Tuesday, December 1, 2015
Our Financial Sector has Become a Parasite
This post is (mostly) a copy of a comment (@131) in response to reason (@123 & @ 124) over at Crooked Timber: http://crookedtimber.org/2015/11/29/secular-stagnation-and-the-financial-sector/comment-page-3/#comment-650750
This is John Quiggin, the original poster, quoting himself in a previous post:
The financialization of the global economy has produced a hugely costly financial sector, extracting returns that must, in the end, be taken out of the returns to investment of all kinds. The costs were hidden during the pre-crisis bubble era, but are now evident to everyone, including potential investors. So, even massively expansionary monetary policy doesn’t produce much in the way of new private investment.
“Hugely costly financial sector” does not really describe what is going on: Massive tumor sucking the life out of its host is a much better description. The financial sector no longer serves society. It serves itself. Indeed, is 'Serve Oneself." not the motto of Capitalism? While the financial sector, (and we are talking about the activities of the large, and very large, and the wealthy, and very wealthy,) does occasionally allocate resources in the rest of the economy, to the rest of the economy, mostly it plunders the resources of society and allocates those resources to itself, for its own engorgement.
You have disinflation in the real economy, but inflation in the fictitious (financial) economy. They have become separate economies. Money is being taken out of the real economy and pumped into the financial economy. Not only does this drive up the price of financial assets, (like money, BTW. but other assets which do not have a real value in themselves, but only value depending on the health of the real economy. Most tech toys and their industries, for instance. ) but financial assets chasing each other also drive up the price of financial assets.
Imagine a continuum of reality, starting at the left and going to the right, most real on the left, and decreasingly real and increasingly imaginary as you go to the right : Food and energy, on the left end, mining, then manufacturing, transport, etc, retail, hospitality, etc. in some order, high tech in there somewhere, then money in its various forms, bonds, stocks, etc. derivatives, other phantasmagorical financial instruments. It is an enormous bubble of ‘value’ where each item to the right is dependent for its survival on the health of the parts of the economy to its left. If, for instance, the food and energy sectors collapse, none of the rest of it will have any value.
The economy on the right is easy to capitalize and leverage and extract (financial) profits. So all investments are allocated over there. ( Capitalism invests in what is profitable, and only incidentally in what is needed.) The economy on the left, however, is leverage poor, and profit poor, so it is instead being allowed to deteriorate, and even where possible, plundered for its capital.
It is the size of this bubble which is maintaining the value of the dollar. And as the bubble increases relative to the size of the money supply, the value of the dollar also increases. (There is also a deflationary effect due to the trade deficit, since money is continually being taken out of the real economy, and put into the fictitious economy when, say, the Chinese deposit their money in US banks.)
It is all, of course, a manifestation of debt. Were the debt of the real economy honestly accounted for, it would be clear to everyone that there was no possibility that the people who actually produce the things we need could ever paying those f**king bloodsucking leeches even a fraction of what our f**king masters of the universe have defrauded the people of the world out of.
Indeed, our masters own our world, and our country several times over.
It just comes down to the day they decide to collect what is owed them.