US data improves; UST yields rise with breakeven rates; another Chinese developer defaults; East Asian data weakens; magnesium price drops; UST 10yr 1.62%, oil firm and gold soft; NZ$1 = 71.6 USc; TWI-5 = 75.1

Reminds me of the Freezing Industry. Year after year companies would rack up the value of works etc  to prop up the balance sheet, as fixed assets in old terminology. Yet in the 80’s and on, some were sold off to a rival for a $1 nominal to close ‘em down. Many more were just shut down, left to dot & rot  the landscape with polluted worthless old monstrosities. Big holes in balance sheets then, big departures from the industry too.

Note that the net financial worth of households went up by about the same amount as property wealth over the last two years (a cool $400bn each). 

The rentier resurgence and takeover: Finance Capitalism vs. Industrial Capitalism

Marx and many of his less radical contemporary reformers saw the historical role of industrial capitalism as being to clear away the legacy of feudalism – the landlords, bankers and monopolists extracting economic rent without producing real value. But that reform movement failed. Today, the Finance, Insurance and Real Estate (FIRE) sector has regained control of government, creating neo-rentier economies.

The aim of this post-industrial finance capitalism is the opposite of that of industrial capitalism as known to 19th-century economists: It seeks wealth primarily through the extraction of economic rent, not industrial capital formation. Tax favoritism for real estate, privatization of oil and mineral extraction, banking and infrastructure monopolies add to the cost of living and doing business. Labor is being exploited increasingly by bank debt, student debt, credit-card debt, while housing and other prices are inflated on credit, leaving less income to spend on goods and services as economies suffer debt deflation.

Today’s New Cold War is a fight to internationalize this rentier capitalism by globally privatizing and financializing transportation, education, health care, prisons and policing, the post office and communications, and other sectors that formerly were kept in the public domain of European and American economies so as to keep their costs low and minimize their cost structure.

In the Western economies such privatizations have reversed the drive of industrial capitalism to minimize socially unnecessary costs of production and distribution. In addition to monopoly prices for privatized services, financial managers are cannibalizing industry by debt leveraging and high dividend payouts to increase stock prices.

* * *

Today’s neo-rentier economies obtain wealth mainly by rent seeking, while financialization capitalizes real estate and monopoly rent into bank loans, stocks and bonds. Debt leveraging to bid up prices and create capital gains on credit for this “virtual wealth” has been fueled by central bank Quantitative Easing since 2009.

Financial engineering is replacing industrial engineering. Over 90 percent of recent U.S. corporate income has been earmarked to raise the companies’ stock prices by being paid out as dividends to stockholders or spent on stock buyback programs. Many companies even borrow to buy up their own shares, raising their debt/equity ratios.

Households and industry are becoming debt-strapped, owing rent and debt service to the Finance, Insurance and Real Estate (FIRE) sector. This rentier overhead leaves less wage and profit income available to spend on goods and services, bringing to a close the 75-year U.S. and European expansion since World War II ended in 1945.

These rentier dynamics are the opposite of what Marx described as industrial capitalism’s laws of motion. German banking was indeed financing heavy industry under Bismarck, in association with the Reichsbank and military. But elsewhere, bank lending rarely has financed new tangible means of production. What promised to be a democratic and ultimately socialist dynamic has relapsed back toward feudalism and debt peonage, with the financial class today playing the role that the landlord class did in post-medieval times.

I would argue that it was low interest rates (scaffolded by QE) that drove bank credit into residential property.

The other side of rising discounted present values of asset cash flows reflected in higher capital values is the rising present value of liabilities.

Witness ACC:

The significant impact changes in interest rates have on the ACC scheme was again evident in 2020/21. In the previous two financial years, ACC recorded sizable deficits totalling $15 billion primarily due to interest rates falling to historical lows, a factor outside of ACC’s control. This impacted the discount rate used to value our outstanding claims liability (OCL) which rose to $61.5 billion as at 30 June 2020.

This year the opposite occurred, with ACC recording a $10 billion surplus including a $6.1 billion reduction in the OCL. As New Zealand’s economic outlook improved, the OCL fell due to the impact of rising interest rates, partially offset by changes in experienced and forecast inflation rates that increases the expected future cost of existing claims.

So true!

In a democracy the majority is supposed to be making decisions.

Also your comparison to the flu is just (intentionally?) ignorant at this point.

Ah yes, they intentionally wanted to divide the vaccinated 90% from the unvaccinated 10%... So just tell me, why do you think that pretty much all governments in the world are pro-vax?

Speaking of hostage taking - i note on the news the Government have flagged they are going to STEAL water infrastructure in the Three Waters Reforms. Clearly the push back they got is intolerable. The election losing strategies by them are mounting fast. But this one is bad. Some reading I have done postulates that water charges may increase by up to three times in some areas. The Government is increasingly becoming autocratic/dictatorial and untouchable. And they still want to extend election terms!