We’re In The Eye Of A Global Financial Hurricane

The Keynesian gods have failed, and as a result we’re in the eye of a global financial hurricane.

The Keynesian god of growth has failed.

The Keynesian god of borrowing from the future to fund today’s consumption has failed.

The Keynesian god of monetary stimulus / financialization has failed.

Every major central bank and state worships these Keynesian idols:

1. Growth. (Never mind the cost or what kind of growth–all growth is good, even the financial equivalent of aggressive cancer).

2. Borrowing from the future to fund today’s keg party, worthless college diploma, particle board bookcase, stock buy-back, etc. (oops, I mean “investment”)–a.k.a. deficit spending which is a polite way of saying this unsavory truth: stealing from our children and grandchildren to fund our lifestyles today.

3. Monetary stimulus / financialization. If private investment sags (because there are few attractive investments at today’s nosebleed valuations and few attractive investments in a global economy burdened with massive over-production and over-capacity), drop interest rates to zero (or below zero) to “stimulate” new borrowing… for whatever: global carry trades, bat guano derivatives, etc.

Here is my definition of Financialization:

Financialization is the mass commodification of debt and debt-based financial instruments collaterized by previously low-risk assets, a pyramiding of risk and speculative gains that is only possible in a massive expansion of low-cost credit and leverage.

That is a mouthful, so let’s break it into bite-sized chunks.

Home mortgages are a good example of how financialization increases financial profits by jacking up risk and distributing it to suckers who don’t recognize the potential for staggering losses.

In the good old days, home mortgages were safe and dull: banks and savings and loans institutions issued the mortgages and kept the loans on their books, earning a stable return for the 30 years of the mortgage’s term.