Industrial Insight

where’s all the money? | January 11, 2013

http://www.realclearmarkets.com/articles/2013/01/11/what_happened_to_all_of_that_money__100083.html

January 11, 2013

What Happened To All Of That Money?

By Jeffrey Snider

As hard as it is for most people in today’s modern era to grasp, as evidenced by the coin gambit, money is not wealth. Money can represent wealth, and, at times, even become a workable but temporary substitute, but money will never be able to replace true wealth as the central object, subject and foundation of the capitalist system. Of course, the capitalist system has found itself fettered by this modern obsession with money (included in the usage of debt as a centralized lever of control) and the political approval of economic central management, but, by and large the developed world still finds itself in some hybrid form of capitalism. While every major system continues to move to disproportion away from free markets and into the heavy handed, centralized approach, what is needed is less hybrid and more capital.

The central agency of true wealth is that it distributes economic success without the need for nudging or control. Debt, on the contrary, is the very embodiment of economic slavery – the overconsumption of current needs at the expense of encumbrance on future prosperity. Unfortunately for the developed world, that encumbrance began collecting rent in August 2007.

Much of the balance sheet expansion sold as economic elixir has simply been used to pay the freight of a debt-addled system. The cost of debt is interest, but the penance to the interest rate system lies in the multi-national banking system’s schizophrenic function. Comprised as nothing more than a cartel of interconnected behemoths, central banks have used these creations of debased monetary units to maintain the financial status quo. In the mechanics of central banking, these balance sheet expansions really amount to nothing more than risk transformations. Unusable financial collateral is exchanged out of the international banking system by central bank asset purchase programs, to be replenished by new issuance of “approved” security issues.

What is holding back recovery is not the recession of debt and credit, but the ongoing lack of genuine income streams and opportunities. Good assets, those that can and do generate positive and sustainable cash flow, are what remain in short supply. Recreating old channels for credit production does absolutely nothing to remedy that central economic problem. Sustainable jobs do not come from Wall Street speculation or London trading of derivatives and rehypothecated central bank certificates.

In the whole spectrum of possible economic projects and activities, those at the lowest end are solely dependent on the flow of new money and debt. At the highest quality level are jobs and income streams that can operate independent of monetary intrusions and disruptions because they perform a service or need that pre-exists the level of money. On the downslope of the housing bubble in the US, for instance, millions of jobs (construction, mortgage financing, real estate churning) were lost simply because money stopped flowing into the housing sector. They were unsustainable and any downstream economic activity (such as automobiles) that was dependent on them was susceptible to not only cyclical reversal but permanent structural decline in the absence of replacement monetary flow.

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About author

I'm the executive vice president for a steel casting trade association, the Steel Founders' Society of America. I've got a crazy wife, five crazy children, three crazy people that married into the family, and two crazy fun little grandsons.

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