Saturday, September 15, 2012

QE and inequality

"Pension Pulse" blog author and corporate pensions expert Michael Kolivakis includes in his latest post this Bloomberg interview with Marc Faber, the no-nonsense guru of the bears:

Guru-ji remains firmly convinced that the longstanding policy of monetary inflation will ultimately end in systemic collapse.

Faber lives in northern Thailand, which appears to be socially stable and with a good agricultural base and arable land-to-population ratio, so even if this catastrophe arrives during his lifetime he and his family may stand a chance. Besides, he is also close to several international borders and I wonder whether that was also a factor in his choice of domicile.

Unfortunately, I live in Britain, a hugely overcrowded country whose rulers have allowed scarcely-restricted immigration, unrealistic levels of social benefits and the rapid concreting-over of some of the world's finest farmland. Most survivalist strategies here (other than a bit of hoarding to cover short-term disruption) are simply fantasies.

But what Faber says here about the interim social effects of "money-printing" is put very clearly and starkly. The cash wave reaches institutions first and then the pockets of the well-to-do. Instead of using it to set up businesses and create employment, they look around for existing businesses to grab and merge, thus creating more job losses and depressing workers' wages. Similarly, the property bubble burst and led to the dispossession of the poorer sort, who now do not have access to credit and cannot buy back into the housing market at today's lower prices; so the better-off snap up the houses and rent them out to people who were evicted - and rents are going up.

According to minority economists like Steve Keen, classical economic theorists simply don't understand debt and monetary inflation. Their models assume that if more money comes into an economy, prices go up but so do wages, so no big deal. If they were geographers, they would look at the ocean as if it were a lake on a windless summer's day, and have no knowledge of tides, freak waves and tsunamis.

Traders know different, and if ever we can prove bankers do too, then maybe we will finally get the criminal trials needed to clean up the system. Because this system has become a machine for oppressing the poor and pushing down the middle earners. I tried to show the effects of so-called "free trade" in a graphic a while ago, and before I get trollfarts about socialism I'd like to point out that real free-marketers like Max Keiser attack it from the opposite angle.

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