'The economic crises credit expansion repeatedly provokes lead to other consequences which are more subtle, yet no less damaging to the harmonious cooperation among people and to their economic and social development. Specifically it is necessary to highlight the way in which the current monetary system, based on credit expansion, has made it customary for booms and crises to disturb economic development. In other words, it appears as if “manic-depressive” behavior were required of a market economy.'
- Jesús Huerta de Soto,
Money, Bank Credit, and Economic Cycles (Fourth edition, 2020), page 456 (
pdf, 2020, 4th ed..) [1] (
'The "Manic-Depressive" Economy .. spirit becomes corrupted .. are of high human and personal cost..')
'..I believe global financial markets are broken and dysfunctional..''..Economic history is replete with warnings of the myriad dangers associated with monetary inflation. Inflation has repeatedly proven corrosive to economic performance and destructive to social stability. Currencies have collapsed, governments have fallen and societies have disintegrated. And while harbingers of these types of consequences are increasingly apparent at home and abroad, very few analysts link such developments to the world’s unprecedented inflation of “money” and Credit.
From what I’ve read, Greg Smith is an upstanding individual. He is accomplished and holds quite impressive credentials – and this week he made a name for himself with his “Why I am Leaving Goldman Sachs” op-ed piece in the New York Times. Mr. Smith was pilloried for breaking the industry taboo by “going public.” Many assume he is chasing fame and financial gain – ready for a lucrative speaking tour and book and movie deals. Yet when I read his piece I sense an earnest but deeply discouraged man. He’s lashing out – like so many millions would do if they had similar access. Goldman Sachs’ culture and, in particular, management are the target of his frustration. I can’t help but to believe Mr. Smith is onto something extremely important - and much beyond Goldman.
Irrespective of current stock market euphoria, I believe global financial markets are broken and dysfunctional. I am not alone in this view. Mr. Smith has issues with Goldman’s “toxic and destructive” culture – I’ll retort that it’s the “culture” of Wall Street/global securities markets that is today noxious and destructive. And, admittedly, I have a difficult time pointing blame at the Blankfeins, Cohns and Dimons of the world. They just happen to sit at the top of the pecking order for a massive “financial services” infrastructure operating in an environment where “money” and monetary management have gone terribly bad. Uncontrolled monetary inflations have always led to greed, corruption, malfeasance, anger and instability. Credit Bubbles always inequitably redistribute wealth - before their inevitable implosions reveal the massive wealth destructions associated with monetary inflations and financial manias. At the end of the day, unsound “money” will have torn lots of things apart.
And I’ll take some poetic license here. Mr. Smith laments “ripping eyeballs out” of “muppet” clients – the decline of “the firm’s moral fiber.” I believe a crucial facet of what’s unfolding is that employees throughout Wall Street, and global finance more generally, are working diligently to extract as much “money” as quickly as possible before the whole thing blows up. It’s as reprehensible as it is perfectly rational in light of today’s monetary and policymaking environment. In a backdrop where politicians spend as much as they want and central bankers “print” as much as they want – where prudence, fairness and reasonableness have been completely abandoned - of course those working amidst this monetary profligacy will feel perfectly compelled to take as much as they can get. Read monetary history.
Regrettably, most no longer think in terms of a long-term career judiciously serving the interests of their client-base. Instead, it’s dog-eat-dog – everyone working first and foremost for their immediate self-enrichment. Isn’t that the way Capitalism is suppose to function? It's just a broken incentive structure – powered by the confluence of ultra-easy “money” slushing about the system today and extraordinary uncertainties darkly clouding the outlook for tomorrow. This ensures a destabilizing short-sighted fixation by Wall Street associates, traders, speculators, investors, business executives and society generally. Greed may or may not be good, but it is certainly an upshot of unsound money.
And, I’ll assume, the closer individuals are to the belly of the beast the more jaded they must become. Mr. Smith’s expertise is in derivatives – “to trade any illiquid, opaque product…” If there is one area where I most fear obfuscation and the deleterious effects of monetary inflation, policy intervention and market degradation, it’s in this creature referred to as the “global derivatives market.” This demonstrated - and at times rather corrupt - monster has nonetheless been nurtured and promoted to the epicenter of contemporary global markets. It’s no coincidence that this realm has remained largely impervious to tighter regulatory oversight – even after 2008.
Mr. Smith protested selling products that were wrong for his clients. Whether it’s a derivative salesman, politician, or central banker, obfuscation has become commonplace at this disorienting phase of uncontrolled monetary inflation. After all, how can sound analysis and serving one’s clients remain the devoted focus when the current monetary backdrop incentivizes something quite different? How does one go about modeling future cash flows and valuing assets when there is every indication that the current monetary backdrop is both unstable and unsustainable?
Indeed, the market backdrop has regressed to little more than a “money” game. Speculative dynamics rule, and those that play (or associate with those that play) the game the best attain unimaginable financial wealth. How can one reasonably do analysis these days when so much depends on the extent to which global central bankers proceed further down the path of unlimited “money” creation? Do you want to bet that the Fed (and ECB, BOE, BOJ, PBOC, etc.) is largely through its crisis-induced money creation operations? Or is the Fed’s balance sheet on its way to $10 TN? These provide two altogether different scenarios to contemplate. Clearly, with central bankers propping up markets with Trillions of liquidity injections, one can toss traditional analysis (and market participant behavior) out the backdoor.
Credit Bubbles and attendant monetary inflations invariably risk a loss of trust – trust in “Wall Street” and the financial system; trust in politicians and the political process; trust in central bankers and monetary management; trust in institutions and “money” more generally. These dynamics are increasingly on full display, here at home and abroad. And it’s not Goldman’s culture and moral fiber that I worry about.'
- Doug Noland,
Flow of Funds and More, March 16, 2012
MishWall Street Pimps and Whores Story Extends Far Beyond Goldman Sachs: Merrill Lynch, Citigroup, Bank of America, Morgan Stanley, All Guilty March 16, 2012
Executive Director of Goldman Sachs Resigns Over Parasitic Behavior of Goldman to Its Clients; Reflections on Chasing Performance March 15, 2012
James Grant Says Bond Market Is "Bubble of Modern Banking, a Desert of Value; Gold a Reciprocal Faith in Bernanke"; Time for an "Office of Unintended Consequences?" March 17, 2012
"Black Swan" author Nassim Taleb Cheers Ron Paul's Economic Platform on CNBC March 14, 2012
Context(Dutch) Haptopraxeologie: Bazaarmodel - Oostenrijkse School, Haptonomie, Plasma Kosmologie May 29, 2011
Affectivity, Action, Electricity - '..in order to preserve society itself..''..real people who use their minds to make exchanges in the real world..''..fiat inflation is a powerhouse of social, economic, cultural, and spiritual destruction.' - Jörg Guido Hülsmann
'..a truly stable financial and monetary system..'Note[1] 'De economische crisissen die kredietexpansie herhaaldelijk uitlokt, leiden tot andere gevolgen die subtieler zijn, maar daarom niet minder schadelijk voor de harmonieuze samenwerking van mensen en voor hun economische en sociale ontwikkeling.
Het is met name nodig om de manier te belichten waarop het huidige monetaire systeem, gebaseerd op kredietexpansie, ervoor heeft gezorgd dat het gewoon is geworden dat
booms en crisissen de economische ontwikkeling verstoren. Met andere woorden, het lijkt alsof 'manisch-depressief' gedrag noodzakelijk zou zijn in een markteconomie.'
- Jesús Huerta de Soto,
Geld, krediet en crisis (2011), hoofdstuk 6.13 - De 'Manisch-Depressieve' Economie: Het verstikken van de ondernemersgeest en andere negatieve effecten die terugkerende conjunctuurcycli uitoefenen op de markteconomie, pagina 390