Financial Injustice ... and Ignorance

The politicians would rather talk, and the press would rather run stories, about “financial inequality” than tackle the question of “financial injustice” in America. Why? Because anyone can blather about the symptoms of sufferers … it makes good politics and great news … all you need is a bias and a favorite interest group to vilify or validate.

So it is not surprising to see a new study [reported by BloombergBusiness] telling us that [forgetting Social Security for the moment] the combined retirement savings by the top 100 American CEO’s is equal in amount to the combined retirement savings of 116 million everyday Americans representing 41% of American families.

This is a truly astounding statistic that [if it persists and even systematically increases in severity] will have profound socio-economic ramifications for generations to come. Indeed, it is hard to see how such a massive, accumulated imbalance could be “righted” short of some seismic shift in everything we have come to know and expect as normal in our economic lives.

You will hear 1001 explanations of what happened to bring us to this point … and 1001 proposed solutions to the problem … but not a single one of them will deal with the simple and solitary underlying cause of this devastating condition.

“Financial wealth” [the static function of money] has been consciously and intentionally detached from “real productivity” [the dynamic function of money].

And even if somebody dared to explain this, very few of the 41% would even remotely understand … because almost all Americans are financially ignorant [not stupid … just ignorant]. But you can be assured that all 100 of the CEO’s understand this very well.

The Great Disconnect

The sad fact is that nearly anyone who takes the time to think about it can grasp the symptoms caused by and imagine the consequences resulting from “counterfeiting”. The counterfeiting criminal literally “makes fake money” instead of “earning real money” through

• honest labor [the worker]
• honest investment [the capitalist] or
• honest tax collection [the government].

The symptoms and consequences arise because the static status of “fake money” cannot be distinguished from that of “real money” … which causes the two to be treated as equals in the dynamic stream of common commerce … resulting in the transfer [gradual or rapid] of scarce and valuable real things from everyone to the criminal … and the equivalent but reverse transfer of abundant and worthless fake money from the criminal to everyone else.

To put this another way, money always functions in two continuous stages.

• First money permits individual economic participants to unilaterally assign relative values to things [both present and future] that are scarce … labor, goods, assets, services, promises … let’s call this the static function of money.
• Second, money permits those same individuals to freely exchange [and thus reallocate] things of lesser value for those of greater value in a win:win marketplace transaction … let’s call this the dynamic function of money.

Counterfeiters simply skip the first stage … the static function of money … because fake money is not “scarce”.  And so when their fake money “changes hands” in a dynamic marketplace transaction, the dynamic function of money fails to properly reallocate the scarce real resources in the real economy. If unchecked, the counterfeiter ends up “owning” everything of real value … while everyone else is left with increasing amounts of the fake money which the counterfeiter does not value, since for him it is not scarce.

If the counterfeiter has guilt pangs or thinks somebody suspects him, he may stop counterfeiting for awhile … but the damage has been done … and real wealth has been unjustly transferred within the community. But worse yet, even if this criminal is caught, how do you begin to “unwind” all the injustices done as a result of this crime?

We can add natural extensions [deviations?] to the basic crime of counterfeiting … such as the counterfeiter making extravagant cash gifts to relatives, voters or even charities … or making loans to others [even interest-free].  But you cannot expect any just results to arise from the unjust manipulation of the supply of money. All that such extensions do is confuse those trying to “follow the money” to find the criminal and exacerbate the injustices already accumulating.

Financial Fracking [aka Gush Up Economics]

There is only one counterfeiter capable of causing financial injustices on the scale we see today: our federal government … or, to be more precise, the Federal Reserve branch of our federal government. For those of you who object to calling the Federal Reserve a branch of government, please understand that the Federal Reserve is unelected, owned by banks and independent of Congress, the President and the Supreme Court. It has unlimited and unchecked power over our money.

And in the last few years, the Fed has unilaterally and dramatically increased the amount of money in circulation … by multiple trillions of dollars. As this tsunami of fake money has been forced [not trickled] down into the real economy, a massive amount of real wealth has gushed up in reverse. Think of it as “financial fracking”.  The Fed pumps massive amounts of toxic fake money down into the middle class foundation of the economy until it cracks under the extreme pressure and releases its real wealth to gush back up towards the Fed.

But it is a little more complicated. The Fed merely “loans” all this fake money to others [at ZERO or NEGATIVE interest rates] … such as the government, commercial banks, GSEs, multinational corporations and even foreign central banks … and let’s them do the dirty work of forcing it down into the environment of the real economy to crack the middle class. And it is dirty work … which can only be done by those lacking any real conscience.

However, the fact that the Fed uses third parties to force its toxic brew into the real economy explains why the real wealth which gushes back up never reaches the Fed … but stops in the pockets of those third parties [and their CEOs] … and they have deep pockets that can be endlessly filled without overflowing. All the Fed has is a drawer full of IOUs from those third parties which it can never collect … because if it did, those third parties, including the government [which is already bankrupt], would be catastrophically exposed as spectacularly insolvent plunging the real economy into the Sudden Destruction [forget the Great Recession and even the Great Depression]. Checkmate … game over?

What To Do?

“OK”, you say, “I get it”. But do you?

Do you understand that ending this reign of financial injustice will mean deserved pain equal to the undeserved gain … but without any guarantee that it will fall, solely or even largely, on the guilty instead of the innocent? Then again, if you have not gained much, perhaps, you may not have much to lose. In fact, some who have lost a lot might just stand to gain substantially. The middle class would certainly find itself in a position to begin re-accumulating the wealth it lost … but, truth be told, this will take many years of patient work.

However, as bleak as the prospect of “coming clean” financially is for America, the alternative of continuing along our current deviant path is worse.  If the American “way of life” is to be saved from destruction, everyday Americans must do it. Are we collectively up to the challenge? If so, there are honest and principled men and women who can and will quickly deal with the Fed and lead us through the hard times ahead. If not, there are plenty of criminals and liars who will gladly conspire to lead us into what they will claim are America’s “best years” … just ahead. So whom do you believe? That’s the only real question isn’t it?

In the meantime, forget about retirement … keep working and pray for a miracle … unless you are among the unjustly privileged few … in which case you should pray earnestly there is never a return to financial justice in America.

When bad becomes good

For some years there has been a growing confession among economists [which it’s heresy to question] 

• that what began in the 1980’s under the Maestro Greenspan as “the great moderation” has, as it passed through the fires of the Great Recession, been transformed into a bold gospel [literally “the good news”] of QE,
• that QE, although previously unimaginable by us, has been revealed to us by the Savior Bernanke [which revelation is now recorded in a book of the Savior’s own words] and
• that, as proof of its verity, QE  has rapidly spread across a desperate world in dire need of financial good news.

Nonetheless, a small and stressed cadre of the faithful, like Swiss Re,  has recently broken the silence to label the “unconventional policy” of these great men [and now women] as “financial repression” with “unintended consequences” which range from unprecedented asset bubbles to unsustainable income inequality.

However this week Bank of America's FX strategist Athanasios Vamvakidis  has, perhaps, crossed over the line into blasphemy. He has ominously warned that the gospel of QE might be something else … something not altogether unintended … but something profoundly dangerous … a peril first of our own making and then of our own thinking which, if left unchallenged, dooms us to calamity … “financial reprobation”. And although Vamvakidis does not use those words per se, what he describes fits their definition perfectly:

“Bad news became good news.”

Bank of America: Here's the Precise Moment When We Should Have Known QE Went Wrong

What is reprobation?

The word reprobate comes to us from the Latin words … re- "opposite of, reversal of previous condition" + probare "prove to be worthy" … and is variously translated as “rejected by God” or “unprincipled person”. It was, perhaps, most famously used by the royal English translators of a 1^st century letter from Paul of Tarsus to the Church of Rome to render the individually psychological [and collectively socionomical] state caused by a persistent departure from accepted behavioral norms:

“And even as they did not like to retain God in their knowledge, God gave them over to a reprobate mind, to do those things which are not convenient.”  Romans 1:28 [KJV]

Paul used the same concept again in his explanation of how doom is sealed beyond the ability of the doomed to understand much less undo it:

[Doom comes] with all deceivableness of unrighteousness in them that perish; because they received not the love of the truth, that they might be saved. [And it is sealed at the precise moment when] God send[s] them strong delusion, that they should believe a lie: that they all might be damned who believed not the truth, but had pleasure in unrighteousness.  2 Thessalonians 2:10-12 [KJV]

In other words, there is a moment in time when the mind becomes reprobate [as a direct result of persistent behavior known to be in deviation from the norm] by inverting [defined as “reversing in position”] the customary notions of good and bad which henceforth causes [compels?] the reprobate to take actions which the translators describe as  “not convenient” in the normative sense. In the wake of WWI  Simone Weil went even further when she observed that

"Evil, when we are in its power, is not felt as evil but as a necessity, or even a duty."

What is financial reprobation?

So what is financial reprobation? Vamvakidis’ title says it all:

Financial reprobation is the socionomical state of mind, in which the rational norms of good and bad are inverted  [for purposes of taking and judging financial action], which is entered by an individual [or a collective body] at the precise moment when, based on obvious consequences, it should know that its past financial actions have somehow gone wrong, but, instead of desisting, consciously continues to embrace [and engage in] them with the unshakeable expectation that different and desirable results will happen in the future.

Vamvakidis identifies Spring 2013 [the first “taper tantrum”] as the point at which America [at least] entered a state of financial reprobation. Others could make convincing arguments for other dates. Indeed, if “should have known” is the proper standard for a definition, it would seem that evidences of the onset of financial reprobation could be found in earlier asset price collapses and the consistent [and increasingly deviant] responses to them.

Can reprobation be stopped … before it ends?

However, regardless of “when it started”, the more important question about financial reprobation is “how it stops” … short of ending in complete “inconvenience” [however that might be manifested]. Here, Vamvakidis offers little guidance other than to warn his readers to “buckle up” because this is  “a new regime” [which in reprobation-speak is translated “the new normal”]. However, this apparent refusal to draw a conclusion appears to vitiate the very allegation that something actually “went wrong” by implying that whatever “went wrong” can somehow continue as “a new regime” in which case it seems more logical to conclude that it was simply an “option” [even if not the best] or “enlightenment” [even if not yet understood].

The role and the rule of law … public opinion … and individual conscience.

In fact, one major role of “law” in society is safeguarding the future by regarding the past. Law seldom springs from the mind as theory and, as such, is able to stand upright even when the mind is inverted. Law almost always arises as the attempted [albeit imperfect] articulation of  a principle which somebody in the past became painfully persuaded was immutably true implying, as a result, that actions in violation thereof were inevitably wrong in the sense that they were unsustainable and/or would result in unforeseen and undesirable consequences. This persuasion persists in society by taking on the form [and becoming the rule] of law.

Thus it is the role of law to rule the actions of men for their own good … regardless of what they might think to the contrary at any given moment … at least until the law is consciously changed. This gives law an important “weight” permitting it to act as a center of gravity maintaining vital social order and well-being which we might call lex gravitas. But even when laws are changed to conform to reprobation, there remains the important weight of public opinion [populus gravitas] which can still restrain/stop reprobation [even when those openly opposing the state of reprobation remain a minority].

And, of course, history is filled with examples of individuals who took personal, principled stands against what they saw as reprobation, but this is quite difficult [if not impossible] to do and still retain one’s position within the community … since it inevitably involves choosing between a violation of conscience and great personal loss.

The thing to do

If Vamvakidis is correct and America, at least, has not found a gospel in QE, but rather, through QE, has entered a state of financial reprobation, we are [any hope of “new regimes” notwithstanding] in grave socionomic danger which is not merely unappreciated but being consciously [and what will become tragically] disregarded.

An immediate appeal to lex gravitas [in our case in the form of the Federal Reserve Act] should be the first line of any defense based on rational action. Failing this,  populus gravitas remains the last line of defense … if a vocal minority with sufficient socionomic influence remains in tact. Solitary individuals, if they remain separate, will simply  be crushed by the weight of reprobation.

And although these approaches to dealing with reprobation are consistent with what has been observed throughout  history generally, there is no guarantee that the doom of financial reprobation can be stopped prior to ending in socionomic collapse and the ultimate revelation of truth … which is not inconvenient for those who accept it … but is catastrophic for those who suppress it.

However, what is guaranteed is that when, as Edmund Burke noted, “good men [when undeniably confronted with bad things] do nothing”,  reprobation will not only arise but will, at some precise moment, be doomed to run its full course until it is proven to be totally “not convenient” in the painful retrospection of all survivors, reprobate or not.