashion one yourself - or perhaps a financial firm could fashion one for you for a reasonable price. The fact that such investments don't really exist puts the lie to the possibility. The kind of risk-free certainty that governments pretend to promise is always an illusion. For a related discussion, see here

    • Where'd you get that data? I spent years there and didn't see food inflation. For all purposes deflation continues there, and the main theory there is that japan is a gerontocracy, old people have trillions in savings, which inflation would wipe out, so deflation it is.

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