Topic: The Economic Pain Won't Stop - page 2. (Read 341 times)

The tickets are all financial assets, including fiat money, bank deposits (which are really debt,) stocks, bonds, etc. that are issued by our ruling elites: politicians, bankers, central bankers, corporate elites, etc.  Allowing stock markets to go down amounts to devaluing certain types of tickets, something that was mentioned in the original post.

It's true that fiat money issuance has no technical limit, and that the entire economy and system are addicted to over-issuance (as compared to the values of real wealth -- goods and services) which manifests itself in low interest rates too.

But we have to remember, while fiat money can physically be printed to infinity, that is probably not going to happen, and if it does money's value will go to zero.  (This was basically what happened in Germany in 1923.)  Our rulers don't want that to happen.

In fact, today's state of financial asset inflation (what I called too many tickets for the seats available) is a vicious cycle and not sustainable.  Our rulers themselves want to see that torn down, eventually (even though it was they who both caused and benefited most from the asset bubble.)  The coronavirus gives them a chance to do just that, and put the blame on something other than their system, for the pain that will come from the deflation.

Shows in the theatre are goods and services in the metaphor.  They are real wealth, and there will always be those.  The issue is, at what price.  Because of the over-issuance of claims by the politicians, bankers, etc., over the long term, there's really no alternative but inflation.  We can see this, for example, in the dollar prices of everyday items today, as compared to, say, 100 years ago, in the US.

So in your metaphor the "tickets" are the printed fiat money-USD and euro and the "seats" are the banks and corporations or maybe the industrial facilities.I've never seen someone to compare economy with theater.
According to Anatole Kaletsky,the debt creation and fiat money printing can continue forever and it can be considered the only economic "perpetuum mobile".The banks,markets and companies are addicted to debt and negative interest rates.Abandoning the current financial system will cause a financial Armageddon.I don't agree with fiat supporters like Kaletsky,but they are still very popular.

I enjoyed this metaphor of modern banking system. I also want to add something. In 1976 the dollar references to gold were removed from its statutes, the international monetary system was made of pure fiat money. From this point, there were no shows in the metaphorical theater, only printed tickets and the "manager's" promises.

Think of the modern system as a theatre whose management has sold more tickets than there are seats in the house.  Our rulers benefit primarily from issuing money and debt at no cost, so the incentive for them is usually to issue more.  (As a result, there are more claims to wealth than actual wealth, i.e. goods and services, at current prices.)

During 'normal' times, the ticket holders are confident that they can always get seats with their tickets, the show is continuous, and they don't all try to go in at the same time.  However, when that confidence is broken by some event, exposure, or whatever, the theatre manager must make difficult choices:

Deflation/default: invalidate (or devalue) certain types of tickets.  This is probably the most painful approach: financial markets crash, 'wealth disappears,' and people lose jobs.

Inflation/devaluation: make 50-minute tickets good only for 30 minutes.  This is probably the least painful, as it spreads the pain evenly and proportionally according to wealth.  But this will be management's last resort because it exposes the true nature of system for all to see.

Financial repression: announce a 'temporary' ban on entering the performance hall.  We must be flexible with moral principles at critical times!

Imperialism: make other theatres honor our tickets.  Give them a share of the benefits, or threaten them with 'regime change,' or both.

Economic growth: build more seats.  Unfortunately, growth is not directly under the control of our rulers.  Companies must come up with new products that the public will pay money for.  Sometimes, ideas just aren't there.  (Even worse, during times of big asset bubbles, with their concentration of artificial wealth, new products tend to appeal only to the lucky.  Demand for these products disappear quickly when asset values go down.)

That's basically it.  Those are the only choices.  Historically, Western countries tended to spread the pain among multiple bad choices, to make each approach less draconian.

So, it would be a mistake to think that deflation and default would be spared their fair share of use.  The central banks will of course make a show of using monetary 'bazookas' to 'save' markets and the economy.  The reality is that avoiding asset deflation entirely would put too much of the burden on the other approaches.  When a virus can be blamed for economic pain, there's all the more reason in favor of deflation.  Yes, Fed action will save us from the worst structural disasters, but there will be deflationary pain.  (Don't buy stocks yet!)

In the early 1930s, the Fed did nothing as banks collapsed, people lost their deposits, and the US entered the worst of the Great Depression.  For the 2008 crisis, the Fed's Kashkari has just admitted the Fed didn't do enough to ease the pain, even though, just as today, the Fed made a show of rescuing the economy.  We shouldn't expect this time to be different.

Ultimately, theatre management must greatly reduce the imbalance between tickets and seats, for the sake of long-term stability.  The virus provides a great opportunity to do this, by receiving the blame for any pain and disruption.  Making rich holders of stocks and bonds pay part of the price will be too tempting to ignore.