How Finance Quietly Took The World Hostage

Tyler Durden's picture


While we have beaten the dead horse topic of collapsing global of CapEx (per Citi, net capex is now unchanged since 2000), we now have a clearer understanding why there is no global growth, why trade is plunging, and why world commerce is rapidly grinding to a halt. The answer lies in the following chart which shows the relative proportion of what the world has been investing in for the past two decades.

It shows that while investment in most traditional categories has fallen off a cliff, the money spent for business activities, i.e. services, has soared at the expense of such conventional growth components as trade, manufacturing, petrochemicals, and food and beverage.

But the punchline, and what is by far the scariest, is that rising from 19% to a record 30%, and by far the biggest use of funds, is finance, the one industry that doesn’t actually lead to growth but merely finds ways to mask the lack of growth with pro-forma adjustments and stacks leverage upon leverage on ever declining underlying equity and cash flows, until the entire system crashes as it did in 2001, 2008 and, well, soon.

It also means that forget Too Big To Fail banks: the entire financial industry has now become the monster behemoth whose crash will wipe out the world, and hence why it can never be allowed to crash. One could say that in the past two decades, finance itself succeeded in taking the world hostage and can demand any ransom… or the world gets it. A ransom, which the global central banks are all too happy to pay to let “finance” get its way, in the biggest Mutual Assured Destructionscenario in world history.