Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18
Gold Price Seasonal Trend Analysis - 14th Sep 18
Growing Number of Small Businesses Opening – and Closing – In the UK - 14th Sep 18
Gold Price Trend Analysis - Video - 14th Sep 18
Esports Is Exploding—Here’s 3 Best Stocks to Profit From - 13th Sep 18
The Four Steel Men Behind Trump’s Trade War - 13th Sep 18
How Trump Tariffs Could Double America’s Trade Losses - 13th Sep 18
Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - 13th Sep 18
Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong - 13th Sep 18
Gold, Silver, and USD Index - Three Important “Nothings” - 13th Sep 18
Precious Metals Sector On a Long-term SELL Signal - 13th Sep 18
Does Gambling Regulation Work - A Case Study - 13th Sep 18
The Ritual Burial of the US Constitution - 12th Sep 18
Stock Market Final Probe Higher ... Then the PANIC! - 12th Sep 18
Gold Nuggets And Silver Bullets - 12th Sep 18
Bitcoin Trading - SEC Strikes Again - 12th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

The Corruption of Capitalism

Economics / Economic Theory Jun 17, 2018 - 02:55 PM GMT

By: Harry_Dent

Economics I call it “killing the golden goose.”

David Stockman, a speaker at this year’s Irrational Economic Summit, calls it “the corruption of capitalism.”

Andrew O’Hehir, a contributor for Salon, recently interviewed Yanis Varoufakis about the story behind Greece’s financial crash. He was the prime minister during the height of the Greek crisis, elected in early 2015 in response to the Greece debt default crisis.

And in July of 2015, Varoufakis resigned after the ECB (European Central Bank) and IMF (International Monetary Fund) forced a bailout package that went against what he and his SYRIZA party had promised the Greek people.




The nearly $300 billion record bailout was designed for one purpose: to bail out the banks and financial elites. It combined the worst of free market capitalism austerity with the high taxation of social democracy.

None of the money went towards social programs or infrastructures that could’ve helped the Greek people or the economy.

Instead, it was used to pay back loans to the banks.

The taxpayers of Eurozone countries – like Germany and France – paid to bailout banks that made bad loans.

It’s not that the Greek people, governments, or businesses weren’t to blame for over borrowing and spending. But they got all of the blame and burden for it while the banks got none!

The rise of the financial sector with Alan Greenspan, who constantly goosed the economy with lower interest rates to bail it out every time it slowed down, was the start of it all – beginning with the 1987 crash, then the S&L crisis, then the tech wreck and so on.

The first political takeover happened when the financial elite convinced Bill Clinton to repeal the Glass-Steagall Act in 1994. It was passed in 1933 to prevent another debt bubble and crash like in the Roaring Twenties and the Great Depression. That was just in time to allow the financial sector to create the next great debt and financial asset bubble from 1995, forward.

When things crashed in 2008, the financial elite stepped in – higher ups from Goldman Sachs like Paulson and Geithner – to bailout the financial sector while sacrificing just one financial lamb – Lehman Brothers.

The bailouts were designed to pay back debts on bad loans made by banks so they didn’t go under, not to directly help struggling workers and businesses.

Free market capitalism requires that markets are fair, and losses accrue to those that take the risks in return for higher rewards.

Not anymore!

Democracy is supposed to represent the everyday person. But not when the super-rich take over the political parties.

Through massive donations, they push for who gets elected or not, and for the repeal of unwanted policies, like Glass-Steagall Act. The billionaire Koch brothers alone vetoed Mitt Romney’s run in the Republican primaries back in 2016.

Yet the ultimate hijacking of capitalism came with QE.

Central banks took over the entire pricing mechanisms of the markets through setting both short-term rates (to zero or near zero) and forcing long-term bond rates down by buying the hell out of risk-free government bonds and government-backed mortgage securities. This liquidity and stimulus saved the economy and, more so, the banks.

The risk-free 10-year Treasury bond highly influences the value of corporate bonds, stocks, real estate, the rates on longer term loans, and all other financial assets. Short-term rates directly impact interest rates on short-term loans and savings vehicles.

With the bailouts and massive QE, the banks and financial elite didn’t have to pay for their unprecedented high leverage investing and risky lending. They were bailed out, even though they should’ve had to take major losses, and write-down or restructure loans.

It’s called Chapter 7 in business.

That’s what happened in the Great Depression: A reorganization of debt where the creditors take a cut so the company can survive.

Consumers and businesses suffered, but so did the banks and financial institutions… But not now. Not since the financial elite have taken over democracy and free market capitalism. That’s how you kill the golden goose! Ask Japan. They did it much earlier, from 2000 and onward, as their great debt and financial asset bubble burst came long before ours and Europe’s.

And how much private or public debt has Japan restructured? Virtually none. Where has Japan’s economy gone since then… mostly nowhere. But thank God the damn banks didn’t fail!

So, back to Greece…

Varoufakis wanted to renegotiate with the banks to write down debt and give some real relief to businesses and consumers. But the ECB and IMF insisted upon their plan that only bailed out the banks while businesses and consumers shouldered the burden through massive austerity.

Iceland was a better model. They weren’t on the euro, which gave them the freedom to default on all foreign debts – which were substantial – and devalue their currency to bring exports back up. The expense was three years of 20% or so inflation on consumers and businesses. Iceland shared the pain, along with British and Irish financial institutions. And yes, some financial executives went to jail!

Since those three hard years of financial “detox,” Iceland’s economy has been doing better than most of Europe. The people and businesses won, in the end, because their politicians took the right medicine rather than the easy way out with bailouts and QE to cover over the debts and not deal with them.

Next time around, the financial institutions have to take it on the chin – and deservedly so. They’ve stealthily taken over democracy and capitalism.

And the central banks and governments they hijacked are likely out of ammunition and credibility to protect them this time around if the greatest stimulus experiment in history fails…

Harry

http://economyandmarkets.com

Follow me on Twitter @HarryDentjr

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.

Copyright © 2018 Harry Dent- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Harry Dent Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules