Take a second to check out the below infographic…
This compares top US banks and Chinese banks and their assets and derivatives.
The assets that are represented by the green bars are actual things of value. In contrast, the derivatives represented by the pink bars are investment tools, financial vehicles, and other imaginary values created by showing the assets as collateral.
Basically, derivatives are imaginary assets that have value only because they are ‘backed’ by an actual asset.
They are financial ‘products’ created to be bought and sold for investment and profit — they have a scarce connection to the real world and the real economy other than being considered ‘backed’ by the actual assets.
They are bought, sold, invested in, and traded. Their values are inflated as the financial institutions that issued them, the investment institutions and banks that trade them, and the investors who buy and sell them make an enormous profit over their bloated valuations. Suddenly getting shaken and their values crash back down to earth if anything upsets the value of the assets that back their value many layers below them — dragging down the entire economy along. Like a tick that feeds on its host.
If you thought this was bad…
…you may be surprised to hear this:
These bloated, hot-air assets are also used as collaterals for the banks to create money out of thin air through the loans that they supply to the economy.
The banks are legally allowed to lend out nonexistent money to the economy, through loans that are backed by the assets that they have, up to a certain ratio. This ratio is much, much lower in properly regulated countries, but in deregulated countries like the US, it is much higher.
Moreover, the free-for-all, deregulated derivatives market in the US and similar deregulated markets also immensely amplify the false, hot-air assets that these banks have, by bloating the value of the derivatives that they hold.
So as a result, enormous amounts of money are created out of thin air, backed by hot-air collaterals that hide immense amounts of water-vapor derivatives behind them. Immense quantities of money enter the economy. Inflating the values of everything, from real estate to stock prices.
Therefore, when these derivatives start crashing down, they not only jeopardize banks, and investment institutions that are holding them and showing them as collaterals, but they also hollow out the support behind the money in the economy. Nobody can determine how much of the money and even assets that they have are backed by hot-air, so everybody stops trusting everybody and they stop lending — which grinds the economy to a halt because short-term lending is critical to the smooth operation of major industries ranging from manufacturing to logistics.
This is what happened in 2008 and the governments scrambled to fill the sunken assets behind the money supply using taxpayer money to ‘make them whole’ if one uses this new preferred term instead of ‘bailout’. If they didn’t do that, lending in the economy would totally stop, grinding everything to a halt. Of course, bailing out their sunken investments using public money is just an expected benefit on the side.
So, the derivatives which some people describe as ‘ticks’, hollow out the entire economy including the money supply. This makes the economy even more fragile in the case of any crisis like the 2008 one, putting even the money supply and lending that industries rely on for their day-to-day operations.
But what is going on now is bigger than such a crisis
All the above was somewhat manageable back in the past when the dollar was the uncontested currency in international trade. Every country had to keep a reserve of dollars to use in international trade, and the goods and services that changed hands in international trade used these dollars, taking them off of the economy and reducing the inflationary effect of such money-printing. Even more so because the countries chose to keep a dollar currency reserve amount higher than what they actually needed, in order to account for unforeseen circumstances.
So until recently, the US could print money harder than a banana republic without the dollar losing its value and causing inflation.
The bloated economy in the US floated on this phenomenon. Overvalued stocks and company valuations, skyrocketing real estate prices, extremely high-priced goods, services, and everything else.
But the economic war that accompanied the Ukraine war changed that…
As a response to the US sanctions, Russia moved to trade with other countries in national currencies, and this was in turn backed by China, who knew that it was in line to be targeted by the US after Russia because the US establishment openly says so.
They activated the dormant international electronic payment systems that they created as alternatives to the SWIFT electronic payment system that the US controls. This immediately created an alternative to the entire Anglosaxon-controlled world of finance because any country that uses the SWIFT alternatives would now be immune from US sanctions, therefore they wouldn’t need to follow whatever policy the US forces upon them.
Various Gulf countries immediately followed suit. They have been pushed around by the US for too long. Then India joined the club by starting to use Ruble, Rupee, and Yuan in its trade with Russia and China. The coup the grace came when Saudi Arabia started trading in Yuan with China, which swiftly triggered runaway inflation in the US as the now-unused dollars were starting to flow back to the US. The US responded to this crisis by raising interest rates to stem the tide, at the cost of rising unemployment. It had to bail out a few banks along the way to prevent a cascading bank meltdown as well.
But this change is irreversible.
The countries that moved off of the dollar for international trade won’t be coming back to the dollar, even if the US stops all the economic warfare, apologizes for all its past deeds, and gives out guarantees to everyone. 80% of the world that has been harassed, abused, and exploited by the US, now has seen that there is an alternative and it works. It turns out that there was nothing special or unique about the Anglosaxon financial system at all — what made it ‘special’ was only the monopoly it had. And now that the monopoly is gone, it does not offer the world anything other than the immense risk that the Anglosaxon financial world carries — both the risk of economic warfare that can rain down on any country at the moment it upsets the US and the risk of the gigantic tick that is called the derivatives bringing down the entire Anglosaxon finance and all the countries that do business with it.
So, the call by Brazilian President Lula to move off of the dollar in international trade is just a confirmation of what has already been happening, put into words post-facto.
The West must immediately reverse course and address the endemic financial problem
The West, or rather, the Angloamerican West must immediately stop the economic warfare that they have been waging against not only the countries that challenged its economic or foreign policy dominance like China and Russia but on its actual allies in Europe by forcing them to drop Russia as an oil and gas supplier and go with overpriced US oil and gas that ironically come from the very banned sources, now shuffled through third parties — which further imperils the Western economy by destroying European industries and purchasing power through high energy prices and shrinking the Western economy.
Stopping the economic warfare can alleviate the immediate effects of the loss of the foreign reserve currency dominance and give the US and the Anglosaxon economy enough breathing time to address the systemic problems it has.
And at the top of the list of those problems sits the deregulated, bloated, hot-air, financialized economy.
The financialized economy with little connection to the real world, bloated by the financial tools that were supposed to be the facilitators, the lubricant of industry and trade, but which are now enormous ticks that suck the blood of the real economy to create wealth that is actually hot-air that will come crashing down at any moment, dragging everyone including their owners with them.
Finance must be made into a tool that facilitates economic activity again
The regulations must be tightened, the financialization of the economy must be stopped and then reversed, and the ties of finance to the physical economy must be restored.
Finance must become the lubricant of the economy again, instead of the blood-sucking tick that it has been made into.
The economy must not be sacrificed for the short-term profit of a minority financial elite and it must be made into a framework that elevates the entire society to enable higher purchasing power for everyone in order to facilitate the technological advancements that are coming with the 21st century.
It’s needless to say that the Anglosaxon-controlled Western economy is totally unready for the upcoming AI revolution. If immediate measures are not taken to protect the economy and the people, the changes that the AI revolution will bring will cause the entire social fabric to collapse by amplifying the effects of the hollowed-out, financialized Western economy crashing down due to the geopolitical changes that make it impossible to run an economy on hot air and printed money.
The West getting its act together is a need that is beyond human sympathy for the people of these countries — it is a necessity because major countries with immense stockpiles of nuclear weapons experiencing social collapse and sliding back into reactionary hellholes led by delirious governments would not be good for the human civilization at large.
But, the West must get its act together — this has gone on for too long. The Anglosaxon-led West has been a major detriment to the progression of human civilization by impeding the development of the entire rest of the world and using them as colonies for too long. And after this point, the rest of the world has no interest in paying the bill for the US economic excesses and profiteering by bailing out the sunken Western economy by feeding the tick that is sucking its blood.
Therefore, the sane segments among the Western establishment elites must take action and they must push out the delirious segments that have been leading the West in this direction. They must take the helm, correct the course, and bring the Western economy back to the real world. In the process, they must repair the damage that the delirious segments did to the relations of the West with the rest of the world — because, after this point, there is no way forward other than participating in the new multipolar world on an equal basis and cooperating with the rest of the world to prosper.
