Yesterday I noted that not all assets will make it through the inevitable financial re-set. ( Which Assets Are Most Likely to Survive the Inevitable “System Re-Set”?)
Those that are easy to expropriate will be expropriated, and those assets vulnerable to soaring taxes, inflation and currency devaluation will also be hollowed out.
There are two real-time examples of these dynamics we can profitably study: “capitalist” Greece and “socialist” Venezuela. Both nations have impoverished their citizenry to preserve an oligarchy and its cronies.
I hope it won’t be too great a shock that crony-capitalism and crony-socialism function in much the same fashion and generate the same result: the wealth of the nation is funneled (or expropriated) into the ruling Elites, impoverishing the non-elites.
The mechanisms differ in appearance but they produce the same results: expropriation and impoverishment. In Greece, two Ruling Elites stripmined the nation: the big European banks and the domestic oligarchs and their functionaries in the state.
Having flooded Greece with “cheap” credit denominated in euros, the EU’s big banks demanded “austerity” so the Greek government could continue servicing its massive debt. The Greek oligarchs dodged “austerity” in the usual way: by buying political influence.
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Greek Debt |
Very little of the so-called “bail-outs” actually reached the Greek citizenry, and much of what did enter the Greek economy flowed into the hands of the oligarchy.
This is what I call the Neocolonial-Financialization Model (May 24, 2012), which substitutes the economic power of financialization (debt, leverage and speculation) for the raw power of political conquest and control.
The main strategy of financialization is: extend cheap credit to nations with limited access to capital. Nations with limited access to capital will swallow the bait of cheap credit whole, and willingly agree to penalties, high interest rates, etc.
Then, when the credit expansion reaches levels that cannot be supported, the lenders demand collateral and/or favorable trade and financial concessions.
The global financial powers developed the Neocolonial Model, which turns these same techniques on one’s home region. Thus Greece and other capital-poor European nations were recognized as the periphery that could be exploited by the core, and the euro was the ideal tool to financialize the economies of nations which could never have generated credit/housing bubbles without the wide-open spigots of cheap credit flooding their economies.
In Neocolonialism, the forces of financialization are used to indenture the populace to the financial core: the peripheral “colonials” borrow money to buy the finished goods manufactured in the core economies, enriching the regional Elites with A) the profits made selling goods to the debtors B) interest on credit extended to the peripheral colonies to buy the core economies’ goods and “live large”, and C) the transactional skim of financializing peripheral assets such as real estate and State debt.
In essence, the core banks of the EU colonized the peripheral nations via the financializing euro, which enabled a massive expansion of debt and consumption in the periphery. The banks and exporters of the core (Germany) extracted enormous profits from this expansion of debt and consumption.
Now that the financialization scheme of the euro has run its course, the periphery’s neocolonial standing is starkly revealed: the assets and income of the periphery are flowing to the core as interest on the private and sovereign debts that are owed to the core’s central bank and its money-center banks.
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Greek Bailouts Rescued European Bankers |
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