Friday, December 30, 2011

Karl Denninger, "This Got PRINTED? ("There Will Be Violence")

"This Got PRINTED? ("There Will Be Violence")
by Karl Denninger

    "As 2011 slithers to its end, none of the major problems that led to the crisis point three years ago have really been solved. Bank balance sheets still reek. Europe day by day becomes a financial black hole, with matter from the periphery being sucked toward the center until the vortex itself collapses. The Street and its ministries of propaganda have fallen back on a Big Lie as old as capitalism itself: that all that has gone wrong has been government's fault. This time, however, I don't think the argument that "Washington ate my homework" is going to work. This time, a firestorm is going to explode about the Street's head - and about time, too.

    Over the next year, I expect the "what" will give way to the "how" in the broad electorate's comprehension of the financial situation. The 99 percent must learn to differentiate the bloodsuckers and rent-extractors from those in the 1 percent who make the world a better, more just place to live. Once people realize how Wall Street made its pile, understand how financiers get rich, what it is that they actually do, the time will become ripe for someone to gather the spreading ripples of anger and perplexity into a focused tsunami of retribution. To make the bastards pay, properly, for the grief and woe they have caused. Perhaps not to the extent proposed by H. L. Mencken, who wrote that when a bank fails, the first order of business should be to hang its board of directors, but in a manner in which the pain is proportionate to the collateral damage. Possibly an excess-profits tax retroactive to 2007, or some form of "Tobin tax" on transactions, or a wealth tax. The era of money for nothing will be over.

    But it won't just end with taxes. When the great day comes, Wall Street will pray for another Pecora, because compared with the rough beast now beginning to strain at the leash, Pecora will look like Phil Gramm. Humiliation and ridicule, even financial penalties, will be the least of the Street's tribulations. There will be prosecutions and show trials. There will be violence, mark my words. Houses burnt, property defaced. I just hope that this time the mob targets the right people in Wall Street and in Washington. (How does a right-thinking Christian go about asking Santa for Mitch McConnell's head under the Christmas tree?) There will be kleptocrats who threaten to take themselves elsewhere if their demands on jurisdictions and tax breaks aren't met, and I say let 'em go!"

Hoh hoh hoh.

Michael Thomas is right, you know.  I've been trying to get purchase for draining the swamp and punishing the wrongdoers among the various political classes in DC and elsewhere for a long time, in some cases dating back to the 1990s.  My stock in trade is mathematics - that irrespective of the money flowing into the coffers of campaigns and lobbying offices what's being attempted cannot work and as a consequence we are choosing between doing the right thing now and having it suck and doing it later by force and having it suck more.

Why appeal to people in this way?  Well, what else do you have when the base case - that you should do the right thing because it's right - no longer has any currency?  In a city (DC) and nation (America) where bribery and corruption have become a way of life, where lies told to the electorate as a means of buying votes has become the degenerate set that's left of what used to pass for law and order, you can no longer appeal to people's "better virtues." All that's left is trying to appeal to their desire to survive what's coming, whether that survival is political or at rather-more-fundamental level.

This isn't the sort of thing that anyone wants to talk of openly, of course, but we must, because just like mathematics it is inevitable on the path we are on.  The idea that one can "throw money from helicopters" as Bernanke has put forward is an intentional fraud.  Diluting the currency base of course simply makes everything more expensive you need while attempting to bail out those in debt at the same time.  For the common man in debt nothing happens.  For the poor who never had access to credit at a material level they literally starve and thus civil and political order is threatened.  The wealthy, for their part, simply skim off more and more to "protect" their capital.   That a man who runs this sort of crap manages to get reconfirmed after intentionally averting his eyes to the bubble being blown as a consequence of his policies is an outrage.  It speaks to the high corruption of public process and public life, but it is not an isolated incident or uncommon in the world of today.

The IMF's Lagarde talks of Europe being "everyone's problem", as if Germany and France decided to con the world with hinky Greek derivative deals.  Perhaps some French or German banks did so (along with American ones), but France and Germany themselves?  No.  But now, having happened, it suddenly is someone else's problem to bail out, and oh by the way, it's not just Greece. At its core the problem is both simpler and more complex than it first appears.  The complexity is intentionally used as a foil by various pundits and others who argue that we must support the "financial innovators" lest it all go somewhere else.  But Paul Volcker, hardly a dummy, has said in public that the only real "innovation" in the financial industry in the last 30 years was the ATM!

He's right, you know.  Ginning up some debt deal and selling it to rubes, knowing full well that it was crap and destined to eventually blow up, is nothing new at all.  A column over at Interfluidity argues that the bankster model is not only old hat but has driven much of innovation through the ages.  To that argument I call bull. Simply put the question being put forward in the latter article proceeds from a false premise.  The idea that we gain some sort of "societal benefit" from these misallocations of capital is trivially proved to be false using nothing more than basic analysis and mathematics.  All you have to do is look here:

Notice how the outstanding debt increase, quarter by quarter, exceeds that of output.  The premise run by Interfluidity is that the societal good in terms of Nash Equilibria is therefore false, as it is not adjusted for the claims made against the future.  This of course is exactly the sort of lie the banksters and politicians have run as their stock in trade for 30 years, and it is not surprising at all that Steve would fall into the trap.  After all most of us alive have spent the majority of our lives in this lie.

If I can falsify the premise from which you proceed then the remainder of your argument goes in the ashcan.  Sorry Steve.

The smartest guys in the room (that would be the banksters) always believe they can get away with it, of course.  Some of them are delusional, many for the same reasons.  A number of those who are considered "respectable" even subscribe to idiocies like "MMT", believing that somehow the government causes economic growth through deficit spending.
But the graph above does not lie.  As I have repeatedly commented these beliefs are much like perpetual motion in its various forms; there is always someone who claims to have figured it out.  But the laws of thermodynamics say perpetual motion is impossible, and ultimately once again the person running the scheme is proved to be wrong - usually intentionally so when their hidden energy source is discovered.

The choice is not between a modern economic system that favors growth and living in caves.  It is between economic progress that is sustainable and funded from economic surplus and one that is built on debt bubbles, lies, and ultimately must and does collapse. The former is an economy that grows through actual innovation and improvement in productivity, where debt is a tool to liquify transaction flow rather than pyramid upon the shoulders of the people.  The latter is the lie we've lived for 30 years, and which is now reaching its mathematical conclusion.

We face a time when in the present we have a choice of becoming adults and accepting what we've done, along with what we must do, or continuing to pound on the table like a petulant child demanding another bar of chocolate.  The latter path has been the road of the last 30 years, but now the supply of chocolate is exhausted.  There is food to be had outside in the form of strawberries, ears of corn and even a rabbit or three, but to obtain the latter we must get off our collective asses and pick the strawberries, cultivate the corn or shoot, skin and cook the rabbit.  We are choosing now between recognition and personal effort, along with acceptance of the harm we've done by eating all that chocolate (we're all 100lbs overweight!) or literal starvation through laziness.

The old political and bankster ways are out of gas folks.  There is no path forward on the road we've been traveling - the bridge is out and our choice is to either stop before we reach the edge or take the plunge onto the rocky cliffs below. Choose wisely.”

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