Wall Street Financial Truth

Chapter 15 Who Emptied Your Wallet (6)
American companies, such as "F&F", AIG, and GM (General Motors), make a lot of money with credit, and executives pay bonuses and spend their days.When the financial crisis broke out, these companies were on the verge of bankruptcy. The government feared that their bankruptcy would make the economic crisis worse. Naturally, they wanted to help them, but after the first help, there were countless second ones to help.

It seems that the world has to continue to "thank" the United States for its huge debts and crazy consumption.Otherwise, the world economy will continue to decline.Knowing that the United States is the chief culprit of the financial crisis, although it can be condemned, it can only continue to play with the United States.

13. Can the financialization of the United States bring wealth?
Professor Chen Zhiwu of Yale University published the book "The Logic of Finance" a few years ago. The theme is to "financialize" wealth, that is, to transform wealth such as oil, coal, and human resources into the form of currency or financial products. Market circulation and transactions.According to the logic stated by Professor Chen, whether a society is rich or not depends not on the amount of wealth, but on whether to monetize or capitalize this wealth, that is, "financialization"; the higher the degree of "financialization" of wealth, The richer the society, otherwise even if there is wealth, it can only be "poor".For example, the United States in the real world has the highest degree of "financialization" and is therefore the richest. China in the real world is not "financialized" enough, so it is not very rich.

Is it really?I beg to differ!

We must recognize the fact that social wealth is created by the real economy, and "financialization" can only promote the smooth production or creation of social wealth at best, and its activities do not produce or create social wealth.Therefore, it is ridiculous to say that "financialization" is exaggerated to the point that it can replace the entire market economic system and generate all links of social wealth.Even if people "financialize" more, they will not be able to "finance" clothes, food, houses and cars.The most important point is that the unlimited expansion of financialization will inevitably bring about asset bubbles, lead to social conflicts, and eventually lead to financial and economic crises.From the financial turmoil in South America, Japan, and Southeast Asia in the past to the far-reaching financial tsunami, as well as the debt crises in Iceland, Dubai, and Greece, they have clearly proved to the world time and time again that the consequences of excessive "financialization" The consequences fully illustrate the harm of "financialization" to the world.

Finance, in the final analysis, is just a service industry, and the most it creates is "virtual wealth".Although in reality the United States relies on "financialization" to expand without borders, creating financial giants such as Buffett and Soros, making the entire United States "rich" unprecedentedly, after all, it is Wall Street that stands at the top of the financial pyramid and relies on the US dollar. China's special status created by other countries cannot be replicated at all.What's more, is America really rich?The national debt alone is as high as 13.1 trillion U.S. dollars, and the average American owes more than 4 U.S. dollars. Can they be considered rich?If it weren't for the support of China and other countries at the bottom of the pyramid, the United States would have gone bankrupt long ago. Can this kind of "financialization" follow suit?
At present, the total accumulated debts of the US government, companies and private individuals have reached astronomical figures.If calculated based on the current population of 3.05 million in the United States, the total debt per capita is 70 US dollars, and each family (2.28 people in a household) owes 217 million US dollars in debt.If it is converted into RMB, every family will become tens of millions of "negative".That's according to the OECD, the only international organization that tracks the accumulated debt of all its member countries.This is the result of "financialization".Even U.S. President Barack Obama has openly admitted that the current deficit consumption will be "unsustainable, and we have to pay interest on borrowing, which means we are mortgaging the future of our children and grandchildren, making them pay more debts."

In "The Logic of Finance", Professor Chen's "logical" suggestion to China is: Since China's "financialization" is still not enough, it is necessary to increase the intensity of "financialization", not only to expand the resources that rely on nature and human The "financialization" of its own wealth must be upgraded to the "financial innovation" market created by Wall Street, and more "financial derivative products" will be created to make China rich; China does not need to be afraid, let alone care about the financial crisis. China can eventually become a competitor or surpasser of the United States!For example, personal housing mortgage loans only account for about 13% of China's GDP, while the United States has exceeded 100%. China obviously still has a lot of room to expand such loans and "innovate" financial products based on such loans.

However, the facts have proved that Professor Chen's "financialization" argument is in line with the economic model created by Wall Street - "creating social wealth" just by breathing.What Wall Street is promoting at all costs is a financial system, but more of a monopoly power system.As people rely more and more on money as an intermediary, those with power are increasingly willing to create money and abuse that power to determine who gets it.What is created by relying on this system is not the real wealth of the society, but a mirage. The housing market bubbles in the United States and Dubai are the best examples.

The bigwigs of the financial institutions involved in the "creation of wealth" built a debt pyramid with financial assets.Using grotesque derivative securities, under the effect of leverage, "wealth" is magically changed, and then using virtual excess profits to charge super high management fees, creating perfect Ponzi schemes one after another: constantly using The money of those who came later went to fill the holes in the front.When borrowers start defaulting on their debts or failing to make their loan payments, the bubble bursts, "wealths disappear" and the debt pyramid collapses in an instant.And the magic master standing at the top of the pyramid "creating wealth" has already put the wealth that came in at the bottom into his pockets and slipped away, leaving a ruin (black hole of unpayable debt).

With the deregulation of Wall Street, it is reminiscent of a time when the seas were ruled by adventurers and armed fleets.Think back to the time when kings granted pirates immunity from law in exchange for a share of the booty.In fact, "adventurers" are another colorful name for pirates. They are outright liberals. They set their own rules of the game for their own wealth, just like Wall Street expresses "free market" in its own space, the most capitalism. Perfect form as well. The "armed fleet" is the predecessor of publicly listed companies. Wall Street hedge fund managers, foreign exchange traders, brokers and speculators who speculate on wealth are today's adventurers. Wall Street banks are armed fleets, and the economy is their ocean. The company is the vessel serving them to plunder wealth, the cardboard-like gorgeous financial system is their weapon for plundering, and the country has become their servant and guardian.The "financialization" advocated by Professor Chen is actually similar to the above-mentioned examples. The result is to "transfer" the money in the pockets of the masses into the pockets of a very small number of people.

This Wall Street "financialization" model is simply opium, and the poison has already eroded individuals, society and the entire human race.Because the essence of Wall Street is to use complex transactions to expand the wealth-enhancing pie (regardless of whether the wealth is watered or not), and then use unethical methods to deprive society of wealth in order to maximize personal financial gains, thereby maximizing grabbing.

The reason why Wall Street's "financialization" cannot become a general logic and be followed by other countries is that the most special thing is the status of the US dollar as an international currency, which is precisely ignored in "The Logic of Finance".The status of the US dollar as an international currency has long allowed the United States to occupy a large amount of resources, goods and services of other countries through currency hegemony.What is even more infuriating but helpless is that the United States also uses various international organizations, including the World Bank and the International Monetary Fund and other forms of national power, to prevent other countries’ dollar reserves from freely purchasing American goods and services, forcing other countries to The U.S. dollar reserves have increased substantially, and the U.S. has increasingly long-term and large-scale possession of resources, goods and services of other countries.At the same time, it uses so-called "financial products" such as treasury bonds to absorb the dollar reserves of other countries, transfer the financial risks accumulated by Wall Street, and use the complex exchange rate game in the financial market to steal the wealth of other countries.

Therefore, a considerable part of the "financialization" of the United States is the "financial innovation" brought about by the particularity of the US dollar. Its internal logic is to transfer its risks to other countries and plunder their wealth.It is really untenable to say that it is a kind of "financial logic" available all over the world.If any country enforces such a logic, the result will be "financial freaks" that will harm the implementing country itself.

Take the economic and trade exchanges between China and the United States in recent years as an example.The Chinese sold a lot of goods and services to the United States, what did the Chinese get?Get the dollar currency printed by the Americans.This is a natural thing in the US dollar as an international currency.However, no matter what theories and principles are, the Chinese who get the US dollars should and must go to the United States to buy American goods and services in order to complete real economic transactions, obtain the benefits of international trade, and construct real international freedom. trade.

However, the Americans, who claim to take the free market system as their spiritual pillar, use various reasons to prevent the Chinese from buying what they want. Natural resources are not sold, high technology is not sold, and industrial and commercial enterprises are not sold. Shares are not for sale either.While Americans enjoy Chinese goods and services on an increasingly large scale, China's dollar reserves have increased substantially.From this perspective, the huge increase of China's foreign exchange reserves, especially the US dollar reserves, is not voluntary, but "forced" to a large extent.

In order to alleviate the huge impact of the large increase in U.S. dollar reserves in countries such as China on the U.S. future commodity and labor markets, on the one hand, the U.S. government increased the circulation of U.S. Treasury bonds in the market, so that the U.S. dollar reserves of China and other countries had to be converted into "U.S. treasury debt assets" make Chinese people think that "U.S. treasury debt is safe". While stably maintaining dollar reserves, it actually makes Chinese more and more responsible for the U.S. government and even the entire American society together with the U.S. government. economic risks; on the other hand, Americans have engaged in so-called "financial innovation" and created a large number of "financial derivative products" to absorb part of the US dollar reserves of China and other countries.As a result of doing so, the financial risk of Americans on the US dollar is clearly and easily transferred to China and other countries with large US dollar reserves, and the value of these US dollar assets will be melted into the air at any time, and then permanently Sexually plundering the wealth of China and other countries.

During the subprime mortgage financial crisis that originated in the United States, most of the reserve countries that purchased a large amount of U.S. treasury bonds and financial products (China purchased the most) caused considerable real value losses, and it is impossible to predict the trend of future losses. .According to reports, in 2008 alone, the losses of China's state-owned enterprises and Wall Street's financial derivatives business may reach hundreds of billions, and the losses are still continuing.

How can this "American financial logic" evolve as a general "financial logic" in other countries?

Taking China as an example, when the renminbi is not yet an international currency and it is impossible for other countries to keep it as a reserve currency, China’s “financialization” cannot allow other countries to bear the huge risk of China’s “financialization”. There is no talk of "transferring" the wealth of other countries.

As far as the financial aspect is concerned, even with special advantages such as dollar hegemony, the United States cannot prevent the occurrence of the financial crisis, let alone withstand the impact of the financial crisis brought about by excessive "financialization" on the entire American society.Obviously, how can China, without such advantages, avoid the crisis brought about by excessive "financialization", and how can it withstand the huge damage to social wealth brought about by the crisis? !
The "American Financial Story" is a story that can only happen in the United States, and China cannot replicate this story.If it is copied forcibly, it will only bring disaster.In a word, the financial logic of the United States will not work in China.

14. The disparity between rich and poor is the real culprit of the economic crisis
Today, whether it is domestic or global, the disparity between the rich and the poor is too great, which will definitely cause a financial crisis.

More than 100 years ago, the United States changed from the silver standard to the gold standard, that is, the value of each unit of currency is equivalent to a certain weight of gold.As productivity rapidly increased, the output of goods soared, and so did the demand for money.Although gold is more valuable than silver, because metal currency is limited after all, when wealth becomes more and more concentrated in the hands of a few people, there will be less currency in circulation in society.For example, before the Great Depression in the 20s, because the goods produced could not be sold, the so-called overcapacity was formed, that is to say, the productivity greatly exceeded the total amount of gold. One of the most famous scenes was that capitalists would rather pour milk into the sea , and are unwilling to sell at a lower price.But on the other hand, how many babies are malnourished and even die because they don't have milk to drink!

One of Roosevelt's New Deals was to nationalize all gold in the United States, thereby abolishing the gold standard; and then to issue credit currency, which survived the catastrophe.If we say that the crisis was caused by the gold standard, we are only half right. The more important reason is the inequality of wealth.

We often see this phenomenon. On the one hand, rich people have more money than they can spend, and they don’t need to spend any more, because they, like ordinary people, cannot eat twenty big meals a day and sleep in eighteen large beds at night. , it is even more impossible to drive ten luxury cars at the same time; on the other hand, ordinary people cannot afford houses or sit in cars.Because of inflation, which erodes people's purchasing power, the real income of ordinary people falls.The reason for inflation is that the virtual demand is inflated, encouraging early consumption and borrowing consumption, making 98% of the population more and more dependent on the 2% of the rich, because the rich hold the financial lifeline of the entire society. A dollar comes from the financial system of borrowing and lending.Therefore, in order to live in their "own" house, drive their "own" car, or even put food on the table, 98% of the public have to borrow money from them.

When the less fortunate cannot pay their debts, the money is cut off by the rich, and they stop borrowing.As more and more people go bankrupt, the demand for the goods and services on the market starts to drop; then companies start laying off workers, and as a result, those people can't pay their debts or put food on the table, a vicious cycle.As the main body of social consumption, the purchasing power of ordinary people has dropped sharply, and the rich people cannot absorb the remaining production capacity, so output and demand are out of balance.Once the consumption of a few people is not enough to support the total production capacity of the society, the economic crisis will break out.

And if the social wealth is not so concentrated in the hands of the rich, the situation will be completely different.As long as the people have enough money in their hands, the purchasing power will be greatly increased, and the economy will develop sustainably and at a high speed.

Recently, some experts have analyzed that if the United States starts printing money and prints dollars, inflation will be imminent.In fact, this statement violates the most basic economic common sense.Inflation occurs when there is full employment, material supplies exceed demand, and total spending exceeds total output.Just like on the eve of China's liberation, the war caused a sharp drop in productivity, and the supply of goods exceeded demand, making money worthless; but now, the global unemployment rate has soared, and the material supply is far greater than demand. Where is the inflation?
More than 1 trillion subprime debts have been created from more than 2 trillion subprime loans in the United States, and derivative securities with a book value of up to 65 trillion U.S. dollars have been derived.After the bubble burst, the fictitious wealth shrank sharply, and one or two trillion US dollars were issued just to unblock credit and prevent financial institutions from collapsing one after another like dominoes.Compared with the shrinkage of two trillion yuan and tens of trillion yuan of virtual wealth, it is nothing, not in the same order of magnitude.

(End of this chapter)