Global markets today seem irresistible to central bankers with plans for better times. Planning is the central bankers’ baleful vanity, since, for them, markets are a test tube in which to try out their interventionist theories.
Central bankers control the price of money and therefore indirectly influence every market in the world. Given this immense power, the ideal central banker would be humble, cautious, and deferential to market signals. Instead, modern central bankers are both bold and arrogant in their efforts to bend markets to their will. Top-down central planning, dictating resource allocation and industrial output based on supposedly superior knowledge of needs and wants, is an impulse that has infected political players throughout history. It is both ironic and tragic that Western central banks have embraced central planning with gusto in the early twenty-first century, not long after the Soviet Union and Communist China abandoned it in the late twentieth. The Soviet Union and Communist China engaged in extreme central planning over the world’s two largest countries and one-third of the earth’s population for more than one hundred years combined. The result was a conspicuous and dismal failure. Today’s central planners, especially the Federal Reserve, will encounter the same failure in time. The open issues are, when and at what cost to society?
The impulse toward central planning often springs from the perceived need to solve a problem with a top-down solution. For Russian Communists in 1917, it was the problem of the czar and a feudal society. For Chinese Communists in 1949, it was local corruption and foreign imperialism. For the central planners at central banks today, the problem is deflation and low nominal growth. The problems are real, but the top-down solutions are illusory, the product of hubris and false ideologies.
The Death of Money: The Coming Collapse of the International Monetary System
[See also Book Review: ‘The Death of Money’ by James Rickards which concludes with:
Rickards book is packed with cutting edge analysis and rational perspectives on pretty much every topic the world citizen has to know about. As of this moment, there is no other book offering explanations and solutions to the most pressing problems the world is facing, making “The Death of Money” an absolute must read.
I’m only about 25% into the book and find it fascinating. I found the market intelligence and financial war sections particularly interesting. Rickards and others worked with the CIA to design and implement a system which could have predicted the 9/11 attack a few days before it happened based on the shorting of airline stocks by people in the social networks of the hijackers. It also has other uses related to insider trading.
“An absolute must read”? I probably wouldn’t go that far, at least not based on what I have read so far. But it’s highly recommended.—Joe]
I would put it slightly different: “The ideal central banker would be nonexistent”.
For more, see Ludwig von Mises, “The theory of money and credit” and “Human action”. The latter is much easier to read, but they are both worth while. Free downloads on the Internet (from the Mises Institute if I remember right).
A single, central national bank seems to suffer from the same problem as all monopolies: being impervious to market signals.
I’m not talking about market signals related to the various goods in their economy. I referring to market signals about the currency itself. A left-over from the old days of the Divine Right Of Kings, a the people of a nation could only trade in the national currency, coined and issued by their king and his courtiers.
There are benefits to having a common currency. The EU and their euro were an attempt to solve the problem of little countries you could drive across in an hour or less having their own currency, thus a barrier to trade to people relatively close to each other. In the rush for the second attempt of the Germans to impose a single currency on the continent, they blithely turns a blind eye to the absolute shambles of the PIIGS, which now threatens the integrity of their single currency and the entire union. Nice try, central bankers.
There are two reasons why the US Dollar hasn’t collapse: 1) formal legal monopoly on the use of the US Dollar for all trade inside the USA, which is a powerful economy independent of its currency; B) oil is priced in US Dollars.
The second is only going to be true as long as the US Dollar remains stable. The EU already tried to get oil valued in Euros, and it wasn’t a foregone conclusion that the attempt would fail. It’ll certainly fail now because of Brexit and possibly impending Polexit, Hungexit, Czexit, etc. (You’ll have an Irexit 30 seconds before the entire EU splits, as their government will ride that train for as long as possible.)
The Fed will fuck around and we’ll be the ones that find out as long as there is no viable competition to the currency that makes them have to consider their position relative to other currencies. The legal requirement that all trade must be offered in dollars props them up. Cryptocurrency can be the competition, even within the law: if the buyer and seller are agreeable to exchange a cryptocurrency, that cannot be practically stopped, even if legally both have to be ready to settle the bill in dollars. This could be just enough competition to get the Fed to stop fucking around.
Either that… or Congress will have to start making credible threatening noises about unhooking the Dollar from its legal monopoly. The US Gov has to pay for things in Dollars. When they can’t buy anything with the Dollars they have, the government is done or it will have to get a new currency.
All natural systems are resistant to control but can be nudged in one direction or another. This applies to religion, social, economic, conflicts as well as living organisms. Through ‘science’ we think that we can understand, but in reality our understanding does not result in precise engineering panel with knobs and buttons that are in any sense reliable..
We ‘understand’ anatomy with considerable detail, but we are still unable to put a shattered bone back to its original condition. We ‘understand’ the virus, but our models are GIGO. We ‘understand’ weather, but our forecasts are only good for a few days and even then are not that precise. We ‘understand’ our economy, but forecasts are GIGO.
We ‘understand’ or we ‘know’ are fuzzy concepts. Yes, we can sometimes nudge these processes, but we cannot control them like a man made machine. And even with a machine there are still limits – things wear out, parts break, and unpredictable malfunction still occurs. When will a sealed motor stop working? We can only provide ranges accurate in a probabilistic manner if you have 1000 motors. Of course, most of us only have one motor.
The notion of dials and buttons to control anything is dangerous especially in the hands of a bureaucrat that thinks that they know the answers. Even ‘steering’ a system, especially one like the economy, are at best probabilistic with wide confidence limits. It’s a high risk endeavor.
What we need are managers that understand their limits, and focus on ensuring that favorable conditions exist for that system to work. A motor needs lubrication, regular maintenance in a proper environment for maximum life. Those are things that we can control. An economy needs a medium of exchange, and a sense of fairness, along with limits on those who abuse the system. These too, are things that we can control.
“The result [of central planning] was a conspicuous and dismal failure.”
Wrong! One cannot presume to determine the failure or success of any plan or system without first having discovered* its purpose. Relying on the surface claims of the perpetrators is foolhardy at best.
For example; the victims of serial killer, Ted Bundy relied on, operated on, made analyses and decisions based on, Bundy’s surface claims. I wonder what those victims would say, if they could, after the fact about the “success” or “failure” of Bundy’s tactics of luring and nudging them into situations wherein he’d have absolute control over them.
In hindsight, we can conclude that Bundy’s tactics were quite brilliantly devised and executed, and quite successful, and therefore many people died. See how that works?
*It is that process of discovery on which we should be spending our time. It’s the first step, without which there are no proper subsequent steps. In this case, I hate to say, it is the process of climbing down the rabbit holes of global conspiracy, pagan doctrines (“Catholic Social Doctrine”), and the occult.
Otherwise, just as with our clear hindsight regarding Ted Bundy’s surface claims, we’ll have 20/20 vision regarding central planning only after the fact. We’ll have full comprehension of the evil, murderous mind that’s been behind them all along, selling itself as compassion and prudence, only generations after it became too late to act appropriately. Such is the epitaph of the free world, the Protestant Reformation and Western Civilization.
In short; we’ll comprehend the evil intent behind “central planning” only after it has become utterly impossible for anyone to deny it, and that’s a very large and tragic prerequisite.
While growing up ALL of us knew at least a couple of kids who simply HAD TO BE THE BOSS. No matter what was happening, who was involved these kids simply had to be in charge, making rules, playing referee, deciding who could, who couldn’t, who was “in” and who was “out”. These kids invariably grow up lusting after positions of greater and greater power and authority. And when they succeed in achieving that power and authority they ALWAYS impose THEIR ideas on everyone. These people become the politicians, the central bankers, the people who seek to climb corporate ladders…….all to quench their burning lust for power over others. Knowledge, skill, ability…..ALL irrelevant to these power addicts. ESPECIALLY their knowledge, skills and abilities. In the past these busy bodies who failed and caused economic havoc and wrought harm to others paid a price…..sometimes the ultimate price. For the past century or so that hasn’t happened. Incompetent egoists that seek power now face NO consequences for their gross incompetence. In fact they are generally booted UP the ladder every time they f**k things up…. the bigger the cock up the bigger the promotion. Just like every other aspect of life….we have thwarted the Darwinian filter and are now paying a steep price for doing so.