Once upon a time, we had strong economies and widespread prosperity across the Western world. At that time, the financial sector represented roughly 5% of the overall economy.
Today, what we call the “financial services” sector is a grossly bloated behemoth, as described in
a February 2020 article.
…market estimates believe that by 2022, the financial services market is expected to reach $26.5 trillion, growing at a rate of 6% during the forecasted period.
To put this into context,
current estimates on global GDP predict total global GDP of roughly $100 trillion by 2022. In other words, today the financial sector is not a 5% component of the economy.
It is the single-largest sector in the global economy, representing roughly 25% of global GDP.
The size of the “financial services” sector has swollen completely out of proportion to its importance. But that’s not the primary concern. What do these “banks” spend their most of their time and energy doing?
Naked gambling, in the derivatives market.
Today, global GDP is approximately $90 trillion. But the bankers’ derivatives market has (by itself) a
“notional value” somewhere around/above
$1.2 quadrillion.
What
is the derivatives market? It is a gigantic (Western) bookmaking operation, with the West’s Big Banks being simultaneously the bookies for all this gambling as well as the biggest bettors.
The Big Banks’ bookmaking in the derivatives market exceeds all their other banking and trading activities by more than an order of magnitude.
In the derivatives market, there are roughly $15 in
unsecured bets on the global economy for each dollar of raw economic activity. Total insanity.
What does naked derivatives gambling on this scale represent, in the context of
a financial system? It is financial feces.
The primary “business” of the global economy’s largest sector is manufacturing and distributing financial feces.
Western economies are now Sewage Economies, particularly the U.S. economy, the epicenter of 21st century “banking”. This can best be illustrated via analogy.
Think of the U.S. economy as being represented by a single city. What would the financial sector represent in this hypothetical city?
The Sewage System. And the central bankers of the Federal Reserve are the Sanitation Engineers.
In this hypothetical city, its massive Sewage System produces a volume of sewage 15 times as large as the city itself. Gigantic pipes are required to carry such enormous volumes of sewage. And ultra-powerful pumps are needed to force those enormous quantities of sewage through the pipes.
A gross misallocation of the city’s resources. A Sewage Economy.
Now let’s imagine that our hypothetical city suffers a crisis: a pandemic. This is a real-world shock to the entire economy of the city and all of its inhabitants.
Immediately, the Sanitation Engineers demand to be heard. They bluntly inform the city government that their Sewage System is “too big to fail”. And they demand that they should be allowed to hog most of the city’s resources to implement their solution.
What is the solution from these Sanitation Engineers?
An even greater percentage of the city's resources are misallocated. They build even more pipes to handle the flow of sewage. They expand the size of many of the existing sewage pipes. And they add even more powerful pumps to push all that sewage through the pipes even harder/faster,
exponentially increasing the pressure within these pipes.
It doesn’t take a Sanitation Engineer to predict how this scenario ends. The pipes burst and you end up with a really shitty mess.
We’ve already seen a milder version of this scenario – in 2008. And we have already seen the astronomical costs when this Sewage System blows up.
The final price-tag for the Big Banks’ “bail out” after the 2008 financial crisis was estimated at $29 trillion – well over 100% of U.S. GDP. Most of the bail-out dollars were ultimately to secure all those unsecured derivatives bets.
Bernanke’s Obfuscation Continues: The Fed’s $29 Trillion Bail-Out Of Wall Street
…To my knowledge [this] is the most complete and accurate accounting of the Fed’s bail-out. Their results will be reported in a series of Working Papers at the Levy Economics Institute (www.levy.org). The first one is titled “$29,000,000,000: A Detailed Look at the Fed’s Bail-out by Funding Facility and Recipient.”
Here’s the shocker. The Fed’s bail-out was not $1.2 trillion, $7.77 trillion, $16 trillion, or even $24 trillion. It was $29 trillion. That is, of course, the cumulative total. But even the peak outstanding numbers are bigger than previously reported. I do not want to take any of their fire away — interested readers must read the full account. However, I will use their study as the source for a brief summary of total Fed commitments.
- L. Randall Wray, Contributor, Professor of Economics and Research Director of the Center for Full Employment and Price Stability, University of Missouri–Kansas City
Now the Sanitation Engineers are dealing with a much larger crisis – a pandemic. Their response to the crisis has been even more extreme, i.e. they are creating even more pressure in these massive pipes. And thus far, nothing the Sanitation Engineers have done has had any (positive) effect.
Much more sewage is in the pipes than in 2008. Much more pressure is in the pipes than in 2008.
A much, much shittier mess is on the way. A mess that no one can afford to clean up.
