His grandchild stepped over the roots of the tree whose branches now stuck through the hole in the roof.
‘What did this building used to be Granddad’
‘It used to be the Federal Reserve Grandson, the people who worked here used to be very important’.
‘What went wrong Granddad’ as he lit a fire to cook dinner from piles of its minutes of the FOMC.
‘Well in olden time the bankers who worked here were treated like priests, standing high above politics.there every word listened to by the whole world’
‘They ran monetary policy and governments ran fiscal policy and for many years it was stable and relatively peaceful. Their religion I think was called Taylorrulism.’
‘But it only worked as long as people could earn enough money to pay debts, when they couldn’t any more the people with power, the creditors demanded political intervention to maintain their wealth and power. The priests had to change their catechism to retain their dominant position – their hegemony.’
‘So there was a ‘regime shift. They had tried to offset the fiscal of governments, but that stopped working when the world entered a deflationary spiral as all central banks couldn’t do this at once without causing currency wars. What was needed for government to apply fiscal policy that was complementary to monetary policy but it pulled in the opposite direction – this was called ‘austerity”
‘Sounds nasty Granddad’
‘Yes it was there was what was called the European Spring – the debtors rebelled unemployment had become so high in some countries like Greece, Portugal and Spain they threw their government’s out’
‘But the creditors fought back’
‘Yes they did the political leverage of the creditors, and the regimes under threat of being deposed, was so great they didn’t compromise, so bone headed as the debtors couldn’t afford to pay. So they applied pressures on government who instructed central banks to enforce fiscal policy – they engineered bank runs in places like Cyprus and crushed the European Spring. Its whats called ‘fiscal dominance’ . Meanwhile the bubble in China had popped as it had in many oil exporting nations and there central banks were instructed by governments to do exactly the opposite and finance their deficits. The whole world was running contradictory and misaligned economic policy – it produced chaos, massive panicked capital shifts sparking bank runs, mass unemployment and violent extremism.
This wasn’t the first time this happened, it was much the same before the first and second world wars.’
Granddad pulled a book from his pocket.
‘Its all here in the new book by the 97 year old Charles Kindleberger ‘Will the F***kers Ever Learn?’, we repeated the mistakes of the age of the Gold Standard, of course we have to pass around hand copied versions these days.’
‘Why dont people learn from history Granddad, could anyone have stopped it.’
‘Well Chancellor Merkel could have, she had the chance she could have been a Great German, doing things popular in Germany, or a Great European saving Europe, she chose the former and Europe fell apart.’
‘Did anyone have a plan to fix it Granddad.’
‘Well yes, history teaches us that over the long run capitalism isn’t that stable and requires a reboot with a new monetary regime every so often, as Keynes did with Bretton Woods. Varoufakis had a plan to rebalence the global economy in his books, as did several other thinkers, a brilliant plan but he was seen as too much of an outsider and wasn’t listened to. Academics instead conducted scholastic arguments about outdated ideas like ‘market monetarism’ – a degenerate fundamentalist sect of Taylorrulism, which the fiscal dominance regime shift had left irrelevant.’
‘But it could all have been so different and I could have used my Playstation 4 without rigging it up to a bicycle generator.’
‘Yes it could son yes it could.’