Recently, we have noted a number of articles by economists and financial observers which comment upon the deteriorating state of “values” and “virtues.” We found this more than interesting.

Why?

As we have often observed, economists and policymakers do not like to define their arts in moralistic terms. For several reasons, they would like their views and prescriptions to be interpreted amorally…i.e. not involving morality. It certainly is rare to find any mention of “morality” in the Wall Street literature. Where it is allowed to speak of values, the term “virtue” or some other abstract idea devoid of moralistic content is usually used. Those who do raise the issue of “values” or “virtue” therefore do not make any references to a universal standard of morality. Were they to do so, their “scientific” pedigree and card-carrying humanism would surely be discredited. How so? Because the term “morality” is seen to imply an absolutist, non-negotiable Truth that requires a belief in the existence of God.

As such, this concept of morality is too constraining and intolerant for the liberal mind. Rather, the efficacy of amoral policies is defined solely in terms of materialism and human happiness. If overall wealth (however loosely and imperfectly defined) and economic growth go up, this is “good” and if they trend down, this is “bad.” Whether or not people will agree with this premise, it remains that the aggregate behavior of our modern societies does conform to this new definition of what is right and wrong.

Therefore, we think it of note that there is so much recent discussion of “lack of virtues” and “social debasement.” What is most interesting is that an appeal is made to a sense of “virtue” but only in total isolation from any standard of morality or reference to God. This is an astounding leap of non-logic for people who like to consider themselves “wise.” Nevertheless, some very important points are made in these discourses on “virtue.” We next make reference to a number of these comments.

Populist Perceptions on Non-Morality Malfunction

James E. Miller of the Ludwig von Mises Institute, in an article entitled “What Happened to Virtue,” queries: “The old fashioned ideas of hard work and self-reliance are made out to be anachronistic. […] It must be asked, where did the ideas of virtue originally come from and what role do they play in humanity?” He complains: “In the modern era, it would seem as if classic virtues (basic ideas of right and wrong) have lost their appeal. In their place has been a concentrated effort to promote those actions once thought of as deserving of moral condemnation.”

He makes many valid observations in regards to the ideal of virtue having diminished, and cites examples of such corrupted behaviors in the economic realm. We agree with his observations and share his sense of concern.

Yet, amazingly, he argues that virtue comes from nature. He cites the cardinal virtues defined by Thomas Aquinas — prudence, temperance, justice and fortitude — and says “These virtues, it is held, stem from nature and are discoverable through reason alone; a spiritual authority is not needed for their confirmation.”

While, on the one hand, it is rare that any economist today would write about “virtue” and such classical things as “morals” (and so we at least like to be encouraging of such discourse) he is unable to provide any real anchor and motive for virtue.

None of the cardinal virtues mentioned by Aquinas “stem from nature.” Evolution has no need for such concepts nor is it able to evolve such non-physical values. Values are not propagated through chromosomes. The very fact that Mr. Miller displays a sense of “justice” proves that there exists a “spiritual authority,” this being the God of Creation.

Mr. Miller closes his essay with this comment: “There isn’t a shred of decency in how governments or central banks operate. Their functions run antithetical to the basic virtues of mankind. If we as a species are to use our reason and free will to better our lives, the institutionalized violence the state embodies must be rejected.”

We would certainly agree with the first part of this comment. However, this comment implies another key observation: A society that no longer regards virtue will be given over to its public institutions that will not strive to maintain virtue. The opposite would be true as well. If democratic societies insist upon virtue, they will foster institutions that maintain such values.

To develop this connection further, we next turn to a report written by Dylan Grice of Société Générale entitled Memo to Central Banks: You’re Debasing More Than our Currency. He asserts that monetary devaluation undermines trust and that social cohesion is undermined as a result. As such, social devaluation goes hand-in-hand with monetary corruption. He calls these the Great Disorders. He then cites historical examples.

He links, for example, the great monetary debasement of the late Roman Empire with “social debasement.” He suggests that during such times of monetary upheaval, “scapegoating” and social infighting increase.

We reproduce two graphs (please see Mr. Grice’s report supporting this link: #1. Declining silver content of a Roman denarius; and #2. Turnover of Roman Emperors during the Third Century Crisis. Mr. Grice suggests that this “debased” social environment of Rome contributed to the persecution of Christians.

He also links the increasing incidence of witch trials in 17th century New England to rising inflation and similar “social debasement” phenomena taking place in France as leading to the terror of the French Revolution in the 19thcentury. We are not sure of all these connections exactly; however, it is true that monetary corruption must have an impact on the values of all society. It is not a victimless crime.

Other economists/anthropologists have also made the connection between deteriorating societal morality and monetary debasement. A number of writers have observed how a deterioration in “public personality” (another euphemism that avoids the word “morality” in the academic literature) coincided with the monetary dishonesties of the German Weimar era that took place between 1919 and 1933.

As people could no longer trust the value of money (this being a major avenue of communication between people), a sense of hopelessness and truthlessness set in. Morality was affected all around. For example, teenage pregnancies rose.

It is arguable which precedes the other: Moral deterioration of monetary policies or that of society at large? Whatever the case, they go hand-in-hand for most of the slippery downward slide. One cannot occur without the other. Therein lies the grave state of Western societies today…certainly that of North America.

Given these historical examples, one can only conclude by the state of central banking corruption today that Western society must be fast heading to the very bottom of debasement possibilities. Incredible immorality and ungodliness prevails. A state of hopelessness and truthlessness has only just begun in this writer’s opinion.

In the meantime, the lawlessness of monetary institutions continues to be guided by a belief in the boundless achievement possible through humanism and that there is no such thing as a “wrong” which requires atonement or consequence. All efforts that seek to escape the consequences of wrongs (sins), or depend upon the belief that errors, whether moral or physical, have no impact, will soon discover that virtue and truth are being debased.

Ungodliness Works Consequences

Quoting from the Feature Article of the August 2012 EVR, “We live in a dangerous world where prices abound without values; and costs are only measured in prices. In such a world the price becomes the value and values are separated from real costs. What that means is that the common denominator of what is right becomes the price.”

It only follows that views and actions based upon such definitions of price and godlessness are ungodly. That surely will be seen to be an intolerant statement. But, why should anyone who does not accept the existence of God be offended by being called “ungodly?”

They choose a godless belief system that requires a higher level of faith and factual malleability than that of any simpleton Christian (this being the Christian of popular conception today). In return, the Bible is no less complimentary of those who deny the existence of God, saying: “The fool says in his heart, ‘There is no God’” (Psalm 14:1).

However, the Bible goes further in this verse and clearly outlines the consequences of such “godlessness,” saying “They are corrupt, their deeds are vile; there is no one who does good” (Psalm 14:1).

As such, it should be no surprise that by Biblical standards, societies are devolving into greater godlessness.

Epochal challenges and upheavals are facing the world financial order. Many Western nations have fallen into classical debt traps; and economic growth rates for many countries have plummeted to a crawl. The largest nations and economic zones are facing continuing and unprecedented tremors. Japan, the third-largest country in the world economically, is caught in a demographic death spiral. The United States is headed for financial and economic suicide on its present course. Yet, many observers remain either unperturbed or complacent. They have no idea as to the continuing troubles ahead.

They are not entirely to blame. They have been lulled into believing that government interventions, bailouts and rescues will always carry the day, no matter how grave the crises may be. Little do they realize that consequences cannot be escaped. If anything, the ultimate crises and collapses will be worse than they needed to be, due to the many techniques used to kick the proverbial can down the road.

All of the problems we identify today are the direct consequence of past choices and unwise policies. The root problems, believe it or not, are fleshly and spiritual in nature. Of course, no card-carrying economist would offer such a diagnosis. We say spiritual in the sense that societies have increasingly staked their hopes upon beliefs that are false or non-sustainable, such as materialism, the ascendancy of the profit motive, neo-liberalism, and so on. We say fleshly in the sense that societies are increasingly engaged in the unbridled pursuit of fleshly fulfillment. Greed, aging societies, and widening inequity of wealth distribution are some of these manifestations.

These are deep problems of a moral nature that secular governments are ill-inclined to solve. What, therefore, is the solution? Apparently, the answer is very evident. Policymakers are looking to central bankers to come up with the fixes and/or deferrals. We are stunned to consider that any knowledgeable policymaker could actually believe that the “monetary wizards” who run central world banks and other financial transnational organizations can implement policies that will solve problems that are moral in nature. This would be patently ridiculous…to use fictitious money (itself immoral) to solve mankind’s moral deficiencies.

As such, we are inclined to believe that something very opposite will occur. Central banks will pursue even greater “monetary immorality.” In secular terms, this is called “unconventional policy” (something that does not involve morality). But, just what do we mean by “unconventional”? We think this term gives rise to some wild-cards that many savers and investors are not yet thinking about at this time.

Just as societies can change their popular views with respect to new fads and morals (no one makes a big deal about long hair and facial piercings anymore these days as was once the case), it is also this way with the accepted norms of monetary protocols. This changing of the “monetary morals” is already well underway. Many do not see this as they assume that central banks will someday unwind their interventions. Moreover, they are blinded by the accepted conventions of central bank accounting.

To demonstrate this last point, consider this question: If the U.S. Federal Reserve (Fed) buys up U.S. treasury bonds, is the debt-to-GDP ratio of the U.S. actually being lowered? We “predict” yes. How so? It will be an enticing solution. Consider the mechanism. The Fed pays for the U.S. treasury that it buys with new created money. It simply adds a liability to its balance sheet and shoves money out of thin air into the banking system. The cost of capital for the Fed is virtually nil and yet it now collects the interest payments earned by holding the U.S. treasury bonds. What happens to this income? It is added to the profitability of the Fed. At the end of every year, this central bank transfers its profits to the federal government.

What has happened? The interest cost of this debt has been lowered to the U.S. government (effectively, getting it rebated back). And, if the Fed never again sells down its treasuring holdings (maintaining them at the same level), isn’t this virtually the same as lowering the U.S. federal debt burden? Yes, so it will be perceived. It would be the equivalent of these bonds being retired. Yet, the accounting convention of the central bank will be to still show these bonds as an asset. What you see therefore promotes a structural illusion.

If global economic torpor and deflationary demand shocks continue, we would expect even more treasury bond purchases by the Fed (this applying to other central banks as well…i.e. the ECB). Why wouldn’t policymakers propose retiring massive amounts of government debt in this way? This would appear to be so much more pleasant than intolerant austerity policies…so seemingly painless. Of course, this perception couldn’t be more wrong, though surely alluring and easily pandered.

The deterioration in “monetary morals” can go much further. In fact, we will not be surprised if it slides much, much further. There is not a small number of policymakers that have broached the topic of “unconventional” monetary tactics. The signs of such central banking shifts are being seen around the globe.

The IMF (International Monetary Fund) explored the topic of budget spending multipliers in its recent Outlook. It argued that the “fiscal multipliers” are much higher than thought, therefore implying that budget deficit cuts may actually lead to higher deficits. If they are not to be cut, then on this logic does it not follow that even higher deficit spending would be even better? But just who would be financing such endless and stupendous government deficits? Central banks, of course.

There is one further step that could follow in this slide, and that is to have central banks directly buy the debt instruments of governments (i.e. circumventing the route of buying them in the open market). We would not be surprised if Japan were soon to adopt such a desperate policy. At this point, some laws and statutes stand in the way of such activities; however, it is likely that necessity will pay little heed to such restrictions.

Our conclusion is this: Long-term developments look challenging and grim. As such, we are inclined to believe that the downhill slide of “monetary morality” has not finished its course given its many willing complicitors. But, the ultimate fall-out cannot be avoided. We think that all of these current and future developments are very unfortunate as none resolve the underlying problems but rather only redirect their impact to a more deceptive and unsuspecting path, thus “kicking the can down the road” toward to even greater disruptions and crises.