Thursday, September 5, 2013
The Cyprus Experiment: Part II
Money doesn’t matter. The real economy exists independently of the money supply. An economy can grow in the midst of deflation. The world economy could be conducted using a single penny.
These are interesting, if stupid, hypotheses. But God hasn’t given us laboratories to test them. He has given us no “play economies” where we can turn the dials and see what happens--except Cyprus! God gave us one play economy where human suffering doesn’t matter. We can conduct whatever sadistic experiments we want without consequence, outside of heaven. Cypriots aren’t really people, they are economic pawns, ants.
So, the geniuses in Brussels and Frankfurt decided to perform an experiment on Cyprus: they cut its money supply by 30% to see what would happen. Hoover did that in the early thirties, but not in one day. Even he didn’t have the sang froid to do that. One minute Cyprus has 70B in bank deposits, the next minute it had 50B. Shazam! Cool!
That happened a couple of months ago, so it’s early days. It will take a year to see if Cypriot school children are actually eating out of garbage cans, which would be a coincident indicator of policy failure (or evidence of successful structural reform?).
Because Cyprus is situated between Saturn and Uranus, its economic telemetry is delayed by about six months. The eurozone is balkanized when it comes to the quality, timeliness and reliability of economic statistics. Maybe at some point we will begin to get transmissions about the post-nuclear Cyprus economy.
Well, here’s a hint: it won’t be pretty. The good news is that the Cyprus is the “Israel of the Hellenesphere”, and they are highly resourceful. Most Cypriots are running at least three businesses in Cyprus, plus a few restaurants and dry cleaners in London. But nobody, no matter how smart, can thrive in the midst of a massive decline in the money supply. The unemployment rate in Cyprus one year from now will be 20%, which will take a toll on almost everyone.
This experiment will play out the way that pouring gasoline on an ant colony would play out: not too good.