They are building more and more fragility in the system, and the bailouts are becoming bigger and bigger,  to a point where business as a whole is able to run an unsustainable moral hazard extortion game against central banks. Mark Blyth joins Paul Jay on theAnalysis.news podcast.

Paul Jay

Hi, I'm Paul Jay, and welcome to theAnalysis.news podcast. Mark Blyth is a political economist at Brown University. He has a P.H.D in political science from Columbia University. He researches the causes of stability and change in the economy and why people continue to believe stupid economic ideas despite buckets of evidence to the contrary. That's obviously a bio that was sent to me by Mark and his publicist, but I love the lines so I'm leaving it. 'Stupid economic ideas despite bucket of ideas of evidence to the contrary'. Of course I guess one could say that about almost every field of study. He's the co-author of the recent book 'AngryNomics', Mark said in a speech in Berlin in 2015 while accepting an award for his book, 'Austerity The History of a Dangerous Idea', "Well, we have done over the past 30 years is to build a creditor's paradise of positive real interest rates, low inflation, open markets, beaten down unions and a retreating state, all policed by unelected economic officials and central banks that have only one target to keep such a creditor's paradise going in such a world. Why would you ever get a pay rise? Indeed. Is it any wonder that inequality is everywhere an issue now?" Joining us is Mark Blyth. Thanks for joining us, Mark.

Mark Blyth

Thanks for reminding me of how good that prose was.

Paul Jay

 So has the pandemic and the massive stimulus coming from the Fed and other central banks in any way changed their mission of defending a creditor's paradise?

Mark Blyth

That's a really interesting question. So I'm going to answer two ways. I'm going to say no and yes. So I am going to give you the no answer first? Right.  So the no answer:  what's been happening since basically the rescue of Long-Term Capital Management, basically we back in the day in 1999, is a series of adverse successive of what you might call put options in financial markets are financed by the Fed, most famous one being the Greenspan put.

So what does this actually mean? It means any time that markets are about to book losses. We don't allow that. We cut rates. This has a perverse effect because when you cut the rates, what it does is encourage corporates and households, particularly corporates, to take on more debt. The issue, more bonds. That creates more liquidity in the system, which makes it more and more fragile, which means that the next time I had to bump in the road, the system's bigger and needs to be bailed again.

So Greenspan put, which basically until Greenspan exited was then replaced by the huge one of the global financial crisis with Bernanke, with basically asset purchases and QE and all that fabulous stuff. And then Covid comes along and we do exactly the same thing. All this time, we've basically promised to buy every falling knife, every financial asset up to an including ETF s. And we've basically managed to put a floor 

Paul Jay

Just just just for people that don't know exchange traded funds.

Mark Blyth

These are the synthetic products offered to the public by Blackrock, what do you call them again.

Paul Jay