Scott Eells/Bloomberg NewsTraders in the Goldman Sachs area of the New York Stock Exchange after the firm reported a loss.
Let’s forget for the moment that Goldman is not a government. It issues no debt (ok, it does, but that’s another matter). It issues no currency (although, boy, that equity is beginning to look and behave a lot like currency).
I now want you to look at Goldman as though it were a government. What kind of a treasury is it running?
What I would like to suggest is that Goldman was running a kind of Keynesian treasury; extending debt out into the future; counting on future accounts to pay for current spending. And, then, the White House and Congress told Wall Street to stop behaving like a Keynesian. They, in essence, took away its toys.
Now I want you to think about what Goldman’s losses as the direct consequence of not being allowed to behave like a Keynesian treasury. Viola! It’s beginning to lose, and lose big time. And, so, as Ms Craig points out, they are going to go to Congress and to the White House and they are going to beg to have their Keynesian liberties restored. In fact, as Ms Craig again points out, they have already been partially successful.
So, why doesn’t this work for the duly constituted government? Well, the quick answer is, it does. Or, in any case, it would, if only Congress or the White House had enough political capital to restore Keynesian instruments of fiscal stimulus and taxation.
Instead, the US Treasury (and with it the US) is going the way of Goldman. And, I suspect, Goldman will recover where the US Treasury will not. The question is, why can Goldman behave like a Keynesian treasury while the US Treasury is forbidden?