Monday , 25 September 2017


Financialization: Its Definition, Its Lifecycle and Its Impending Collapse

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.[Let me take this disease analogy further.] Words: 514

So says Charles Hugh Smith (www.oftwominds.com) in edited excerpts from his original article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited further below for length and clarity – see Editor’s Note at the bottom of the page. (This paragraph must be included in any article re-posting to avoid copyright infringement.)

Smith goes on to say, in part:

Financialization: A Definition 

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…

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.

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 [as can be seen in the chart below].

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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.

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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.

Conclusion

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. Since it can’t be revived, [however] we are stuck with a multi-year process of decline that will inevitably end with a massive fireworks-lit finale of collapse.

*http://www.oftwominds.com/blogmar12/pretend-financialization3-12.html

Editor’s Note: The above article has been has edited ([ ]), abridged, and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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