mardi 5 juillet 2016

Brexit, Grexit, how can we fix it?

About twelve years ago, when I was debating the vote for the euro, a friend asked the following question:

Where is the sovereign that is to print the euro?

At the time, so enthused at the idea that with the euro we were beginning to transcend national boundaries (which was the foundational argument for the creation of the euro), I brushed the objection aside as if it were a side issue. With the experience of twelves years under the euro, it turns out that that question was the central issue. We may have transcended boundaries, but have failed to establish the necessary safe guards, which can be reduced to one question:

Who controls the euro?

When a sovereign prints money, that very sovereignty stands as a neutral arbiter in the transaction. The presence of the sovereign guarantees the value, and more importantly, the credit of the transaction, precisely because it is not involved in that transaction. The sovereign establishes the boundaries where that currency can be used. Where can it be used, how can it be used, what is it worth, etc... The currency is not there to increase the sovereign's wealth; it is there to enforce the sovereign's authority. Currency is a matter of policy, not economics. While there is always an obvious link between wealth and power, the use of currency is to translate power into a tool for transactions. Wealth, including the wealth of sovereigns is measured by currency, but it cannot function if it based on currency. A person who buys a large sum of one currency at a given rate of another currency does not increase wealth by reselling the currency for a larger sum in the other currency. The fiduciary value of both currencies has simply been reduced.

The battles over the euro are therefore not economic, but political battles. The history of capitalism is the history of the transfer of power from land to money. Land was shared, to point where people felt they belonged to the land rather than the other way around. Indeed the first duty of any person was to the land, and a nobleman was as much tied to the land as a serf was.

The first order of business in capitalism was to reverse that, by tying up land value to bank loans. This 'freed' the serf and transformed them into a disposable source of wealth - a workforce. Workers today are far more bound to the owners of their jobs than serfs were to the noblemen. Workers today are slaves, or whores.

The second order of business was to transform the land into a commodity - raw materials, that have nos soul, value or meaning - only worth. Something to be transformed into money. This transformation is buy mercantilism, buy centering all political and economic transaction on mercantile transactions, and thus centering everything on money.

The reason why this cannot function of course is because the center of power cannot be the vector of power. Money cannot be used as a basis for power while also serving as a basis for transaction. Land was a stable basis because it was taken out of the equation. Money is the equation. Money does not create the wealth of nations, it mearly measures it. You can gather all the measuring sticks, and say you are rich, but of course you're not. Everyone will walk away, because they have to. In order to survive, people will have to forge other means of transaction. And the entire edifice of monetery power will collapse upon itself, as it has done several times before.

The various crises we are living through, the Brexit, the avoided Grexit and the labor law rewrites that are being contestedly implemented in France, Italy and the rest of Europe are mearly the stress marks of the failure of the euro. The pains we are suffering are the denial of the Establishment in the face of this basic truth: the economic and political structures they have built are a house of cards that is crashing.

What we choose to do about it is the essential question driving today's march. In Paris, it starts at Place d'Italie at about 2 PM.
I'll see you there.

Paris, July 5, 2016

10 commentaires:

  1. One comment: The value of a currency is never decided by the central bank that issues it. The value of a currency is always the result of supply and demand. Typically a central bank sets a target ddepending on its mandate, eg inflation (ECB) or inflation and jobs (Fed). It then creates a certain amount of money and sets the interest rate at which it lends money to private banks (thereby creating more money) based on the target it wants to reach. Investors then decide in what currency they want to invest and/or transact, and depending on demand currencies go up or down. It's the investors, not the issuer that determines the value.

    1. No it's not the result of supply and demand. The value of a currency is the result of the power that issues it and its will to enforce its use.

      I supply and demand were the only thing propping up the dollar than it would have sunk twenty years ago. what holds up the dollar is the United States Military might which imposes the dollar by force if necessary.

  2. Another comment: the ECB's mandate is to control inflation. In contrast, the Fed's mandate is to control inflation AND to promote jobs. Big difference.

    1. Good point, but who establishes the ECB's mandate? What sovereign dictates its use? Nominally, at least, the dollar is printed byt the US treasury, i.e. the government in the name of the people.

      the obvious reason for 'controlling inflation' is to maintain a stable currency, but then again, can inflation not exist in a system in which a sales values must be placed on all objects and service that exceeds its creational value? In other words, if a car is sold for 12k€ when it costs a total of 10k€ do you not actually automatically generate inflation, which is bascally a constat downward push on currency value.

      The euro uses the fight against inflation to impose anti labor policies.

  3. You can hardly blame Brexit on the euro. The UK has kept the pound.

    1. Yes and no. England indeed has kept the pound, but the value of the pound is pegged to the euro, and the the euro's policies are antagonistic to the pound.

      For the same reason there cannot be both the drachma and the euro in Greece.

      Moreover we always bounce back to the fundamental question: who controls the euro, and who controls (nominally at least) those who control the euro. The only popular access to Europes political machinery is the european Parliament, whcih may have power, but what it does or even means is lost on even a rather intelligent and informed citizen.

      In short, Parliament is a joke; the real power is held by the ministers over which there is no popular control whatsoever. And even THEY don't have any control over the printing or dissemintation of the euro.

      But the euro dictates their policies, which in turn affect England..

  4. About non-sovereign currencies... Ever heard of bitcoin?

    1. The bit coin strikes me as an even dodgier idea than the euro. Many computer geeks have told me that it has become a money laundering scheeme...

  5. All things considered, I don't think I long for the days of serfdom, though!

    1. Of course you don't, nor should you.

      Serfdom was a system that had meaning a thousand years ago and it was far from perfect.

      But do you really want to reurn to the gay 90's (which is where the right wants to go), the 1950's (which is were the labor left wants to go) or the 30's which is where the extremes want to go?

      We are all looking backwards. And Thatcher's TINA acronym makes it next to impossible to turn around and look foreward, that and the heat of the planet's raging fire...