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Musings Report 2017:32 8-12-17 Finance Is No Longer Connected to the Real Economy
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Finance Is No Longer Connected to the Real Economy
Take a look at this chart from the New York Times on the extraordinary reversal in income growth since 1980:
35+ years ago, the lower income households reaped the highest rates of income growth; the higher one's income, the lower the rate of income growth.
Our Broken Economy, in One Simple Chart
This trend hasn't just reversed; virtually all the income gains are now concentrated in the top 1/10th of 1%, which has pulled away from the top 10%, the top 5% and the top 1%, as well as from the bottom 90%.
The fundamental driver of this profoundly destabilizing dynamic is the disconnect of finance from the real-world economy.
The roots of this disconnect begin with debt: when we borrow from future earnings and energy production to fund consumption today, we are using finance to ramp up our consumption of real-world goods and services.
In small doses, this use of finance to increase consumption of real-world goods and services is beneficial: economies with access to credit can rapidly expand in ways that economies with little credit cannot.
But the process of financialization is not benign. Financialization turns everything into a financial commodity that can be traded and leveraged as a financial entity that is no longer firmly connected to the real world.
The process of financialization requires expertise in the financial game, and it places a premium on opaque, arcane processes: for example, the bundling of debt such as mortgages or student loans into instruments that can be sold and traded as capital investments.
These instruments can then become the foundation of new debt and derivatives, an entirely new layer of instruments that can be sold and traded.
Profit flows to what's scarce, and in a financialized economy, goods and services have become commodities, i.e. they are rarely scarce, because somewhere in the global economy new supplies can be brought online.
What's scarce in a financialized economy is specialized knowledge of financial games such as tax avoidance, arbitrage and so on.
Though the billionaires who have actually launched real-world businesses get the media attention--Bill Gates, Jeff Bezos, Steve Jobs, et al.--relatively few of the top 1/10th of 1% actually created a real-world business; most are owners of capital with annual incomes of $10 million to $100 million that are entirely finance-based.
This is only possible in a financialized economy in which finance has become increasingly detached from the real-world economy.
Those with the capital and skills to reap billions in profits from servicing and trading student loan debt have no interest in whether the education being purchased with the loans has any utility to the indebted students, as their profits flow not from the real world but from the debt itself.
This is how we've ended up with an economy characterized by profound failure in the real world of higher education, healthcare, etc., and immense fortunes being earned by a few at the top of the pyramid from the financialized games that have little to no connection to the real-world economy.
Summary of the Blog This Past Week
What the Mainstream Doesn't Get about Bitcoin 8/11/17
Powerlessness and Consumerism 8/9/17
Not All Capital Is Equal; Some Is Destructive 8/9/17
Best Thing That Happened To Me This Week
Giving my brother a hand in Switzerland while he recovers from a motorcycle accident. There's no replacement for brothers and sisters!
Market Musings: Bitcoin
Analyst Dana Lyons recently issued a chart of bitcoin that proposes a Fibonacci-based target around $5,200. Lyons prepared the chart when BTC was $3,000; as I write this on 8/13/17, bitcoin just topped $4,200.
Bitcoin is on fire, and has blown through $4,000 with nary a pause.
Tom Lee: "Bitcoin Will Be The Best Performing Asset Through Year End"
It looks as if the market has taken these $5,000 targets to heart, and so a move to $5,000 seems almost baked in.
That said, moves of this magnitude inevitably include retraces once the target has been reached. The only question is the size of the retrace: will BTC slide back to $3,000 to test support there, or will it retrace to $4,500 and then start another leg higher?
The only thing we know for certain about these sorts of Bull trends is that nobody can predict how high they can run, or how long they will run. $5,000 could end up being a top, or it could be merely a way-station to $10,000 and higher.
From Left Field
This Is How Big Oil Will Die-- the idea that the efficiency of electrical motors will eventually obsolete ICE (internal combustion engines)....
Why even driving through suburbia is soul crushing-- excellent overview of urban planning basics...
This Is How South Koreans Are Trading The North Korea Crisis-- buying Ethereum...
Our Broken Economy, in One Simple Chart--soaring inequality at the very top...
All of the World’s Money and Markets in One Visualization-- bitcoin a tiny dot...
The sequel to the global financial crisis is here --debt-based derivatives again...
Iceland knows how to stop teen substance abuse - but the rest of the world isn’t listening -- humans need a variety of positive activities in which they contribute rather than consume...
Why Do We Murder the Beautiful Friendships of Boys?-- a profound topic, rarely addressed...
The Lethality of Loneliness -- and social media doesn't fill the need...
As a Woman in Tech, I Realized: These Are Not My People
Ownership is overrated: the joys of communal property
It’s not about giving something up: owning less means buying less means having to earn less means working less means having more of your life to actually enjoy
Have Smartphones Destroyed a Generation? There is compelling evidence that the devices we’ve placed in young people’s hands are having profound effects on their lives—and making them seriously unhappy. -- short answer--yes, but they've also destroyed the parents' generation, too...
"Technological progress has merely provided us with more efficient means for going backwards." Aldous Huxley
Thanks for reading--
charles |
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