By John Sykes
We Have Reached a Potential Inflection Point is a very well written discourse on the sources of our economic problems. Many of us won’t take the time or the trouble to wade through it's lengthy and specific vocabulary. My translations follow each of the selected quotes which are in fact the concluding paragraphs of the article.
One of the paragraphs says:
Capitalist intermediation is supposed to be a system that matches money with opportunities to create productive endeavors that are both sustainable in the long run and enhance the beneficial properties of labor specialization. This kind of capital focus ensures broad participation in the successes of the system. It also imposes limitations on the usefulness of speculation and the unbridled financial economy. The current iteration of the banking system is unrecognizable from this viewpoint, including the manipulated prices of money and risk.
My translation: We need free markets!
Monetarism, as it is represented today by the wholesale-funded investment banking system and its central bank aggregators, has little to do with matching money to productive potential. Is there any use for synthetic mortgage structures in the real economy? Or long-dated interest swaptions? These are supposedly tools to help the process of price discovery, but they are really inventions for transferring money from one perception to another without any benefit or even contact to the real world.
Again, my translation: We need free markets.
The imbalance of speculation (the system always needs some speculation but we passed any ideal "equilibrium" during the Great Inflation, then grew dangerously imbalanced during the Great "Moderation") is a direct product of artificial control over risk pricing. The long-term aspect of beneficial intermediation is drowned in the tide of the short-term sclerotic schematic of quick billions - is it any wonder that the system cannot maintain any semblance of stability?
Once again, translation: We need free markets.
More than anything, investors, households and businesses are seeking that stability, even if that means accepting no return on savings (what additional evidence is needed to show that monetarism is scandalously upside down). That best describes the current and sad psychology of risk and its price. To fix this broken system requires a credible commitment to stability. Unfortunately all we will ever get from policymakers is more intentional instability as long as the option of preserving the system largely unchanged is thought to be a viable one.
Yes. We need free markets.
This means that the all-out, desperate maintenance of the artificial disconnect between the price of risk and perceptions of value will be the only "solution" proposed (including any current and future iteration of the dubious EFSF). No one needs mathematical models to accurately predict that policymakers will always be surprised by this perpetual state of crisis and the growing discontent with its consequences.
To close: We need free markets.
I do not mean to make light in any way of a very well written and very, very nuanced but informative article.