In response to an FT article by Martin Wolf on 15th April 2014, entitled 'Too big to fail is too big to ignore'
Well argued, well written and wrong.
The first sentence is where the trouble starts: "No solvent government will allow its entire banking industry to collapse" Here's an unfortunate piece of information - most governments are insolvent. If we take the 'snake oil saleman's' definition of solvency then yes, they can keep printing money. But in the real world, a place that will once again reveal itself before too long - the US is bust. Bust is when you owe more than you make and have no prospect of ever paying it back - the US is bust, and no amount of kicking the can down the road will change that.
The US will never pay off it's debt with money that possesses the same purchasing power that it had when it was borrowed, and has no intention of even trying to do so. Washington and the Fed are trying to inflate away the debt. Let's call it what it is - stealing. If your neighbour borrowed a bottle of Bollinger every Monday and returned a bottle of Asti Spumante every Sunday you'd get out of the alcohol lending business pretty quickly. Fortunately, the world will eventually tire of Asti Spumante irrespective of what the US prints on the label.
This system is bust Mr Wolf. All the clever ruses and optimal control models in the world won't change that. The medicine is making the patient sicker. I've never been a fan of Lord Keynes, but the poor chap must be turning in his grave at the mess that his intellectual descendants have created. If he were alive now I suspect he would be shouting 'stop' at the top of his voice. I don't think he'd be sharing a cigar with Ben Bernanke and Paul Krugman, or any of the current crop of academics who, whilst very clever, are not terribly bright.