Waiting for good dough

In yesterday’s Best of the Web column — “Waiting for Good Dough” — James Freeman quoted from Elliott Management’s most recent newsletter to investors. Elliott Management is the hedge fund run by Paul Singer. Freeman obtained a copy of Singer’s otherwise private newsletter. He quotes Singer on the epic bouts of debt financing and modern money manufacture undertaken by the federal government over the past 10 years. This is Singer speaking:

In the play “Waiting for Godot” by Samuel Beckett, which premiered in 1953, two characters wait for the arrival of someone named Godot, who never arrives. In our version, Good-Dough is sound money, and its chance of arriving is just about as slim…

Too much debt, unsound financial institutions, oblivious corporate executives, and arrogant and clueless central bankers brought the world to the brink of financial extinction in 2008. Then, so the story goes, these same central bankers morphed into heroes and saved the world with their monetary fire hose on “full crowd control” and “confetti” settings. That tsunami of newly printed free money lifted securities prices, deepened inequality and unleashed the political testiness that comes along with such a novel and distorted recovery, and it tested and kept testing the willingness of people to accept cotton-candy money at full value.

Sadly, when people (including those who should know better) do something stupid and reckless and are not punished, it is human nature that, far from thinking that they were lucky to have gotten away with something, they are encouraged to keep doing the stupid thing, keep believing the unbelievable and keep assuming that they were just plain wrong to be concerned about “old-fashioned” restraints (like sound money: Good-Dough). As we have pointed out ad nauseam et beyondum, doubling down on unsound policy just raises the stakes and the intensity of the future “payback.”

James interjects: “Mr. Singer then emphasizes that he favors the current emergency measures to help people who find themselves in desperate straits through no fault of their own. He also notes that yet another flurry of emergency money printing is not without significant risk—especially if policy is not reformed immediately after the crisis ends.” He then returns to the Elliott newsletter:

Now there is a new emergency, and at this moment, emergency monetary policy is completely appropriate. But we want to remind people of a few truths. On form, we think it is very unlikely that central bankers will move to normalize monetary policy after the current emergency is over. They did not normalize last time, and the world has moved demonstrably closer to a tipping point after which money printing, prices and the growth of debt are in an upward spiral that the monetary authorities realize cannot be broken except at the cost of a deep recession and credit collapse. The point worth making is that credit collapse, although terrible, is not as terrible as hyperinflation in terms of destruction wrought upon societies. Capitalism, which is economic freedom, can survive a credit crisis. We don’t think it can survive hyperinflation. We think that there are a number of really good reasons to stringently try to protect the purchasing power and trustworthiness of fiat money, especially the primary reserve currency: the almighty dollar. But chief among those reasons is to keep a good distance away from the tipping point in which confidence is destroyed.

James himself offers this quotation without further comment. Locked up in lockdown, we have the time to reflect on it. I have pulled down my copy of Adam Fergusson’s When Money Dies from the bookshelf (reviewed here in the Journal by Andrew Stuttaford).

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