Globalization, the long-armed henchman of financialization, is an insidious contributor to the widening income gap and wealth inequality in the U.S.
Globalization is, essentially, another nail in the coffin of America’s middle class.
Undoing its insidious effects will be hard, don’t get me wrong. There are years of damage and many powerful people who are profiting from the system being upheld just the way it is.
But it’s possible.
The New Comparative Advantage
It used to be that “comparative advantage,” the concept in economics that a country that produces goods and services more efficiently at a lower opportunity cost (considering indigenous capital, labor and resources) will yield profitable global exports and drive revenue to importing other goods and services manufactured more efficiently elsewhere.
Now, the financialization of the U.S. economy (our shift from domestic manufacturing profitability to financial services profitability) gives America’s mobile mountains of capital a comparative advantage globally to finance manufacturing overseas and subsidize imports.
This new “financialized” twist on globalization results in domestic manufacturing losing its comparative advantage and jobs being exported. It also increases the profitability and further enrichment of capital exporters and importers of cheaply manufactured goods and services to be marked up and sold – likely debt financed – to Americans.
The Trojan Horse in Our Government
Successive Democrat and Republican administrations and individuals were steadily spoon-fed cash and campaign contributions by crony capitalist compatriots commanding armies of law-writing lobbyists. Starting effectively in 1980, they deregulated America’s banking and financial services industries so bankers could commoditize formerly low-yielding loans into the high-risk, high-profit, speculative tools of financialization.
The fruits of their efforts resulted in the banking and financial services share of corporate profits in America ballooning to more than 40% of all companies profits by 2006.
While the leveraging of American borrowers and profiteering of the economy (evidenced by debt-fueled speculative profits outpacing economic growth) was a prize in itself, domestic profiteering was augmented by an even wider global campaign… Going by the name of free trade.
The series of so-called free trade pacts that resulted was effectively a globalized push to lower regulatory barriers and was engineered to expand American credit into overseas markets.
Courtesy of the crony capitalists’ cash and credit manufacturing factory housed in the Federal Reserve, they successfully exported cheap American capital along with manufacturing and assembly jobs. The historical engine of American prosperity and food for a once expanding and aspiring middle class got “globalized.”
The ugly irony of free trade financed by cheap capital is that global competition has ultimately led to overcapacity and reduced profitability.
Bringing back jobs to the U.S. now would be even more expensive and eat into those corporate profits. All the while, global competition and overcapacity bring down labor costs and margins even in places like China.
The evisceration of America’s middle class and the widening income gap and wealth inequality in the United States aren’t the fault of free markets, or globalization in its unadulterated form. Our problems aren’t caused by the design of our money system.
They’re caused by how these systems get leveraged through financialization.
Four Simple Steps to Fix This Disaster
There’s only one way to right the sinking ship that was once America’s golden dynamic, its manufacturing prowess, its expanding middle class, the root of its entrepreneurship, and the backbone of it’s economic growth.
Here’s exactly what we need to do, and why…
- Replace the Federal Reserve System with a mathematical, automatic monetary expansion and contraction mechanism.
Thanks to acts of compliant Congresses, America’s private central bank has been ceded the extraordinary power it possesses. They have made possible the artificial manipulation of interest rates, the bailing out of the criminal enterprises America’s big banks have morphed into, and the centralized command and control of the economy.
The Federal Reserve System has to be exorcised from the body of American politics and our economy like cancer from a suffering soul.
- Break up America’s big banks by separating commercial banks from investment banks.
The big banks in America, even without the backstopping and financing of a central bank, would still coalesce to preserve their power over government and the economy and should be broken up.
Separating commercial and investment banking is fundamental to safe banking and doesn’t impinge one iota on the capital markets’ ability to convene capital, slice and dice financial products, and transfer risk through free market mechanisms.
- “Localize” the availability of capital
By localizing capital, borrowers of all stripes would have greater access to whatever they need and lenders would have a much better handle on risk aspects of the loans they make.
- Impose term limits on Congress
Finally, term limits would get the career crooks out of Congress and pave the way for representatives who are judged by what they do in the short time they’re given to do it, rather on the length of time they have to enrich themselves on the backs of their constituents while professing to fight for them against the ravages of big banks and globalization.
The American people can be unshackled from the Washington-financed and protected crony capitalist oligarchy that subjugates the economy and citizenry to its profiteering and unshackled free markets. American ingenuity and our once enlightened work ethic can be unleashed on the economy like never before.
We just have to make it happen.
Editor’s Note: We spoke with Shah over the phone right before publication, and we asked him what investors can do right now. “Ride the tiger. This is the system, and you have to play it the way it’s constructed.” Until Shah’s prescriptions are administered – including eliminating the Fed and imposing Congressional term limits – absolutely nothing is going to change. On Friday, Shah will offer readers specific investment strategies to profit in the meantime – so stay tuned.