Devalue and Export II

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the Bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst yourselves, and when you lost, you charged it to the Bank... Beyond question this great and powerful institution has been actively engaged in attempting to influence the elections of the public officers by means of its money...

You tell me that if I take the deposits from the Bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin. Should I let you go on, you will ruin fifty thousand families, and that would be my sin. You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, I will rout you out."

Andrew Jackson on The Second Bank of the United States which was the Central Bank of his day.(tx jesse)

Michael Pettis has a real excellent piece(tx yves) on the state of the global economy. You should really take the time and read this. It paints a very problematic view of the global economy from the essential understanding that at some point accounts have to balance. This is rule #1 of accounting and one of the few real rules of economics, whether you're running a capitalist or communist system. The piece shows why the idea the world is going to devalue and export our way out of this mess is simple idiocy. The recently announced Euro "solution" is one step further over the deflation cliff. Best, it was just announced Mr. Geithner is heading over to rally Europe, which might very well be the historical equivalent of Custer behind the last hill before Little Bighorn exclaiming, "What Sioux nation?"

Mr. Pettis concludes for the US:

So that leaves the US. Most policymakers around the world – while publicly excoriating the US for its spendthrift habits – are intentionally or unintentionally putting into place polices that require even greater US trade deficits.

This cannot be expected to happen without a great deal of anger and resistance in the US. The idea that suffering countries should regain growth by exporting more to the world, and that rapidly growing surplus countries should not absorb much of this burden, will only force the US into even greater deficits as US unemployment rises to reduce unemployment pressure in Europe, China, Japan and elsewhere.

I would be surprised if the US accepted this with equanimity. On the contrary, I expect it will only exacerbate trade tensions and ensure that next year the dispute will become nastier than ever.

We are repeating the 1930s, but that's what happens when after you repeat the 1920s. You don't allow the global financial system to become a massive bubble, because bubbles pop and then you get deflation, that is economic physics. But our doctrine economics is theology, it is a system of thought built around power, apologizing for power.

"Dude, where's the Dharma"(tx yves again) has an excellent piece comparing Ms. Merkel to Martin Luther and does a good job showing how our financier class are excellent manipulators of our so-called "free-markets." The Dude writes:

The Church of Free Capital's creed states that prices set by market speculators (i.e. big finance) are, in a sense, divinely inspired, leading to the best outcome. That big finance has been taking home an increasing share of decreasing profits has not shaken faith in the creed among speculators, but it has angered capital providers in Germany sufficiently to provoke a protest and policy schism.

This isn't the first time Germany has protested the policies of a major Church. Interestingly, both protests, in a sense, included the imposition of capital controls.

Roughly five hundred years ago, a monk named Martin Luther sent a list of complaints- the 95 theses- to his Catholic superiors. His main complaint was about indulgences, whereby a Catholic could buy redemption from sin. "Why does the pope," Luther argued, "whose wealth today is greater than the wealth of the richest Crassus, build the basilica of St. Peter with the money of poor believers rather than with his own money?"

We need a reformation.