Ron,
The immediate problem is that we try to treat money as both medium of exchange and store of value.
Blood is a medium, fat is a store. Roads are a medium, parking lots are a store. The hallway is a medium, the hall closet is a store. So what is it with money?
As a medium, money is a contract, with one side an asset and the other a debt, yet because we individually experience it as quantified hope, we try saving and storing it, like a commodity.
So in order to store the asset side, similar amounts of debt have to be generated and given our desires for safety, security, power, pleasure and all the other attributes of wealth are infinite, similar amounts of debt have to be generated and when the quality of this debt, as well as the ways it sucks value out of virtually any possible store of value are ignored, the system will periodically collapse, along with the society built on it.
One aspect of this dynamic is that a centripetal effect is generated, as positive feedback pulls the asset side to the center of the system, while negative feedback pushes the debt to the edges. Given money and finance are the value distribution system of the community, much as blood and arteries are of the body, this is analogous to the heart telling the hands and feet they don’t need so much blood and should work harder for what they do get. The system then tends to compensate for the clogged arteries with high blood pressure, ie, quantive easing.
The other, possibly more dangerous effect is that the government has become debtor of last resort. Where would those trillions go, otherwise? Bid the markets up even further? Expand the derivatives market even more? Public debt backs private wealth.
The deficit really began with the New Deal, so not only was Roosevelt putting unemployed labor back to work, but unemployed capital, as well. With the war, it went into the military and there was no going back.
Volcker didn’t cure stagflation with higher rates, as that restricted capital to those willing to borrow and grow the economy. It was brought under control by Reaganomics, where the deficit reached 200 billion by 82.
So rather than the excess being drawn out by the Fed and retired, it was borrowed out by the Treasury and spent in ways which supported the private sector, but didn’t compete with it, in terms of long term value, such as more military spending.
So we are effectively blowing up whatever country gets in the way of this metastatic process, to sustain the value of surplus money.
Several thoughts on solutions;
Government does not actually budget, which is to list priorities and spend according to ability. They simply write up these enormous spending bills, add whatever necessary to get the votes and the president can only pass, or veto them.
The only proposal to break this process was the line item veto, but that had an ice cube’s shot in hell of passing congress, as it would have gutted their power over spending.
One possible fix would be to break these bills into their various items, have every legislator assign a percentage value to each item, put them back together, in order of preference and then the president draws the line. “The buck stops here.”
This would leave prioritizing with the congress, while the president would be solely responsible for overall spending and since he/she would not want a reputation for being a spendthrift, there would be an inclination not push it too far.
Yet what would that do to the torrents of money flowing through Wall St?
The end result of the current system will be when the government cannot keep borrowing, such as when most of it goes to paying interest, then those with the largest piles of treasuries start trading them for remaining public assets, aka, disaster capitalism/predatory lending. Facilitated by those officials who know who their future employers will be. Then we will know what real oligarchy means.
Michael Hudson has recently written a book on how this dynamic played out in ancient times. An series of interviews at naked capitalism;
So, hypothetically, what if the government were to threaten to tax out what it currently borrows? The fact is that the functionality of money is in its fungibility, so we own it like we own the section of road we are using, or the fluids passing through our bodies.
After all the chaos settles down, people would start finding other ways to store value. Given most of us save for the same general reasons; raising children, housing, healthcare, retirement, etc, if these could be invested in communally, than everyone trying to save for them individually, we would have stronger communities and the healthy environments they need, rather than bank accounts as our umbilical cord to a predatory finacial system.
Not that government should be in control of the money supply, as politicians live and die on the hope they inspire, so printing more money is a cheap high.
As the executive and regulatory function, government is analogous to the central nervous system, which serves a different function than the circulation system, though they both serve the entire body/community. Finance is having its Marie Antionette moment.
The irony of our individualist culture is that it leads to an atomized society, that is more easily controlled by institutional authority, with most interactions mediated by that cancerous financial system. Networks are as essential as the nodes.
Obviously this goes much deeper into the cultural psyche, than anyone would currently be willing to process, but the fact seems evident that it is crashing in a big way.
Which does lead to deeper conceptual issues, such as that we are linear organisms in a cyclical, reciprocal, thermodynamic, feedback driven reality.
Our go forth and multiply, bottom line, ends justify the means, pot of gold at the ends of the narrative arc philosophy is reaching the edge of the global petri dish.
I better leave it at that, as this is about economics.
