Socio-Economic Dialysis

The less temperate are aware of kidney and liver function after Friday night excesses and that copious intakes of water speed recovery; such is the price of inspired mental stimulation thus derived.

Our organs restore chemical balance and remove toxic substances so long as we realise that over-frequent bodily abuse is likely to end with permanent, life-threatening damage.
In our rapidly changing world a parallel is self-evident. Years of substance abuse (money) has resulted in our social-economic body destroying its organs. The life blood of capitalistic society is neither being replaced (bankruptcy) nor cleansed of toxins (bad debt); the blood circulation is being constrained by fear (cholesterol) and a weakening pump (demand and credit).
Replacement of blood cells (share markets) has ceased and the ailing body is being kept alive by transfusions (bail-outs). Both kidneys are failing and need dialysis (buying time); the liver is hard, flat and failing to produce bile and food conversion to energy has ceased.
Meanwhile the politicians, consumed by arrogance of power-disguise their absence of ability through lavish meetings, transparent symbolism and self-congratulatory rhetoric as their regulators and executive hack into the financial corpse to provide diversion to plot their own escape!
Democracy is being perverted by ignoring the basic strength of that imperfect, but functional ideal, the wise, experienced citizen; not their sycophantic hangers-on. If a safe landing is wanted on choppy waters choose a ‘Sullenberger’, not a teenage C210 tourist pilot.
How to restore life and ultimately health to that shattered socio-economic body?
The share market, currently a betting shop for traders, has to be restored as a source of capital in return for expectation of dividends; price growth must be a function of increasing real asset value and cash generation, not increasing debt and collusive competition. Speculative activity, once positive, is now feeding collapse.
Transaction taxes must impede speculative activity and promote sensible corporate gearing (debt/equity).
Solution, let the markets collapse without bailouts; let a new and lower level of economic activity return; let the successful companies rebuild, let the others fail. Capital will return to success. General Motors will die!
This will reverse impact on globalisation, price fixing and increasing concentration of production. Equally there will be a huge excess of physical assets to drive future growth. There will be a return to value, and hopefully values! A return to supply, demand and price norms will restore stability.
A return to understandable and manageable finance systems is required. Size does matter; institutions ‘too big to fail’ are themselves actually a strategic regulatory failure. The reality is ‘they are too big to survive’. Banks and similar, over leveraged, insolvent and currently inactive in the lending market, should be allowed to fail; even better, where loan customers are solvent, they should be forgiven their debt, depositors should be bailed out and the remaining assets and liabilities be put aside to be sorted out later. Bailouts of both sides of the balance sheet seem dumb. Contractions and pain are an essential part of birth!
Then excessive wages (at all levels) and ‘ability to pay’ prices must be allowed to realign at lower levels in the industrial world such that more of the whole world become part of the economic system. Aggregate demand will rebase within the new economic model. Production of real goods will replace logistical cleverness and with real wages.
The socio-economic body can recover, but only at more modest, controllable, understandable and sustainable levels. Meanwhile dialysis drags out the pain and negative feedback loop strangle. Bye bye Euro!
csmith@mweb.com.na

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