Dark Skinny

In the plethora of various articles that I’ve been reading, the common theme that escapes from, particularly,  the modern dumbed-down US media is that the only way to defeat this incumbent and seemingly tenacious recession is to chuck vast quantities of fiat paper at all the corrupt, insolvent and unreliable banks and corporations  in America. Even certain posts here propose and support the same as America’s only salvation from the closing economic jaws of its persistent and devastating recession.

Time and time again, I’ve been warning that the economic policies as suggested by Summers, Krugman, Stiglitz and Reich will never work in the long term. The US government’s departure from sensible, logical, tried-and-true economics into the dark, stinking alley of extreme and never-before-tried-or-tested Monetarist debt-promoting policies such as the artificially depressed interest rates and massive QE, combined with the blind, ineffective, pandering and expensive social policies of Obama will undoubtedly lead to slow but sure economic ruin for America. This persistent conflict between democracy and practical government economics was identified some years ago by Alexander Tyler, a Scottish economist:

‘A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always vote for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.’

So what are these ‘generous gifts’ then? These may be clearly defined as generous  government tax handouts and social policies (which the government simply cannot afford) that always steer  towards pleasing its citizens rather than making sound economic sense — now clearly extended to the massive, unending bailouts and spend for all the insolvent, too-big-to-fall banks and industrial corporations of America. And that the only purpose of these soft and economically uninspiring policies is simply to get elected. The American public’s inevitable support for these debt-promoting ‘generous gifts’ is what is presently garotting the American economy and the dollar now. After all, and I’ve said this before, how can you possibly cure a massive credit and debt crisis by adding more huge debt to the problem? This is completely insane.

Even in my regular reads of Krugman articles in the New York Times, within his articles and  blogs that supposedly emit profound opinions from the hallowed halls of academia, he consistently supports his buddy Larry Summers (The Mr Infix of Wall Street) and, in his criticism of current policy,  urgently proposes a much higher spend and debt that must be accrued by the US government for success. But in Krugman’s fuzzy economic critique, amongst all his exacting mathematical graphs, formulas and the continuous Monetarist spoutings in promoting that  government debt and spend — via trickle-down economics –  as the only cure, I have yet to read his value definition of Enough Debt. Krugman, as do the rest of the Monetarist flock,  consistently avoid accurately defining the exact necessary amount of vast debt injection that is required for a recession cure-all (which Krugman curiously and deliciously refers to as ‘The Optimum’). He even admits, in several of his articles and blogs, that he honestly doesn’t know the answer to this. Also, when asked “How are we going to address and pay back all this massive spend and debt that he proposes?”, Krugman avoids this one like the plague. The Big Spend Monetarists have no sufficient  or appropriate answer to this question, probably still oddly  believing and desperately hoping in their souls that, as before, the rest of the world — through its own heavy dependence on the US dollar and Treasuries  within the ‘Dollar Trap’ — will so joyfully and continuously submit to paying back America’s ever-growing and self-inflicted debt mountain forever, just as it has always done since the Nixon era.

And, as I’ve consistently bleated in many of my articles, why should the likes of China, Russia, Europe and the Middle East so enjoy paying back America’s own rampant, ever-growing debt? Therefore this assumption by Monetarists  is very flawed indeed, and can hardly be seriously promoted as good, sound economic policy.

If Krugman still believes in this form of indirect debt payback as legitimate, necessary and deserved, I would urgently suggest that he obtains his economic news and data from a more neutral and accurate source (from outside the biased US media would be useful), since the likes of Russia, China and the Mid-East all appear to have clocked the US Government’s intention of inflating away  their Treasury savings in a puff of smoke and are now all slowly but most definitely disentangling themselves from America’s tragically weakening dollar.  Isn’t it odd that major debtor consumer Nations such as the US or UK  all seem to follow Monetarist or Keynesian debt-driven policies whereas the creditor nations all seem to follow economic principles that are so shy of massive  national debt promotion. If these creditor nations all ruthlessly continue to rebel and reduce their purchase of US Treasuries, then what  other economic strategies do the Friedmanites and Keynesians have up their dirty sleeves to rescue debt-ridden America ? As I see it, Monetarist slight-of-hand economics will no longer work for all reasons given here, the trick has been revealed, so what other legal economic contingencies would Mr Krugman suggest ?

Perhaps the best and simplest common-sense economic  view on monitoring the effects of debt that I’ve ever read was from an article by Professor Antal Fakete called The Marginal Productivity of Debt(MPD). This article is so easily understood. MPD is defined very simply as the effect on an economy or GDP, when an additional amount of GDP arises from an injection of an additional amount of debt into the economy over a period of time.  This is, therefore, a quality measurement which directly measures the success or failure of the effects of debt on an economy. When the MPD ratio  goes negative, then no further amount of additional credit or debt will have any effect whatsoever on an economy and it therefore becomes a huge waste, which creates further significant monetary problems within the economy,  manifesting itself as money thrown  into a voracious Black Hole. Bye the way, the MPD of the US economy has been negative since 2006.

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The Wizard of All Bailouts