Kaletsky: The Resiliance of Pure Fiat
By Staff News & Analysis - November 26, 2012

Economic optimism is now official. The year ahead could be "a very good one for the American economy," Ben Bernanke, the chairman of the Federal Reserve, declared on Tuesday. If he turns out to be right, these words could probably be applied to the world economy as a whole. Since Bernanke, even more than other central bankers, has spent the past four years warning of perils such as the "fiscal cliff" and the dismal condition of the U.S. labor market, this statement, delivered in the carefully worded peroration of a speech to the prestigious Economic Club of New York, marks an important turning point. – Reuters

Dominant Social Theme: Let the good times roll. The party has just begun.

Free-Market Analysis: Reuters columnist Anatole Kaletsky has a decidely optimistic perspective when it comes to the current financial malaise afflicting countries around the world. He is a fan of Ben Bernanke's apparently and has been given a platform by Reuters to propose some non-traditional views. We wrote about him here:

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"Sentiment," Kaletsky writes in his current editorial ("Economic Optimism Is Now Official"), "especially about government policies, is the biggest problem for the world economy today." Kaletsky will have none of it. He believes that 2013 will be a recovery year for the world and especially for Britain and the US. Outside of the Eurozone, he reports, economic statistics are clearly improving. Here's some more from his editorial, excerpted above:

Unemployment, though still high, is steadily falling. Banks are now adequately capitalized. Property prices have stabilized, stock markets are rising and credit conditions have returned more or less to normal. For much of this year, the main obstacle to hiring and investment decisions, according to many business surveys, has been uncertainty about politics and monetary policy. That uncertainty is almost over.

This may sound preposterous. After all, businesses and financiers have been obsessed all year with the euro crisis or speculation about Fed monetary policy or the U.S. presidential election or China's surprisingly chaotic leadership transition — and now the prospect that the United States will fall off a fiscal cliff, dragging down the whole world economy.

But that is the point. Political uncertainties have been resolved or dramatically improved in all the most important economies. Yet business sentiment is so negative that almost nobody believes this … Best of all, the uncertainty about U.S. politics and monetary policy, which have preoccupied businesses and investors this year to the exclusion of almost all other issues, is about to disappear.

The fiscal cliff that looms in front of Washington, DC could still derail the US economy, Kaletsky admits, but he is optimistic here, too. "As long as Washington decides to avoid fiscal suicide, it hardly matters how."

For Kaletsky, "Once the political uncertainty [of the fiscal cliff] is neutralized, prospects for most of the world economy look pretty good." This is in keeping with Kaletksty's larger view that deficits are not as important as they've been made out to be. In a previous editorial, "Confessions of a Deficit Denier," he makes this case more strongly. "These countries' leaders should take a deep breath, relax and stop worrying about deficits," he writes.

The U.S. and British fiscal situations today are even less troubling — partly because two-thirds of the government debt issued since the 2008 crisis has been bought by the central banks. Since the Federal Reserve and the Bank of England are part of their respective governments, the bonds they own represent debts the government owes to itself. Once central bank holdings are consolidated within the government, the true burden of debt owed to the public falls to roughly 65 percent of GDP in both Britain and the United States.

This doesn't square with our view that a country like the US has some US$200 trillion in liabilities if one takes everything into account. And we figure Europe is in a similar situation. But Kaletsky is unapologetic.

He delights in idiosyncratic thinking when it comes to fiat money and how central banking technocrats can reconfigure debt and increase purported solvency. As chairman of the Institute for New Economic Thinking, he's floated a number of provocative ideas. Here's an excerpt from Wikipedia:

In 2012, Kaletsky was appointed Chairman of the Institute for New Economic Thinking, a foundation established after the 2008 financial crisis with $200m of grants from George Soros, Paul Volcker, William Janeway, Jim Balsillie and other leading financiers. INET was set up post-crisis to challenge the mainstream assumptions in contemporary economic research.

On his Reuters' blog, Kaletsky appealed several times the central banks to do "quantitative easing for the people." This solution would consist in enabling central banks to create debt-free money and inject it into the economy trough direct cash transfers to the citizens, instead of injecting money through the banking system. Kaletsky claims this radical solution "may be another idea whose time has come.

These latter solutions partake of the perspectives of such fiat theorists as Bill Still and Ellen Brown. The antecedents of such thinking can be found in the Fabian-oriented approaches of Silvio Gesell and Major Douglas.

Mutual credit and social credit have steadily been gaining in influence and we're not surprised to find that such eminences as George Soros and Paul Volcker are now starting to become public backers.

In numerous articles now we've pointed out that the United Nations is actively supporting similar systems (LETS) and that even Bitcoin might be considered suspect: The TOR security that Bitcoin users prize actually turns out to be a facility of the US military (DARPA) and there are certainly questions as well about Bitcoin's mysterious founder.

The bottom line for Kaletsky and backers of pure fiat systems generally is that they posit that money can work well when it is directed by a few technocrats empowered to manage currency for everyone else. Kaletsky can be seen as a kind of professional optimist.

For Kaletksy, Still, Brown and others, the current system is a good one and the naysayers that believe in free-market money (gold, silver, etc.) and competitive currencies are positing unecessary solutions.

After Thoughts

For such people, technocracy is an end of itself, and those who doubt its efficacy are uninformed naysayers who don't fully appreciate the resiliance of the current system.

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