Tuesday, May 11, 2010

Money-Theism, The Faith That Failed

Future historians may well find post-modern man's faith in the power of money as perplexing as Cortes and his men found the faith of MesoAmerica. It is, I believe this curious faith in money's power that allowed finance to become as protected a practice as any in Christianity. How else could three men who kept markets functioning be proclaimed as "saving the world"? Why else, but for this faith, would politics allow their preeminent position to be usurped by banking?

Dedicated to Dr. Chan whose questions sparked this line of thought.

Human sacrifice. To the modern (i.e. late 15th Century on) mind, the notion of ritual human sacrifice earning the favor of the Gods seems absurd. While Hernán Cortés and his men had few qualms about killing people to achieve earthly goals, they were horrified by the MesoAmerican penchant for the practice during the Mayan and Aztec conquests.

Yet, I'm sure the Mayans and Aztecs "believed" in the virtues of human sacrifice, with some literally believing Gods' favor would follow while others, taking a more practical perspective, assumed the practice scared neighboring tribes or conditioned the population's acceptance of the regime's power.

Today, no doubt, some purists still pray to the money God, while others are motivated by more practical concerns, like Big Bonuses. So it is with all man's faiths.

Alas, for the MesoAmericans, their appeased Gods did not defend them from Cortés and his minions (or Cortés won them over with his greater blood-lust). The Gods failed.

Post-modern man has his Gods too. He worships, inter alia, technology, democracy and, in particular, money. The money worship to which I refer has little to do with the desire therefore, but rather, the faith in money's power over nationalist warfare and thus as means to world peace.

Future historians may well find post-modern man's faith in the power of money as perplexing as Cortes and his men found the faith of MesoAmerica. It is, I believe this curious faith in money's power that allowed finance to become as protected a practice as any in Christianity. How else could three men who kept markets functioning be proclaimed as "saving the world"? Why else, but for this faith, would politics allow their preeminent position to be usurped by banking?

Pedantic Pause:
One wonders how long it will be before an elected official complains, "Will no one rid me of this troublesome banker?" and then does penance at the slain man's tomb. My sense; if it doesn't happen quickly, the odds of seeking penance are small. Alternatively, some Jack Cade type might gain power and take the advice of a friendly butcher, but direct his ire at bankers instead of lawyers.

Paraphrasing the bard: Is not this a lamentable thing, that of the body of an innocent tree should be made paper? that paper, being scribbled o'er, should undo a man?

One can trace the growing faith in the money God in both the continued trend of US decisions in favor of monetary globalization at the expense of sound domestic growth and the rush to implement European Monetary Union (EMU) before political harmonization. A common money (call it money-theism), it was believed, would end centuries of European and even world conflict. Remember the joy of the Neo-Cons (inter alios) as the Russian and Chinese economies "dollarized"?

It was proclaimed to be The End of History.

You could almost hear the Neo-Cons chanting, Tolkein-fashion: One money to rule them all, one money to find them, one money to bring them all and in the darkness bind them.

History, a decade hence, might borrow a line from Mark Twain and suggest, "rumors of my demise have been greatly exaggerated."

Ironically, the Gods of Mount Olympus have demonstrated the weakness of money-theism. Greek dissatisfaction with EMU rules (20 years ago, Greek officials would have just let the Drachma slide) supports "economist" over "monetarist" visions of the power of money which emerged on the road to Euro.

In 1970, the Werner Report forged a compromise of sorts between these two groups debating the means to create EMU. As Matthias Kaelberer details:

The major policy clash was between the "monetarists" and the "economists". The "monetarists"- a position forcefully presented by France- argued in favor of quick progress on monetary cooperation, which would then serve as a tool to harmonize economic policies. The "economists"- reflecting the position of Germany- argued in favor of prior convergence of economic policies before moving to a monetary union.

His critique of the monetarist position (written in 1993) was prescient:

Had the monetarist position succeeded, it would have offered deficit and high-inflation countries a free ride: In a complete EMU, Germany would have either had to finance the balance of payments [BoP] of the deficit countries or it would have had to accept a higher inflation rate.

In the event, "monetarists" won the battle but "economists" won the war. The PIGS went on a free ride and Germany (and the rest of core Europe), to keep EMU, must either finance the PIGS' BoP deficits or accept higher inflation.

On a wider stage, the ongoing battle between China and the US over exchange rates is another sign that money-theism, the current theme of globalization, has failed. The virtues of unified money will have to wait unless and until national political system aims and means converge.  We might even discover the drive for monetary union ignites rather than extinguishes war, but I hope I'm wrong.

It is, I believe, the end of an era.

But, my psychologists/editors at Seeking Alpha (an inside joke) are probably saying, "Where's the beef? What action should our readers take?"

The days of banker-glorification will soon be behind us. Politicians will retake the high ground and bankers will no longer be protected from the technology revolution. How much do you pay in ATM fees each year? The division of national corporate profits will shift back in favor of the real sector. If I was still trading at a Hedge Fund, I'd be short all the big banks.

The intensifying battle between bankers and politicians will likely lead to increased sovereign funding problems. States, once again, will have to pay a fair price to borrow.

I wouldn't be surprised to see double digit western sovereign bond coupons in the not too distant future. (In other words, sell western sovereign bonds).

While the theme of globalization has been exposed as false, the virtues of increased trade (which should accrue at a faster pace, once cleared of banker-parasites) are clear. The world, in my view, is not yet ready for a common money, but begs a flexible international financial architecture. Specie, as the recent rallies in Gold and Silver demonstrate, is making a comeback and may yet be resurrected as a basis, in one manner or another, of the next system.

Full Disclosure: Long Gold and Silver
Time Disclosure: I'm no longer a "trader" but an "investor".  I think, when investing, in units of decades, not weeks, days or hours.  In other words, those looking for the next 10/32nds in bonds are in the wrong place.

1 comments:

STS said...

I like to call the Republican party of recent years "the God & Mammon coalition" with the slogan: "God talk for the poor, bucket loads of cash for the rich".

Of course the institutional Democratic party are pretty enthusiastic Mammon-worshippers, too, but without the extra helping of doublethink that has allowed Rs to "serve two masters". Put another way, they wouldn't get this joke without the help of an explicit chapter and verse biblical citation. (Which I'm confident you don't need...)