14 February 2009

Why Is There No Reform?

First the reform of the financial system, and then the stimulus can find a footing. The existing level of debt obligations are too large and unproductive of cash flows to service.

The debt must be written down and the currency devalued to increase the wages of debt payers relative to them. This is an unacceptable alternative at the moment because politically the debt holders and the big money center banks are running the system. The parallels to Japan are remarkable, where the inability to realize their losses caused an entire country to lose its way for a decade.

Until we break up the big money center banks into their parts, and write off their debt obligations, we are pouring money into a Wall Street sinkhole of corruption. This will involve the reinstatement of Glass-Steagalls.

"The United States should emerge from the economic crisis with a two-part financial system that places tighter restrictions on banks, says former Federal Reserve chairman Paul Volcker.

To prevent another banking crisis from undermining the economy, the U.S. financial system must turn back the clock to a time when commercial banks were the core of the credit system, said Mr. Volcker...

The system that Mr. Volcker envisions "looks more like the Canadian system than it does like the American system," he told a Toronto audience last night..."
And there will be no recovery, only increasing pain, until we break the pattern.

“The Government should allow every distressed bank to go bankrupt and set up a fresh banking system under temporary state control rather than cripple the country by propping up a corrupt edifice…

…amounts to swapping taxpayers’ ‘cash for trash,’ Stiglitz said yesterday in a panel discussion at the World Economic Forum in Davos, Switzerland. ‘You shouldn't chase good money after bad. We’re talking about a national debt that’s very hard to manage.'" Joseph Stiglitz

What is the reason then that we are following a path that will fail? Are those who know what is happening afraid to admit it, to tell the truth? Is it simple looting until the harsh medicine is taken? Is it the cowardice of the Democrats? Is it the obstructionism of old line thinkers like Larry Summers and Tim Geithner?

It is most probable that there are still just too many of those who say, "Why can't things just go on as they have done before?" The awareness that the game has changed will penetrate the public consciousness slowly.

It's over. We cannot keep trying to rebuild the unsustainable, because eventually the great forces of probability will crush us and destroy us, all that we have.

But until the people are ready for change, to accept that reforms are necessary, the Administration must tread lightly. As de Tocqueville said, "The most dangerous moment for bad government is when it begins to reform."

Only time will tell. Until then you know what to do.

P.S. An early responder said, "I presume that you mean buying gold" about 'you know what to do.' And then they laid out the reasons and ways in which the government would confiscate it.

Sorry to have been cryptic, and its my fault. Let me give you the more straightforward answer that I gave to them.

"Actually it's "need little, want less, and love more" which is at the bottom of he blog.

But if it does become the kind of government that blatantly confiscates wealth through whatever means, where will you hide? First they came for gold...

Ok don't buy gold. What you will buy? Whatever wealth you do have will be taken eventually. There are no bystanders if a government turns to lawlessness.

Better to get your head screwed on straight now and realize it is not about gold, it is not about the right investments, it is about freedom."