economics as if people really mattered - week four - galway

Economics As If People Really Mattered

Week Four – Financialisation and Debt

THE FUTURE OF MONEY: CHAPTER THREE

PEOPLE’S CAPITALISM: FINANCIALISATION AND DEBT

1.THE ‘DEMOCRATISATION’ OF DEBT

2.FROM SAVINGS TO CAPITAL INVESTMENT

3.HOUSING: HOME OR ASSET?

4.DEBT AS DEVELOPMENT

5.DEBT AND CAPITALISM

1. Financialisation means the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economics.


2. At the heart of financialisation was the assumption that money can be made out of money and that money in itself can secure a person’s economic life.



3. The banking system makes more money by putting people into debt than by encouraging them to save.



3. The banking system makes more money by putting people into debt than be encouraging them to save.

4. Banking is about selling a single product: debt.





5. The most profitable borrowers for credit companies are those least able to pay.






6. The ideal borrower is the regular defaulter.







7. While many households have been sucked into financialisation through high levels of debt, people have also been sucked in through the promise of profitable investment.








8. Security has become based on investment rather than insurance and collectivised risk.








8. The idea is that money or assets can be put aside so that welfare needs can be bought in the market place rather than being available as social services as required.

9. The ideal [for asset/credit traders] is inflation in the investment market and stable prices in the consumer market.

At the heart of financialisation was the assumption that money can be made out of money and that money in itself can secure a person’s economic life. (p.59)

At the heart of financialisation was the assumption that money can be made out of money and that money in itself can secure a person’s economic life. (p.59)

… the banking system makes more money by putting people into debt than by encouraging them to save:

“banking is about selling a single product: debt.” (p.61)

A pattern emerged that was to recur in the housing market: the most profitable borrowers for the credit companies were those least able to pay. (p.61)

A pattern emerged that was to recur in the housing market: the most profitable borrowers for the credit companies were those least able to pay. (p.61)

… most of these [new] bankruptcies don’t represent profligate expenditure but people. Particularly women, trying to keep their head above water.

A major cause of indebtedness in the US is borrowing to pay for health care. (p.62)

2. From savings to capital investment

While many household have been sucked into financialisation through high levels of debt, people have also been sucked in through the promise of profitable investment. (p.63)

2. From savings to capital investment

While many household have been sucked into financialisation through high levels of debt, people have also been sucked in through the promise of profitable investment. (p.63)

This is characterised by an approach to savings that treats them more like capital, with the expectation of growth over time. (p.63)

The pension debacle is a good example of the total inappropriateness of a market approach to provisioning. It reveals a complete lack of economic wisdom and foresight on the part of major employees who did not anticipate the problems that would be created by the business cycle. (p.65)

3. Housing: Home or Asset?

Mortgage debt has been a major aspect of money creation in the second half of the twentieth century, accounting for up to 80 per cent of personal debt in the US and 60 per cent of bank loans. (p.68)

Homes were seen as a kind of milch cow that could be milked for consumer spending or for life cycle costs such as college fees, health care needs or income in old age. (p.68)

The housing market seemed to create wealth out of nowhere which, given the huge shift to bank-based credit money creation, is exactly what it was doing. House price inflation created ideological support for financialisation, capital accumulation and the capitalist market system. (p.70)

An asset-based welfare system with its promises of opportunity and choice will inevitably be underminded if asset prices start to drop. (p.71)

4. Debt as development

… achieving social change through economic empowerment…

… a market solution to poverty.(p.76)

5. Debt and Capitalism

In the short term, together with globalised cheap labour goods, [debt] appeared to overcome Marx’s prediction that capitalism would be in crisis if the mass of the people in society did not receive enough in wages to enable them to buy the products of the economy. (p.79)

Harvey: “ever expanding endebtedness is a perilous way to keep consumerism alive.”

Debt generated growth was reaching its limit: in the US by September 2003 it was taking six dollars of extra debt to generate one dollar of growth.

The dilemma for the financialised Anglo-american economies was that debt had become a (failing) agent of growth and a heavy burden to borrowers.

When the only source of future income is more debt being issued, it cannot be a secure source of wealth. (p.80)

While bank issue of debt money has been central to the growth of capitalism it has its own limits and contradictions. When debt issue becomes the only engine of capitalist growth it must eventually come up against Marx’s contradiction that, if profit is to be extracted, people will not have sufficient money to enable them to consume all the goods produced, even with debt.

The debt machine has run out of steam. (p.80)

economics as if people really mattered - week four - galway

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