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Is The Nation Falling Between Wall Street and Main Street?

Main Street

EDITOR NOTE: The author describes it well, calling our current COVID dilemma an “abyss.” Artificial wealth (thanks to the Fed) and the reality of businesses shuttering, people unemployed, and false news and assurances from certain political leaders on the state of the pandemic. What the author here is trying to get at is the bigger picture, beyond the vaccine, beyond the stimulus, beyond what everyone is seeing in the news. The bigger picture is an abyss. And as a famous philosopher once said, if you gaze long enough into an abyss, the abyss will gaze right back at you.

The abyss between the Fed's illusion of phantom wealth for Wall Street and the collapse of Main Street is bottomless, and our descent into the abyss is accelerating.

I know this runs counter to every dominant narrative, but a vaccine doesn't really matter , opening up doesn't really matter, and the size of the "free money" stimulus checks doesn't matter.

What matters is that the nation is falling into the abyss that's opened between Wall Street and Main Street , and nothing will stave off the collapse of the social order other than a fundamental re-ordering of the way we create and distribute money and political power, as money buys political influence.

The last economic tide with widespread benefits to Main Street was 30 years ago. Since then, the Federal Reserve and other central banks have incentivized globalization and financialization, two dynamics that favor mobile capital and financier skims amd scams.

There are a number of factors behind the widening canyon of economic inequality, but the primary driver is financialization. Financialization has given those with access to central bank credit ways to skim great wealth from the system without creating any value whatsoever.

Financialization isn't a consequence of having capital: it's the consequence of having access to unlimited central bank credit , leverage and low-risk, low-tax skimming operations (for example, tax codes enable hedge funds to declare income as low-tax long-term capital gains).

Leveraging phantom collateral is another feature of financialization. Commoners were allowed a taste of this when subprime lenders were offering no-document, no-down payment mortgages back in 2004-2007. Phantom income was posted as collateral for the nothing-but-leverage loan.

Financialization is not about investing in productive enterprises; it's all about skimming wealth while providing no value to the real economy or society.

The hidden toxin in financialization is the resulting concentration of wealth can buy concentrations of political power. Financialization is thus self-perpetuating: once the skimming operations generate billions of dollars in profit, it only takes a relatively small piece of these profits to buy/influence the political class. Once the politicos are in your pocket, the regulators and judiciary fall into line or are marginalized by new statutes or gutted budgets.

Financialization is the disease eating away what's left of democracy.

Financialization is the exploitation of assets/income that were previously safe from predation by central bank funded financiers. While definitions vary, mine is:

Financialization is the commoditization of debt collaterized by previously unsecuritized assets, a pyramiding of risk and speculation that is only possible in a massive expansion of low-cost credit and leverage for those at the top of the wealth-power pyramid: financiers, banks and corporations.

One example is the student loan "industry," which prior to financialization did not exist. A previously safe from predation asset/source of income--college degrees--has been securitized so that loans issued to students for largely worthless diplomas can be sold globally as "secure assets with guaranteed yields."

That the exploited class of students have little to no income and no guarantee of income doesn't matter. What matters is a previously unexploited asset can be turned into debt that can be sold at an immense profit.

And so student loan debt has skyrocketed from near-zero to $1.6 trillion in less than a generation. This rapacious, ruthless exploitation would not have been possible without the central bank (Federal Reserve) and federal government enabling and enforcing the supremacy of private capital and the predation of the higher-education cartel.

Globalization and financialization have been the two engines of soaring wealth inequality. Globalization can mean many things, but its beating heart is the arbitraging of the labor of the powerless and commodity, environmental and tax costs by the powerful to increase their profits and wealth.

In other words, globalization is the result of those at the top of the wealth-power pyramid shifting borrowed capital around the world to exploit lower costs of labor, commodities, environmental regulations and taxes.

This manifests as offshoring of jobs, the stripmining of forests, minerals, etc., the degradation of local ecosystems, the decline of tax revenues derived from capital and the explosive rise in stock market valuations as wages stagnate or decline.

A key element in globalization is the transfer of risk from the owners of capital to the workers and public resources. Examples of this transfer of risk abound: rather than pay workers benefits, corporations game part-time/full-time labor laws so workers' health insurance is paid by taxpayers (Medicaid). Corporations pay wages too low to survive so workers depend on public-sector assistance (food stamps, etc.)

Originally posted on Of Two Minds

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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