Friday, April 8, 2016

Peak Financial Economy

There can be little doubt that the last 25 years of declining interest rates and disinflation has been good to the big banks. We have seen the financial havoc that bank shenanigans have wrought. And we have seen the extent the Central Banks will go to in order to "save" the banks from themselves.

We have witnessed over the last decades a financialization of the world economy, and certainly the U.S. economy. There is a bank or insurance company on every downtown street corner. Working men and women save for retirement by investing in the stock or bond markets. And providing financial advice is a big business.

During this time paper assets have gone up many multiples in price. What good, though, to a consumer or a retiree, or a nation, for that matter are paper assets. We CAN consider these paper assets as "savings".  So what happens when the world needs to spend these savings.

I think of the sovereign wealth funds of S. Arabia, et. al., cashing in some chips and using the proceeds to fund their societies.  These savings, which I presume were denominated in US Dollars, are now used to buy actual physical goods. This lowers the value of the Dollars and raises the price of goods.

If this idea catches on. This cashing in of paper to actually use the 'value' for something. If this starts to raise the price of real goods and lower the value of paper we may see something we haven't seen for a long time. And there is a whole lot of paper out there.

I asked the question: "What is the effect of inflation on big banks?"

Here is an old article from the Richmond Fed. Written before the last decades of paper.

Richmond Fed on Inflation

I sense a change happening.

Control risk,


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