The collapse of tired old Monetarism in Davos
January 29, 2010 · By Charles Anthony
The World Economic Forum in Davos, Switzerland is an interesting spectacle to behold. Fifty years from now, economic historians will lump these discussions in with Gorbachev’s futile attempts to keep the Soviet Union alive. Nicolas Sarkozy is a complete buffoon:
Sarkozy called for new accounting rules and tighter limits on executive pay, adding that the risks are too great if “we do not change the regulation of our banking system and the rules for accounting and prudential oversight.”
Great! The solution to our economic woes is more accounting trickery! Wonderful!
All we have to do is reshuffle figures from one column to the other. Furthermore, this comes with the admission that governments and regulators — the very people who are telling us they have the solution now — have been endorsing the wrong accounting tricks which are at fault for the collapse of the money markets.
Blaming the free market is a canard — a most dishonest and stupid canard because there never was a free market in money.
I really wonder what the hell is going on in the mind of Stephen Harper. For the first time in history, Canadians have a Prime Minister whose background in economics arguably — specifically promoting free-markets — stands out from all others. Confused conservatives who yearn for their own peculiar brand of small government actually have an intelligent reason to suspect that their man may deliver. Sadly, any consistency in economic theory is falling apart before our very eyes. Most people have been fed so much KeynesianoMonetarist nonsense that they can not see it. The central command in the market for money is collapsing just like central command in any other market tends to collapse.
For a Prime Minister who has worked hard in the past to promote free markets, it must be bizarre to have to utter the following pap:
To be succinct, the real test of the G-20 going forward, is that it develops and sustains among its members a sense of shared responsibility towards the global economy.For while the market’s awesome power to generate and widely distribute wealth is self-evident, we also know markets need governance. For the new global economy, the G-20 is what we have.
Spoken like a true command economy central planner! Way to go, Harper! Karl Marx would be proud!
The gutting of the financial regulatory system in the US over the last 20 years is the root of the current economic crisis. The solution to the problem is to re-establish regulation, not less regulation.
It is extremely disingenuous to call regulatory control “accounting trickery”. Decision-makers require accurate, reliable information. If the current system has devolved to a point where the information provided is insufficient for making good decisions, the answer is to reform the information gathering process, not throw away everything and “trust the market”.
Charles, are you implying that our economy is insulated from the economies of the rest of the world?
As a nation of exports we have an interest in the health and well being of the economies upon which we rely to purchase our products.
If only out of self-interest here, do we not have some kind of obligation to do what we can to ensure that our major trading partners retain a stable and reliable economy? And as such, are we going to assume that the health and stability of those economy depends only upon ourselves and our other major trading partners, or will we recognize that their economies may depend on others who we aren’t associated with? Again, if only out of self-interest, would we not also benefit from what eventually becomes a global economy in which we are all interconnected and interdependent?
I don’t think it’s unreasonable to be concerned about a global economy where it would be impossible for us to be protected from the ripple effect of economic collapse.
Abat,
You have it backwards, It is the printing of money which is the root of the economic crises. The regulations of yore (and any re-vamping of those regulations in the future ) are precisely what allows the printing of money and the concealment of the fact that money was created with absolutely nothing to back it — that is accounting trickery.
Furthermore, when money is lent out by central banks at virtually no interest, it makes sense for the lenders to cut their rates too and lending to everybody and anything that breathes with no regard to their ability to pay it back. If not, those lenders would not have any business. So, it is a mistake to say that they were not making good decisions in the past because they were making the only decisions they could.
Sean,
No, I am not implying that “our” economy is insulated. I am just saying that all of the central bankers are wrong to print money out of nothing and to force us to use it. If you want to know why, well, take a look around. We are living it.
Well, I was addressing the comment on your final quote there about Stephen Harper perhaps finding it bizarre to utter the “pap”.
I don’t know if he’d find it bizarre to say that if it was the proper and responsible thing to do in order to protect ourselves. By establishing himself as a leader in that realm, he creates credibility for his promotion of free markets.
I suspect that the thrust of his intent is to see Canadian Banking Standards established throughout the G20 and to create an environment where free markets can thrive and flourish.
My husband works in finance for Hydro Quebec. He has auditors looking over his shoulder every five minutes and tons of more regulations and red tape every year. He can barely get his work done.
Is the answer more and more red tape and regulation? The accounting profession is getting rich, that is all.
Printing money bad, free market good.
Same post, different month.
Hydro Quebec is still a corporation owned by the tax payers of Quebec (hope that didn’t cause a spasm over there Charles).
Finance guys hate regulation, they also hate dotting their eyes and crossing their Ts. They do however, enjoy going to strip clubs all the time.
You might want to look into that.
RD,
You are missing one thing: there is no free market in money.
Sean,
Since the government forces you to use a particular currency, there is no free market.
Harper is not promoting a free market. Rather, Harper is just saying the proper and responsible thing to do in order to protect himself, his cronies and the lenders.
The welfare of everybody else who actually work is irrelevent because people who actually work will always have to work. They will always work. They just need to be forced to continue using the printed currency. That way the lenders can keep gaining money for nothing.
“The welfare of everybody else who actually work[sic] is irrelevent because people who actually work will always have to work”
Are you unfamiliar with the concept of retirement, sickness, and unemployment?
“They will always work.”
Glitch in the matrix?
“That way the lenders can keep gaining money for nothing.”
And drugs for free?
Mr. C,
You are on your way to understanding fractional reserve banking!
Rather, that should read:
And what form of “currency” would you prefer? What would you consider to be an acceptable and appropriate “standard” of value?
Please feel free to remove that previous post.
It does not matter what currency it is. It could be a foreign currency, it could be a metal or it could be anything in between. So long long as it is not inflated by the same authority that forces us to use it.
I do have a personal preference though: Canadian Tire money. However, I would be over-joyed if the market was left alone and competing currencies were freely available.
But that’s exactly the point I have. Because there is no acceptable and appropriate “standard of value”, the majority of people accept a regional standard whose value is overseen and managed by a communally recognized body. In most cases this is a mix of banks and government.
Are you actually forced by these bodies to use the currency they provide? I wouldn’t hesitate to say no, you’re not. It’s the merchants and other vendors who decide the currency they choose to accept, therefore it is the “open market” that forces you to use a particular form of currency by refusing to accept any other. From what I’ve seen of your previous postings (and I could be wrong, you never know), you are in favor of private businesses being free to chose where and how they operate. This includes their preferred forms of payment for product or service.
Were I a business owner, I could in fact choose to accept any form of currency available in the world, be it the Yen, the Pound, the Dollar or a metal. I would have to make the additional effort to ensure I knew the value and purity content by standard (metals) before I agreed to a particular exchange on a daily basis to ensure I’m getting proper value for my work. I could also then take those currencies and bring them to an exchange or otherwise shop around to get the greatest value for that currency or accept what the banks offer as an exchange (which they will do for a profit which means a net loss for me in any case). Does all this extra effort pay off in additional volume in sales? Am I making more money by providing this additional option to my clients? Or am I losing money and wasting time in all my running around just to accomplish this?
Would it then simply be easier to ask my clients to deal with me and pay me with the local/regional standard currency and trust that whomever is managing it is doing so properly? If they’re not, will I be losing more time/money (same/same?) as compared to being my own monetary exchange?
I would argue that it is more cost effective on a personal level to deal with the regional accepted standard (national currency) as well as being the easier choice, and therefore I as the business owner have made the decision to accept only one particular form of currency and leave it to the consumer to ensure they are getting the best bang for their buck.
You are forced by virtue of taxation.
The government makes it impossible for you to afford using more than one currency and that suits them fine.
The fact of the matter is that you can not pay your taxes in a foreign currency. Imagine if you could.
You are forced to pay your taxes in the same currency that the tax-man issues and inflates. The government makes it impossible for you to choose a less-inflationary currency.
Exchanging a currency sure is expensive. If it was more cost effective on a personal level to deal with the national currency, you should be free to do that and the market would prove your point. A free market for money would not be a problem because it would not stop you from doing precisely what you wanted. However, it would stop the government from over-inflating the money supply.
In our current state of affairs, you would never know — all the while, the issuer of the currency continues to inflate the money supply.
Historically Charles, (and again I could be wrong), I believe that taxes were payable in a variety of forms since the accepted standard (presumably gold) was not widely available and that Barter and Trade was still a widespread practice.
As time progressed and the consumer markets matured, it demanded a more central currency as a plurality of merchants (followed by governments) demanded a particular standard in exchange for their wares. As the demand increased and that type of standard (soon to be called currency) became more widely available and soon became the primary means of paying taxes to the powers that be, those powers being the main holder of that currency began to determine it’s value based in their reputation/power and the purity of the currency (again, presumably gold) which was then weighed against an international standard (the gold standard).
As the quantity of currency increased, and the value of goods grew, the metal content coin became burdensome to carry in large quantities, more difficult to hide, and thereby was easily taken by force or theft. The crown better able to protect the currency offered Notes in exchange as proof of someone’s holdings in the metal content currency. This came with a cost of doing business which deflated the return on the true value-to-weight, which in turn inflated the cost of purchasing.
It seems to me that this habit has continued to this day. And once a Nation as established a value on their own notes, managed by them, it becomes more secure for them to accept taxation payments in the most secure manner possible. A Canadian dollar today will retire the same amount of my taxes as it will tomorrow and as it did yesterday. Other currencies will not because their value against the Canadian dollar always fluctuates.
If you were to deal in currencies and buy low then sell high, and use the earnings on to secure more Canadian dollars, then you would indeed be using foreign currency to pay your taxes as you will have more acceptable Canadian Dollars than you did before.
However, as in the example I used in my previous post, that is your prerogative (and your risk) as the consumer, and the merchant (Revenue Canada) accepts a secure valued regional currency in the retirement of your taxes.
I do recall that you abhor taxation to begin with, but as we’ve discussed before, it’s a reality we just have to live with.
Analyzing the history of banking is debatable. The plurality of merchants of whom you speak was just a select few who saw an opportunity to use the power of government to increase their ability to lend and rake in even more minimum monthly payments.
Regardless, the history does not matter about what would be good today.
Granted it’s debatable, but it’s not insignificant.
What happened in the past is the foundation of what we have today. The power of the merchant or the merchant class lies in the desires of the consumer. Basically it comes down to if you want what I’ve got, you can have it on my terms; and by my terms, I mean what’s profitable for me. So if you want it badly enough, then you’ll pay what I’m asking. If someone else is offering the same or similar for a lower price, and if I really want your business, I’ll adjust what I’m asking so long as it remains profitable for me to do so. I’m not in business to be a charity.
Merchants then and now stop being flexible when it’s no longer profitable (one way or another) for them to do so. The point of the history analysis is to show that a central currency is largely profitable in the open market. Select markets can operate by other means, but that doesn’t change the common practice for the majority.
Does it make it any less free? In my opinion, I’d say no. It just means more work for the consumer if they want to exercise their own freedoms and do it their way because the options are out there. Laziness or apathy makes the consumer accept the “norm” or the common practice.