Will our system fail like the Soviet Union?

Will our system fail like the Soviet Union? by Frank Chung. A sober warning from leading economist Vimal Gor, head of income and fixed interest at BT Investment Management.

The global financial system has been hijacked by an “unelected dictatorship” of communist central bankers who are steering the world towards a Soviet-style collapse of epic proportions. …

Mr Gor has used his monthly update to clients to tackle the elephant in the room: the failure of record low interest rates and money-printing programs to stimulate global growth, and the ever-increasing and undemocratic powers of central banks.

Elephant in the room

“[Our] financial system … feels like we are living in the Matrix,” he writes. “Everyone tells me the world I live in and the markets I position in are capitalist and democratic, but then why does it feel so much like a dictatorship where unelected people control everything?” …

Central bankers now “attempt to control the price of everything”, from the short-term interest rate via monetary policy and long-term yields through bond-buying programs, to the price of equities via direct buying and even the level of currencies through money-printing programs.

Yep. I’ve been explaining these issues in public talks for a decade now. Glad to see that even the mainstream financial sector feels it can no longer avoid the obvious. He comes to grips with the results of too much money manufacture, the need to keep the bubble afloat by any means, and the undemocratic non-accountability of our real rulers, the permanent government of bureaucrats, academics, and the media.

“[And] remember, these institutions are all unelected and largely unregulated,” Mr Gor writes. “A central banker effectively has total control everything. As Uncle Ben said in Spiderman, ‘With great power comes great responsibility’, but who are the central banks responsible to?”

Mr Gor goes as far as to argue that the main role of central banks is fundamentally anti-capitalist, because control over interest rates implicitly gives control over the value of all riskier asset classes, rather than a pure capitalist system in which the market decides everything.

“Doesn’t this mean that the way global economies and markets are now run is either the communist model or a dictatorship masked as a capitalist democracy?” he asks.

“The slow transition from a capitalist society to a communist-lite one isn’t in our view just a thought experiment, it is there in fact. What else are the much-lauded macro-prudential tools that central bankers love so much if not a direct way to control the price of credit?”

While he doesn’t suggest a “conspiracy”, he says he is “considering what happens if the institution of the central bank and the academic theory that it is built upon is flawed and is hurting far more than it’s helping”.

And it is. That flawed academic model is Keynesianism, which was only ever a short term response to the situation of the 1930s in the USA, where lower interest rates were needed to keep banks alive (their main assets were bonds). Government and banks, however, found that model so delicious they have been using it everywhere ever since.

The western world is currently seeing its own “revolt” in response to inequality and low wages — issues that “exist because of the failures of monetary policy” — in the form of populist, anti-establishment and pro-protectionist movements, Mr Gor writes.


hat-tip Mark