The Trading Game

And I think there, in that cold January sun something about me changed, and my career changed, and it wasn’t a career any more. From then on, it was bank robbery.

It was us. It was us, wasn’t it? We were the balance. We were the boys who’d be richer than our fathers, in a world of children who’d be poor. We were the ones with the growing bank balances that balanced the Italian’s debt. We were the ones receiving the interest on Aidan’s mum’s mortgage, that Aidan himself was now having to pay, to us. And our children. Maybe my children. Maybe they would own the house that Asad’s mum sold. And the rent from that house, and the interest from the Italian government: maybe our children could lend that back out to Asad’s own children, and then we’d own the houses and the debt, as well. And it would grow, that’s what compound interest does. We would use the money from the assets to buy the rest of the assets. You’d sell your assets to us, to pay your mortgage, to pay your rent. To pay it to us. That’s how it would go. It would get worse and worse. It would grow, it would grow out of control. It wasn’t a crisis of confidence. It wasn’t the fucking of the banking system. It wasn’t an ‘exogenous shock to consumption savings preferences’. It was inequality. Inequality that would grow and grow, and get worse and get worse until it dominated and killed the economy that contained it. It wasn’t temporary, it was terminal. It was the end of the economy. It was cancer.

[...]

See what I had realised, at that moment, was exactly, precisely why we were all wrong. We had been diagnosing a terminal cancer as a series of seasonal colds. We thought the banking system was broken, but fixable. We thought confidence had collapsed, but would recover. But what was really happening was that the wealth of the middle class – of ordinary, hardworking families like Aidan’s and like Asad’s, and also of almost all the world’s largest governments – was being sucked away from them and into the hands of the rich. Ordinary families were losing their assets and going into debt. So were governments. As ordinary families and governments got poorer, and the rich got richer, that would increase flows of interest, rent and profit from the middle class to the rich, compounding the problem. The problem would not solve itself. In fact, it would accelerate, it would get worse. The reason economists didn’t realize this is because almost no economists look in their models at how wealth is distributed. They spend ten years memorizing ‘representative agent’ models – models that view the whole economy as one single ‘average’ or ‘representative’ person. As a result, for them the economy is only ever about averages, about aggregates. They ignore the distribution. For them, it’s nothing more than an afterthought. Moralist window dressing. Finally, my degree was useful for something after all. It showed me exactly how everyone was wrong.

If I was right, this was a big deal. It meant that markets were horribly, horribly mispriced. The recovery would never happen and the normalization of interest rates would never happen. At that point, the beginning of 2011, markets were pricing nearly 6 full hikes of 0.25% each from the US Federal Reserve in the following twelve months alone. They were going to be wrong. Everyone was going to be wrong. Those rate hikes weren’t going to happen. They would never happen. I would be able to make money off this year, after year, after year, as the interest predictions got pushed back and back. These idiots never even looked at inequality. It would be a decade before they caught on, at least.