Thursday, January 07, 2016

2016 Theme #5: The Systemic Failure of High Finance

This week I am addressing themes I see playing out in 2016.
A number of systemic, structural forces are intersecting in 2016. One is the failure of high finance to fix the global economy's systemic problems.
The operative conceit of the past 7 years has been that high finance can fix whatever's broken in the world's economies. According to this narrative, all the world needed to boost "growth," employment and profits was lower interest rates, more liquidity, reverse repos and some other fancy financial footwork.
Once all this high finance generated more borrowing by debt-serfs, property developers, students, corporations buying back their shares and financiers skimming billions from asset bubbles, systemic problems would be dissolved or mitigated.
Cheap credit, asset bubbles and immense profiteering by financiers would heal all wounds and make everything better for everyone, even those at the bottom layer of the economy.
Unfortunately, this isn't true. High finance and cheap credit have intensified structural problems such as rising inequality, not resolved them.
The implicit promise of the neoliberal project is that liberalizing private-sector markets and credit will magically grease the processes of growth and widespread prosperity.
When economies have the right systems in place--decentralized, somewhat free markets, an entrepreneurial spirit, many unmet needs, idle productive capacity and a credit-starved real economy--freeing up static markets and credit can unleash the productive capacity of the bottom level of the economy.
But in economies dominated by state/private monopolies and cartels, neoliberalism simply funnels the profits of financialization to the few at the expense of the many, and at the cost of heightened instability and insecurity.
Making more credit available for student loans didn't fix America's broken higher education system--it only tightened the grip of the higher education cartel and turned another generation of students into debt-serfs.
Loosening mortgage standards and lowering interest rates didn't turn America into an "ownership society"--it turned it into a boom-and-bust speculative society with many more losers than winners in the neoliberal/high finance speculative casino.
The essence of neoliberal high finance is the vast majority of gamers in the casino lose security and wealth, while the House (the state and the banks) skim the resulting profits. Main Street has found its security stripped away (sorry, Bucko, no yield on savings now; you have to belly up and place a high-risk bet at a gaming table to keep what you had before) in exchange for the potential of outsized profits.
But alas, the games are rigged; the financiers have first access to the Federal Reserve's nearly free money, and insiders profit from stock buybacks and other financial gaming that generates monumental profits but zero goods and services.
If debt had grown in parallel with GDP and inflation, total credit market debt in the U.S. would be around $20+ trillion rather than $59 trillion. The difference is speculative excess, manifested in asset bubbles and staggering amounts of debt.
The casino's losers get the debt, the winners skim the profits.
The only possible output of this system is rising income and wealth inequality:
Cheap credit doesn't reverse the elimination of jobs via automation--it accelerates that process by making capital machinery and software cheaper than labor and labor overhead.
Cheap credit and high finance don't fix what's broken in our democracy--they have greased the skids to what we have now--"democracy" for the highest bidder by giving financiers and corporations the means to stripmine productive assets and use the gargantuan profits to buy political favors.
High finance isn't the cure--it's the disease.
My book on the emerging economy is now available as a audiobook: Get a Job, Build a Real Career and Defy a Bewildering Economy (Audible.com).
My new book is #7 in Amazon's Kindle ebooks > Business & Money > International Economics: A Radically Beneficial World: Automation, Technology and Creating Jobs for All. The Kindle edition is $$9.95 and the print edition is currently discounted to $21.60.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, David K. ($200), for yet another outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.
Thank you, Ron R. ($60), for yet another astoundingly generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:


Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative). If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.


PRIVACY NOTICE FOR EEA INDIVIDUALS


This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice. https://stg.media.investingchannel.com/gdpr-notice/


Notice of Compliance with The California Consumer Protection Act
This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Limit the Use of My Sensitive Personal Information.


Regarding Cookies:


This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.


Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP