By
LARRY ROMANOFF – October 02, 2020
Extreme
financialisation is a serious structural defect in the US economy, and which is
unsustainable in the long run. As Richard
Eskow noted in a Huffington Post article,
"...
the US has financialised its economy to a frightening degree ... more than half
of all corporate profits will soon be captured by banks and other financial
institutions - from the movement and manipulation of money, rather than from
goods and services".
In
a report in 2013, the Chinese global credit rating agency DaGong made the
following observation:
"Due
to the high economic financialisation, more than half of the profits in the
real economy come from the returns of financial activities. If we exclude the
factor of the virtual economy, the U.S. actual GDP was about 5 trillion U.S.
dollars in 2009, and per capita GDP about $ 15,000."
This
compares to published figures of about $13 trillion for the US GDP and about
$45,000 in per capita terms. What does this tell you? Americans live in the
Matrix, in an artificial economy where people become rich by speculating on
houses and derivatives and making book-keeping entries rather than performing
productive work and producing real goods. In
every case in history where finance had become the largest sector of the
economy, the nation was in decline. The philosophy of the heavily-promoted
model that favored finance over manufacturing has already collapsed - as is
more than obvious in the destruction of its economy, but the Americans blindly
continue to promote this cancer as the epitome of development. The reason is
that this increasing financialisation permits the oligarchs and puppet-masters
who control the financial sector and most of the MNCs to vacuum enormous
amounts of cash out of the system. If continued, the American economy will of
course self-destruct at some point, dry up and blow away, leaving an empty
shell. The signs are so many and so apparent we cannot escape concluding this
is the intent.
It hasn't been widely noted,
but the Americans have committed precisely the same sin on a micro-economic
scale by financialising their corporations and institutions. The head of an
American university is no longer an academic but a Finance MBA whose responsibility
is not education but endowment fund raising and investment. The entire concept
of education and knowledge in the US is now rotting from the inside due to this
financialisation, with students urged to prepare
cost-benefit analyses to determine the "profit maximisation" of a
proposed course of studies. A great many top corporate executives are no longer
drawn from industry but from the fields of finance and accounting. It is this
financialisation of industry that is responsible for much of the difficulty in
US corporations today, and it is this
warped and unsustainable management philosophy the Americans are desperately
trying to push onto China, again repackaged as universal values and the will of
God.
Another
place where these venal and extractive vampires cause a serious misallocation
of capital is the financialisation of commodity markets, and here we can
include gold and currencies, all of which serve only to disrupt and inhibit a
rational market operation by using the commodity landscape as a grand casino.
These bankers, hedge funds and other intermediaries take the high moral ground
and tell us their actions create and maintain orderly markets and are
indispensable for the functioning of an orderly world, but these claims are
outright lies. If we think of currencies,
there is no reason whatever that anyone should be buying and selling foreign
currency except when needed for international trade or payments. In fact, the
practice should be outlawed because it creates mostly chaos and financial
losses and sometimes the virtual destruction of a vulnerable economy. When
George Soros interfered in the UK pound or in the Thai Baht, where was the
evidence of 'orderly markets'? His efforts were designed entirely to produce
personal financial profits through economic destruction. The entire "Asian financial crisis" was not some act of god
as many like to pretend, but a deliberate attempt by a coterie of the US FED
and some of its bankers, the IMF and various speculators, to create serious
vulnerabilities in various nations and then prey on them. There are
hundreds, if not thousands, of websites and money managers of varying degrees
of expertise all encouraging speculation in the currency markets in the hope of
making quick profits without ever a thought to the underlying chaos and
difficulties incurred by the nations and commercial enterprises depending on
those currencies. Nowhere, except in economics textbooks, does any benefit
accrue to either "the market" or to the genuine participants in that
market.
The
vultures tell us they create orderly markets for commodities like cocoa or
coffee, edible oils and other foodstuffs, metals and others, and claim further
that their actions do not increase prices but instead create stability, but
again these claims are lies. The markets exist with or without these amoral
profiteers, and to claim they don't add to industrial prices is not only
ridiculous but stupid. There are no
middlemen anywhere who take positions in any commodity or product with the
intention of only breaking even and never making profits, as if they were
some kind of charity. Of course they make huge profits. When Goldman Sachs
purchases thousands or millions of tons of aluminum, they do so only to control
and influence the market price and make huge profits in doing so. There are volumes of reports of Goldman
Sachs cleverly manipulating stocks of aluminum and other metals,
surreptitiously shifting inventory from one location to another in order to
manipulate the market and create larger profits. And of course basic
industries and the consuming public all pay for these schemes. Speculation in all these areas, as in
currencies, should simply be banned by law. And it would be, if these same
vampires did not have such intricate control of Western governments. It would
be a far better world if governments would amass the collective courage to once
again drive the money-changers out of
the temple and restrict banks and bankers to simple banking functions and
get them out of all commodity markets under pain of death.
From
an AP report in the Huffington Post in November of 2014, in an article written
by Marcy Gordon, it was reported
that three large Wall Street banks - Goldman
Sachs, JP Morgan Chase and Morgan Stanley - had a heavy involvement in the
business of owning and storing commodities like oil, aluminum, uranium and
copper that gave them unfair trading advantages and permitted them to
manipulate prices that markedly raised consumer costs. A US Senate Committee
investigation claimed in particular that Goldman used its metals inventories to
create shortages and inflate metal prices. It was investigating whether these
banks and their related speculative vampire brethren should be permitted to
control power plants, warehouse storage and commodities shipments, proposing
banks should be restricted from activity in all commodities. Goldman Sachs
claim their involvement "enhances their role as a middleman for producers
and consumers", but that is just disingenuous double-talk. The only thing
"enhanced" is their profits, at the expense of the rest of the world.
They contribute nothing useful to the
world, and are true extractive vampires, parasitic leeches feeding on almost
every part of every revenue stream, looking to manipulate and control prices
regardless of the harm caused. In 2013, JP Morgan paid $410 million in
penalties for manipulating electricity prices in the US, using their financial
power, insider knowledge and improper (illegal) bidding strategies to
manipulate prices and produce excessive profits from the system. Senator Carl
Levin warned of great risks to the US economy from these bankers, and stated
there was a great need "to restore the separation of commerce and
banking". I couldn't agree more.
On
the subject of banks generally, most of the world has been infected by a
long-term and cleverly-induced propaganda virus that tells us we should all
cheer when we learn that banks are posting record profits, but the virus blinds
us to the obvious question of why we should cheer. It has become almost an
article of religious faith that all is well when banks are drowning in profits
extracted from our own pockets, but in fact all is not well - except for the
pockets of those same bankers. We have for generations been overwhelmed with
what is essentially propaganda about the theological importance and
unassailability of banks and bankers to the point where we (and our
governments) seem to have lost the ability to realise the huge drain these
institutions place on economies and consumers. Indeed, and in full support of
these same bankers, we have now arrived at the point where Hollywood is
actively promoting the scripture that "greed is good".
Banks
in all nations are in a unique position in that they are able to levy taxes on
a population, and indeed on governments as well. In any other kind of business,
at least outside the US monopolies like mobile phone service, we have choices.
But in no country do we have choices in banking because all banks act in
concert and these banks affect almost every individual in every nation. When banks decide unilaterally to raise
fees for ATM usage, they do so not because of increased costs but simply
because they have the power to levy an additional tax on the population.
While it may be true that a few dollars a month is insignificant to each
customer, the banks have billions of customers and can arbitrarily and without
recourse extract many more billions per month from vulnerable customers, in
precisely the same way as a government levies a new tax. Many will argue that
governments and their taxes are at least theoretically accountable to the
people but we can make no such argument for the banks, and in fact banks are
increasingly unaccountable even to governments. It seems that greed is not only
good, but that increasingly few governments or even the police and law courts
have the courage to challenge it.
Many
emerging economies attempt to emulate "the big boys" in developing
their financial sector as an engine of economic development, but of course it
is no such thing. An economy consists of
real goods, the money being only a measure of the value of those goods produced
and traded. When the money becomes the economy, as in the US, the road is all
downhill from that point and cannot be otherwise. The Americans promote it
so heavily because financialisation is an efficient means for predatory vampire
bankers to devastate national economies, not because it is in the interest of
those economies. It is of extreme
importance to understand that the financial sector inevitably plunders and bleeds
an economy and serves only to misallocate capital in ways that benefit only the
elites and bankers but inflicts serious harm on a nation and its people.
There is absolutely no reason for China to go here. Contrary to all the American propaganda, it is not China's economic
management that 'misallocates resources and capital' but the American
pathologically financialised system that does this. The economic management
by China's government has acted to prevent such disastrous misallocations, and
once again China really needs to stop listening to the Americans. One need only
look at the facts on the ground in the US today to realise the viciously
anti-social agenda of the American system, and to see what lies in store for
all Chinese if American influence on China is not resisted much more
strenuously than has been done to date.
•The
Financialisation of H-P
As
one example of many of the destructive financialisation of corporations, let's
take a quick look at Hewlett-Packard. H-P was an outstanding firm when under
the control of Bill Hewlett and Dave Packard, but was destroyed when turned
over to the financial geniuses whose enlightened management changed it from a
company that made computers to a company that made money. I will be surprised
if H-P exists as a separate entity in another five years, and indeed the
company has already committed itself to splitting off the entire computer and
printer sections from its corporate services division, which will likely result
in the disappearance of H-P consumer products, to be swallowed by Lenovo or
Dell, just as Compaq was swallowed by H-P. In the end, this will be no great
loss since the MBAs and Finance Managers have more or less trashed both H-P
products and their reputations anyway. It is this financialisation of industry
that is responsible for much of the difficulty in US corporations today, and it
is this warped and unsustainable management philosophy the Americans are
desperately trying to push onto China, repackaged as universal values and the
will of God.
These
break-ups and spin-offs are always couched in terms of "liberating trapped
value", but that's just one more indication of the extent to which these
firms have become financialised, to the point where the only remaining use of a
company is the spigot for extracting cash or a scheme to increase the stock
value of the parts to be greater than the prior whole. The notion of trapped
value is almost entirely fiction in each case, a kind of capitalist propaganda
to small investors who don't understand the intent of the large players. These
actions will almost always enrich a few individuals while the other 99% will be
deducting their losses. And of course these games take their toll: H-P has been
losing market share and slipped to number two behind Lenovo while watching
revenues decline. The much-vaunted break-up that one major investor called
"a brilliant move" is only a smoke screen to permit more rapid cash
extraction and perhaps delay the day of reckoning.
It
is interesting that while H-P and other firms are breaking up, yet other large
companies are merging, claiming an opportunity to produce essentially the same
results as H-P claims from a break-up. As one indication of the thoughtless
pathology involved in these stealthy boardroom maneuvers, only a few years ago
H-P's CEO floated the idea of breaking up the company only to see the stock
plunge by 20% the next day, with Meg
Whitman swearing there was "no question" H-P was better off as
one company. But the enormous temptation to spin all the cash from the printer
division couldn't be resisted, and a short time later Ms. Whitman was eagerly
supporting the split, perhaps encouraged by a media survey that nominated her
as the worst-performing CEO.
Computer
companies like H-P will tell you today the PC industry has little growth
potential, that it has reached its limit and become a commodity with falling
margins and a dim future. Their conclusion may be largely true, but that didn't
occur by accident. It was brought about by these same people who decided to
financialise their industry and become companies that made money instead of
products. These people cannibalised themselves and their entire industry; they
deliberately and consciously commoditised their own products. Driven primarily
by greed, all firms joined in the race to the bottom and, when you reach the
bottom, you have achieved the lowest common denominator and what you have is a
commodity. In every case, the firms decided to stop innovating, to cut R&D
to the bone, to avoid revolutionary developments, and to capitalise on their
market positions by producing only more of the same. In effect, the decision-makers
collectively decided to extract every cent of wealth from their holdings and in
the end to dispose of the worthless carcass. It was all about the willingness
to cannibalise the companies for the sake of immediate profit maximisation.
Only the short term remained; the long term no longer existed.
When
was the last time Microsoft produced anything decent? Windows X-P was the first
and only time Gates got anything right, and consumers loved it. That wouldn't
do, so Microsoft immediately killed X-P and produced buggy and hackable trash
ever since, with no apparent effort even for evolution much less revolution in
operating systems, and yet revolutions are possible and certainly much needed.
It is the same with H-P (and perhaps other) printers. Once the financial
wizards decided to extract the wealth, R&D disappeared along with
innovation and the company proceeded to milk the printer cartridge teat as fast
and hard as was possible, with ink volumes being reduced in stages but
cartridge prices essentially unchanged or even higher.
It
was not so many years ago that I could reliably obtain 600 printed pages from a
black ink cartridge on an H-P printer. Today, 50 pages seems to be about the
limit. Immediately upon Hewlett and Packard being out of the picture, the
financial wizards reduced the ink supply from 120 mls. if I recall correctly,
then to 60 mls, then 30 mls, 15 mls, and then 8 mls, while the retail price
remained at the same level or higher. And even at the extreme price, most
printers cease printing with as much as 40% of the ink supply remaining. Kodak
claims that only 65% of its cartridge ink is used for printing, while the
remaining unusable 35% is necessary to "protect optimal document
quality". Form whatever conclusions you think appropriate.
To
discourage customers from purchasing less expensive cartridges, H-P printers
often either display out-of-ink messages or refuse to print. The printers
themselves have become rubbish, made of the cheapest materials with cost driven
almost to zero. This is so true that it is sometimes possible to purchase an
H-P DeskJet on sale for $20, the customer then discarding the printer in the
rubbish bin when the ink supply is exhausted. This is not the company Hewlett
and Packard built, but a grotesque, decaying monster with vultures flocking
everywhere. H-P has adopted other low-class restrictive (but initially
profit-generating) policies like sealing a computer casing and threatening to
void the warranty if a user wants to install a new card or hard drive,
attempting to frighten customers into paying an H-P dealer for simple
installations that anyone can do. In terms of computer warranty repairs in
China, H-P did the same as Apple and other American firms by offering a
substandard service and refusing the extended warranty given automatically to
customers in the US. When publicly challenged, a company spokesman denied
discrimination and claimed complaints arose from "confusion" over the
terms of 'an enhanced service program'. After China's product-quality agency
launched an investigation, the confusion suddenly disappeared and H-P offered
Chinese customers the same warranty as in the US.
This
process will of necessity self-destruct at some point, but by that time the
"investors" will have milked untold billions out of H-P, and the
carcass can dry up and blow away. This might be a good place to remind you that
this is precisely what Israel said it planned to do to the US. Ariel Sharon was
quoted as saying, "Once we have squeezed everything we can out of the US,
it can dry up and blow away." You might want to think about that, because America as a nation is being cannibalised
in exactly the same way as is Hewlett-Packard, and for the same reasons.
Back to H-P, in the meantime, the vultures will continue to reduce staff by
tens of thousands on a pretense of becoming efficient, eliminate R&D
altogether, and increasingly turn to cheaper materials and components to
enhance profits even further. Meg Whitman's task with the profitable printer
portion as sacrificial lamb is to squeeze every possible drop of blood from those
veins until only the corpse remains, at which point it will be swallowed by
some hopeful competitor, though it won't be worth much because the brand is
being cannibalised in the process. H-P has already gone from 100% loved to 50%
despised; Whitman will complete the task in due course.
*
Larry Romanoff is a retired management consultant and businessman. He has held senior executive positions in international consulting firms, and owned an international import-export business. He has been a visiting professor at Shanghai's Fudan University, presenting case studies in international affairs to senior EMBA classes. Mr. Romanoff lives in Shanghai and is currently writing a series of ten books generally related to China and the West. He can be contacted at: 2186604556@qq.com
Larry Romanoff is one of the contributing authors to Cynthia McKinney's new COVID-19 anthology ''When China Sneezes''.
Copyright © Larry Romanoff, Moon of Shanghai, 2020
