I posted this over at macrofuge.com:
In story form: when financial capital (ownership of “physical capital” aka the means of production) becomes too concentrated, a “failure of effective demand” occurs as the owners of the means of production lower wages to the point where consumption spending begins to fail; this depresses “animal spirits” quite rationally because most [true] investment demand is a derived demand (from consumer demand); hence the preference among those owning the means of production in the form of financial capital to prefer rents and speculation (with their cash) over investment in “physical” capital; through influence the rentiers lower capital requirements and create an inherently unstable monetary structure, within which they fight like pirhanas over speculative opportunities, which leads to a cycle of intermediary collapses, extreme monetary base creation, and bailouts using sovereign powers of taxation to pass the loss along to the people; once trust on the monetary unit vanishes, perhaps with an expropriation of deposit funds, the stage is set for (1) deflationary collapse, as bank runs overwhelm the deposit insurance system, and (2) hyperinflation, as the monetary authorities order banks to issue prepaid debit cards to anyone wanting to withdraw his or her money from the bank to “restore confidence.” They then go and spend it as fast as they can.
The structural reforms needed: no more (or much higher reserve level) fractional reserve banking; steeply progressive income and, for a time, wealth taxation to restore a healthy circulation of income and product. See Emanuel Saez’s recent interview on this at http://www.bostonreview.net/BR38.1/emmanuel_saez_david_grusky_income_inequality_taxes_rent_seeking.php
Marx has the last laugh.
Personal note: the bank has cut my position, and I am seeking new opportunities. While I was happy to support small business lending, which is what I did, it was hard for me to reconcile working in such a manifestly corrupt industry as banking with my personal values. The Fed and the big banks are sucking the life blood out of the economy. As has recently become public knowledge, the big banks’ “profits” are manufactured out of their influence (being “too big to fail”). Still, small businesses need loans (sometimes), and I felt good about supporting that, although I would encourage anyone thinking of starting a small business to avoid debt if at all possible.
We are living through a period of history when the Devil has much of the world by the throat. One can only hope and pray that it ends better this time than it did in 1940. It will take a miracle of collective willpower.
