The only "growth" we're
experiencing are the financial cancers of systemic risk and financialization's
soaring wealth/income inequality.
The Keynesian gods have failed, and as a
result we're in the eye of a global financial hurricane.
The Keynesian god of growth has failed.
The Keynesian god of borrowing from the future to fund today's
consumption has failed.
The Keynesian god of monetary stimulus / financialization has
failed.
Every major central bank and state worships these Keynesian idols:
1. Growth. (Never mind the cost or what kind of growth--all
growth is good, even the financial equivalent of aggressive cancer).
2. Borrowing from the future to fund today's keg party,
worthless college diploma, particle board bookcase, stock buy-back, etc. (oops,
I mean "investment")--a.k.a.deficit spending which is a polite way of saying this unsavory truth: stealing from our children and
grandchildren to fund our lifestyles today.
3. Monetary stimulus / financialization. If private investment
sags (because there are few attractive investments at today's nosebleed
valuations and few attractive investments in a global economy burdened with
massive over-production and over-capacity), drop interest rates to zero (or
below zero) to "stimulate" new borrowing... for whatever: global
carry trades, bat guano derivatives, etc.
Here is my definition of Financialization:
Financialization is the mass commodification of debt and
debt-based financial instruments collaterized by previously low-risk assets, a
pyramiding of risk and speculative gains that is only possible in a massive
expansion of low-cost credit and leverage.
That is a mouthful, so let's break it into bite-sized chunks.
Home mortgages are a good example of how financialization
increases financial profits by jacking up risk and distributing it to suckers
who don't recognize the potential for staggering losses.
In the good old days, home mortgages were safe and dull: banks
and savings and loans institutions issued the mortgages and kept the loans on
their books, earning a stable return for the 30 years of the mortgage's term.
Then the financialization machine revolutionized the home mortgage
business to increase profits. The first step was to generate entire new types of
mortgages with higher profit margins than conventional mortgages. These
included no-down payment mortgages (liar loans),
no-interest-for-the-first-few-years mortgages, adjustable-rate mortgages, home
equity lines of credit, and so on.
This broadening of options (and risks) greatly expanded the pool
of people who qualified for a mortgage. In the old days, only those with
sterling credit qualified for a home mortgage. In the financialized realm,
almost anyone with a pulse could qualify for an exotic mortgage.
The interest rate, risk and profit margins were all much higher
for the originators. What's not to like? Well, the risk of default is a problem. Defaults trigger
losses.
Financialization's solution: package the risk in safe-looking
securities and offload the risk onto suckers and marks. Securitizing
mortgages enabled loan originators to skim the origination fees and profits up
front and then offload the risk of default and loss onto buyers of the mortgage
securities.
Securitization was tailor-made for hiding risk deep inside
apparently low-risk pools of mortgages and rigging the tranches to maximize
profits for the packagers at the expense of the unwary buyers, who bought
high-risk securities under the false premise that they were "safe home
mortgages."
Financialization-- which can only expand to dominate an economy if it is
supported by a central bank bent on expanding credit--has two inevitable and highly
toxic consequences:
-- Risk seeps into every nook and cranny of the financial system, greatly increasing
the odds of a systemic domino reaction in financial meltdowns. This is
precisely what we saw in the 2008-09 Global Financial Meltdown (GFM):
supposedly "contained" subprime mortgages toppled dominoes left and
right, bringing the entire risk-saturated system to its knees.
-- Extraordinary wealth and income inequality, as those closest to
the central bank money/credit spigots can scoop up income-producing assets
first at much lower costs than Mom and Pop Main Street investors.
The rising anger of the masses left behind by the central bank /
financialization wealth harvesting machine is the direct result of Keynesian
monetary stimulus that rewards debt-based speculative gambles by those closest to
the cheap-credit spigots.
As I explain in my book Why
Our Status Quo Failed and Is Beyond Reform, the only possible output of
central bank monetary stimulus is financialization, and the only
possible output of financialization is unprecedented wealth and income
inequality.
The global financial system is in the eye of an unprecedented
hurricane. While central bankers are congratulating themselves on
their god-like mastery of Nature, and secretly praying to the idols of the
Keynesian Cargo Cult every night, the inevitable consequence of borrowing from the future, the
obsession with "growth" at any cost and financialization /monetary
stimulus, a.k.a. the rich get richer thanks to central banks is systemic collapse.
Don't fall for the mainstream media and politicos'
shuck-and-jive that all is well and "growth" will return any day
now. The
only "growth" we're experiencing are the financial cancers of
systemic risk and financialization's soaring wealth/income inequality.
My new book is #4 on Kindle short reads -> politics and social
science: Why Our Status Quo Failed and Is
Beyond Reform ($3.95 Kindle ebook, $8.95 print edition)For more, please
visit the book's website.
