by Francis Lee for the Saker Blog
It speaks volumes about the gravity of the current political and economic situation that the leading US investment bank Goldman-Sachs has seen fit to issue a sombre warning.
‘’Goldman Sachs Group Inc. put a spotlight on the suddenly growing concern over inflation in the U.S. by issuing a bold warning on Tuesday that the dollar is in danger of losing its status as the world’s reserve currency. With Congress closing in on another round of fiscal stimulus to shore up the pandemic-ravaged economy, and the Federal Reserve having already swelled its balance sheet by about $2.8 trillion this year, Goldman strategists cautioned that U.S. policy is triggering currency “debasement fears” that could end the dollar’s reign as the dominant force in global foreign-exchange markets …
There are many factors pushing the gold price higher, including fear of increasing political uncertainty, rising concerns involving another spike in COVID-19 infections in the country, increasing government debt, rising inflation, and concerns that the US dollar is seeing a new downtrend to the Chinese Yuan.’’ (1)
The fact that gold is being spoken about by the financial cognoscenti is in itself significant. Gold bugs (like me!) have long been regarded by orthodox academic economists and business financiers as being beyond the pale in terms of their relevance to current economic and financial issues. But, as with everything, times change, fashion changes, paradigm shifts take place – such is the way of the world.
John Stuart Mill once commented in this respect.
‘’The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies’’ (3)
Capital movements into and out of existing assets was not necessarily productive investment but mainly pure speculation. And speculation itself was driven by increasing levels of cheap debt, both sovereign and private. This process may be observed in the Fed’s force-feeding new monies into the economy at which corporations use this largesse to buy-back their own stock thus enhancing their market price. Insofar as it might be produced it becomes clear that finance led growth is based upon trickle-up economics in which the gains of the wealthy come directly at the expense of ordinary people. Financialization involves the extraction of economic rent from the circulation (of capital) process, as well as patents, copyrights and land/property.