Criminal Central Banker

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• Oh my. A Thai court has convicted a former central banker of “gross negligence.” Rerngchai Marakanond has been fined $4.6 billion after the court found him responsible for the 1997—98 currency crisis.

Advice to Alan Greenspan: Get a false mustache and an address in Switzerland.

Greenspan’s crime is a familiar one. "Any stimulus in excess of savings is a fraud," said the great economist Schumpeter. Putting interest rates below the inflation rate, and leaving them there for three-and-a-half years after the “emergency” was over, misled consumers into believing they had money to spend…and misled business (particularly Chinese business) into thinking its customers had more money than they actually had.

But everyone loves a good scam…until it comes to an end. That is when the “misery” Mr. Micawber describes shows up at the door. Until that happens, the party seems like such fun that those who weren’t invited feel left out.

That is the gist of almost all the financial press, following last week’s referenda on the European Constitution. “Why can’t they be more like us?” ask the deep thinkers in the Anglo-Saxon media.

Anatole Kaletsky, writing in the Times, offers the usual full-throated claptrap. Kaletsky’s argument — hardly an original one — is that the ECB’s reluctance to let the euro fall has hurt the European economies and turned voters against further political integration. If the euro did not exist, he points out, “Each country could make its decisions about the balance between social protection, wages and currency strength.” What is novel, and thoroughly bonkers, in Kaletsky’s pensee is the idea that voters can set the price of their currency so as to be able to afford a “generous social safety net.”

We don’t know whether the euro is too expensive. All we know is that the theory that prompts Kaletsky to think so is a swindle. Voters have no more idea what interest rates should be than we do. They have no way to know whether their currency is underpriced or overpriced. They simply want more of everything than they can actually afford. Low rates and a cheap currency give them the illusion that they are getting it — while luring them into debt, and eventual bankruptcy. That is the real lesson of the Anglo-Saxon model. And that must be why English women do their housework in the nude — they’ve lost their shirts in the housing market!

• “I’ve been following your articles on the housing bubble in the U.S. I don’t know if there exist any serious studies on the size of this bubble, but it appears of significant dimensions, writes a reader.

“I also don’t know if anyone has considered this (yet), but if this bubble is of the dimensions you describe the impact of it bursting can have significant effects on that class of society that attempted to profit while the status quo of increasing profits remained.

“The middle class is not only the strongest class in society (in size and influence), but also the most fearful in potentially drifting into a lower stratum of society. If the bubble bursts, a lot of people who are still ranked among the middle class will find themselves unable to pay their debts. Ultimately, the poorer class will grow. However, used to a good lifestyle, giving up this lifestyle will not pass the social structure (i.e., the way affairs are handled in society) and, in the end, government unmarked. A middle class that finds itself less well off than expected (of course, expectations are always higher than reality) has the tendency to call for leaders that take control of the present situation one way or another.

“The effects of the housing bubble bursting, along with today’s lack of economic growth, can be similar to those of the crash of 1929 and the Great Depression. While the tech stock disaster affected only those individuals who happened to be invested at that time, more people and entire areas that attempted to profit from the “housing boom” will be caught in this mess. The Roosevelt administration could not have grown to its size and strength without the Great Depression. It remains to be seen what effects the bursting housing bubble will have.”

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century.

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