~ Charles Hugh Smith. from Of Two Minds
We are being throttled by the Big Lie.
We’re told that if the predatory financial system implodes, we’ll all be ruined. The opposite is true: the only way to save our economy is to let the corrupt, pathological and flawed financial system implode.
Exploring this reveals the insurmountable internal conflicts in our current financial system, and the systemic political propaganda which is deployed daily to prop up a parasitic, corrupting, pathologically destructive financial system.
In modern finance, high-risk “investments” (wagers) with high returns can be taken on without worry because any and all risk can be hedged to zero, even in super high-risk wagers. This creates long chains of hedges and counterparties. So what happens when one counter-party somewhere in the chain runs into trouble? The entire chain collapses, each link in the chain dissolves into insolvency. Thus the fundamental premise of all modern finance is flat-out wrong, and systemic risk, rather than being eliminated, actually rises with every ratchet up in debt, leverage and counterparty hedging.
What does this promise of using leveraged capital to skim risk-free fortunes do to the “real economy” of production and investment in plant and technology?
It guts it.
The risk of industrial Capitalism is real and cannot be hedged away; high-risk investments may blow up or they may return high yields.
It literally makes no sense to risk real capital in productive Capitalism when a zero-risk skimming operation can be developed that essentially needs near-zero capital. Thus financial capital has come to completely dominate industrial or productive capital. The pernicious consequences of this dominance have poisoned the economy and culture on multiple levels.
What happens when the whole chain blows up and the foundation of debt is impaired?
In a transparent Capitalist system, the debt would be written down and all the insolvent borrowers, lenders and counterparties would be wiped out. But the political corruption that enabled modern finance to poison the [global] economy and culture, has stopped that cleansing from occurring.
Capitalism has been strangled and tossed in a shallow grave lest it disupt the skimming and the political corruption that keeps the machine running.
What we end up with is artificial valuations, endless propaganda and a zombie economy, zombie debtors, zombie lenders, a zombie government that only has one lever to pull to keep the whole corrupt pathology going – borrow and squander more money. A zombie economy, drifting and decaying in a fetid pool of lies, shadow banking, ceaseless official propaganda, jerry-rigged ‘fixes’, manipulated statistics, corruption, predation, exploitation and pathology.
The only way to clear a zombie economy is to write off uncollectable debt and liquidate all the assets, loans and hedges. That would collapse our financial system, but since it is the cause of our political and economic dysfunction, that would be the highest possible good and extremely positive. The irony is the propping up of a deeply, intrinsically pathological and destructive financial system is not saving the economy, it’s the reason the economy is imploding.
The Big Lie technique of propaganda is to reverse the polarity of reality: we are told up is down until we believe it.
We are told that liquidating the overhang of bad debt, leverage and hedges would “destroy the world as we know it”. The truth is that keeping the zombie system from expiring, and covering up the corruption with propaganda is what’s actually destroying the world. The collapse of the current financial system of central banks, pathological Wall Street and insolvent banks would be the greatest possible good for the global economy and its participants.