Ambrose Evans-Pritchard has written an article on a United Nations report on debt and default.
He is a Keynesian. He worries about deflation. Deflation is the ultimate negative sanction in his view. Like all Keynesians, he does not understand the healing effects of deflation.
But I read him because he provides data on the fragility of today’s debt-based Keynesian economy. What he fears, I look forward to: the day of reckoning on debt, which is the bastard child of central bank inflation and government deficits. Like an unwed couple, Keynesians want to continue the liaison, but without negative consequences. There are always negative consequences.
The third leg of the world’s intractable depression is yet to come. If trade economists at the United Nations are right, the next traumatic episode may entail the greatest debt jubilee in history.
The Jubilee was Mosaic Israel’s mandated year of return to the land distribution of the original generation of the conquest. It applied only to rural land. It did not apply to real estate in walled cities. The heirs of the families of the conquest got back their land. The larger the families, the smaller the parcels. The law also liquidated all debt, including commercial debt. This was supposed to happen every 50th year. There is no evidence that this law was ever honored.
It may also prove to be the definitive crisis of globalized capitalism, the demise of the liberal free-market orthodoxies promoted for almost forty years by the Bretton Woods institutions, the OECD, and the Davos fraternity.
The Bretton Woods institutions are all a bunch of interlopers. Bretton Woods died on August 15, 1971, when Nixon killed it. The Bretton Woods system rested on the gold exchange standard. The dollar was redeemable in gold by central banks at $35/oz. Without this limit, the U.S. central bank could inflate at will. The federal government could run massive deficits financed by monetary inflation. That is why Nixon did it, and the FED responded as planned. The USA got the worst peacetime price inflation in its history.
The liberals in the IMF and World Bank rejoiced. So did politicians. So did Keynesian economists everywhere. No more pseudo-gold standard. “Free at last! Free at last!” Free to inflate. Free to run massive deficits.
The bills are about to come due. Now we hear a new phrase. “It’s just not fair!” Ambrose Evans-Pritchard shouts this with gusto.
(For the rest of my article, click the link.)
