Daily Archives: December 7, 2016

Finance Is Not the Economy

By Dirk Bezemer and Michael Hudson – To explain the evolution and distribution of wealth and debt in today’s global economy, it is necessary to drop the traditional assumption that the banking system’s major role is to provide credit to finance tangible capital investment in new means of production.

Banks mainly finance the purchase and transfer of property and financial assets already in place.

This distinction between funding “real” versus “financial” capital and real estate implies a “functional differentiation of credit,” which was central to the work of Karl Marx, John Maynard Keynes, and Schumpeter. Since the 1980s, the economy has been in a long cycle in which increasing bank credit has inflated prices for real estate, stocks, and bonds, leading borrowers to hope that capital gains will continue. Speculation gains momentum — on credit, so that debts rise almost as rapidly as asset valuations.

When the financial bubble bursts, negative equity spreads as asset prices fall below the mortgages, bonds, and bank loans attached to the property. We are still in the unwinding of the biggest bust yet. This collapse is the inevitable final stage of the “Great Moderation.” more> https://goo.gl/GmDT72

Donald Trump’s Global Agenda: What Have You Got to Lose?

By Stewart M. Patrick – Taken at face value, Trump’s ambitions portend a rupture with more than seven decades of U.S. global engagement dating from the end of World War II—as well as a break with older American values.

They signal a new U.S. global role that is more insular, transactional, and narrowly interest-driven. Gone is any mention of U.S. global leadership, the promotion of universal values, or the defense of a “free world.”

The pursuit of world order will be replaced by the art of the deal.

At this stage of the presidential transition, it is impossible to know whether Trump will actually govern as he campaigned. Perhaps his campaign pronouncements were just red meat tossed to his populist, isolationist base and should not be taken literally as a guide to policy.

Perhaps. But for now, let’s assume that he meant what he said … more> https://goo.gl/HOO1Dz

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Updates from GE

By Mark Egan – Called FLNG (floating liquefied natural gas) in industry parlance, the floating facility is on a course to revolutionize the energy industry. Prelude will process natural gas at sea, where it is pumped from underneath the ocean floor — a process that normally takes place on land.

While Prelude is a giant, it’s still much smaller than a land-based plant, which creates special challenges, says Mike Peterson of GE Oil & Gas. His business unit is building and testing a key component for the FLNG facility called the dynamic flexible riser. These high-tech pipes bring the gas up from the seabed before it is cooled to around -160°C (almost double the lowest temperature ever recorded in Antarctica) and turned into liquid.

The risers have been designed to withstand some of the harshest weather and sea conditions imaginable. They are being built and tested in GE’s facility in Newcastle, U.K.

“They are like very fancy garden hoses,” Peterson says. “We build them from layers of metallic and polymer components. Each weighs around 320 tonnes and must be capable of functioning for 25 years through thick and thin.” more> https://goo.gl/meiZsO

What Trump Didn’t Learn From the Financial Crisis

By Noah Smith – There’s this old idea that what’s good for American companies is good for Americans. But that’s not necessarily true, and it’s certainly not true in the case of financial companies.

One well-known reason is moral hazard. Big banks, with their implicit guarantees of future bailouts, have an incentive to take more risk than is good for society.

Another reason is that sometimes banks and other finance companies use business models that hurt their customers.

Anyone who has studied behavioral finance knows that there are many ways in which the average borrower and the average investor predictably make bad decisions. Taking advantage of these lapses in rationality is the dark side of behavioral finance, and in general it’s perfectly legal.

The 2000s housing bubble provides a fairly clear example. Many mortgage lenders made loans to customers who couldn’t pay them back. The borrowers, not realizing that they couldn’t pay back the loans, suffered negative consequences such as foreclosure, repossession and bankruptcy.

The mortgage lenders sold the loans to banks, thus washing their hands of any of the risks they had created. more> https://goo.gl/WlWsLK