A banker walks into a confessional… No its not a joke.
You can’t have it all no matter how hard you pray.
Forgive me Father for I have sinned. It has been… God I don’t even know how long. Sorry, sorry, I shouldn’t blaspheme. What is my sin?
I tried to have it all. I know the ‘rules’ say that I’m- oh I’m doing finger quotes, father, I’m not sure if you can see that through the confessional. Anyway, I know the ‘rules’ say that there can only be two, but I wanted more. I wanted three all intertwined together. Dammit, I deserved three! Blaspheme again. I know. Sorry Father.
But of course, it all comes tumbling down. I couldn’t juggle three at a time. Adulterer? No, father, I’m a banker…
… I didn’t know priests were allowed to use words like that. Okay, calm down… adulterer, okay? I’m an adulterer, not a banker, is that better?
Well, you see father, there were these three… um… women, that I really wanted. One was called Fixed Exchange Rates…. I mean…. Uhhh… Rates-chel. Rachel. Her name was Rachel.
She was stable and helped me become a better person. She helped me prosper.
The next was the Free Flow of Capital. No, that was her nickname. Her real name was Flow-rence. Florence!
She was a traveller. Very worldly. Loved exploring other countries and always brought me back the best gifts. My house was filled with all sorts of things when she came back into the country.
And lastly was Sovereign Monetary Policy. I don’t know, I think its Finnish or something. I just called her Sovia for short.
She was great. Let me make all the big decisions. I really felt like I was free to be myself around her.
Each one of them was amazing. I wanted them all equally.
See, I could keep two of them from knowing about the other, but as soon as I tried to spend time with all three, one of them would always react badly or threaten to leave me.
Say, when I was with Florence and Sovia, Rachel found out and she got very unstable. I’m certainly not the kind of person that makes those kinds of stereotypes about women…
… What? I’m not!
Anyway. If I spent time with Rachel and Sovia, Florence would get terribly upset. She would go traveling again… and sold half the crap in my house to pay for her trip.
When I was with Rachel and Florence, Sovia changed on a dime. She became very possessive and controlling. She wouldn’t let me do anything without her knowing about it first.
I’ve been asking my friends what to do and who to be with, but they’ve been no help.
My European friend suggested I stay with Rachel and Florence and just let Sovia be controlling.
My Australian friend suggested I stick with Sovia and Florence and let Rachel be unstable. Turns out, he prefers his women unstable.
My Chinese friend thinks I should keep Rachel and Sovia and let Florence leave. Who needs knickknacks from other places anyway?
And my American ‘friend’… finger quotes again father, I can’t stand that smug dope… he says you can have all three and to just stop being such a loser.
I don’t know what I should do, Father. How can I have it all?
The Unholy Trinity, also known as the Impossible Trinity or the Trilemma, because economists get bored too and like to mess around, is a problem with international trade.
Every country/central bank wants Fixed Exchange Rates, where your money is stable when trading with other nations (we spoke about this in previous articles: Pegging a Petrodollar). They also want Free Flow of Capital, where money can come in and out of the country with very few barriers to help facilitate trade. Lastly, they want Sovereign Monetary Policy, which just means control over what they do with their currency, like when to print more if needed.
Let’s imagine a magical land where we try all three.
Let’s say you, as a sovereign nation, wanted to have low interest rates to help encourage investors to spend money. We will discuss how that works in a future article.
Well, if investors and move their money freely, they would look at your fixed interest rate, find a better rate elsewhere and run out on you like you were a jilted bride. In other words, you quickly go broke.
So, what is the right answer? Well much like the question ‘How many Tim Tams should I binge?’ or ‘Why doesn’t my dad like my articles…
… Sorry. I needed a moment.
Much like those questions, there isn’t a right answer. Different countries have tried different options. China and some other states try to crack down on citizens investment in other countries so that there isn’t too much money leaving the state. (Getting rid of Florence)
The European Union just gets rid of individual members capacity for Sovereign Monetary Policy. (Getting rid of Sovia) We discussed this in the article Milkshakes in Europe.
And countries like Britain and Australia get rid of the stability of a currency peg and let their exchange rates float. (Getting rid of Rachel. The worst of the Friends anyway.) When Britain didn’t do this, and tried to fix their exchange rates, bad things happened. Look at the previous article ‘How George Soros is a Pokémon Master’.
The only country that gets away with having all three, to a certain extent, is America. This is not because of some preordained right or because Hollywood rom coms starring Brad Pitt transcend cultures, but because they are the reserve currency of the world.
Let’s say that magical land was the land of the free and the home of the Taco Bell Fajita Blaster. Even if investors could find better interest rates elsewhere and were free to move, a lot of people simply wouldn’t because they think the US dollar is a safe bet. Look at the article ‘Why the US dollar is a beast’ to get an understanding.
But for the rest of us, the impossible trinity is just that. So, forgive the bankers, father, because even if the Father, Son and Holy Spirit are blessed, economics is forever dammed.