Friday, March 05, 2010

More options if you understand the monetary system

Rolfe Winkler lays out a good, if often unspoken, reason for why the Obama has supported his predatory financial system instead of fixed it.
Throughout there was much indignation as to why such sensible reforms haven’t been enacted. Wall Street’s lobby machine got most of the blame, the rest went to “the people” for their perceived lack of outrage. But of course people are mad, and though the lobby machine is strong, it’s not the real obstacle to reform.

We are.

We don’t really want it. More to the point, people care more about their jobs than they do about reform.

What the reforms in paragraph 4 all have in common is that they reduce the availability of debt finance. That’s smart because our chief economic problem is that we’ve too much of the stuff.

But said another way, the reforms reduce credit. Like a lot. And that means deep and prolonged recession. Crucially, it means higher unemployment.
The private sector is over levered, and the solution to this is for the Government to pay in additional equity by running higher deficits. If it tries to limit paying in this equity you'll get what we have -- high unemployment and an overleveraged financial system.

SRW once said that the financial system had a MAD strategy, and this is part of that I'm sure. But the Government has the ability to disarm the financial system by levering up, so it can be levered down.


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