Monetary Musical Chairs

There is not enough money in the world, literally, to pay off all the debt nations and individuals have incurred. We are focused on money (measuring stick) when we really should be focused on productive economic activity.

Jeffrey Snider explains:

Money is simply a tool to help achieve that goal; it is certainly not the predicate condition for exchange, nor should the system strive solely to circulate money. The successful cycle of money in the economic system, like the real, productive demand for money, is only a derivative measure of true economic success.

Economists that continue to proclaim a recovery are consistently disappointed and confounded by persistent weakness because they fail to see past the modern goal of simply cycling money. There is far more to the economic system than just money, the means and motives for its exchange are far more important. Not all economic activity is equal; there is no perfect substitute for true productive activity. (Jeffrey Snider)

The System is Broken

Given the structural constraints that remain in place, unfortunately augmented by the misguided attempt at inflation-expectation engineering, I continue to believe that the natural path of the global economy is further contraction.

In other words, the artificial activity that formed the backbone of economic growth for more than two decades was in such high proportion that absent extraordinary measures there is no way to achieve anything better than temporary pockets of uneven growth.

If there exists a tendency of reversion to the mean in economic terms, this is it. The artificial credit/asset inflation growth kept the economic trajectory far too high for far too long. (Jeffrey Snider)

He’s right. We’ve seen the outcome of economies built upon dot com and housing bubbles and debt. It ain’t pretty. Yet economically-ignorant politicians still talk of restoring the housing market, which means reinflating the bubble. Stupid.

Constant monetary manipulation has become an end unto itself. Monetary inflation, which is the policy of all governments holding fiat currency, is like shrinking the size of a measuring tape to make it all OK when you cut a board too short. Easy money makes people crazy…

Easy money also causes recklessness.  Imagine going to Vegas with a million dollars of someone else's money, that you don't have to pay back...

Had the economy not been artificially boosted by monetary means, it is plausible that this more difficult path to the natural growth trajectory would have forced businesses to "value" financial resources far differently.

If the only way to achieve monetary success is through actual and successful productive capacity, rather than pure asset price inflation, then it is certainly plausible that an increased devotion to productive capacity might have continued the trend in revolutionary innovation.

If nothing else, financial resources that were squandered on stock repurchases might have been put to better use in the real economy as true productive potential, the very element that is missing right now. (Jeffrey Snider)

We are not out of the woods yet. We may not even be at the halfway point…