Wednesday, September 21, 2016

The "Gap" in Society - Are Some Trying to Reach Across it?

When you do research for articles on a blog like this, it forces you to read a lot articles and look at various internet forums. When you try to look at a broad variety of information coming from different points of view, it's hard to miss the fact that we really do have a big "gap" in our society today. 

Our present monetary system is run by what most people would view as the "elite" class. I hate labels and think it's better to deal with every person as an individual, but it's true that there is a widely held perception that regular citizens and the so called "elites" live in such different worlds that it is very hard for them to relate to each other. I do see clear evidence all the time that there is a gap that exists. This recent effort by the US Federal Reserve to connect with regular citizens by setting up a Facebook page is perfect example of what I mean. Zerohedge covers that with this somewhat amusing story of  how many regular citizens jumped at the chance to let the Fed know how they feel about their policies (or even their existence). The rise of Donald Trump and Bernie Sanders in the US clearly shows that millions are unhappy with the status quo, but still strongly disagree on how to change it.

Something that has been interesting to me though as I have worked on this blog is that I find there are actually some who many would view as "elites" that have the same concerns as many regular citizens do about how things are going in our monetary system. More and more are speaking out about concerns they have. Below are a few examples we have found along the way working on articles for this blog. After that, a few added comments.

Earlier this year we ran an article about former BIS economist William White expressing his concerns about the current system. Here are a couple of excerpts from that article which was a Q&A type interview with William White:

Sean Corrigan: "As you say, I couldn’t agree more. It’s a question of dysfunctional banking and also of the debt hangover, which we haven’t addressed. And to me, QE is self-deceiving in that the liquidity issue, as you say, was the first rationale in the aftermath of the Lehman collapse was one thing, but to then try and use it as a macro tool when what you’re trying to do is make borrowing more attractive for people who have just been burnt by over borrowing seems"

William White: "Mad. It’s mad here and it’s mad everywhereIt’s more of what got us into trouble in the first place."

In response to question about the sustainablity of the present system, William White said this in Part II of his interview article:

William White: Yes. Sadly, I don’t think anybody’s capable of telling you precisely how and when the whole thing will come unstuck. Nevertheless, you know that at some point, it has to. It’s like all of these complex systems. What we know from studying them over time is that they fall apart on a regular basis, and it’s impossible to say precisely where or what the trigger will be. That raises the obvious question of what investors can do to protect themselves.

Here he mentions Robert Pringle:

William White: "Absolutely. It is notable that in the course of the last couple of years, the BIS in its Annual Reports has repeatedly used the phrase the ‘debt trap’. Very low interest rates encourage so much debt increase that central banks fear raising them again because you will bankrupt everybody. That is the debt trap. Similarly, Robert Pringle wrote a book in 2012 called “The Money Trap”, which is about the international side of this over extension.

Speaking of Robert Pringle, at the time I wrote the article above I had not ever had any contact with him. Later this year that changed as a reader here pointed me to his blog The Money Trap where he talks directly about the issues we cover here. In time, not only did I have the opportunity to make contact by email, he even provided me this powerful quote to use in a recent blog article here:

"Current monetary policies are immoral because….

….they weaken the institution of money, the crucial coordinating mechanism of each and every society. Following the inequitable allocation of  losses from the great financial crisis,  policy-makers are also knowingly further widening inequalities and divisions in society. The monetary mandarins treat people as tools to the realisation of ends that they, not the people, have chosen. They also view people as so stupid they will not understand what is going on." ---- Robert Pringle

This is not the first time Robert Pringle has spoken out against both policies and a system he feels has not been fair to the average person. I ran across this article detailing his comments to Parliament in the UK where he is sharply critical of how some banks have mistreated customers. Here is just one example quote from his comments to Parliament:

"4. What caused any problems in banking standards identified in question 1?

The problems in UK banking standards should be viewed broadly in the context of the evolution of UK monetary and economic policies in a globalised world economy. In particular, UK monetary policy has become caught up in a business cycle where, every few years, pressure mounts on the central bank to pursue excessively expansionary policies. These surges of officially-supplied liquidity leave “money on the table”—to use bankers’ language, ie easy pickings for the private sector, and a perennial source of temptation to lenders and borrowers to build up excessive leverage. Thus, in my judgment, the main underlying causes of these problems have been the weakness of regulatory policy (reflecting the fact that finance is globally integrated, while policy remains essentially national), and the permissiveness of monetary policy.
However, this does not excuse the boards, shareholders and management of financial institutions from the failures of judgment that occurred in institutions under their watch. One big problem was their narrow pursuit of maximising shareholder value—a pursuit that came close to destroying many companies."
Mr. Pringle offers a number of suggestions on how to deal with the way some banks abused the system. Here are just some of his comments:

7. What other matters should the Commission take into account? HMG should…

- Extend areas of financial offences where criminal prosecutions could be brought.
- Step up prosecutions for insider trading with custodial sentences.
- Ensure that “heads roll” when a bank misbehaves or asks for public assistance; the widely-held and powerful City myth is that when a bank goes to the Bank of England for emergency lending, the Governor responds by saying “Thank you, Mr Chairman, we shall discuss that with your successor; goodbye”. That is the kind of action that the City understands and was sorely missed in the crisis—for example, when RBS failed (I doubt if many people took any notice of the results of the FSA’s laborious inquiry—a 352-page report released three years later).
- Give the appropriate authorities discretion to take such action when appropriate even if they cannot prove the individual(s) was/were personally responsible.
- Make their expressed determination to end “too big to fail” credible in the markets, as the single most important step in restoring professional standards—and above all, the needed culture of risk-consciousness—at all levels of an institution.
- Encourage the Financial Conduct Authority to have as its central focus an insistence that financial institutions put the interests of clients/customers/consumers first at all times.
I point this out because here Mr. Pringle sounds much more like the "regular citizens" I see making comments about the unfairness of the system and that send me emails to express their frustrations. These are people who would likely be surprised to find out that someone highly respected in the Central Banking community would openly criticize the policies of central banks and also some big banks that feed off the central bank centered system we have now.
There are a number of others we could mention like former Dallas Fed President Richard Fisher and former Dallas Fed staffer Danielle Dimartino Boothformer BoE Governor Mervyn King etc.
Dr. Harald Malmgren (former economic adviser to US Presidents) has been active on twitter talking about all this as well. Here are some links to his recent twitter comments:
Former Central Bankers "lament where monetary policy is going" 

And then we have this recent interview with Dr. Warren Coats who agreed to answer some direct questions I see all the time from people who are skeptical of central banks.
There are certainly many more examples, but these will suffice to illustrate the point.
My added comments: For the most part I try to minimize my own opinions here. Really, they are not what matters for most people. What does matter is what actually happens as the world deals with the problems in our present system and various solutions are put forward to try and fix things. 
Here's the thing though. In this case I will offer this observation formed after many years now of following these issues and looking at a variety of opinions on how to deal with the problems. At the end of the day, we are all in this together. 
I do understand that a very real gap does exist between many of those who run the system and many of those who must live in the system without much say in how it is run. So, when I see prominent and respected people like the ones listed above speaking out openly and honestly about the problems we see in the present system, I have deep respect for them. When I see regular citizens express their frustrations and point out very legitimate abuses by some who are in positions of great privilege in the present system, I deeply respect them as well. I think both deserve to be heard and are very sincere in their opinions.
There is no doubt we are a deeply divided society on many fronts. So, when some do make the effort to try and reach across the gap (on either side), I applaud them. I am convinced that if good solutions are not found to establish a monetary system that is both sustainable long term and places the proper priority on a stable value for whatever we use as money, we will all lose eventually. 
To that end, this blog is dedicated to doing anything it can to encourage people to reach across the gap and at least listen to another point of view. We may not agree, but we can listen and maybe find areas of acceptable compromise. If not, then we should expect that the odds we all lose are going to go up and we need to have a plan in mind to deal with that as individuals and families. I have no idea what path will eventually be taken and can only hope wise decisions will be made.
We will continue here to try and feature credible views from a variety of sources without pushing an agenda. I believe readers are capable of forming their own opinions very well without my input if presented with accurate information and a variety of credible views from across the marketplace of ideas.
This will continue to be the goal here in an effort to encourage people to reach across the gap now and then as we watch to see what really does happen with all this over time. I am encouraged that there are good people on both sides of the gap, so hopefully they can find ways to work together.
Added notes: Robert Pringle (former Group of 30) had these comments upon reviewing a preview of this blog article:

"I was amused to to see my book footnoted in a publication by my old firm, the G30, "Fundamentals of Central Banking", where they laconically comment that "An obvious issue, but one too fundamental to treat here, is whether we need to revisit the issue of the International Monetary System, or nonsystem, as some see it." (page 52), along with Paul Volcker and Bill White - distinguished company indeed!

"Too fundamental"?   The G30 has always steered away from discussing the International Monetary System in any deep or critical way, even though it is surely at the core of what they were set up to do!" --- Robert Pringle

I will add this comment. Many people feel that people like Warren Coats and Robert Pringle are not accessible or interested in their concerns. I have found just the opposite to be true. Both are very open and interested in a respectful discussion of our monetary system problems and ideas on how to fix things. In that regard, if you have constructive and thoughtful comments on their ideas they are happy to hear them. They appreciate anyone who takes the time and effort to study these issues and consider their proposals.

You can email me at with any such comments or questions and I will pass them on. I would just request that you read their actual proposals in their own words first so that you can offer comments or ideas that are relevant to what they are actually proposing. Robert Pringle is particularly interested in ideas on how to get policy makers to think about these monetary system problems and take them seriously. You can find their work here:

Dr. Warren Coats Selected Works 

Robert Pringle - The Money Trap Blog                

1 comment:

  1. Thanks for this round up Larry. It's sad to see that economic and monetary minds far greater than mine confirm the debt trap that is gripping the world. QE seems to be the only available lever left for central banks to pull. Even though it has horrible consequences for citizens, it's fairly painless in the short-term, so protest is avoided. Perhaps QE is the new opium for the economy?