Theories and Crises (Currency - Financial)

By Carlos A. Bondone

Once more and due to the appearance of financial crises we become aware that theories can not explain them, prevent them, diagnose them or even discuss them adequately. This time, the prevailing theoretical weakness has to do with its international frame. We can very well say that the situation is about “many crises and many theories”.

Let’s see how The Theory of Economic Relativity (TER) and the broadest Theory of Economic Time (TET), unlike current theories that hold the current international financial order, allow us to understand in a better and easier way the origin and consequence of currency-financial crises. With the TET we try to say: “many crises and one theory”.

We are witnessing a general financial crisis (international) , it means that the most important debtors (in this case the Monetary-Financial-Irregular-State-Monopolist Systems – MFISMS) can not pay their debts. Let’s see how we can analyze it:

Causes of general currency-financial crises

Let’s see a brief introduction:

  1. A general crisis implies the existence of an important bankruptcy in the economy (given the high improbability that most debtors enter a crisis simultaneously).
  2. The general character of the crisis validates the TET in two central aspects:
    1. The existence of a bankrupt player of great importance who causes a chain reaction of minor bankruptcies’.
    2. That that very big bankrupt player is the MFISMS of every country in crisis, detrimental to the market-creditor, in contrast to what the current theories support, that invest the debtor-creditor causality when considering, among other things, the Treasury (Central Bank) as a lender of last resort and hold that paper currency (PC) is generated by the State.
  3. To the global financial crisis we have to add the currency crisis that derives from the use of currencies in the form of irregular credit (such as PC), theoretical category emerged from the TET. In order to understand better, this is the origin (among other things) of what is commonly discussed as “exchange rate crisis”, term that could be assumed as one more manifestation of “currency crises”

In short, the crises we are discussing are made up of currency crisis plus financial crisis (of MFISMS)

Consequences of general currency-financial crises

Let’s see some of them briefly:

  1. The main debtor falls into financial crisis: we reiterate that the MFISMS is the one who enters the financial crisis before its creditor - the market; not the other way about as presented by current theories, establishing the idea that the market is the one who entered the financial crisis - situation we already know is completely improbable without a big bankrupt player.
  2. Period of general financial crisis: like any financial crisis, it happens when the creditor does not give more credit to the debtor. Here, the market-creditor tells the MFISMS that he can not continue granting credit facilities. The difference of diagnosis of the TET with the current theories is evident; the market is presented as the cause of all evils.
  3. Independence of the Treasury (Central Bank): the idea that currency-financial crises are only reserved for countries who are unaware of the “fundamental” principle that the Treasury (Central Banks) should be “independent” emerges from current theories (a group of experts arrived in Argentina in 2001/2 to announce this “momentous report”). Well, only a pair of weeks was enough for the developed world to destroy the institutional structures that “guaranteed” the aforementioned independence, something that could not be otherwise because they only were ad hoc attempts to hide a reality that current theories did not notice - the fact that the independence of the Treasury (Central Bank) is a UTOPIA. According to the TET, the MFISMS has, in essence, a political origin. On this matter, the current theories present, among others, two important contradictions:
    1. Suggest that currency has its origin in the State - completely different position to the one set out by the TET: currency, in any of its forms, always has its origin in the market. .
    2. And from this stance - of assigning “state” origin to currency - try to have political independence from the Treasury (Central Banks) in MFISMS. This Utopia is revealed in extreme cases as the current ones, where the “appearance of institutional structures to provide independence to currency authorities collapsed in a pair of weeks.
  4. The Treasury (Central Bank) lender of last resort: only one and simple question will help explain this position: if it is like this, why don’t we solve financial crises with a simple loan from the Treasury (Central Bank) to the sufferer of the financial crisis? It is evident that the solution is not such and it is because it is not noticed, as the TET does, that precisely the one in debt is the MFISMS (led by the “lender of last resort”).
  5. End of crisis: it will happen when the market-creditor accepts the proposal (explicit or tacit: currency depreciation, refinancing, etc.) that will present the main debtor in order to arrange the infinite mini-proposals of minor bankruptcies that generate the “meeting of creditors” of the main debtor. ”).
  6. Consequences of the crisis: any crisis gives rise to many consequences. Some of them can be more predictable than others according to theoretical conclusions about greater possibility of occurrence of ones over others. Let’s see the post-crisis consequences with high probability of occurrence that the TET provides us:
    1. Global currency-financial crises produce the interruption of the virtuous circle of capitalism - everybody in the interest of everybody - taking it to the typical precapitalist state - everybody against everybody. This is like this as long as these crises guarantee us one only result – fewer people will have more to the detriment of more who will have less (rational expectations within reach of few?). In the crises, that the MFISMS constantly produce, the inequity becomes impossible for the capitalist system to tolerate.
    2. In cases of currency-financial crises of a set of countries with irregular unique currency (euro) and different economic-political structures, the situation demands necessarily the definition of a political leadership (Germany?).
    3. Instability of Business is typical while creditors are awaiting the outcome of the debtor’s financial crisis. The economic signs (depression, expansion, deflation, inflation, unemployment, etc.) are nothing else than imperfect indicators of that state of business. In other words, the economy will be in permanent instability as long as the situation of the main debtor and of the few who were dragged by their situation would be clarified, besides the fact that in this case the debt is on the people’s shoulders (through the State debtor).
    4. Countries with better capitalist institutions (USA) are better prepared to deal with recurrent crises derived from irregular currency-financial systems (Argentina and its pseudo capitalism).
    5. Demonstrations of widespread crises of currency prices (inflation-deflation) are not necessary as a sign of presence of a currency-financial crisis.
    6. The state emergency “bailout” of the financial system is nothing else than the recognition of the totalitarian structure of the current MFISMS which alters the virtuous circle of fair wealth that generates capitalism.
    7. While the “moral-hazard” is tried to be avoided (someone else is in charge of the damage), nobody realizes that it itself is the essence of the current MFISMS; to evade its occurrence is as Utopian as the independence of the Treasury (Central Bank).
    8. As it is always the creditor the one who notices the situation of the bankrupt debtor (the last to know about his condition), it is obvious that the market-creditor (the private sector) is in charge of suffering and announce the state of bankruptcy of the MFISMS.
    9. The worry to nationalize “private” debt implies recognizing an order of causality inverted to reality, equivocal that that does not present the TET when pointing out that the one in debt is the MFISMS with the market (private sector). The debt is a state debt in essence so it does not have any sense to nationalize what belongs to the state.

1) All currency-financial crises have as a common origin the current currency-economic theories that operate as a means of support of the current currency-financial systems.

2) The crises we are dealing with (all of them alike, not different) are made up of currency crises plus financial crises. To try to solve one of them without the other is to submit the patient to a long and painful treatment within a frame of permanent instability of his condition.

3) Let’s leave for the next article:

  1. The benefits that the countries which can finance their economic development obtain when “imposing” their irregular-financial-currency systems to the rest of the world (e.g.: USA XX century)
  2. The curious Chinese case which built its economic development “granting” credit – from its poverty – to the rest of the world, to sell its production.

Buenos Aires, April 2010.

Visitas 538851