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.