The Endgame of Financialization: Stealth Nationalization

As you no doubt know, central banks don’t actually print money and toss it out of helicopters; they create a digital liability and use this new currency to buy assets such as bonds and stocks. Central banks have found that they can take control of the stock and bond markets by buying up as much as these markets as is necessary to force price and yield to do the central banks’ bidding.

Central Banks Have Purchased $2 Trillion In Assets In 2017. This increases their combined asset purchases above $15 trillion. A trillion here, a trillion there, and pretty soon you’re talking real money–especially if you add in assets purchased by sovereign wealth funds, dark pools acting on behalf of monetary authorities, etc.

Gordon Long and I discuss this stealth nationalization in our latest video program, The Results of Financialization: “Nationalization” (35 min):

In the old model of nationalization, governments expropriated/seized privately owned assets lock, stock and barrel. When a central state nationalized an enterprise, it took total ownership of the asset.

In today’s globalized financial world, such crude expropriation is avoided for two reasons:

1. The entire point of the dominant neoliberal / neofeudal /neocolonial model is to maintain private ownership as a means of transferring the wealth to the New Aristocracy, i.e. the financier class. Government ownership certainly conveys benefits to the some are more equal than others functionaries atop the state’s wealth-power pyramid, but it doesn’t transfer the assets’ income streams to private hands.

2. It sends the wrong message: central banks want private investors to do their bidding, i.e. to go along with the transfer of wealth and income from the many to the few (the New Aristocracy). Maintaining the system of private ownership enables the central banks to control the markets for these assets at the modest cost of a few handfuls of the loot being distributed to the small-fry owners of IRAs, 401K retirement accounts, etc.

In other words, what central banks want is not outright ownership, which is costly and troublesome; what central banks want is to control the markets on the cheap, with leveraged buying. In effect, central banks have been able to manage assets worth $150 trillion with a mere $15 trillion in well-timed (and loudly announced) asset purchases.

This is the new model of nationalization: central banks control the valuation of private-sector assets without actually having to own them lock, stock and barrel. Being the buyer of last resort–the Plunge Protection Team that buys every dip in whatever size is needed to stabilize valuations and then reverse the downturn into yet another rally to new highs–has worked for nine long years.

This success has bred a complacent faith in the central bank cargo-cult that there is no limit to central bank control of yields, valuations and market sentiment.

But as I’ve described here many times, financialization is a box canyon. Once you start down the path to the Dark Side of phantom wealth created by commoditized debt and leverage (i.e. financialization), there’s no turning back to the real world.

The central bank aircraft is flying into a canyon with walls 2,000 feet high at an altitude of 300 feet. Everything seems to be going splendidly until the central bank aircraft rounds a bend in the canyon and discovers the canyon ends in a rock face 2,000 high.

In a desperate attempt to escape the box canyon, central banks will ramp up their assets purchases of bonds to keep yields near zero, and of stocks to keep the bubble valuations high enough to support all the debt and leverage that’s been piled on the underlying collateral of the stock market: non-phantom net earnings.

Needless to say, attempting to control global markets via the issuance of trillions in new currency and using that currency to buy huge chunks of the stock and bond markets is an unprecedented experiment.

To continue the box canyon analogy: central bankers and their cargo-cult faithful are confident central banks are flying an F-18 with afterburners on max; climbing 1,700 feet in a near-vertical ascent should be no problem.

Those of us outside the cargo cult see the central bankers flying a Wright Flyer: innovative in its time, but inadequate to the task of controlling private-sector markets via stealth nationalization. 

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  • jadan

    Inflation is not inflation in our day; it is devaluation, which looks like inflation in terms of the effect on prices. Financialization creates this devaluation domestically even while the dollar is strong. When stocks values increase, this used to mean a company was producing more and selling more and paying out dividends that corresponded to an increase in real value. But when stock prices are driven up through artificial support of a “plunge protection team”, prices rise without a corresponding growth in productivity and value and the paper profits deplete the value of the currency because they do not represent real productive growth. Prices rise when demand is stable or shrinking. More jobs and newer and better widgets do not come into the world, just more increasingly worthless paper generated by a game that is disconnected from reality. Financialization. Money making money. This is what happens when private central banks control the nation’s money supply. Money is the responsibility of a sovereign government, not private sector banks. The Federal Reserve is a private entity owned and operated by the elite in its own interest. Even as the DJIA rises relentlessly, the system that crashed in 07-08, is failing because only a government may produce money ex nihilo and run an economic perpetual motion machine.

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