Autumn 2020: after the astonishment of spring, the Western population experiences a sudden return to reality. Emergency and recovery plans follow one another. Public debts are climbing. Money seems to come out of nowhere, is it magic? Is it simply an advance on our future income that will one day have to be repaid?
The magic being quickly ruled out, there would then only be one alternative: controlled inflation or, after a period of budgetary stimulation, a return to austerity.
But is this alternative that Jean-Claude Trichet, former President of the ECB, describes as a paradigm realistic and desirable? How can we accept that inflation, combined with the current monetary policy announced as sustainable, organizes a spoliation of savers and a blockage of capitalization at the heart of the mechanisms of redistribution or intergenerational solidarity? How can we accept lasting budgetary rigor, which, given an unchanged international framework, will mean virtual stagnation in the West and therefore the continuation of the trends observed for 10 years, in particular an increase in inequalities of all kinds? Whatever the scenario, internally the social pact will continue to deteriorate and, externally, dangerous tensions will spread. All of this will promote dangerous destabilization. It is therefore not surprising that, faced with these prospects, people’s mistrust is growing and that politicians are struggling to convince.
Why are we in this impasse? Our diagnosis is that the current situation is mainly the result of an inadequacy of certain organizational principles at the heart of the overall system.
It is no longer useful to discuss technical or legal modalities. We must work on these principles. Because the economic system is not a natural given. It is a device built, thought out and designed to organize production and its financing through a currency and a financial system …….
Today, as in the post-war period, the monetary question is back at the heart of debates and with it the relevance of the organization of monetary creation and the management of money. The central banks themselves are responsible for this return to a subject that we thought had been dealt with for a long time. Because, with unconventional policies, the system has only one answer and it is monetary: always more public debts and monetary creation, despite twelve years of ineffectiveness of such measures. Without reflection on the monetary question, we cannot discuss the stakes of such policies. ….
Why such a blockage? The answer is the existence of a unanimous consensus on specific representations of monetary phenomena … let us quote that the assimilation of the public debts with debts ordinary economic agents is part of it…. This consensus is so well integrated in almost all the minds that it became for the greatest number an obviousness. It constitutes the intellectual foundations or the conceptual framework (conceptual framework) the scientific justification of theoretical and technical models, and thus of organizations.
Thus, the current monetary system, rationally constructed on the basis of this consensus, therefore seems logically without a credible alternative. Even in the event of proven dysfunctions, nobody thinks of questioning the consensus. Economic and political leaders are then logically blocked because they wrongly assimilate from rules of action resulting from this consensus to immutable and intransgressible physical laws. VS changing these rules when they are unsuitable is intellectually impossible for them. This is all the more so as the paradigms in question are the basis of their own powers. And, of course, these attitudes are reinforced by the action of some who take advantage of the current situation.
It is therefore a monetary reform based on a renewal of the consensus which seems increasingly essential to come out on top of the current crisis.. This reform should have two axes:
1. The treatment of the past by the erasure of significant amounts of public debt, but without destroying the corresponding money supply.
It is possible, because the public debts are not ordinary debts, the State is neither a company, nor a household, it represents the community. But when we remember that money is itself a credit that the community gives to itself, money and public debt are in fact two particular expressions of the same reality, the collective credit necessary to make a society work. economy. We can therefore go from one to the other without violating this reality. But then we have to free ourselves, as has just been said, from the conventions used to build this system for managing this reality but which today turns out to be unsuitable. This cancellation can be done within the Central Bank and relate to public debts held or redeemed for this purpose. This operation is necessary to provide the budgetary means to adapt the economy to the present situation, but it is not sufficient.
2. For the future, improving control over monetary creation in its two channels: public deficits and bank loans.
This is essential because the mechanisms in place for fifty years to regulate have not been effective in containing public and private indebtedness to sustainable levels. They must be changed. We had known this since 2008, but the choice was then to postpone the reforms by adopting unconventional policies. However, such reforms would be interesting for the banks themselves because we can find there ways to overhaul their economic model, alleviate the constraints weighing on them and strengthen their corporate financing capacities.
But to be truly effective and contribute to the installation of a more stable economic order, this monetary reform internal to the monetary zone must be supported by a correction of the external imbalances between the large monetary zones and which are at the origin of the crisis. global debt by:
3. Global rebalancing of consumption and production of easily reproducible goods and services and their added values. This will require the deconcentration and relocation of part of this production.
This requires revisiting the Ricardian system which currently justifies international trade in a financial way to integrate extra-financial, social, environmental and climatic criteria and taking into account the dimension linked to capital movements which is still there today. absent.
4. The return to a truly regulatory International Monetary System, adapted to the multipolar nature of the world economy.
This requires a very sharp reduction in foreign exchange reserves and the drastic limitation of foreign exchange agreements.
Vast projects, certainly, but, from our point of view, to implement them, they depend less on a hypothetical wise and enlightened world governance, than on the existence of a resolute action in the face of a reality that will necessarily emerge, because of the unacceptable character for the populations of the current conceptual and organizational impasse….
To cut this modern Gordian knot where will we find an Alexander? Or a Franck D. Roosevelt to launch our economies on a new New Deal? This is not the least of the questions posed by the current situation.
1 Hubert Rodarie, Erasing public debts, it’s possible and it’s necessary, Editions ESKA 2020 2 Page 12 in Philippe Dessertine (ed.) Public debts: magic potion or poison, 2020 3 Cf. opus cited. 4 Cf. opus cited see appendix for an example of modalities.