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The Nation Is Falling into the Abyss Between Wall Street and Main Street

Summary:
The abyss between the Fed’s illusion of phantom wealth for Wall Street and the collapse of Main Street is bottomless, and our descent into the abyss is accelerating. I know this runs counter to every dominant narrative, but a vaccine doesn’t really matter, opening up doesn’t really matter, and the size of the “free money” stimulus checks doesn’t matter. What matters is that the nation is falling into the abyss that’s opened between Wall Street and Main Street, and nothing will stave off the collapse of the social order other than a fundamental re-ordering of the way we create and distribute money and political power, as money buys political influence. The last economic tide with widespread benefits to Main Street was 30 years

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The abyss between the Fed’s illusion of phantom wealth for Wall Street and the collapse of Main Street is bottomless, and our descent into the abyss is accelerating.

I know this runs counter to every dominant narrative, but a vaccine doesn’t really matter, opening up doesn’t really matter, and the size of the “free money” stimulus checks doesn’t matter.

What matters is that the nation is falling into the abyss that’s opened between Wall Street and Main Street, and nothing will stave off the collapse of the social order other than a fundamental re-ordering of the way we create and distribute money and political power, as money buys political influence.

The last economic tide with widespread benefits to Main Street was 30 years ago. Since then, the Federal Reserve and other central banks have incentivized globalization and financialization, two dynamics that favor mobile capital and financier skims amd scams.

There are a number of factors behind the widening canyon of economic inequality, but the primary driver is financialization. Financialization has given those with access to central bank credit ways to skim great wealth from the system without creating any value whatsoever.

Financialization isn’t a consequence of having capital: it’s the consequence of having access to unlimited central bank credit, leverage and low-risk, low-tax skimming operations (for example, tax codes enable hedge funds to declare income as low-tax long-term capital gains).

Leveraging phantom collateral is another feature of financialization. Commoners were allowed a taste of this when subprime lenders were offering no-document, no-down payment mortgages back in 2004-2007. Phantom income was posted as collateral for the nothing-but-leverage loan.

Financialization is not about investing in productive enterprises; it’s all about skimming wealth while providing no value to the real economy or society.

The hidden toxin in financialization is the resulting concentration of wealth can buy concentrations of political power. Financialization is thus self-perpetuating: once the skimming operations generate billions of dollars in profit, it only takes a relatively small piece of these profits to buy/influence the political class. Once the politicos are in your pocket, the regulators and judiciary fall into line or are marginalized by new statutes or gutted budgets.

Financialization is the disease eating away what’s left of democracy.

Financialization is the exploitation of assets/income that were previously safe from predation by central bank funded financiers. While definitions vary, mine is:

Financialization is the commoditization of debt collaterized by previously unsecuritized assets, a pyramiding of risk and speculation that is only possible in a massive expansion of low-cost credit and leverage for those at the top of the wealth-power pyramid: financiers, banks and corporations.

One example is the student loan “industry,” which prior to financialization did not exist. A previously safe from predation asset/source of income–college degrees–has been securitized so that loans issued to students for largely worthless diplomas can be sold globally as “secure assets with guaranteed yields.”

That the exploited class of students have little to no income and no guarantee of income doesn’t matter. What matters is a previously unexploited asset can be turned into debt that can be sold at an immense profit.

Charles Hugh Smith
Charles Hugh Smith is an American writer and blogger. He is the chief writer for the site "Of Two Minds". Started in 2005, this site has been listed No. 7 in CNBC's top alternative financial sites. His commentary is featured on a number of sites including: Zerohedge.com., The American Conservative and Peak Prosperity. He graduated from the University of Hawaii, Manoa in Honolulu. Charles Hugh Smith currently resides in Berkeley, California and Hilo, Hawaii.

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