There was a problem we promised to solve on Monday. To refresh your memory, the problem is that both banks and governments need money. Governments borrow from banks. But because government finances are so terminally bad in Europe, government bonds are destabilising the capital structure of the banking system. How can the bankrupt possibly bail out the insolvent?
Our solution is elegant, simple, and completely in keeping with the major trend of centralisation and “bigness” that’s dominated the last 100 years of government and finance: merge the banks and the government! You can call it nationalisation. You can call it a public-private hybrid. You can call it a monster. Heck, you can call it bubblegum! But you can be pretty sure it will begin to happen in 2012.
At some point, national governments are going to simply take over their “too-big-to-fail” banks. In America, it could be Bank of America or Citigroup, or both. In Britain, Barclay’s. In France, BNP. In Germany, Deutschebank. And in Switzerland, Credit Suisse.
The nationalisation of major money centre banks will formally zombify the financial sector. It will be the logical conclusion of the relationship between the State that borrows profusely and the financial sector gaining competitive privileges by lending to the State and financing political campaigns. It’s also the only way to marginalise market forces that would otherwise take both banks and sovereigns down several pegs, or out of existence altogether.
Yes…that’s a gloomy forecast. But the alternative is enduring even more debt deflation or veering into an immediate currency crisis. The solution will be to slow things down by making them more complicated, interdependent, and harder for capital to escape from. Despite their differences, we can see all the Great Powers colluding to preserve a system that allows them to be Great Powers and exercise physical and financial control over people.