Despite Government and central bank efforts to stem the tide of deteriorating economic conditions, inequality is rising at an increasing rate. The problem is not ignorance but the illusion of truth.
What is currently happening is that financial markets have been flooded with capital with the aim of stimulating the broader economies of various countries. The big problem has been the hoarding of that capital by the same institutions that caused the debt-linked problems, which sovereign governments conveniently underwrote despite taxpayer resistance. The hoarding has meant corporate balance sheets have strengthened since the GFC while further large-scale write-downs have been avoided.
The result is that the broader economies have only improved marginally and not equally. The financial sectors of the G20 and other Western countries have been rescued, which has helped broad economic indicators remain stable or show marginal improvement. However, most individuals globally, including small businesses, are suffering due to savage inequality that has only been exacerbated by the multilateral central bank response to the Global Financial Crisis (GFC).
The economic policies implemented by the world's major central banks are exercising 'voodoo' economics whereby they do the same ineffective thing (capital expansion) and expect improving results the more times such a policy fails (the liquidity trap). Central bankers in the 21st century practice hoodoo in their work.
History in Revolution
History repeating itself is an age-old fact. However, the reasons for the same principles to repeat despite several decades passing is, first and foremost, to do with macroeconomic policy not changing tact to help society, but rather, keeping the same routines to benefit the elite levels of society only.
Yesterday's 'real' economists are tomorrow's 'voodoo' economists. George Bush Snr was famous for criticising Ronald Regan for 'Reaganomics' and subsequent effects but himself went on to action some of the most devastating economic policy in US history. George Bush Jr toed the line his father strung, and the incumbent Barack Obama was no different. Criticising the Bush government on every viable occasion only to cement those same policies through more defence spending, encroaching on civil liberties and appeasing the large multinationals whose lobbying power is still unfathomed amongst most market participants. To get into power, you criticise the previous mob. To stay in power, you implement the same policies as the last mob. When leaving power, you congratulate the old mob for becoming new, and the cycle is complete.
The Illusion of Truth
The best indicator of how macroeconomic policy worldwide is failing all those it is supposed to serve is the constant growth of financial inequality in society. The fact that in the US alone, over 50 million people (~15%) are claiming food stamps (a form of social security) each month is another anecdotal piece of evidence to suggest the economic reality of widespread inequality is somewhat different from the perception of improving economic conditions. Unemployment statistics say unemployment is falling, but in truth, increasing numbers of people are looking for part-time work or leaving the workforce altogether.
Extensive research shows that inequality is the significant causal factor for most negative externalities in society. Nations that have lower inequality (higher equality) of incomes tend to be healthier, live longer, brighter, happier, less violent, less fraudulent, and generally live longer compared to nations that, on average, have higher inequality. According to the Organisation for Economic Co-operation and Development (OECD), the gap between rich and poor is now at the highest level in 30 years.
A Blinkered Understanding
The problem is not ignorance; it's the illusion of truth. Most people believe the reason for their lack of financial progress is their lack of education, experience, or simply bad luck. In actual fact, the financial arena is largely rigged to suit those with existing financial resources and disfavour the masses, most of whom dwell at the bottom of the ladder.
The accepted consensus is that inequality occurs due to natural market forces whereby smart, hard-working, dedicated people tend to achieve higher incomes because of their intelligence, hard work, talent, and perseverance. Those with lower incomes are people who are lazy, stupid, unfortunate, and generally, people who were not able to take advantage of a fair monetary-economic system that is fair for all. Even the word 'inequality' often inspires fearful rebuttals.
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| Source: PositiveMoney (UK) |
The notion that capital must be lent out to justify a return is simply an illusion because fractional reserve banking is how all central banks now operate. Therefore, contrary to popular belief, money is never taken from depositors to lend to borrowers. In fact, banks simply 'create' money and lend it at interest to borrowers.
Furthermore, other elements of society, such as the justice, healthcare, and education systems, are all affected because the financial status quo allows some individuals to reap huge rewards while forcing others to take huge risks. In Western societies, wealthy people receive more justice, better healthcare, and better education than poor people despite propaganda claiming otherwise.
Cause and Effect
The consequences of hoodoo policymakers practicing voodoo economics are grave for all market participants, including the very politicians who sold the idea that central bank independence is pivotal. Central bank independence only serves to insulate incompetent policymakers from scrutiny and criticism. Central bank staff are not accountable to anyone at any time. And yet, their decisions influence everything relating to financial instruments, including money, mortgages, loans, and all asset classes.
Some of the more egregious consequences have already materialised. Negative interest rates are now commonplace in many parts of the world, such as Switzerland, Denmark, Sweden, Germany, and recently, the Eurozone. The United States yield curve could soon follow the European one into negative territory due to the voodoo being enacted. One of the most erroneous assumptions being parroted with glee is the notion that consumption creates economic growth. Unfortunately for the Keynesian supply-side proponents, this is clearly not true. Giving capital owners an incentive to consume rather than invest their capital will only hasten the negative effects of previously myopic Keynesian economic policy.
Another likely effect is the continuation of municipal defaults, such as in the City of Detroit in 2013. Although more defaults have not yet occurred, expanding federal expenditures alongside falling revenues and growing debt burden is likely to push more municipalities into default, not only in the US but in other countries, too. Municipal bond markets take note.
The Final Port
The reigning fiat paper money system is at the centre of the growing income inequality and expanding poverty rates noticeable in many countries today. Nevertheless, governments are growing bulkier and more costly to tame the market and secure prosperity for the citizenry. The fact that prosperity was lost due to inherently unfair mechanisms such as fractional reserve banking and the existence of a Corporotocracy in most countries is being largely ignored.
There are only two possible reasons for this ignorance. Either people are oblivious to how the world's monetary system truly works, in which case it's essential to do one's own research. Alternatively, they do understand it and are cynically ignoring a significant source of poverty and societal despair because they may, in fact, be benefiting from the paper money pyramid themselves.
Written by George Tchetvertakov
