Financial Bubonic Plague

Source

Posted on 8th March 2012 by AWD  in Economy

Charles Hugh Smith is really going over the top this week. It’s  great when  people let loose, when they’re on the edge, because we’re all on the edge, looking over the precipice into the Abyss; be it war, debt   induced financial collapse, Anarchy or wholesale wiping out of a country by criminal politicians and banksters.

The financailization of the Western world is almost complete. CHS   relates it to an infectious disease, which is very appropriate. We’re   all infected. The banksters have bought governments, politicians,   businesses and consumers, and used debt as the purchase currency.   Somehow, our bankrupt $15.4 trillion in-debt nation can still threaten   war and mayhem. But debt is an infectious disease. Another great “let’s   pretend” article.

Our “Let’s Pretend” Economy: Let’s Pretend Financialization Hasn’t Killed the Economy

Submitted by Charles Hugh Smith from Of Two Minds

Like the bubonic plague, financialization has a lifecycle that cannot   be reversed by Federal Reserve or European Central Bank intervention.

Let’s pretend the Federal Reserve can force the financialization   lifecycle back into expansion. Why do we need to pretend this can   happen? Because the entire U.S. economy and its expansionist Central   State now depends on ever-expanding financialization for its survival.

Financialization is like the bubonic plague–it constantly needs new   victims as it kills off its existing hosts. Housing? Dead, killed by   financialization, aided, abetted and powered by the Federal Reserve. Now   the Fed wants to “save” what it already killed via   financialization–housing–by buying $1 trillion in plague-infested   mortgages and brute-force efforts to keep interest rates below   inflation, i.e. negative rates.

Interestingly, plague, financialization and the power of the Fed all   follow the same curve of emergence, expanion, maturity, stagnation and   collapse. Natural systems follow S-curves, as described in this seminal   paper: A Simple Model for Complex Systems.

What is financialization? Simply put, it is finance infecting and   hollowing out all levels of an economy by incentivizing leverage, debt,   opacity, speculation, financial fraud, collusion and the perfection of   crony capitalism, i.e. financial Elites’ ownership of the government’s   regulatory and legislative bodies. Here is another less pungent   description via Wikipedia: “Financial leverage overrides capital   (equity) and financial markets dominate traditional industrial economy   and agricultural economics.”

Here is a chart of the financialization lifecycle. Just as the plague   reaches a point of maximum infection, levels off and then eventually   disappears into protected pockets, financialization reached its maximum   penetration in the housing bubble.

Being an intrinsically destabilizing force, financialization led to  the  global financial crisis of 2008. Central banks went into panic mode,   printing and injecting trillions of dollars of new infectious material   into the global economy in the hopes of sparking a new even grander   cycle of financialization.

But you can’t create a new cycle of plague when the hosts are either   dead or already infected. The world has run out of sectors that can be   financialized; that plague has already killed or infected every corner   of the global economy.

Ironically, all the central banks’ attempts to reinflate the   speculative leverage-debt bubble are only hastening the disease’s   decline and collapse. The global markets are cheering today because the   plague-riddled corpse of Greek debt has been turned into a grotesque   marionette that is being made to “dance” by the European Central Bank   before an audience that has been told to applaud loudly, even though the   ghastly, bizarre spectacle is transparently phony.

Greek debt is already dead; it can’t be reinfected and killed again,   and neither can the debts of Ireland, Spain, Portugal, Italy et al.   Housing is also already dead, though the still-warm body is still   twitching in certain markets around the world.

Why does this cruel stage-show have to continue? Because the Federal   Reserve and the other central banks will decay and disappear if   financialization can’t be revived. But since it can’t be revived, then   we are stuck with a multi-year process of decline that will inevitably   end with a massive fireworks-lit finale of collapse.