Anarchy From Above

G.K. Chesterton once warned about “anarchy from above”…

Think of anarchy and its mobs and Molotov cocktails. But as Chesterton wrote, “it isn’t necessary that anarchy should be violent; nor is it necessary that it should come from below.” And the golden nugget:

“A government may grow anarchic as much as a people.”

Desperation is the natural breeding ground of anarchy. And governments are sweating lead over the fading global economy. Their central banks have already shelled it with $60 trillion worth of debt since 2009. Only under such a furious barrage of debt can the economy possibly recover, the theory being.

And now the world’s debt load, public and private, weighs in mountain-high at $200 trillion — almost three times the size of the global economy.

Economist James Dale Davidson crunched the numbers. Assume the interest on this $200 trillion is 2 %, he says. That means the economy would have to grow by 6% — 300% of GDP — to simply cover the interest charge on the outstanding debt. And that, according to Davidson, implies a $500 billion annual deficit.

There’s a word describing an economy growing at less than half the rate to meet its debt load: unsustainable.

Now that the central banks have emptied the magazines to fight the Great Recession, there’s no powder to battle the next one. And they’re finally beginning to admit it…

Federal Reserve economist David Reifschneider has written a real rip-roarer called Gauging the Ability of the FOMC to Respond to Future Recessions. Sample quote:

“In setting this path for policy, the FOMC is assumed to follow the prescriptions of a simple rule, RRtt = RR* ΠΠtt + 0.5(ΠΠtt – ΠΠ*) – 2.0(UUtt – UU*), subject to the ELB constraint.”

Subject to the ELB constraint. Of course.

But here’s the key part in something approaching English:

In the event of a fairly severe recession, asset purchases and forward guidance should be able to compensate for the FOMC’s likely limited scope to cut short-term interest rates in the future. That said, this analysis also suggests that there could be situations in which this might not be possible… one cannot rule out the possibility that there could be circumstances in the future in which the ability of the FOMC to provide the desired degree of accommodation using these tools would be strained.

Ambrose Evans-Pritchard of The Telegraph with the full translation:

The Federal Open Market Committee had to cut interest rates by an average of 550 basis points over the last nine recessions in order to break the fall and stabilize the economy. It could not possibly do so right now, or next year, or the year after. Quantitative easing (QE) in its current form cannot compensate, and nor can forward guidance. They are largely exhausted in any case.

So now what?

Admit it’s all failed and leave it to the free market to hash out next time? Never. Power never relinquishes power. The answer is to shove it into fewer hands. So it’s madder music, stronger wine, wilder dreams… more anarchy from above.

Then there’s the mad descent into negative interest rates and the abolition of cash elites are drumming for…

A grandee called Narayana Kocherlakota captained the Federal Reserve Bank of Minneapolis from 2009–2015. He says if you want a “free market,” then you must “abolish cash”:

The right answer is to abolish currency and move completely to electronic cash… Because electronic cash can have any yield, interest rates would be able go as far into negative territory as the market required.

As far as the market required? Or as far as the government required? And is it the “free market” that meets every few months to determine interest rates? Or is it a group of twelve government-appointed apparatchiks like the good Dr. Kocherlakota?

Ken Rogoff, Harvard professor and former chief economist of the IMF, is another sultan of the monetary establishment. Not only does he demand the abolition of all bills larger than $10 (sorry, Harriet Tubman). He dreams of a day when every citizen would have their own personal bank account… with the Fed!

Servant, meet master…

In the words of London-based wealth manager Tim Price, “Our entire central bank controlled financial system is based on the premise that unelected, unaccountable bureaucrats should be able to direct individuals’ consumption and production behavior from ivory tower conclaves.”

Anarchy from above.

“The modern world is insane,” said Chesterton, reflecting on anarchy from above, “not so much because it admits the abnormal… as because it cannot recover the normal.”

If Kocherlakota and Rogoff and “Helicopter” Ben Bernanke and the IMF and all the rest of the economic crazies have their say… it never will.


Brian Maher
Managing editor, The Daily Reckoning

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