The great problem with financialization is that produces higher returns than productive investments do. If you want to industrialize or stay industrialized, you will have lower profits than a financialized economy does. This leads to situations like the below:
Generally US assets are highly valued and money tends to flow into the US over other countries. This is because US assets out-perform. The Chinese stock market, like the US market of the 50s and 60s, trades sideways. The US stock market since Greenspan never stops going up: crashes are just speed bumps. Likewise, US housing prices just keep going up, and so on.
On its face, money flooding into the US seems odd. After all, it’s not even close to the world’s most dynamic economy. China is ahead in 80% of technologies, the world’s largest manufacturer, and increasing its lead. In the last 3 years it has increased the numbers of cars it produces by five times, surpassing the US, Japan, South Korea and Germany, all of whom it was behind. It has the largest drone market, the most robots, etc, etc… It is the world’s strongest economy.
But China is a competitive market, and in competitive markets, profits are low, because the second they start to rise, someone new jumps in. That’s how capitalism, in theory, is supposed to work. The problem is that it only works that way with aggressive government regulation and enforcement. The CPC, being Socialist, doesn’t “believe” in markets. It uses them as a tool, without an ideological commitment. There’s no nonsense about markets being self-correcting, about rich people being good, about trickle down, etc, etc… If a market isn’t working to improve mass welfare, the state intervenes, and it will let, and sometimes force, “too big to fail” companies die.
This is, ironically, “real” capitalism, something the West no longer practices.
So America in specific, and the West in general has spent about 45 years now hollowing out its real economy. In exchange a great deal of money has been created, and if you as an investor want money, then you invested in the West.
This is coming to an end. It is in its last five or so years. It relies in the destruction of the real economy by jacking up prices, loading up debt and liquidating industries, often, ironically, to send to China. Once the real economy is gone, there will not be enough financialization opportunities to allow vast inflows of foreign money. This is especially true because, increasingly, US consumers are tapped out. The decision to end large classes of Obamacare subsidies is just a nail in this coffin.
Right now the US economy is bifurcated. Most people are under huge financial stress, but about 20% of the population is doing well and spending more. They are attached to a financialization spigot of some sort. This will end, or rather contract to about 5% of the population over the next decade. As financialization opportunities go away, the number of people benefiting from remaining financialization will of necessity contract. This contraction has been going on for decades. At one point a majority of people benefited, but as time went by more and more had to be sacrificed and the losers soon outnumbered the winners. The 2008 crash was when this became impossible to deny without straight up lying.
What will be left is a sclerotic economy, with a lot of rich people (relatively, in absolute numbers, not so many), a lot of poor people and a small real middle class. (And to be in that middle class you will need to earn low six figures minimum, because financialization makes everything expensive. You’re better off living in China with half the salary of an America. Maybe a third.)
It’s weird being, well, me. Because this is the endgame. I’ve been writing about this for decades, and now I’m seeing my Cassandric prophecies all coming true. None of this was, in one sense, necessary: up till about 2010, it could have been reversed, in theory, by correct policy. In another sense it was inevitable, because the people who make all the decisions were all in, and benefiting immensely, and were unable or unwilling to understand or care about long term consequences. For many of them that made cold hard sense. They were engaged in a “death bet”, they bet they’d be dead before the game ended. Others are just fine being the richest or most powerful people in a shitty country. They don’t, yet, understand what they’ll lose when China is recognized by everyone as the most important and powerful country in the world, or what the decay of American military ability (entirely a product of a now lost industrial and tech lead) will mean to them.
This the middle of the end. The beginning of the end was when Obama and Bernanke decided to bail everyone rich out during the financial crisis, and pass the cost to ordinary people, including by stealing their houses.
This is also epochal. For the first time in centuries, the West will no longer be the most powerful or the most technologically advanced region.
The consequences, for everyone in the world, will be vast.
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StewartM
This is, ironically, “real” capitalism, something the West no longer practices.
This is my only difference with you. This IS REAL CAPITALISM, and “American System” capitalists like Henry Carey knew the end result of what this “English capitalism” would bring. Basically, the hard work of actually producing real goods and delivering real services can’t compete with rentier capitalism and financial fraud and ponzi schemes on the promised returns–returns not requiring any effort or real work, mind you, and usually less risk.
And, having worked in a scientific/engineering job, I can add you are understating how badly this ‘pure capitalism’ has gutted US scientific expertise. That’s why DOGE was so unsettling, because DOGE was nothing less than what CEOs like Jack Welsh had been doing to private companies starting in the 1980s–gutting them of capability and expertise for transient jumps in the stock price.
America is incapable of reforming itself, and has been for some time. And even the best voices of reform usually propose fixes that won’t stick, or are incomplete, or they would do horrible things regarding other issues. That’s why I get frustrated about people here griping about “voting for the lesser evil” because to me pretty much everyone would do evil in some ways but you have to make a choice anyways.
NGG
We are on our way to third world status. With the rich 1% running the country, ramping up the renter economy, and cutting jobs to increase profits. The prospect is disheartening. The younger generation has had enough of this crap. They know the score, while millions still think the current financialization will improve their lot.
No one expects this to change, at least not for the better. However, the current situation is not sustainable. I see big changes coming, and it will be when we all least expect change to occur. As Bob said, “the times they are a changing”..
ventzu
Most people I used to interact with (judging by LinkedIn posts) seem blissfully unaware of the inflection point we have passed – economically, morally (allowing a genocide in plain sight) and politically.
The investment in generative AI – even though it isn’t reliable – will make this worse: further job losses and further encrapification of services. A two tier economy – one for the top 10% and another for the rest.
Also watch clips of Alex Carp of Palantir – and his openly fascist comments, revelling in killing.
https://www.youtube.com/watch?v=H4J4lF1E-eI
My guess is that the headlong rush into AI, robotics and military spending is not only for whatever profits there are left, but also to implement the surveillance and control architecture to protect billionaires from a restive populace. We are heading for the fascist state that Orwell warned about.
GP
Mahatma Gandhi’s “Seven Blunders of the World” included “Wealth Without Work.”
Yes, we may be seeing now the consequences of earning money and accumulating wealth without doing any productive work.
In the next generation, there may be a rather ironic re-writing of “Rich Dad, Poor Dad.”
Jan Wiklund
Sociologist Randall Collins wrote an amusing essay about it a couple of years ago, http://sociological-eye.blogspot.com/2023/12/ai-robot-capitalists-will-destroy-human.html. Of course it isn’t about AI though, just that they may make it more “rational” from the financier’s point of view. But it is already in Marx: what is good for the individual capitalist isn’t good at all even for the capitalists as a class.
PF
Yes this is ‘english capitalism’ controlled by central bank fiat.
Having real money that is not controlled by bankers weeks out the root of the systemic fraud.
StewartM
PF
Having real money that is not controlled by bankers weeks out the root of the systemic fraud.
If you’re talking about gold or precious metals, that brings a host of other problems. Look at the economic history of the 19th century, for starters.
Gary W Borg
What US assets are drawing investors with the promise of outstanding returns? If manufacturing is in the dumps, what’s left? Real estate? Pharmaceuticals? Various fanciful financial instruments? I suppose AI is one obvious answer.
Purple Library Guy
I think that while all this is true, there’s a point to be made about how incomplete it is. If efficient market theories were true and economies worked roughly as economists claim they do, this process would already be complete–there would be no productive economy left in the United States, like at all. And clearly in the real world, there is. There’s still some manufacturing in the US, there’s still farming, there’s still oil, there’s still some houses being built and solar panels being put up and small businesses all over the place.
In theory, like strict capitalist theory, nobody should be starting a small business. Everyone with a little bit of money that they might use to start a restaurant, should instead be joining the financial “industry” in some capacity, because in theory their returns would be higher that way. But real people aren’t like that (and neither is the real financial industry, in that little people becoming day traders aren’t going to make those outsized financial returns, they’re going to be eaten alive by the big companies with massive computers doing algorithm-based trading). Real people are like “I know how to cook, so I’ll start a restaurant. I know something about construction, so I’ll start a construction company” even though their profits are going to be low (or nonexistent) doing it. It is this non-marketiness of a supposedly market-based economy that allows economies like the American one to have that momentum where they keep lurching along doing stuff even though the big players have rigged the incentives such that if everything went according to all money seeking out the highest returns, everyone in the US would have already starved to death trying to eat electronic bank statements.
Purple Library Guy
Oh, and PF’s comment about money is delusional, but presumably almost everyone here knows that.
ISL
Will the union stand the collapse?
different clue
@ISL,
In your comment, when you say ” the union” , do you mean the “United States of” America?
If that is what you mean, I would like to see an at-least-meaningful number of millions of people prepare and evolve now for a “post United-States” future. In particular, I would like to see millions of people in Blue Towns and Blue Cities ( and other Blue Zones if any) begin preparing their areas for Separate Survival. How can various Blue Towns and Cities become the centers of their own little stealth virtual City-States? How can they source as much of their food, water, gas, power, etc. as possible from immediately surrounding shallow-country zones of supply? How can these Blue Zones grind their economies and societies around to be able to survive, even if not exactly thrive, without any resources or supplies from Red or Deep Red Zones?
How can the Blue Cities and Towns become economic “Fortress Lilypads” of Economic and Social Separate Survival? Just in case they have to?
different clue
Here is an article about how an inventive young person has refined and simplified a plant-cloning method and made it easily available and explainable to ordinary people in a way that may well destroy the current market in Rare Plants.
” YouTuber accidentally crashes the rare plant market with a viral cloning technique ”
https://www.dexerto.com/youtube/youtuber-accidentally-crashes-the-rare-plant-market-with-a-viral-cloning-technique-3289808/
I am not sure how this in itself would contribute to Separate Survival but other people may see how it could. Still, this kind of inventiveness applied to the problem of shortest-possible-distance subsistence-and-survival supply chains and lines could certainly help Separate Survival Blue LilyPads advance towards Separate Survival Viability.