The global financial system and economy is sick right now because there is an over emphasis and compensation to the prolific capitalistic monetary derivative system.
Most journalists report of the impending doom and gloom situation as being factored in the trillions.
A Trillion dollars is a massive huge amount of cash whether digital or in commodity.
Mainly these monies are located (hoarding) within the sovereign nations central banks, usually in the form of their foreign exchange reserves.
As a believer in the socialistic benefit to consumers, I believe the answer to the current dilemma is in the form of redistribution of wealth.
Part of the problem now in Malaysia is seen in the rise in Inflationary powers of consumer goods as in Greece and morocco and Spain. In the US of A, it is because of their loss of Jobs and lack of new job creation due to out sourcing and new technological advances.
Globally, companies have accumulated their cash hoard partly through technological advances and better allocation of resources (which generally means downsizing/outsourcing of labor), which allowed them to replace humans with machines that do a better job at a fraction of the cost.
One such country, China; have accumulated theirs through cheap labor (they're not spending a lot of it because a big chunk of the profits goes to the government instead of to workers).
Many economists will be quick to point out that technological advances and access to cheap foreign labor produce a net gain for a society.
What they say is true.
However, the benefit of technological advances and cheap foreign labor is disproportionally flowing to the owners of copy rights and trade protected businesses.
The masses, meanwhile, are left with a smaller slice of the pie even as the pie itself gets bigger.
How big is this pie we talk about ?
Roughly USD 200 Trillion.
The $200 trillion notional amount of derivatives contracts held by U.S banks (as of 2011) is summarized in the following table:
Rank Bank Name Total Derivatives held (in $millions)
1 JPMorgan $87,362,672
2 Bank of America $38,304,564
3 Citibank $31,887,869
4 Goldman Sachs $30,229,614
5 HSBC $ 3,713,075
6 Other Banks $ 8,515,786
So, it can be deduced that the top 5 banks in the US held about 94% of the total derivatives, while the rest of the more than 1,000 banks held less than 6%.
The most popular
The following table shows the type of derivatives that make up the $200 trillions.
Type of Derivatives In ($Billons)
Interest Rate Swaps 164,404
Foreign Exchange 16,824
Equities 2,207
Commodities 1,050
Credit Derivatives 15,897
Total 200,382
The interest-rate swap
The table above shows that the majority (about 82%) of the derivatives are interest rate-based.
(Interest rate swaps are basically a type of financial instrument where two parties agree to exchange interest rate cash flows from a fixed to floating rate and vice versa).
This is why wealth disparity in the world is the largest it's been since the 1920s. It also explains the trillions in dead money because the few people who control that money have no need to spend them.It can be used as a hedging or speculative device depending on how you utilize it.
Finally, it explains why globally consumers aren't spending money (because they aren't getting paid enough) and why the economy is sick as a result.
The truth is that the brand of capitalism the western world is practicing has been rendered unfit by globalization and technological advances.
Imagine the following scenario.
A society one day invents machines could freely take care of all the material needs of all citizens. What would make sense is for that society to eventually freely give those benefits to its citizens.
What would not make sense is giving all the profits to whoever legally owns the machines, leave everyone else unemployed because there is no work for them to do, and leave them to starve because they have no money to pay for anything.
Yet that's exactly what would happen if that society practiced a pure form of capitalism, or even as in Malaysia; forms of crony capitalism.
Class-consciousness is the enemy of the financial and political elites that constantly inculcate the idea that “all of us must work together and sacrifice” for the greater good, when in fact the “greater good” is largely the domain of the elites.
At the end of the day, economic systems - capitalism or anything else - are meant to do two things: take care of people and incentivize them to work.
While no one argues that capitalism is the best system for incentivizing hard work, the realities of technological advances and globalization have rendered pure capitalism unfit to take care of common citizens in developed countries.
Take it from a proletariat’s opinion. We need to figure out how best to re distribute the wealth before we can see the end of these global sufferings.
As the proletarization of the middle class become more apparent in the coming months, the current global crisis will evolve into a middle class crisis of alienation, stratification, and erratic class/status identity.
That’s when the SHTF (shit hits the fan).
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