charleshughsmith.blogspot.com / CHARLES HUGH SMITH / SUNDAY, AUGUST 06, 2017
Financialization incentivizes hot money capital flooding into speculative credit-asset bubbles.
When we speak of capital investments and capital flows, it’s presumed all the capital being referenced is equal: a dollar is a dollar, wherever and whenever it’s put to use.
But not all capital is equal, and that is one reason why the global financial system is far more fragile than the mainstream media lets on. Metrics such GDP (gross domestic product) don’t reflect the differences in the capital sloshing around the global economy.
In the “happy story” of classical capitalism, capital flows to productive investments: the construction of needed homes, assembly of new factories, etc.–activity that returns a profit to the owners of capital and generates value and employment by filling scarcities or by increasing productivity and thus wealth.
In this “happy story” of classical capitalism, banks (and those with savings) distribute credit and saved capital to those with the most attractive creditworthiness for the lowest-risk, highest-return ventures–ventures that are presumed to be productive for end users and society at large.