The System Is Falling Apart

19 thoughts on “The System Is Falling Apart”

1. Kind of an “old man yells at the moon” moment, H. You’re upset about all these new Fed facilities but if anything they demonstrate the ability to tweak the system better than at any point in the past, and the MMT folks are the ones who are to thank for banging that drum for so long. Just because the facilities themselves may be imperfect doesn’t mean they’re worse than the old standard — let shit break and then blame “the market cycle” (or democrats). It was willfully putting on blinders for decades that was the rickety period.

   Also, i just gotta say that this:

   Regular readers will recall that my biggest concern when Stephanie Kelton became a bestselling author was that “too many” people would suddenly be awake to the reality of government finance in nations which issue hard currency. You can’t entrust the general public with that realization. You could argue they need to believe there are constraints. They need to believe the government needs their tax dollars, and that there are limits on spending. And so on. Disabusing them of those falsehoods is a noble goal, but it’s also a Pandora’s box.

   Isn’t true. MMT (and even Kelton’s book) make it clear that there are limits and taxes have value. If the general public is reading about MMT and all they come to believe about it is that “we have unlimited resources!” then clearly they’ve just been reading the PraegerU version. Those guys probably also believe the earth is flat, and Kelton’s book didn’t cause that either.

   Any argument that posits “the only way to keep the system stable is to keep it secret” is really just undermining itself. It’s just the sort of warmed-over “there are too many stupid people for this to work in the real world” argument that gets attached to any push for change.

   You know what you need? A bestie to take you to a Taylor Swift show. Go mingle with the commoners. Otherwise you’ll find yourself turning into Hesse’s Steppenwolf — without the redemption arc!

   1. I was thinking the same, but you expressed it more eloquently than I would have. I don’t think the average US citizen thinks twice about the safety their money in our banking system, the credit worthiness of the government, the Fed, or MMT. If they did, the whole budget ceiling charade and Fed policies would be much more visible in the news and in polling, but even Republicans don’t (pretend to) care anymore.

      Just look at this recent poll: https://www.cbsnews.com/news/2024-presidential-primary-trump-v-trump-fatigue-poll-2023-05-01/. Republicans are too busy digging their own grave with culture wars and abortion laws to worry about inflation, deficits, and DOA debt ceiling bills.

   2. H, it sounds like you’re coming around to the de dollarization narrative which you have spilled countless ounces of digital ink telling us its all clickbait and Russian/Chinese propaganda.

      1. I believe the critique isn’t Dollars, it’s actually the more astute “gosh we’re probably due for a ‘not pegged to gold’ type upgrade” given the advances in technology and financial engineering.
         As an aside: the dollar is a proxy for US military and economic might, which with tons of land and resources and an open enough immigration policy to drain Russia and China dry, means the US (dollar) will still be #1 for decades.

         1. I don’t think people pay enough attention to the horrible demographic trends unfolding in both Russia and China — trends that are hard to reverse. Russia has been in dire demographic straits for decades — a big part of the reason it is faring so poorly in Ukraine — while China, which appears to be riding high at the moment, passed peak population earlier this year and is set for a rapid decline that, according to some experts, could see its population halved by 2100. I can’t think of a previous example of demographic decline as extreme as that.

   3. Spot on about Kelton and the limits of MMT. She clearly indicated one limitation was inflation, without specifying what levels of inflation would create problems.

2. Apparently I need to reiterate this: I’m not a one-dimensional individual, and you shouldn’t expect one-dimensional analysis and writing from me. If you don’t deal well with a few pieces here and there that remind you the system is broken or that yes, there’s something to some of the narratives that I generally don’t care for, then this might not be the site for you. I’m not a confirmation bias generator.

   1. That’s why we love you.

   2. No reminder needed here but I appreciate the candor and multi-dimensions you bring forth, on a regular basis. A shaky system for sure; some (more and more I think) would say it’s a shady system. Fewer people, countries and governments are choosing to “pay no attention to the man behind the curtain”

      Instead, they’re tired of being subjects and are pushing boundaries, pulling threads, asking uncomfortable questions, peering behind curtains and all manner of considering alternatives. If we don’t keep our end of the global bargain, I’m afraid it becomes less about full faith and credit and more about might being required to make right (and maintain/protect usd hegemony). Come to think of it, maybe that’s all there’s ever been keeping a lid on Pandora’s box.

   3. This article obviously hit a few nerves, but it is thought-provoking enough to result in more clicks and eyeballs to you site, so congratulations.
      Ultimately, “the masses are asses”, and Hamilton’s assessment of the populous is only exacerbated by social media. Herein lies the problem as it relates to recent banking issues. Worries of the viability of a few regional banks with bad business models and/or too much exposure to commercial real estate notwithstanding, this current bank crisis appears to be more of a manufactured crisis as the doomsdayers out there are exacerbating a relatively minor problem. Maybe they are exploiting the system for what it is but not intentionally.
      The system is arguably broken, but is it broken because the speed with which information travels and/or channels information moves through has resulted in an opportunity to exploit its flaws? I believe so, but I also believe there are myriad factors at play. I doubt the same people pulling money from perfectly safe banks are the same ones shorting the same banks in investment accounts.
      The stability of the financial system is on shaky ground for sure and the masses are only making things worse, IMHO.

3. I really enjoyed this post, I think many would benefit from reading it, as sobering and depressing as some might find it. I can’t shake the thought in the last few years that all of these “events” and surprises in our financial markets are part of a larger systematic issue that is manifest in all aspects of our (American) society, tightly linked to our political system disarray, deep social divisions and increasingly banal culture and lack of intellectual curiosity as a nation. Are these signs of fatal flaws in the system? The US is such a wonderful paradox, an icon of hope and freedom in the minds of many, immigrants and US born alike, yet at the same time our whole country was built on a sin of gigantic proportions. Perhaps these contractions have fueled the drive that has made the US the dominant power, the empire ‘du jour,’ but at some point we have to acknowledge that there is no magic solution that pleases everyone, someone (a group of us) will have to endure hard times so we can progress or we will collectively all suffer in demise. The Fed trying to fix problems sprung from the implementation of facilities with new facilities, is a symptom of an attitude that permeates our “democracy” today. I have zero idea or suggestion to fix this wound in our system, but I will observe with fascination, might even observe how it evolves with a little bit of terror in my soul.

   1. Our experience with mask mandates shows that there is zero point zero hope of anyone making much of a sacrifice for the greater good.

4. A passerby whose comment wasn’t published (I don’t generally publish non-subscriber comments because it’s hard to monitor them) noted that there are significant incentives for people not to move their checking accounts, namely having to get a new debit card and change the account number on a lot of automatic monthly drafts (e.g., for car payments, etc.).

   While I grant that, and while I removed the word “checking” from the article to acknowledge it, I also think it’s a bit silly and also felt like an effort to dodge the larger point. Silly because we don’t say “Bank runs are rare in America because it takes forever to get a new debit card in the mail and then you have to wait another week to get your new pin, plus, dealing with human resources at work to get direct deposit information changed is a pain.” Rather, we say, “Bank runs are rare because there’s insurance and also because the banking system is sound and people have confidence in it.” Dodges the larger point because the risk is unquestionably higher in the era of electronic banking and social media.

   1. whilst its a slight inconvenience to switch bank, i think typically one would still keep the old bank account open for bill payment purposes, and transfer the rest to the new bank. (as thats what i did moving from CS to UBS) transferring money is so easy its almost a none barrier.

   2. Thinking through every aspect of everything
      Is daunting. Barter system is way too much self-awareness and world awareness. Inefficient.
      The upside down pyramid, that fiat currency is, may be much more preferable than the alternative, which is gold or bitcoin pyramid.
      Fiat relies on future claims, whereas hard money enforces on past claims.
      The last 50 years of fiat money has seen such amazing advances, whereas the 500 years previous shows itself to have been a time of subjugating others.

      1. +1

5. In my mind, there is little doubt that the system is rickety if not faulty. But I place the degradation more on the responsible actors controlling the system rather than on the unread masses or the system itself. To me, there IS a faith and confidence issue — the growing lack of competence and long-established but ultimately illusory guardrails that we all generally took for granted. I mean if we let anyone drive too fast with no license or lights while texting and not wearing seat belts, we can’t really blame the car when the mayhem and bleeding starts.

   But this harkens back to something you have mentioned in the past that the government by the people has become less and less for the people. I was never a fan of businesses self-regulating, but it seems to have proven so popular among corporate America, that the US government has decided to adopt it for itself — so goodbye ethics and national security secrets and conflicts of interest and accurate reporting and even responding to subpoenas. But I am not one of “those people” who think the government is out to get me or trying to do me in. I am one of those people who think the government collectively does whatever it wants, and none of us have much of a say in it.

6. I wouldn’t rule out the current system being replaced by something even more moronic.

   I believe the mindset driving all the current dysfunction is capable of topping itself over and over again.

   The system is thinking inside a coffin.

7. Think I’ll hold on to my door stops until this sorts itself out.