Inequalities are an inevitability but the truth is a right
More jobs will be lost. More businesses will go bust. More people will slip into precariousness. More children will go hungry. Let’s not kid ourselves about the exorbitant economic cost of the crisis to come. Also, the people must know what to prepare themselves for and they deserve clear explanations from their governments. They must also be clear on the method to be adopted in the short term to try to pull ourselves out of the worst scenario that is looming over the horizon. However, they don’t seem to know which way to turn – the executive branches –, with them being torn between two opposing paths, and it’s therefore this indecision – or ignorance of the processes – that prevents them from having a simple and direct debate, the only one that could reassure a population decimated by successive crises that are hurrying on the inevitable depression that awaits them.
Must we choose the traditional path where we reduce debt to protect future generations? Or continue to support what can still be saved, thanks to the driver that is debt, made possible by the transmission belt that is monetary creation? Faced with this panic that seems now to be tormenting our governments – every country is flummoxed –, and faced with such diametrically opposed economic policies, which viewpoint should be adopted for ordinary citizens and how should it be explained to them what is really afoot – without talking behind their backs –but also without them being truly informed?
Life would have been much simpler for our political leaders without the 2007-2008 crisis that wreaked havoc on governance and that led them, forced them, left them with no other option but to tolerate higher debt levels, and in a permanent way. The doctrine in vogue among the orthodoxy – that at the time represented the overwhelming majority of economic thinkers, in contrast to the tiny minority of Keynesians who were mocked and reviled – taught that governments could finance themselves only through taxation and borrowing made via financial markets. 2008 was the year that they were forced to admit that governments can also finance themselves – and heftily! –by borrowing…from themselves. What was meant to be a temporary and one-off measure nevertheless became the rule, because the astute activism of the central banks forever revolutionised the management of public finances. The facts are there and they are crystal clear: a loan without interest given to a government by its central banks is a gift.
To be exact, the objective of the central banks was to convince the whole range of investors and speculators of the permanent nature of these loans given to their governments in order to restore macroeconomic confidence and stability. A new era thus began that allowed public spending to be funded by money freshly created by the central bank.The elegant term “monetisation” was employed to characterise the gifts given by the central banks to their respective countries (USA, Japan, the UK, Europe). From then on, everyone wanted to get involved and this is why financial markets themselves – though barely inclined to be altruistic– came to give out loans at 0%, even at negative rates, to countries like Italy… Since they all know that these debts will never be paid back, and since no one wants their money to be paid back to them anymore anyway as they wouldn’t know what to do with the money being printed by the central banks like there’s no tomorrow, it appears that it was becoming possible to increase deficits further. In this light, the handling of the financial ramifications of Covid has indeed shown that economies can be maintained on life support thanks to monetary creation. The health crisis has therefore succeeded in proving that public power can and must be financed and maintained by central banks.
The side effects, or in fact the main one – that being hyperinflation – was lacking from this monetary creation that allowed us to gain time and bail out economies. Except that inflation is indeed present, but not where we would suspect it admittedly, but it nevertheless causes damage by exacerbating inequalities. This intense monetary creation, unprecedented in human history, that has of course led to a significant increase in society’s money supply, has ended up in the bank accounts of the rich, while the poor have accumulated debt. Inflation therefore happened elsewhere: in the stock market take-offs and real estate appreciations that – in turn – aggravated and deepened inequalities. How would a middle-class British citizen be able to afford to buy a property in London where prices are at their highest level in history? How could a young American investor have the courage to invest, without risking bankruptcy, on the US stock market that has risen by 70% in 8 months?
In conclusion, the current economic crisis and depression to come cannot be once again systematically paid for by the famine of the poor, middle classes, the youth and the elderly. Are they all damned, like Keynes feared, to live on the streets while housing is available in abundance? Because ordinary men and women now find themselves confronted with an unnatural reality: condemned to poverty and an ever-more uncertain future, they are unaware of the fact that this monetary creation – that albeit had a commendable first intention – boils down at the end of the day to endless orgies for the rich. Political leaders would be doing themselves a service by telling them the truth. Our citizens deserve this truth. Because, yes, it is possible to print wealth. But, no, it is not possible to print equality.