It is happening around the world. Populist anger directed toward the financial industry (the creator of inflation) is forcing politicians into uncomfortable positions of austerity just as the politicians congratulate themselves for "saving the world." Social mood, an unstoppable force in both directions, is getting the better of what has almost unquestioningly been referred to as "the recovery."
Paradoxically, there are very few who actually want a recovery. I don't. None of my close friends do. Not if it means another bout of asset speculation, inflation and the degradation of social values that go along with it. As such, few of us are complying with the attempts to reflate. Most are unknowingly putting the kibosh on central bankers by resisting lower interest rates, saving, waiting for lower asset prices, and simplifying their lifestyles.
This is a process - a slow one - so it is not easy to put one's finger on. But where emotions run deepest (politics) we can see the changes clear as day.
Three weeks ago in Japan, the DPJ (Democratic Party of Japan) defeated the LDP (Liberal Democrat Party) handily. It was the first LDP defeat in decades. The DPJ intends to "overthrow the ancient régime locked in old thinking and vested interests, solve the problems at hand, and create a new, flexible, affluent society which values people's individuality and vitality." They claim, "the bureaucracy of the Japanese government size is too large, inefficient, and saturated with cronies and that the Japanese state is too conservative and stiff."
Japanese voters may not know it individually, but collectively they are saying, "we are sick and tired of your attempts to reflate the economy for your own benefit, without regard to the unintended consequences." As such, they voted for a party that promised the ability to make more economic decisions at an individual level, rather than via the central planning bureaucracy.
Whether or not the DPJ acts on any of the above is conjecture. Social mood in Japan is forcing the government into a "strong yen" policy that benefits individual Japanese, rather than large multinational exporters.
Meanwhile, over in Germany a nearly identical shift occurred in their election. The FDP (Free Democrat Party) took a large chunk of votes from the SDP (Social Democrat Party) and will now be the keystone in a coalition with Angela Merkel's CDU. The FDP are best described as "classical liberals" or libertarians. They increased their vote totals by nearly 50% on a platform of reduced economic intervention, lowering the public debt and lower taxes.
Once again, we see voters rejecting the inflationary tendencies of big government. Both the Japanese and Germans dislike their excessive dependence on foreign exports. They both elected governments that disavowed subsidizing exporters at the expense of domestic producers. Political pundits will inevitably paint this as some sort of shift toward "right wing" or "isolationist" tendencies. These are both meaningless terms. Social mood has simply changed. They rejected inflationism.
And yes, this is slowly happening in the US as well as elsewhere to be sure. The Federal Reserve has the lowest approval rating among all US agencies (even lower than the IRS!) The Federal Reserve Transparency Act (better known as the Fed Audit Bill or HR1207) is gaining momentum and is sure to pass in one form or another. Last week, congressman Alan Grayson publicly lynched the Fed's General Counsel Scott Alvarez.
But most revealing is the continued reluctance of the FDIC to tap their credit line with the US Treasury, instead deciding to charge member banks nearly $50 billion in fees. Apparently, getting one's hands on ungodly sums of money is not as easy as it was 6 months ago when news of the government doling out $100 billion for this or that was a near daily occurrence. There are real concerns of a further increase on the government's debt ceiling to be rejected by congress. Populist anger toward the lack of fiscal restraint has put pressure on congressmen and women to think twice before casting a 'yay' vote in favour of anything. Midterm elections are coming up in just over a year. And true fiscal conservatives (ie. Libertarians) like Rand Paul and Peter Schiff are raising big money to fight profligate spending tendencies in Washington.
The three largest economies in the world are slowly experiencing the above mentioned shift. Where inflationary fiscal tendencies of governments have been succeeding, they are now coming under attack. This is in addition to the massive failure that monetary inflation has had since the crisis began. Inflationists continue to believe that both governments and central banks can create inflation at will, while in reality we see that neither can without the complicity of a risk seeking behaviour in banks and individuals.
People's attitude toward debt and speculation has changed. As the process intensifies, debt revulsion will accelerate until frugality itself reaches a level of unsustainable extremism. By the time it is widely understood it will be over.
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