The Economy's Bureaucratic Enemy

The global finance bureaucracy is clueless. Its policies are failing. Yet it’s not giving up. Nowhere near it! The same tired, idiotic explanations for what is wrong with the economy and what the economy needs are regurgitated with numbing persistence: The economy is in need of more — wait for it — “demand.” Not necessarily your demand or my demand. In fact, any demand will do.

And since you and I are obviously failing to produce the demand that the economy “needs,” the required demand has to come from the state. It can come from government spending (preferably debt-financed) or from the central bank printing more money and handing it to the banks. And the wider public — easily manipulated monkeys that the bureaucracy must think we are — will willingly spend, borrow, consume, invest and consume more.

Is anybody still taking this nonsense seriously? Does anybody really believe that the economy is just some tired old mule that needs a kick in the backside to get going again?

What is really wrong with the global economy? The global bureaucracy. Decades of rising taxation, increasing regulation and persistent redistribution have fundamentally and structurally weakened the major economies of the world. Underneath the glittering razzmatazz of modern technology lies a society sapped of its capitalist juices. For decades, we’ve gnawed away at our capital stock.

To make matters worse, this persistent structural decline has been masked and furthered by another evil the bureaucracy has bestowed on us: a constantly expanding supply of fiat money. Who gets first crack at that money? The banks and wider financial industry, our astute money funnelers. For decades, this has helped project an illusion of savings availability and simultaneously weakened the all-important propensity to save and to create lasting capital.

This cartel fed various asset bubbles, which, in turn, have further enhanced the illusion of wealth — diverting resources away from where they could have generated real prosperity. Now a new generation has been raised on the belief that wealth comes from consumption — not saving and production — and that you can vote for it.

The Bureaucracy Is Killing America

Remember the last time high real interest rates were allowed to cleanse the U.S. economy of such distortions? Way back in 1979-80, Fed chairman Volcker — for a short time only — stopped the printing press. Since then, and until about 2007, we had been in a three-decade-long, relentless credit expansion. The credit boom was beyond anything Mises, Hayek or anybody else of that generation could have envisioned — sadly, so is the coming bust:

Now, thanks to decades of interventionism in other fields — regulation, taxation, redistribution — the real economy that emerges from underneath the credit-funded spectacle is ugly. High unemployment and near-zero growth. Who’s surprised that half of most major economies now consist of government spending, and the other half is severely hobbled by ever-increasing regulation and meddling?

Of course, these hucksters who hijacked the global economy still enjoy the unwavering support of their cheerleaders: the likes of Paul Krugman of The New York Times and Martin Wolf and Clive Crook of the Financial Times. These guys always see the solution to policy-induced disaster in new policies (just like those that got us into this mess): If only the bureaucracy printed a few trillion more in paper money and monetized a few more dodgy bank assets… or if only it spent a few trillion more on various government programs… the old charade could be erected again. Fat chance!

If Only the Public Believed Again…

But you know what the real problem is, according to the bureaucratic elite? It is you. The public. Because some of us naughty little children have finally dared to look behind the curtain and have discovered that there is no Santa Claus.

The bureaucracy bets that you will keep accepting its paper money at face value ad infinitum. After all, that’s the bureaucracy’s final policy tool, the last arrow in its quiver.

But here’s their biggest fear: You, the public, are no longer playing ball. You are selling, or at any rate, not buying with your hard-earned savings the bonds of Italy, Greece and Portugal. You realize that these countries would never repay. So the bureaucrats have no choice but to use the printing press to correct this failure of yours.

Of course, the bureaucracy cannot talk about a failure of the public. When they want to criticize the public, they call it “the market.” And with their media circus, they can weave a new fairy tale in which the villain is “the market” and the bureaucracy is doing all it can to save you from evil market forces.

Do any of these moves by “the market” really look strange? They’re the simple result of entirely rational behavior of wealth-holders who have finally woken up to what’s going on… and simply want to protect their assets. In my view, it is entirely rational that people reduce their exposure to bloated banks and hopelessly profligated governments:

Protecting your wealth demands strategies that go against the attempts of the political class to sustain the unsustainable structures that are entirely the result of their policies. Make no mistake. If you are trying to protect your wealth, you are an enemy of the policy bureaucracy.

Best regards,

Detlev Schlichter

The Daily Reckoning