William A Gardner
Fiction with a Theme
Flash fiction, or Scenes of Life and Travel
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The Killing of Capitalism (Ch 4)
"The governments and central banks of the Western democracies have been running the greatest Ponzi scheme in the history of the world," said Albert. "And like all Ponzi schemes it is only a matter of time before it collapses. That is our looming crisis. But these things can survive longer than one might think so we need to give it a nudge. That is what Project Sunflower is all about."
Albert had known that some of what he had to say would find opposition within the group and had prepared his notes carefully. During the short break he had spoken with the other financial members, Akio and Heinrich, to assess their response to what he would say and was pleased that they generally concurred with his own thoughts on the plan. Both had excellent knowledge of global finance and especially Heinrich who lived in Brussels and was a financial advisor to the European government and the European Central Bank. He had actively promoted their devastating negative interest rate policy, or NIRP. Albert had exchanged a few words with Iggy but the Goblin had been inscrutable as usual. Albert believed the Goblin knew far more about global finance than he let on. Few people knew that New York was home to a great number of Goblins and that not only were they particularly adept at numbers, but they were employed in most of the large financial institutions. For obvious reasons they operated out of sight and were very closed-mouthed. The last person to return to the meeting was Edward who seemed more nervous than usual. After taking his seat he shuffled papers around as if looking for something before finally nodding to Albert to begin.
Now, standing at the front of the table to the left of the large digital screen and close to Athena, Albert paused to assess the members before continuing. Athena was the education specialist who worked as a special advisor to the Secretary of Education. She had a motherly appearance with long flowing auburn hair that fell around her shoulders, wide-set intelligent eyes and a smile that said she cared. As a result people confided in her more than they should. She knew a great deal about the people in government and Washington society, including all scandals, weaknesses and agendas. She also knew how to keep a secret and thus her nickname which was Mum. Men, including Albert, were constantly falling in love with her, which she accepted with casual aplomb. Minerva, seated to the right of Edward, was a producer, writer and influencer in Hollywood. She had excellent contacts in the Academy and had once directed a low-budget movie. A black woman, she had a talent for promotion but no real knowledge of international finance.
At the other end of the room Edward sat stiff in his raised chair, listening without expression. He had confidence in Albert but there were other matters at stake. Through his contacts at the Camarilla he had heard rumors of other factions and agendas. The currents of global power were shifting. The Family needed to move their agenda along without delay. He noticed that Albert had paused and made a hand motion for him to move along quickly.
"Briefly," continued Albert, "the Western governments have made financial promises they cannot keep and subsequently made the devastating mistake of assuming they can manage the business cycle to keep the economy growing indefinitely in order to pay for these promises. Using Keynesian theory and relying on the veracity of the Phillips Curve equations, the Western governments in combination with the central banks thought they had finally achieved control of the economy. Serious downturns would be a thing of the past as they manipulated the levers of fiscal and monetary policy through spending and interest rate adjustments, to smooth out the business cycle. Instead they have become the archetypal sorcerer's apprentice." He paused for breath. "Am I being clear?" He noticed a look of confusion on a few faces.
"Don't get too bloody technical for us, Albert," Touchstone said in a voice of exasperation. "Not all of us grew up with a cash register as our first toy. What's a Phillips wiggle and can it help us get a better bagel. The ones this morning were stale." He ignored the glare from Edward. "The coffee wasn't bad though."
"OK," said Albert. "I will keep this as simple as possible. Essentially the Western countries are dancing on a financial tightrope that's becoming more frayed by the year. The governments knew they could stimulate the economy by borrowing and spending, and the central bankers were convinced they could prevent downturns in the economy by lowering interest rates. If inflation became a problem because of too much cash injection they would simply raise interest rates. Thus, between the two major economic levers of spending and interest rates, they could not just control but fine-tune the economy to maintain a rising GDP and thus a steadily increasing tax take. Their mistake was to ignore human nature and underestimate the power of the market. By over estimating their own power they became the sorcerer's apprentice. You recall in Lord of the Rings how Gandalf would not take the ring of power because he knew that, despite trying to use the ring's power to do good, his own great power combined with that of the ring would invariably result in a terrible disaster. That is what has happened. The power of the central banks to print money combined with the propensity of government to spend is setting the stage for a time when their debts cannot even be rolled over let alone paid off. Remember that a lot of pensions are invested in government bonds."
There was a moment of silence and then a rush of questions. "I'm familiar with the story of the Sorcerer's apprentice," said Minerva. "Are you saying that the governments are in danger of losing control? I don't see any evidence of that. And the economy is doing pretty well. I…"
"It's worse in Europe than here," broke in Heinrich. "Banks are essential to the working of the economy and the banks are having problems. You don't hear about it in the media because it is dealt with sub rosa. There are more than ten trillion dollars US in negative bonds circulating and many are held by banks and other financial institutions. With negative bonds and ultra-low interest rate how are banks supposed to make enough profit to survive? Plus, if interest rates rise their bond value will plunge. Insurance companies are in the same leaky boat. A period of deflation would throw the entire rotten system into the drink. A lot of companies, and people, will drown."
"Hold on, wait," said Albert waving his hands and waiting for individual conversations to die down. He had expected this reaction. "Let me continue and there will be lots of time for questions later." He glanced at the screen and then went on with his presentation, but not before looking at Edward who showed no expression.
"It's human nature to always wants more. As demands on government increased so did the deficits and debt. Politicians know that they don't get re-elected by saying no, so they spend. A few bureaucrats and politicians perceived the looming problem and so they implemented certain policies to stave off and perhaps prevent what they were starting to suspect might happen. Initially their gambit was to use statistical tricks to underestimate true inflation. Master uses tricksies, as Gollum might say. By this method governments were able to shave up to 3 or more points off the reported real rate of inflation, thus reducing the annual increases of social payments including government pensions, and causing real wage increases to fall below the rate of true inflation for all workers. The result has been, of course, a decreasing standard of living for the middle class who have responded by increasing their own debt levels. It is a type of creeping poverty for the average family. Many, if not most, can no longer afford a decent lifestyle, or buy a house without two wage earners. Among other things that has meant fewer children. Children are expensive."
"Well, when this wasn't enough, and as government and corporate debt levels rose, the second and most serious mistake was to rely on the seriously flawed concept that continually lowering interest rates will cause people and businesses to borrow more and spend more. It is like believing that if you have a headache and one painkiller doesn't make it go away, then just keep taking more painkiller pills until it does go away. Of course the average person knows this will ultimately cause the person to slip into unconsciousness and perhaps die. But that is common sense which is not a feature of government policy, especially in Europe where interest rates were pushed into negative territory. The result of this, as Heinrich indicated, has been to gradually destroy pension plans, seriously damage banks and, combined with under-reported inflation, robbed savers. It has been a recipe for disaster and governments will ultimately lose control just like the sorcerer's apprentice."
"But low interest rates are good," Athena said. She looked around and shrugged. "I couldn't have afforded my condo in the DC area except for the low rate. They are great for the average person. And if banks are having a bit of a problem, so what?"
"Artificially low interest rates have a perverse effect, they encourage too much debt. Corporate US debt is now in the order of $15 trillion. That's trillion with a T. Consumer debt is around $14 trillion. And the US government debt is headed way past $20 trillion, not including states and municipalities. States like California and Illinois are already essentially broke. What happens if interest rates rise? And if you think they won't then you are ignoring reality and history."
"The global economy is bigger than any one country, or central bank, and any economy depends on a reasonably stable investment climate, banks, and currency. With ultra-low interest rates, money has been flowing into the stock markets and especially the US stock market to try and get a reasonable return. The central bankers know that interest rates depend on risk. If risk increases then interest rates will increase. The central banks, and especially the US Fed, have been doing everything they can to prop up the stock markets because, with a global economic slowdown looming, that is the only money-making game in town. Then, what happens if the stock market crashes?"
Albert stopped talking and looked around the table. He wasn't sure how many of the members understood the implication of his logic so he added a question to clarify the point. "What will the average person do when they are informed that their pension plan is broke and can't make any further payments? And when they go to check their bank balance there is a sign on the door of the bank saying that withdrawals have been suspended due to insolvency?"
"Impossible!" Touchstone almost shouted. The government would never let that happen. I would say that you are over-exaggerating the risk."
"Maybe," put in Akio. "But this global warming panic, the climate emergency, is suspiciously like a diversion to keep people's minds off the looming financial crisis and to establish something to blame when the house of cards fails."
It was getting close to noon and Albert wanted to wrap up the presentation. Concern was rising around the table. He started in on the final piece of the puzzle. "The global financial system is now dependent on low rates and a continually rising stock market. Governments have created a huge Ponzi scheme, meaning they need a continual stream of fresh money to pay off the existing promises. People are taxed out so the only avenue left for the central banks and governments, since the global debt to GDP ration is in the order of three hundred percent, is to print money and hand it to people."
Alberta paused as he saw Edward suddenly rise and exit the room. He thought it was strange but then Edward had his own quirks. Albert's presentation was almost complete so he decided to continue.
"That is the basis for a guaranteed annual income and modern monetary theory. However, if you think that printing money without limit will lead us to the golden age of wealth… history says otherwise. That is our opportunity. Crash the stock market and we have our crisis. In spades. Then the global economy will collapse and everyone will blame it on capitalism. Capitalism will become a hated word and the people will beg for the Sunflower alternative."
Albert saw Edward slip back into the room through his private door and expected him to announce lunch. What he heard was entirely different.
"We have been compromised," Edward announced loudly in an irritated voice. "Everyone except Iggy and those staying overnight need to leave immediately. Use the back door and ensure that you don't put the batteries back in your cellphones until you are at the airport or back at home. This is not a joke, I don't do jokes. Leave any paper notes here to be shredded. I will be contacting you shortly. Iggy, please erase any evidence of Albert's presentation from the computer and clean up." He scowled and watched as the members filed out of the room. Has one of them been turned, he thought? There would be hell to pay. He scowled, but then a smile played across his lips with the tantalizing thought of slitting a throat or two.
As he headed back to his office, carefully closing the bookshelf that hid the door between the units, he heard Strux answering the front door, and loud voices.
Read Related Previous : The Killing of Capitalism (Ch 3)