Economics and Government and Psychology and Social Issues and Stock Market28 Feb 2014 01:45 pm

While most of our attention is focused on our “losing jobs” to China, India and many emerging or third world nations, we may be missing the more important ways in which our basic economic structure is changing. In many ways it appears that our Industrial Free Market Economy is being transformed into a economic system based on Financial Instruments.

Over the last number of decades we have been referred to as a consumer based economy in which the health of the economy was dependent on the increased velocity of money being fueled by strong and generally increasing expenditure and consumption. Recessions or down turns in the economic health of the nation was accompanied by drops in consumption and expenditures. The economy “contracted” at these time periods with businesses laying off workers in response to a drop in revenues and profits as consumption stagnated or decreased.

In a society in which its economic system is dependent on the consumption of goods and services there was always a need for people to be employed and for wages to increase to support their being able to continue to consume, invest and make major purchases to stimulate the economy.
Since the beginning of the industrial revolution modern societies have found an increasing need for the vast majority of citizens to fulfill three roles, that being consumer, worker/producer and soldier. The woman’s movement almost doubled the pool of possible workers and with two pay checks per household as compared to one, allowed for a sharp increase in both production and consumption.

The rising populations throughout the industrialized societies impelled its economic and political leaders to support their consumer cultures by trying to monopolize the natural resources of the globe. A surplus of oil, foodstuffs, natural gas, minerals, potable water, etc. were all needed materials and essentials to keep the consumer based economies humming and expanding.

Many so called underdeveloped nations were somewhat opposed to their surrendering these resources or not having them be the main benefactors or their economic value. The wealthier industrialized nations felt they were the proper stewards of these precious and valuable commodities and felt other nations should trust in their proper management and global dissemination.

According to the industrial nations those envious of the industrialized nations must be subdued and forcibly assisted in becoming better and more moral nations. In this manner constant protection and advancement depended on forming the most formidable of military forces which then required the role of soldier to become paramount, rivaling both the roles of consumer and produces in their importance for the continued success and functioning of the consumer culture.

The industrialized world was led by “free democratic” societies who felt their way of life threatened by the existence of totalitarian, communist and even egalitarian socialistic societies. Such political and economic diversity was not tolerable for a social economic structure that was dependent on both the increased access to and dominance of food, energy, and industrial materials and technologies by the elite industrial nations. The equating of freedom and free trade made military might and superiority not only palatable but a moral imperative. Freedom and fighting for freedom became synonymous, and the possibility of freedom without war became a somewhat mocked and unrealistic ideal.

Protecting our freedom and way of life, from the morally bankrupt and evil despots led many to “proudly serve” in the military and to support our governments policies and political agendas. These people viewed themselves and their nation as the true bastions of freedom, justice and moral righteousness.
One of the true ironies of our sense of progress and the ideal of an ever expanding worker/producer consumer culture, is the role of technology and its impact on our lives. While it is true that every advance in technology creates jobs, it is also true that most advances in technology replace more jobs and human labor than they create. Machines and inventions have almost always increased production and made businesses less dependent on human labor, or at least reduced the number of man hours necessary to produce the same number of goods.

Increases in production via technological advances has been astounding often in a geometric progression. Likewise, the areas in which technology dramatically increased production is finding itself in not only almost every area of manual labor but also in the service economy.  While the possibility of our being able to create a fully automated society freed of human labor is still up for debate, the fact that each passing day the need for a smaller and smaller percentage and number of people working is a unavoidable reality. The old truism that automation only replaces unskilled labor and jobs unfit for human beings is no longer  accurate in any sense. In fact you could say that the last decade saw more highly skilled jobs, such as surgeons and systems analysts, being replaced by robots and computers that can deal with huge reams of information, microscopic precision and nanotechnology.

Modern technology, robotics and artificial technology are overcoming human error, limitations and vulnerabilities. In many industries we can produce in a matter of hours what we most likely will consume in months or even years. As technology becomes more gifted (as workers and producers) our role as workers and producers becomes more and more unnecessary and obsolete. While this is rather easy to fathom, it is harder for most people to recognize that our role as a consumer is likewise becoming increasingly unnecessary since the last recession.

Despite rather anemic growth in consumption accompanied by rising unemployment and falling wages the stock market and corporate profits are positively booming. Those working in the sweat factories abroad are now making maybe $200 a year rather than the $100 a year they used to make. These people are replacing jobs in the industrial nations that made anywhere from $18,000 to over $40,000 a year. So while the decreased wages are cutting down on overhead, they are also greatly reducing the pool of disposable income available to buy products that should be necessary for corporate profits and stock performance.

How are corporations able to make record profits if the consumers of their products and services are unemployed, making less money, and have less disposable income available? Add to this conundrum the fact that banks have drastically cut back the number of loans given out during this entire meteoric rise in corporate profits and the stock market. Well if people have no money to spend, and they can’t borrow it, where are these record profits and stock prices coming from?

During the time which we now refer to as the Great Recession we were told that our entire financial system was in crisis and the threat of total collapse was imminent. The stock market and financial systems survival was accomplished through a massive injection of money into the marketplace via bailouts, loans and ample money printing.

While the economy continued to struggle and unemployment rose, the financial and stock markets began to show signs of not only stabilizing, but regaining the majority of losses. While the financial press continued to debate the existence of “green shoots” and whether we’d have another recession, the stock market had already doubled since its low and the housing prices were beginning to inch back up. The “jobless recovery” has never really ended while the stock and financial markets are at new all time highs. As I mentioned at the beginning of this post, these new highs and corporate profits have been accomplished despite and maybe even because of a struggling economy.

In an industrial consumer economy there is a ceiling of how high profits can go in a high unemployment and low wage environment. Without jobs and expanding disposable income (higher wages) consumer spending is bound to slow down if not contract. Yet, one of the biggest and longest stock market runs in occurring in a stagnant or low growth economy where over 95% of financial gain has been acquired by the top 1% of the populace.
These facts seem to point to the fact that we no longer live in a consumer based economy and instead are experiencing the birth of a new economic model. Let’s look at some of the reasons this new model could be referred to as a financial instrument model.

The financial crisis was averted and the stock market rebounded when the Federal Reserve and other Central Banks began printing money and thereby “injecting liquidity into the marketplace”. The stock market was buoyed by relatively free money being used to buy stocks which had come down sharply in price. Troubled banks, financial institutions, and corporations were bailed out or give huge near zero percent loans to help them pay off their debts and stabilize their businesses.

While these extreme measures were implemented to avoid a catastrophe, the money printing, loans and bailouts have continued. In essence the financial behemoths which were declared too big to fail, have been receiving free freshly created money to use in any manner which they find beneficial.

Since many of these businesses are banks and other financial institutions which make no tangible merchandise or products, they have used this money to purchase financial instruments which are making a solid yield, repurchasing their own stock, and investing it in the financial world of stocks and bonds.

Many of the troubled financial institutions were saddled with bad loans and mortgages that were “under water” and had no hope of ever being paid off. The Federal Reserve took it upon themselves to purchase billions of dollars of this unserviceable through financial instruments such as mortgage backed securities to take these burdensome debts off of the books.

The transfer process was/is quite simple. The Fed would electronically create “print” money and use it to buy bad debt such as unserviceable bank loans. The debt purchased by the Fed would be transferred from the banks to the tax payer by being added to the
national debt.

The businesses and non financial corporations receiving newly created money via low interest loans and bailouts mainly chose to follow the path resulting in maximizing their short term financial gain. So, rather than lower their profit margins by increasing their overhead through building factories, hiring workers, increasing worker pay and expanding their businesses they mainly did the same as the banks and make most of their profits through stock buy backs, investing in financial instruments, and actually reducing overhead by closing factories, cutting wages and benefits, and when possible passing on expenses to the government (taxpayers).

Measures which were taken to avert an economic meltdown have now become business as usual. Money printing and financial instruments have become the way money is made by the top fraction of one percent of the populace. As long as money is being electronically created and injected into the marketplace via the coffers of the 1% there is little need for a consumer to spend his dwindling pennies on products and services. Every dollar printed just adds to the pool of money available and if that money is placed directly into the hands of the wealthiest their relative worth skyrockets as the relative wealth of everyone else plummets.

Is a Post Industrial Financial Instrument Economy sustainable? Are the financial elite going to eventually meet resistance or truly need the consumer, worker and soldier?

With each passing day advances in automation, nanotechnology, robotics, artificial intelligence, surveillance, and military technology are making the roles of worker, consumer and soldier increasingly unnecessary for the acquisition and securing of wealth. Through debt, taxes, suspension of entitlements, destruction of worker rights and protections, the loss of privacy, and the legal erosion of our basic inalienable rights and freedoms we are losing any recourse we may have had to defend our role and purpose in this new global economy as well as any way to insure our economic self-determination.

The stock market is currently enjoying its longest stretch, some 60 months, without a correction of 20% or more. The longer this goes on the more it supports the possibility that we have truly entered a new economic paradigm in which automation, perceptual management and financial instruments have replaced the old rules and dynamics of an industrial based economy. While I personally think this economic paradigm coup is premature and ill fated, and the coming stock market crash will be historic in nature, I am unwilling to totally discount this new financial instrument based economy succeeding now or in the near future.

In such a world where the common man becomes superfluous at best and a burden at worst we may look back at Brave New World and 1984 as comparatively rosy views of the future.

Jim Guido

 

One Response to “The Post Industrial Financial Society”

  1. on 13 Oct 2015 at 7:14 pm GuidoWorld » Wealth and War

    […] society is now being replaced by a financial instrument economy. Please read my previous post http://guidoworld.com/blog/the-post-indu… to gain a better understanding of the logistics of this new economy and how it frees the financial […]

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