"The Federal Reserve was given the responsibility of assuring a flexible currency so it could carry out its original mandate to act as a lender of last resort. Federal Reserve currency is therefore readily available to substitute for bank deposits in the portfolios of households and businesses whenever a run on banks occurs. In substituting Federal Reserve deposits or notes for customers' deposits, Federal Reserve banks acquire assets that banks had acquired in financing commerce and production"" [v]
In the process of sustaining asset values --" and thus profitability, the US government has incurred enormous debts purchasing, usually at bubble-inflated prices and thus at a loss, private sector financial assets.
This is obviously a Rube Goldberg approach to the problem of providing the employment and hence the income most of the world's population requires to sustain itself. If we have learned anything in the years since Ronald Reagan, it is that trickle-down economics doesn't work because the money given to the wealthy doesn't trickle down. Cumbersome as it is, this approach to keeping the world's workers working may have been preferable to that used during the first half of the 20th century. No serious student of history and economics will challenge Vladimir Ilyich Lenin's characterization of imperialism as --the highest stage of capitalism". WW I was almost completely a contest for hegemony between Europe's established and aspiring imperial powers. Rather than sharing the material rewards of advances in science and technology with the workers who turned them into real-world wealth, Europe's leaders, reflecting the interests and preferences of the dominant financial interests in their respective countries, chose to invest those rewards in attempts to eliminate their foreign rivals, i.e. in mass slaughter - in war.
For financial interests in the United States, WW I couldn't have come at a better time. Its work force was becoming militantly aggressive in challenging a status quo characterized by increasingly severe bouts of unemployment --" the result of too much money accumulated in the hands of too few people chasing diminishing opportunities for profit. Besides providing employment for a restive labor force, furnishing munitions gave leading financial interests in the US the opportunity to furnish its imperial competitors in Europe the means to destroy themselves. From this perspective the only real mistake in this policy was the decision to violate the George Washington's warning against avoiding foreign entanglements and alliances and intervene on the side of Britain and France. From this decision and the incompetent, short-sighted diplomacy pursued by the US-enabled victors, flowed the even more massive carnage of WW II.
In short, war or preparation for war have for almost a century absorbed the possibilities for material and cultural progress made possible by advances in science and technology. Actual physical destruction when cold wars turned hot has been accompanied by increased waste, both in government and in the daily lives of consumers in the US and around the world. Bridges to nowhere and mindless conspicuous consumption have provided two principle types of peaceful, private sector efforts to, purportedly, keep workers employed but really to provide profitable employment for money and credit. Huge government debts in the US and around the world have been required to finance this "full employment for money' program. These debts have reached such a scale that consumption in the real economy needs to be curtailed to come up with the money to pay the interest on them and thus maintain the fiction the underlying monetary figures still represent anything close to their assumed value.
For close to 50 years, the US has been engaged in creative accounting to sustain a "full employment for money' program --" both that of its own and the world's investors. Minsky was aware of the artifice involved. He explained the justification:
"Thus, economic policy must be concerned with the design of institutions as well as operations within a set of institutions. Institutions are both legislated and the result of evolutionary processes. Once legislated, institutions take on a life of their own and evolve in response to market processes. We cannot, in a dynamic world, expect to resolve the problems of institutional organization for all time. On the other hand, we cannot always be engaged in radically changing institutions. Once an institutional arrangement embodies the day's best perception of processes and goals, it should be allowed a run of time in which the details are permitted to evolve"
The concluding sentence in this paragraph, written in 1986, is:
Only as the inadequate performance of an economic and social order becomes evident and serious does it become necessary to engage in thorough-going institutional reform. Such a time has arrived. (emphasis added) [vi]
The "inadequate performance of an economic and social order" has become evident and serious. The necessity for thorough-going institutional reform is now a quarter century overdue.
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