Bernanke will try yet another form of QE-style debt purchase, and keep Zirp. Why?
Policymakers – by which I mean senior authorities in government, business, the professions and politics – seem able to toss away a perfectly effective policy without losing a moment’s sleep….but at the same time, to keep on and on persevering with stuff that is quite clearly not cutting it. This is probably something in the psyche of people who like abolishing things without taking responsibility: they like the adrenalin of destruction, but lack the courage to replace what’s been destroyed. We’ve all had builders like that over the years.
Let’s look at what Ben the Banker has been doing: low interest rates, a promise to keep them low, a gradual devaluation of the currency…and the purchase of junk debt to clear it out of the system – or ‘QE’. He’s piled in with two lots of QE, and been on a steady Zirp policy for nigh on three years. None of it has worked.
Rewind the tape now to December 1999, when a much younger Ben Bernanke wrote a long paper on the subject of Japan – a country at that time in the early stages of what the US is facing now. Ben wanted the Japanese to…..yup, crash rates, buy junk, devalue the Yen. Nearly twelve years on, BB is still peddling a bankrupt (sorry) strategy. Not only that, but ‘experts’ all round the globe are willing him to let fly with yet more debt-purchase when he speaks from Jackson Hole this afternoon. If he doesn’t, my guess is the markets will falter again. Even though almost all the evidence shows that his strategy simply isn’t working.
Britain has been the same about the NHS for over twenty-five years. It is a dysfunctional money-pit in its current form, but ‘hands off our NHS’ has become a national mantra. Whereas in education – after the Grammar school system had worked superbly to produce high standards, and create social mobility on an unprecedented scale – Labour ditched it in 1966. Today, not even the Tory Party supports the selective Grammar education principle.
As the much vaunted Big Bang began in UK financial services, almost all the Building Societies gradually demutualised to become plcs. In over 180 years of history, there had barely been a single insolvency….and Britain went from a 10% property ownership nation to 55%. Today there are few if any mortgages available, and failed former mutuals have meant the taxpayer taking on around £400 billion in possible debt liabilities. Deregulation has been a disaster on so many levels, I find it astonishing that anyone still supports it. But the reality is that almost everyone in the Establishment does.
After the EEC became the EC and then the EU, the federalist direction of the European Union was blindingly obvious. By 1992, the cost of staying in alone meant that the most sensible thing for Britain was to pull out. With the emergence of Asia since then – and our expanding EU trade gap at £58 billion – it is commercial madness to still be in it: a majority of electors, in fact, want not just a referendum – they want secession immediately. But at Westminster, a rump of older Tories are the only MPs who agree with them.
Mass immigration has taken decades too long to reverse, but a whole raft of ‘affirmative action’ legislation has been passed with barely a peep. An obviously undemocratic voting system has been rejected on the most spurious of bases, but legislation is in the pipeline to wreak havoc on the House of Lords – still the only check our political system has against the power of the Executive.
It seems at times as if politicians, economists, fiscal experts and sociologists are on a mission to embrace the impotent, and reject the important. Why is this?
It’s tempting (and very satisfying) to put it all down to incompetence and myopia. But my suspicion is that, in most cases, its down to defence of privilege.
Bernanke will continue giving the banks and business cheap money and an outlet for their bad bets, because he daren’t do otherwise. This is nothing to do with politics, and everything to do with power. The latest Republican on the block Rick Perry thinks QE is an act of treason, but he is merely playing to the Tea Party gallery: Bernanke can’t do anything truly radical, because the globalist business-to-banking lobby would go ballistic if he did.
Our NHS is a huge employer of civil servants, the BMA is an extremely powerful lobby, and the Labour movement regards Nye Bevan’s creation as a sacred cow. What we have is nothing like Nye’s vision, but that’s not the point: as incompetent and narrow as Andrew Lansley is, his plans have foundered on the rocks of privilege. The State education system is a similar case. Unionisation and politicisation mean that the bulk of poor quality Leftist teachers represent a pernicious power centre – a vortex that will ruthlessly oppose any change to the methods they use to keep emerging adults from thinking for themselves.
On and on it goes: not until the banks are bankrupt and powerless will there be any real reform to how business is financed and institutions are formulated. We will not leave the EU until all those on the EU’s payroll and pension gravy train have retired. Britain – and the West in general – is little more than a collection of unrepresentative interest groups where influence, money and defence of the status quo will always count for far more than the needs of the individual citizen, and the dictates of national strategy in a changing world.
Greece is being forced to sell its assets and dismantle its welfare system to save the banks of France and Germany. Portugal and Ireland are being hung out to dry to the same purpose. Our EU central bank is buying junk not to save Italy and Spain, but because the alternative to their salvation would destroy the Franco-German banking system…..and probably ours along with it.
In Wyoming, Ben Bernanke knows that a massive input of QE two years ago – alongside compulsion of the banks to use the money for a broader social good – would’ve produced a hugely superior result to what we have today. For easing to work, there are only two rules: go big – it isn’t a tickling contest; and make it clear to the financial system what you expect them to do. Bernanke couldn’t do either of those things: to the GOP, it would be communism, to the Tea Party it would be fraud, and to the banking sector it would be the end of the good times. In the White House now sits a multiply failed President concerned to wangle himself a second term he doesn’t deserve. The last thing he wants is BB to up and tell the country that its time to nationalise Goldman Sachs.
It is in the nature of human existence. Most of us want to do what’s right, and most of us know that will mean suffering. We just don’t want to be doing any of the suffering.