Friday, June 5, 2015

Making the World Safe for Usury

Thanks to John Halasz, this tidbit from "The Growth Delusion," a post on Anne Pettifor's blog, Debtonation:
There are limits. Not just to the lifespan of firms, markets and human lives, but above all to our ecosystem and planet. 
So why, when we apply this language to the economy do we assume ‘growth’ is limitless?
...snip...
...while there are clear limits to the growth of the real economy, there appears to be an infinite boom in the growth of credit.
Is that so hard to understand? Any impediment to "economic growth" is an impediment to the growth of credit and any impediment to the growth of credit is an impediment to the accumulation, and concentration of an increasing proportion of, income-yielding assets in the hands of the creditors. Otherwise, how could compound interest compound limitlessly?

9 comments:

Bruce Wilder said...

The resemblance between retail financial speculation and a game of three-card monte is not coincidental.

john c. halasz said...

Retail, Bruce?

blissex said...

As in the past 20-30 years, the name of the game is bigger asset prices, delivering tax-free or low-tax capital gains to rentier insiders.

«any impediment to the growth of credit is a impediment to the accumulation, and concentration of an increasing proportion of, income-yielding assets in the hands of the creditors.»

Seems to be a misunderstanding of the current situation. It used to be like that when *income* yielding assets mattered most.

But currently, in the age of asset stripping, at least in anglo-american countries, what matters is *capital gains* yielding assets.

blissex said...

«retail financial speculation and a game of three-card monte»
«Retail, Bruce?»

I interpret the above "retail" phrase as properly about retail. A 3-card monte is really a game of 3 people more than 3 cards: the hustler, the sucker who wants to MAKE MONEY FAST, and the shill leading the sucker on.

"wholesale" financial speculation is not like a 3-card monte game at all: there is no shill.

Just a sucker and two hustlers:

* the two hustlers bet in zero-sum games the stack of chips their employers have, and the chips are exactly identical to the dollars used in the real economy;
* whoever wins the current bet pockets half of the chips the other side has lost;
* eventually the stack of chips runs out because by alternately winning bets and pocketing half of them the two hustlers have pocketed all of the chips put in play.

Then the sucker, called "Treasury" or "Central Bank", gives their employers a new stack of 1-2 trillion chips. Because "national champions" "too big to fail".

blissex said...

«there appears to be an infinite boom in the growth of credit.»
«any impediment to the growth of credit is a impediment to the accumulation, and concentration of an increasing proportion of, income-yielding assets in the hands of the creditors.»

As to the «misunderstanding of the current situation» my understanding as to the above is that the politics of the right have changed substantially:

* Rightist politics are always those of protecting the interests of *insiders*.
* There are several different categories of insiders, and parties of the right are coalitions of these different categories.
* Usually parties of the right are dominated by a principal "sponsor".
* Which category of insiders leads the right and "sponsors" parties of the political right changes slowly with time.
* The dominant category of insiders used to be aristocrats, than big landowners, then owners of big business, then managers of big business.
* Currently the dominant sponsors of the political parties of the right in most anglo-american culture countries are insiders to *leverage*.

Thus the economic policy of the political right for 20-30 years has been ever increasing leverage for their dominant "sponsors". Note: the key is the increasing leverage more than the increasing credit that the increasing leverage enables.

In order to bulk up political support retail insiders have been given access to leverage too, in the form of ever higher leverage for mortgages, extending at some point into transfinite leverage, as in the recent paste we have seen loans of 110% of the valuations of the property given as collateral, with shills like Greenspan telling everybody to borrow as much as possible.

The main aspect of the ever increasing leverage policy is to use that to asset-strip, to liquidate capital, not to secure rights to the income streams from existing capital.

Down to the retail speculators using ever-increasing leverage who have been using it enthusiastically to asset strip their own equity in their properties via remortgaging/HELOs.

But as mentioned before the wholesale game has been to asset strip the employers of the speculators via a series of zero-sum bets (the euphemism is "derivatives") where the loser employer in effect pays the bonus of the employee of the winner employer. All enabled by ever increasing leverage.

Sandwichman said...

"what matters is *capital gains* yielding assets"

The distinction is an accounting one. Why count income as income and then re-invest it if it is taxed?

blissex said...

«*capital gains* yielding assets"

The distinction is an accounting one.»

Ahem not just. Part of it is that capital gains are currently taxed far less.

But the most part is that a capital gain can be cashed immeditely and then the asset is someone else's problem. An income stream has to be patiently received over time, and the asset must be taken care of during that time.

So cashing in capital gains is thus much better if the context enables asset stripping and the goal is making money fast.

The rationale for the growth of credit is then that it boosts asset prices, thus what gets concentrated is cash once the asset price growth has been liquidated, not income-producing assets.

At least in those parts of the world that have been classified as "cash cows" or "dogs" in the BCG matrix by international finance.

As to the latter I was reading the book "2052" which is a simplistic forecast of big trends to that date, and read with from an investor point of view it basically says to asset strip the USA (and European) economies, as the Midwest was in recent decades. Which is what is happening.

Sandwichman said...

"But the most part is that a capital gain can be cashed immeditely and then the asset is someone else's problem."

What are you talking about??? Haven't you heard of the expression "distinction without a difference"?

RepubAnon said...

I'd say unlimited growth is more in the nature of a pyramid scheme. Assuming an infinite population, a pyramid scheme works nicely. It's only when one runs out of people that haven't yet bought into the scheme that the whole thing collapses.

So, too, with unlimited growth. Remember the First Law of Thermodynamics: Matter/energy cannot be created or destroyed, only its form can be changed. This sets absolute limits to growth.

It's like Ali Baba's cave after the 40 thieves met their end - Ali Baba didn't know how much treasure remained in the cave, but he knew nobody was putting more treasure in. Exploring the cave might reveal some hidden side passages with additional treasure stashed away... but the amount of treasure in the cave remained a fixed amount that would someday run out.

Rather than spend freely until the treasure in the cave was all gone, Ali Baba used the treasure to set himself up in business. Alas, few people are as wise.