STOCK MARKET WATCH -- Thursday, 9 April 2015

[Demeter]

3. Financial Capitalism vs Productive Capitalism

GUESS WHICH KIND RULES TODAY....

http://www.planck.org/publications/Financial-Capitalism-vs-Productive-Capitalism/

THE SITUATION

Once upon a time financial paper was as good as real assets. These days are gone. The oversupply of financial paper has eroded the trust in the real value of this paper. As first financials and now also nations collapse under their debt, financial paper looses it credibility at fast pace. Preventing this credibility decline in financial paper was the main reason why

a) the banks had to be saved (burdening the nation’s balance sheets to/over the max) and

b) the nations had to be saved (burdening the balance sheets of the yet good performing nations to/over the max).

But there’s no money left to save the banks (only in the USA this is still possible: as they have the advantage of still operating the global reserve currency) and there’s no money left to save the nations. Those last two ‘conventional’ (10 years ago they where to outrageous to imagine/consider/discuss) barriers to support the credibility of financial paper has become useless. The only barrier left standing to support the financial paper in the Global West is the dollar as global reserve currency and that barrier is eroding at fast pace too. But yet more nations make extra-dollar trade pacts with other nations. And yet more central banks make extra-dollar currency swaps with other central banks. By this all the weight of the dollar on the global economy is declining very fast and with that the barrier of last support for financial paper in the Global West is eroding too.

Just one example: the FED/FRB has bought by its POMO schedules the last year $ 40 billion of MBS and $ 45 of US gov debt per month, as otherwise they would not be sold and both the banks and the USA itself was hitting bankruptcy within one month. The US banks are supported by a money flow of near zero interest rates that could be lend out with huge margin spreads, with paper of any quality (even toxic) as collateral. But both games depend completely on the global demand for dollars (and that demand is declining). On top of this is the FED/FRB with other OMO schedules since Black Monday (October 22, 1987) on the stock and currency markets: making these markets also not real but managed too. Add to this all the currency swaps the FED/FRB makes with other major foreign central banks (ECB etc) and you know that markets are managed and an in-crowd is profiting big time on both insider trading as the volume of these interventions. Financial Capitalism at its worst.

When the decline of the global demand for the dollar has reached a certain threshold the Global West will only have two options:

1) doing the same with the euro as has been done with the dollar (the euro area buying out the dollar area), but this demands a global trust in and therefore use of de Euro far beyond current levels: so this option is not that valid, or

2) merge of the dollar and the euro into one new Global West currency as possibility of last resort, they will offer nations that join a debt discount and therefore all nations of the Global West will join (it will not improve anything, it only will deliver a huge stagnation of the Global West, so it has no future and will eventually default/explode/end.

Other nations outside the Global West will not join: there no incentive for them to be looted again by the same nations that did that the last 200 years. Therefore the merger of the dollar and euro into one centrally lead economy of the Global West will divide the world in a centrally lead declining economy in the Global West and in multiple not centrally lead emerging economies in the Global East and Global South.

Buying imports/resources/energy will become too expensive for the Global West: the elite of the Global West will try to extend their reign for sometime but then this modern day EUUSR i.e. Forth Reich with the name NAR (Northern Atlantic Republic) will collapse. Savings and pensions will be vaporized by defaults and inflation. The social security nets of the nations will be abolished by the end of money supply possibilities (no loan possibilities and no money creating possibilities anymore: reaching the end of the elastic of possibilities). Think Russia in 1991 shortly after the end of the USSR.

Democracy (government by the people for the people) will be watered down towards just a ‘nice’ low level as marketing coat/trick needed to deliver some legitimacy. Therefore an active, powerful, investigating, critical free press is more important than democracy and will more insure the public interest than politicians. This view is against the Western Ideology, but that makes it not less true: Western Ideology is polluted and watered down to a large extent. Western style of government only wears democracy as nice marketing coat, but has moved away from its roots towards democracy without demos. The ultimate goal of all these ‘free’ trade agreements is making the merge between government and big business unaffected by people’s votes/interests. Western style democracy is just an hollow marketing slogan with not that much of its original content, but still thriving on ‘branding’ of the old content. Governments are by nature always heading towards more power concentration, towards less serving the demos and more serving themselves and those who can afford to pay for lobbyists i.e. influence: Government for the self-promoted elite, by the self-promoted elite, not for the people, by the people. Achieving public interest is just a game for beginners. Narrow private interests will run the government in cooperation with the administrative elites. Not watching/protecting that of value will have its price.

The price of having chosen financial capitalism above productive capitalism is more and more becoming clear for the Global West as it more and more has to be paid: this process of payment is just started and will not end soon: there are no limits to their parasitism on the real economy. Financial Capitalism concentrates wealth by the market. Productive capitalism distributes wealth by the market. Financial Capitalism is also not sustainable (not in the inequality it creates, nor in the unemployment it creates, nor in the break down of social safety nets it demands, nor in the value/trust/credibility of the papers it issues), productive capitalism delivers sustainability (if one external condition is met: moving in the direction of making production as clean as possible: otherwise its benefits will be eaten out by its damages).

SOLUTION AT LINK


COPYRIGHT NOTE
(texts can be republished freely when the source location is mentioned or the source link is provided)