Wednesday, April 22, 2009

Bloomberg Headline Inadvertently Lets the Banksters' Cat Out of the Bag

"Soaring U.S. Budget Deficit Will Mean Billions in Bond Sales" informs us today.  Quelle surprise!  (Why did Bloomberg consider this newsworthy?  (No link-disabled by Bloomberg-see to find article, though there's nothing special in the article.)

There is a deeper implication of the headline than the obvious ones.  This blog has argued since its inception last year that the Obama administration was going to follow the Bush policies and support the banksters:  there would be no change in that key regard.  Now, let us think of the massive government spending not in terms of Keynes but in terms of money flow to explain why two otherwise very different Presidents have had such amazing policy continuity vs. Big Finance.

Who benefits first from increasingly massive government bond/bill sales?  Why, it is the primary dealers, that's who, plus the entire debt distribution chain.  So, whether or not the cost to the public per job created (name your metric) is a good deal is, in fact, not very relevant to the Establishment.  The Establishment- call it banksters plus their allies in Government and the media etc.- loves debt financing because it is so profitable from day one.  Eliminate the debt and you eliminate the initial fees plus all the unending fees from trading the debt, sliced and diced as the debt may be, forever and ever.

Viewed from this perspective, the current economic depression is fine for the financial industry.  States and other localities now "need" to float more and more debt just to finance their operations. (Cutting spending in a serious way just won't serve the needs of the financiers until the very brink of bankruptcy.)  How else can one explain a 9% expenditure increase in New York State's next proposed budget at a time of falling revenues and no price inflation?  How else can one explain the truly massive California debt sales to "invest in the future" in the face of already large current deficits?  

The only way to truly reduce the influence of Big Finance, and the financial industry in general, is for all of us and our governments to go on a fiscal diet, live within our means, and only issue/take on debt only when it is really and truly needed.  From a policy perspective, it means such things as avoiding another quagmire in Asia (think Pak-ghanistan) and making the shareholders and bondholders of troubled companies responsible for the consequences of the troubles the businesses are undergoing before the taxpayer steps in. Forget "better" regulation. Instead, follow Nassim Taleb's advice and ban complex financial products.  Then put in the financial equivalent of an FDA and only allow new financial products if they are proven both safe and they are effective in that they solve an existing problem that cannot be solved by existing financial instruments.  

If you analyze the current crisis from the standpoint of what government policies are best for the Merchants of Debt and ignore the competing policy arguments (e.g. Keynes vs. Friedman), you will have a coherent framework that will allow you to readily understand all governmental and business decisions that have been made.  

Copyright (C) Long Lake LLC 2009 

No comments:

Post a Comment