The End of the Financial System?
In the decades after World War II the Western economies grew to the present production levels. The growth was technological driven with help of the financial system. Financial profits allowed new investments which generated more profit that could be invested and so on. As long as there are real investment opportunities the cycle of economic growth can continue.
Marketing and advertising became an art. The marketing and advertising industries however do not produce tangible goods for consumption. In macro-economic perspective the value added to the economy by these industries is virtual zero; marketing and advertising are merely cost increasing.
The growth of the real economy, the production of tangible goods, in the last decades was for a substantial part initiated by “financial” investments; money intended for investments but used for consumption. These financial “investments” lacked the (necessary) back-up of investments in the real economy.
I mean “investment” opportunities like (credit-card) debt to persons who cannot pay back, mortgages to house holdings which can never be re-payed and lending huge amount of money to countries. How can professional investors advise investments to others when they know the result will be a huge loss? How can professional investors advise financial products and sell short the same time?
Everyone knows the answer; greed and immorality. How is it possible that some one who steels a candy bar gets jail time and others steel millions and nothing happens? In developing countries the lack of progress is blamed on corruption, but is our economical/political system not corrupted when the political establishment allows huge theft and does nothing about it.
Of course this is corruption, only the scale is huge compared to developing countries; greed, immorality and corruption are common characteristics of the human race.
The shifting from real investments to non-productive expenditures like marketing and advertising and later the “financial” investments for consumption are signals of an economy where real investments are becoming increasingly hard to find. Governments have no tools left to stimulate or regulate the economy; the Western economies have become adrift.
In an economy where companies have to compete the organization has to reorganize and innovate every few years to keep in shape, otherwise they go bankrupt. Our macro-economic Kenyan-system is so old and outdated that it cannot cope anymore with the changed economic reality.
The political, industrial and financial establishment should realize that the system must be reformed/reorganized to keep prosperity growing. Only as long as the public is satisfied the establishment can secure their position. The economic system has come to a stop and therefore the greed, immorality and corruption must come to halt; the system must be changed or else establishment will perish.
There are solutions but will the establishment be smart enough to realize they are sitting ducks?
I fear not because they are not known for their intelligence, decisiveness or candor.
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