Socialism, brought to you by people with $3000 watches (and no pitchforks)!

If you thought socialism might be brought about by large, angry crowds with pitchforks, hellbent on redistributing your unearned wealth, you’re out of sync. There’s a much more acute danger of the majority of the world going socialist (well ok, state capitalist – it’s more flexible as it gives more leeway for crony shenanigans) by way of central monetary and fiscal authorities buying up an ever larger chunk of global assets.

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The greatest power and wealth transfer in history

The mark

The most feared, most powerful person on the planet is feared by politicians and central bankers alike. She’s not a billionaire, she’s not a celebrity. She’s a retiree. Baby boomer. And also part of the (still) richest generation and the (still) most powerful voting block. And you know what she REALLY doesn’t like? Nominal losses. Everything else is more or less bearable, but nominal losses on income and assets are unacceptable to her. She is the reason why central bankers are engaging in unbelievable gymnastics to conjure up inflation instead of letting bad public and private debts go into default and bad investments go bankrupt. It’s the only way to avoid nominal losses on pension investments and assets.

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The greatest malinvestment boom, ever

The economy needs low interest rates to recover

So, at some point after the crash of 2008-2009 both business and consumer confidence are dismal, investment and consumption are awful. There’s a decent debt overhang in the west, public and private. So naturally, growth is subpar. We need growth to float more boats, both literally and figuratively. To get it, we need investment and consumption. If the private sector doesn’t want to invest and consume, the public sector (both governments and central banks) can in theory incentivize it. Usually, it’s in the form of fiscal (budgetary measures like easing the tax burden) or monetary (central bank policy measures like lowering interest rates) easing. However, since most OECD governments are heavily indebted already and political undercurrents all but preclude lowering taxes in any significant manner, the burden of getting the economy moving again lies squarely with the true masters of the universe – the central bankers. So they do what they think might get people to consume and businesses to invest again. Interest rates go down and – as conventional wisdom would have it – the wheels of the economy should start moving again. But they don’t. Or they do, but it’s clearly not what everyone is hoping for.

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