From Jack Lew, US Secretary of the Treasury, from a meeting of G-20 finance ministers and central bankers in Istanbul, Turkey:
In Europe, there’s a need for more fiscal policy. There’s a demand shortfall.
The Wall Street Journal, “Currency Warriors Get Boost From Finance Leaders,” 2/11/15
It’s a wondrous thing when two sentences can capture virtually everything that is wrong with contemporary economics, as practiced by developed countries’ finance ministers and central bankers.
Start with the notion of demand shortfall. What does that phrase even mean? That there are too much goods and services relative to the demand for them? In free markets, prices fall until markets clear at a price where supply and demand meet. Falling prices have been forbidden in modern economics, although it stands to reason than technological advances and other productivity enhancements would exert continuous downward pressure on prices (which is what happened during the span of the Industrial Revolution, the freest the US economy has ever been).
So yes, if prices can’t fall you’ll get a “demand shortfall.” The only way to remedy it would then be by some means other than the price mechanism. If you guessed those means would involve some sort of government action, compliments on your perspicacity. According to Mr. Lew, that means “fiscal policy.” Now fiscal policy can mean the government takes less in taxes, putting more money in people’s pockets, which would increase demand. However, in modern economics, fiscal policy means more government spending, funded by debt, which is then bought by the central bank (debt monetization), to achieve a desired inflation rate and level of demand.
In the last 6 years, governments have issued, and central banks have monetized, more debt than ever before in the whole history of mankind, probably more than all the prior millennia put together. The recovery from the financial crisis has been one of the weakest on record, but the attendees at the Istanbul confab agreed that was needed was still more debt, monetization, and currency depreciation. There were no announcements as to if, when, or how the world is supposed to get off this merry-go-round. SLL is, of course, betting that the it comes to an abrupt stop and the riders on their horsies get thrown off, hopefully sustaining massive injuries in the process. There has to be some consequences for rampant idiocy.
