This is Part 4 of a 4-part series.
What Financialization Really Is
But what really is financialization? Its simplest definition is, separated from the buzz and energy of its surface world, the present hedging of an entire nation’s aggregate asset value plus the hedging of all future profits derived from these assets in every sector of the economy, both public and private. This hedge is accomplished through maximizing the amount of debt leveraged against every conceivable tangible, intangible, and imaginary asset class, including the national citizenry. In perfectly efficient financialization, all accumulated liabilities eventually balance to zero against the aggregate net present value of the national asset base, plus all future profits generated by that asset base. Maximizing this leverage is accomplished through a coordinated program of zero real interest rates (or less), combined with the creation of tens of trillions in new fiat money used by first-tier recipients – i.e., Federal Reserve System member banks – to monetize this national asset base. Thus financialization is, at its core, the national descent into zero aggregate net present value and is, for lack of better terminology, the great cashing-in of an entire nation by its financial overlords.
When this national asset base and all its future profits are fully monetized with debt, the entire ownership and control of the national economy are transferred from stock owners (second tier unsecured liens) to bond owners (first tier secured liens). Therefore, full and efficient financialization turns the entire focus of national economic endeavor away from generating profits that fund discretionary capital investments that lead to collective economic growth, towards generating revenue to cover ever increasing non-discretionary interest payments for a concentrated select group of bond holders. Growth sustaining capital investments eventually evaporate as these increasing interest payments devour more and more discretionary spending, and thus “business” becomes a quest to continually whittle away at its remaining discretionary cost base, like labor and innovation, while simultaneously acting out a facade surrounding “shareholder value” for the decreasing number of shareholders who become increasingly irrelevant with every new corporate bond issue and share buy-back. This change in the national asset base ownership therefore turns the stock market into a giant casino as “profits” derived from short positions are just wealth transfers from one party to another in a zero sum game, and long positions become entirely dependent upon the amount of inflation generated by increased fiat money creation that drives up both asset “values” and net cash flows from stagnant unit sales in a declining wage environment. The nation is hollowed out as capital spending dries up, economic growth in real terms turns negative, and the entire investment “economy” is dependent upon ever increasing inflation driven by ever increasing Federal debt sales. Thus in a perfectly financialized private sector, the lien holders control the “value” and the stock owners hold the bets.
As capital spending and real growth evaporate, it falls to government to provide more and more of the “stimulus” that drives economic endeavor. But as government is ultimately concerned only with politics, their spending programs serve to primarily sustain the Four Pillars of the new economic model – Wars, Waste, Wall Street, and Welfare. As financialization matures, it establishes a permanent decline in the national standard of living as efficient financialization demands either minimal wages or foreign outsourced labor arbitrage. For those occupations that cannot be outsourced, wages get reduced below that required to support one’s self and family, so government steps in with its “Great Society” that is in reality a subsidy for the transfer of wages into interest payments. Thus all welfare is ultimately a corporate subsidy as efficient financialization matures. So when private economic endeavors are squashed through regulation or competition with corporate entities and the majority of the national citizenry are welfare recipients, discretionary capital spending will end, growth will cease, and real economic activity grinds to a halt.
So financialization is not only a national descent into zero net present value, it is a national descent into zero collective drive, zero collective motivation, and zero coordinated direction. It is fundamentally opposite to that of the natural human state of people within a complex society practicing the social interactions of labor barter and trade among individuals. As financialization matures through the destruction of individual economic endeavor, the formation of corporate monopoly cartels, and the transformation of society into a pool of government dependents, it cancels the fundamental underlying conditions of individual membership within society and replaces social intercourse not only with alienation from the means of production, but alienation from one’s fellow members in society.
Thus financialization is, ultimately, the national descent into zero coherence and zero rationality.
It is in fact, the breakdown of society its self. It is the Road to Zero.
This perfectly efficient financialization works equally in the public sector through all levels of government and has been working nearly undetected in the United States for 149 years. The District of Columbia Organic Act of 1871 incorporated and privatized THE UNITED STATES when the country was bankrupt due to its insurmountable Civil War debts. It was by no coincidence that a bankrupt United States, depleted of its gold reserves, reemerged six years later as THE UNITED STATES and, although bankrupt, was able to pass the Coinage Act of 1873, end bimetallism, and magically have enough gold to return to both a gold standard and a fully functioning fractional reserve banking system – i.e., mature classical capitalism out of the ashes of war and bankruptcy. This sudden appearance of gold was likely the original Faustian deal to sell out the American people, and in return this new privatized form of Federal government and all its departments – including the military – were placed into unspecified ownership, likely the same parties that assumed the Civil War debts, and put a permanent end to Federalism “for the People”. The nation’s new owners lay relatively dormant until they forced through the Federal Reserve Act of 1913 and pushed America into WWI to destroy Germany on behalf of the central bank cross ownership nexus. Since 1913, the nation’s owners have raised their heads from time to time – the Roaring 20s stock market bubble, the Great Depression, the Roosevelt coup plot, WWII, the Cold War, Kennedy’s assassination, and 9/11. But the final bill came due 100 years after the deal with the Devil was struck and those Civil War debts were finally called in. So for 100 years, Americans have been living within a great hypothecation until the starting gun of the Nixon Shock signaled the beginning of cashing-in on THE UNITED STATES. Thus much of the national angst that has accumulated since 1971 can be explained as the conflict between the true national owners and those who believe they are its owners. And much of the national citizenry still believe they are the national owners because they have yet to perceive that The United States “for the People” has transformed into THE UNITED STATES “of the People” and is now nothing more than a bank with a standing army.
The public sector’s main financialization vehicle is the Federal issue of US Treasury bills. In perfectly efficient financialization, real interest rates are zero or below and discounting is not required, so cumulative federal debt issuance can equal the “value” of the national asset base plus annual national GDP times the remaining number of years a nation is expected to function. E.g., if a nation’s asset base is worth $225 trillion and annual GDP is $25 trillion per year, and the central bank cross ownership nexus has set a remaining national life of 10 years, when Federal debt issuance reaches a cumulative $475 trillion at zero real interest rates, that nation’s public sector has been efficiently financialized. These zero real interest rates are important as they do not erode through discounting the cumulative expected national GDP and thus allow maximum Federal debt issuance, and therefore maximum “value” extraction over the remaining functional life of a nation.
Other public sector financialization mechanisms include bond issuance at successively lower levels of government. These bond issues allow for maximizing macroscopic debt issuance at a cumulative national level as they are merely successive re-hypothecations of underlying asset “values” and their future income streams already pledged at the Federal level. E.g., debt issued at state level backed by state assets and future income streams have already been pledged in the Federal US Treasury bill issuance and accounted for in national GDP. County debt issuance backed by county assets and future income streams have already been pledged in the state debt issuance and accounted for in state GDP, and so on down through city bond issues, utility bond issues, school district bond issues, et cetera. Thus from this multi-level re-hypothecation of over-lapping pledged assets and future income streams, through the magic formula of fiat money working together with financialization, the national asset base plus total cumulative future GDP can be leveraged at multipliers greater than one.
Yet another public sector financialization mechanism is public civil infrastructure at all levels of government. Water corporations, storm drain networks, government buildings, passenger rail services, sewage plants, hospitals, highways, and fresh water aquifers are sold off – usually for cents on the dollar – and turned into quasi-bond issues for interest generating entities paid for by “public use fees”. Public land confiscation under pretense of environmental conservation is also a common public sector financialization mechanism. The 1973 Endangered Species Act – passed by Congress soon after the Nixon Shock – legalized the termination of private lease-holdings and confiscated vast tracts of public land to create scores of nondescript national monuments, national forests, preserves, wildlife sanctuaries et cetera. This expanding federally owned land portfolio is used to increase the collective national asset base for monetization and is, in actuality, a collateral pool of last resort for use in the next Federal default comprising 28% of all US territory. Similar land confiscation programs exists at the state, county, city, and school district levels where the primary mechanism of confiscation here are tax nonpayment liens and eminent domain. Thus public sector financialization is, in unadorned language, the process by which a nation is strip mined by the central bank cross ownership nexus and where its children one day really do wake up homeless on the continent their forefathers conquered.
There are five processes that facilitate financialization – the legal framework, de-industrialization, inflation, propaganda, and a creeping police state. Several significant individual acts of law have already been described that allowed the transition from capitalism into financialization to proceed unopposed, but the most relevant legal elements are contained within the District of Columbia Organic Act of 1871 that not only turned The United States into a private corporation under undisclosed ownership, but also established a dual Constitution without ratification via an Article V Convention. This illegal constitution altered the scope of Federal governance from that acting “for the People”, to that acting “of the People”, which is a meaningless legal term that renders the entire American population disenfranchised from the scope of Federal governance objectives. Since 1871, the true ownership of THE UNITED STATES has remained unstated, and legally this is important as an unstated corporate ownership here has the equivalence of stating that “We the People” do not own our own country. So it is no wonder that for most of the last 129 years the actors within Federal government may change but their outcomes never do. Only when one realizes that the primary purpose of Federal government since 1971 is to pile as much debt as possible onto the heads “of the People” can financialization be truly understood, and one can finally make logical sense from the perspective of who ultimately benefits from this national journey down the Road to Zero.
De-industrialization was necessary to support the growing issuance of US Treasury bills needed to achieve perfectly efficient financialization of the national asset base. The coarse workings of the American Fiat Empire’s “virtuous cycle” had to be altered after the Nixon Shock as US economic growth in value added exports had stalled, the aggregate US industrial base was too expensive to modernize, and a run on US gold reserves had left the country technically bankrupt under the constraints of a fractional reserve banking system. Thus by the beginning of the 1970s the usefulness of the American industrialization cycle to the central bank cross ownership nexus had played itself out, but some alternative to American value added exports was needed to keep the “virtuous cycle” functioning lest the Soviet Union and its ruble expropriate world reserve currency status. So outsourcing the US value added export economy to the likes of Japan, Taiwan, and Korea was the solution, with America now the importer of value added goods paid for in US dollars that generated foreign US dollar earnings that returned to the United States through the “soft” avenues in the Fiat Empire’s “virtuous cycle” to buy US Treasury bills. Thus Federal government policy post-1971 was to aid and abet the destruction of the US American value added export capacity along with the elimination of millions of well-paying skilled factory jobs in order to pass US dollar earnings on to foreign nations that would then return these US dollars to the United States with the purchase of US Treasury bills. But despite all this destruction of American factories and their well-paying jobs, the Fiat Empire’s “virtuous cycle” kept operating as before at the macroscopic level. But once down the de-industrialization path, the Federal government could never allow the return of US value added export capacity as these exports would compete for foreign held US dollars with US Treasury bills, and if enough value added export goods were produced and sold in US dollars to foreign nations, that would reduce the amount of US Treasury bills sold, strengthen the US dollar, and put the American financialization project at risk by neutering the facilitating process of inflation.
As perfectly efficient financialization progresses and the national net present value approaches zero, the inflation generated through continuous US Treasury bill issuance drives the aggregate national asset base “value” higher, and each uptick in aggregate asset “value” underwrites ever more Federal debt issuance against what would otherwise be, in an inflation-less world, a static aggregate asset “value” with a finite amount of potential liens. As inflation churns away and aggregate asset “values” rise, the national zero net present value point gets pushed further into the future and thus more cumulative debt can be issued over a longer period of time. If inflation were to run high enough for long enough, Federal debt issuance could theoretically go on indefinitely and fund Wars, Waste, Wall Street, and Welfare forever despite the country producing next to nothing of true value. Inflation also has the same effect on national aggregate revenue streams, and this is why deflation can grind the financialized economy to a halt as its entire workings are dependent upon the inflation that drives an increasing national asset “value” that drives the never ending issue of US Treasury bills that drives the inflation circulus in probando. But with deflation, the aggregate national asset “value” shrinks, and US Treasury bill issuance can either stop – which means no more Wars, Waste, Wall Street, or Welfare – or continue and trigger hyper-inflation yet still salvage the Wars, Waste, Wall Street, and Welfare.
Deflation is also the Achilles Heel of US national security since crippling economic crises can be easily engineered by foreign players that, either willingly or by coincidence, collectively do not buy US Treasury bills as did happen starting in 2014. Thus as the Fiat Empire goes, not buying US Treasury bills is in effect a declaration of war “by other means” and is why since 2019 the Federal Reserve System has been frantically buying up its own debt to save the Wars, Waste, Wall Street, and Welfare at all (socialized) costs. So the magic formula of creating money out of thin air births the creation of even more money out of thin air through inflation, and when the magic runs out and the rabbit insists on staying inside the hat, the abomination of deflation is released. Thus inflation is the secret ingredient that drives asset prices ever higher and makes the wealthy asset holders even wealthier with every multi-billion dollar US Treasury bill auction. But the cost of inflation is borne primarily by those who do not hold assets and cannot afford inflation, so inflation is thereby socialized through the mugs and dupes that make up “of the People”. Deflation on the other hand, although the bringer of immediate economic carnage to a financialized economy, is over the long term the ultimate re-distributor, the bringer of equity and equilibrium, and the destroyer of the wealthy. So, financialization is, by design, socialism for the rich, and deflation is thus the unwinding of this socialism and the cleansing reversion to the mean.
We are all familiar with the sustained and incessant propaganda campaign that we experience every day. That unsolicited red, white, and blue bunting on city streets, the spectacular 4th of July fireworks display, the F-35 flyover at the football game, and a special appearance by Uncle Sam on Stilts at this year’s patriotic flag waving parade. But what we often do not perceive is our willing participation in these displays, the need to be drawn into rituals that block our subconscious knowledge that something really is seriously wrong with the nation, and these things that are seriously wrong will never be fixed. So as this collective subconscious block grows, the more manufactured and elaborate these patriotic displays become – the harder we wave those flags, the louder we sing the Star Spangled Banner, the more ferociously we vote, and the more vigorously we do what effectively amounts to nothing. It is when this collective block descends over our collective impotence that we then enter the final stages of financialization and the police state.
When financialization matures to the point where in its real world underbelly tens of millions have been disenfranchised from participating in economic activity, while its surface world screams about new all-time highs and the exotic travel tastes of tech trillionaires and their celebrity friends, the police state becomes the final, logical solution to keep “of the People” in check while the final pennies are plucked from the national carcass. It is no coincidence that the Patriot Act was passed by Congress a mere 45 days after the 9/11 controlled demolitions, and it will be the vehicle by which the dissenting and disenfranchised will find themselves branded as “terrorists”, gathered up into the box cars, and shipped away to be disappeared by the millions. Clean, efficient, cheap elimination, sustainable and always environmentally friendly. And it will be at that point, in these cramped box cars, within these hot and stinking quarters during that collective silence where time is suspended between repeating clanks of iron on iron and the hypnotic rhythm of the carriage roll, it is here where “of the people” will ponder upon why they did not wake up, why they did not wise up, and why they did not rise up. And so these thoughts go, box car after box car, train after train, day after day. And as the trains slow into the camps, “of the People” will finally experience the epiphany of just how few individuals there were who ruled over the world, but will also discover too late just how few bullets would have fixed things early, how little blood need be shed to derail this Road to Zero.