“Bubble wealth created in the markets is fake wealth”
By this point in the conversation, our six passengers had joined us and were listening to what we were saying with great interest. They each had their own viewpoint on what was going on with the U.S. economy and were eager to share their opinions.
Captain Bob had to leave the discussion to go make some adjustments to a frustratingly temperamental auto-pilot. But I had the good fortune of being able to listen in on a lively, spirited, and most unexpected debate about a fake-wealth economy on the brink of collapse.
I am afraid that the vast majority of people do not understand the profound role that cheap, abundant fossil fuels have played in enabling our complex societies, career hyper-specialization, mass-consumer lifestyles, and phenomenal economic growth.
As that energy is becoming far costlier to extract and process, with much lower energy returns on energy invested, economic growth as we have known it will cease. And when that happens, our growth-mandated financial systems will collapse soon thereafter.
We are seeing that now with the necessity of costly debt-gorging fracking practices to extract fossil fuels. We are desperately trying to sustain a fundamentally unsustainable system by creating massive quantities of financial debt to continue business as usual. My friends, most of this debt won't ever be repaid!
We are also playing whack-a-mole risk games with ever more creative ‘financial products’ and observing the cancerous growth of massive secondary markets for ‘derivatives’. None of this will alter the fundamental physical reality of diminishing returns on energy projects and obvious limits to growth on a finite planet, though clever Wall Street 'quants' still find ways to make gobs of money just as easily when investments fall, as when they rise.
Not surprisingly, the average American wants in on the game, too, and carelessly ‘invests’ (day trades, most likely) in the stock market with very little knowledge and essentially gambles with their life’s savings. They have been conditioned to expect a free lunch from an ever-growing economy that ‘floats all boats.’
But having worked on Wall Street, I can tell you that the U.S. economy has degenerated into a risky casino economy. Bubble wealth created in the markets is fake wealth as it does not result in anything of real value in the process; it becomes a baseless and fundamentally unjust claim against society’s real wealth.
It leads to clueless cable-TV pundits confusing stock and housing price bubbles with ‘wealth creation.’ It is all fake wealth! When the markets ‘correct’ — and they always do — that ‘wealth’, unsurprisingly, evaporates.
Did you know that the world’s total financial assets far exceed the market value of the world’s real physical assets? There are ludicrously extravagant ‘paper claims’ on the world’s wealth and far too few tangible resources backing those claims.
And why is that a problem? Because this creates expectations of entitlement by those few who hold these outsized financial assets — expectations that can never be realized.
We are being told that we are getting richer as a society when in fact — if one is truly paying attention — all of the living systems essential to our well-being are in distress and rapidly declining from overexploitation and neglect. But I suppose this is not surprising given that our economic ‘growth’ has always been a process of appropriation of energy and work from Nature with no ethic of reciprocity.
Take and don't give back, simply move on. That won't end well.
It is a self-defeating game you are playing.
On my island, we prefer a more natural ‘living-wealth’ informal economy that does not focus on how to best allocate money to maximize financial returns, but on how best to allocate human time and talent to maximize living returns to people and to Nature.
Exchange of money is not the rule, but the exception. Money plays a much smaller role in our ‘lean’ economy. We strive instead to properly manage and balance the many things that we value and find useful — what you label as ‘capital’ — beyond just ‘financial capital’ or ‘money.’
Those other forms of ‘capital’ include human, natural, social, intellectual, and built ‘capital’ — and, most importantly, the sustainable trust we share between members of our community.
Money and markets are useful servants; but can easily become monstrous masters.