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Two Economies: One Must Die

There are, in fact, two economies at work in the world, and both are global. One must die, as it undermines the health and robustness of the other. It is, truly, a parasitic economy that has evolved as a direct result of business influences, particularly from very large capital management firms, the biggest hedge funds, banks, and insurance companies. Influences at a level so great and all-pervasive that it is able to demand and be granted regulatory advantages to enhance the efficiency with which it achieves its ends.

I'm talking about the Real Economy, where the savings of individuals are made available to enterprises which produce goods and services as investments, versus the Casino Economy, wherein those investment dollars are diverted to become the basis for huge leveraged capital positions that engage in gambling on a massive scale, whose sole objective is propagating those massive capital positions into even larger ones.

Average citizens, representing 95% of the population of most countries, are engaged in the Real Economy, where they occupy some position in the production and procurement of goods and services, in capacities ranging from production to finance and management. Their incomes are typically modest, their consumption of goods equally so, and their reliance on a healthy Real Economy absolute.

The purveyors of the Casino Economy, on the other hand, typically engage in mathematical acrobatics and arcane sciences such as perception management and political influence to gain advantage in whatever game of capital chance they have chosen to bet upon. Their incomes are outlandish, their consumption of resources copious, and their reliance on the Casino or Real economy ambiguous, as these individuals are typically highly adaptable, opportunistic manifestations of humanity who can easily find new opportunities and act in a wide variety of capacities. (I know this because I used to be one) (I know this because I was one)

Their losses are transferred to the Real Economy, and their rewards are extracted from its Real Capital base.

It is the diversion of dollars from the Real Economy, where they are generated from the production and sale of goods and services, and have historically been re-invested in the Real Economy to maintain a robust level of growth, into the Casino Economy, that has fundamentally undermined the integrity of the Real Economy upon which the majority of us rely, and has subsequently diminished the ability of that Real Economy to sustain the large majority of us.

With the advent of the Financial Crisis, the real capital that is exponentially fractured into credit to create Leverage Capital for the Casino Economy has now been leveraged injudiciously into unsustainable ratios in excess of 20 to 1, and in many cases, illegally, so that even the Casino Economy is now in danger of collapsing onto itself, thus destroying not only the Leverage Capital that it created, but a great deal of the underlying Real Capital as well. This is accomplished through the forced revaluation of Real Assets due to the collapse in demand, and the complete stall of the capital velocity in the Real Economy that keeps these assets moving and in demand.

We have less Real Capital available to the Real Economy moving at highly diminished velocity because the Real Capital is being pulled out of the system by the Casino Economy minority, leaving behind only the Leveraged Capital and the assets by which they are backed. This tiny minority of rapacious human beings is sucking the life blood out of the Real Economy, and threatening to destroy it once and for all in pursuit of selfish massive enrichment.

These people should be imprisoned. We should be teaching in our schools that this brand of self-adulation and importance is representative of the most despicable form of human behavior. (unless you prefer the more British spelling "behaviour" .)

The problem with the Casino Economy is that it is so deeply (tightly) intertwined with the Real Economy as to be visually and virtually indistinguishable from it. Like a tumor on the lung, we can't see it but we can feel its effect on the rest of the system upon which it depends for life.

And very much like cancer, the purveyors of the Casino Economy pursue an improbable paradox, in that their continued success and existence almost certainly confirms the demise of the host upon which it thrives.

The difference between the parasitic and cancerous Casino Economy and the Real Economy host is that the cells of the Real Economy - people - are fully equipped to excise the agent of destruction from its midst, if only the collective willpower can be mustered and associated legislative surgery be performed before its too late.

The G20 Summit now concluded in London is the first step towards a cure. The leaders of the 20 strongest Real Economies have convened to discuss their condition, and it appears they move ever closer to identifying the true cause of their malady.

The chorus of cries for increased regulation and transparency, while not resulting in any concrete and targeted surgical strike against the purveyors of the Casino Economy are, at least, representative of the desire to become well, and that is a critical first step.

The practitioners of the Casino Economy are easy to spot. They don't do any real work, are essentially overgrown children with major issues of self-worth, and are generally emotional basket cases incapable of long-lasting, meaningful relationships.

During this interim period of collective self-discovery, where we amble towards frank and sincere assessment of what is truly wrong with humanity as a species and embrace a cure, it wouldn't hurt for those among us who can spot the Casino Economy players to put them on notice verbally that they are known, and will be watched, and that no amount of shielding with security and servants and remote residences and yachts will prevent their eventual elimination by a determined Real Economy. When your biggest fear is that people will realize you're really nothing more than a frightened, little child inside, despite your superficial great power and wealth, shame is a very powerful tool.

With Editing by Mark Rayfield.

SOURCE: http://www.midasletter.com/commentary/090403-1_Two-economies-one-must-die.php


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