Greece, Europe and the world are being crucified on a cross of Keynesian central banking. The latter’s two-decade long deluge of money printing and ZIRP has generated a fantastic worldwide financial bubble, and one which has accrued to just a tiny slice of mankind. That much is blindingly evident, but there’s more and its worse.
The present replay of high noon on Greece’s impossible mountain of debt clarifies an even greater evil. Namely, that the central bank printing presses have also utterly destroyed the fundamental requisite of fiscal democracy.
To wit, in the modern world of massive, interventionist welfare states, fiscal governance desperately needs an honest bond market. The latter is the only mechanism capable of taming the modern state’s primal urge to entitle, transfer, indulge, placate, subsidize and spend without the parallel pain of a commensurate burden of taxation.
Soaring bond yields and the fear of losing market access, therefore, are the one force that can cause the politicians, thieves and charlatans who man the machinery of democracy to sober-up and acknowledge the facts; and then to weigh the difficult options and tradeoffs, congeal a consensus and close the deal.
This proposition is based on experience, not theory – – even though the logic of bond market discipline is unassailable. Approximately 33-years ago, in fact, I was part of a small group of White House staff who talked Ronald Reagan into the impossible. That is, into signing not only a giant tax increase bill at the dark bottom of the 1982 recession, but to actually embracing several more such measures over the course of the subsequent three years. When the dust settled, these so-called ‘tax grabs’ took back fully 40% of his cherished and sweeping 1981 tax reduction.
This post was published at David Stockmans Contra Corner by David Stockman ‘ June 22, 2015.
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