Financial wealth has become all the rage in the nation states of the world system. Not long ago, it was the real sector of the economy, production of goods and delivery of services that formed the foundation of what was then called progress. In those days finance was only an intermediary serving the needs of the real sector of the economy. Today finance is the final arbiter of all economic activities and dominates every aspect of modern life. What is even worse; the modern world’s financial system is based on pure fraud. The compounded consequences of modern banking are showing up in all sorts of places, including the peripheries!
Even in the weak African economies the dominance of predatorial finance has become quite visible. The undeserved prominence of finance has led these countries to concentrate on frivolous projects while neglecting the critical sectors of their economies. Like many things, manufacturing and agriculture have become subservient to finance. This is understandable given the following. For instance, investment in commercial banks (mostly private) fetch returns that are not easily found in any legal economic activity. A low of 10% going all the way up to 50% per annum, is a customary dividend that awaits a national investor in our part of the world. Of course, this is a Ponzi scheme, though the sheeple might not know it yet.
Nonetheless, since banking is still a highly regulated and protected area, the impression an investor gets is; the whole business of banking in our region is kosher. We beg to differ! In any business sector, a return of 50% per year is to die for, so to speak, unless of course it is illegal. Granted, certain niche markets, mostly associated with innovations, can give such returns, but those are not widespread as our run-of-the-mill banking. Thanks to the neoliberalization of African economies private commercial banks in the region are now fully engaged in this ludicrous rentier schemes. For example, Kenya and Ethiopia have numerous private banks fully committed to these Ponzi schemes. It seems the central banks of these countries have lost their wherewithal to control and regulate such nationally damaging banking activities. Why should anyone with a right mind engage in the productive/service sectors of the economy when buying into a bank can guarantee (relatively) ‘risk free’ astronomical returns?
Don’t listen to the nonsense spewed by global establishment, bank money is created out of thin air, period! By bank money, it is meant all forms of money that do not include the printing of notes and the minting of coins. But these two account only to less than 5% of the money in circulation, at least in the financialized economies of the advanced industrial countries. By and large, the money that exists in an economy (over 95%) is created by commercial banks, most of which are private. Deposits or no deposits, if commercial banks want to create money they can do so without much qualm, as long as there is no clear restriction/limitation imposed by the central banks.
Therefore, and increasingly, it is by negative intervention, i.e., through regulation, central banks play a role in any given economy. Commercial banks create money by lending it into the economy. If they do not lend, supply of money in the economy will be restrained and economic activities will become subdued. In the logic of modern economic thought this might instigate an economic recession if not depression. On top of that, unless banks create money in abundance, i.e., spew out debts; they will also have problems surviving. Most importantly, this banking regime almost always leads to mal-investments (white elephants) that tend to cause harm to stable economies as well as to the wider bio/ecosphere of the planet.
On the other hand, creating money out of thin air and in abundance fuels inflation, and inflation affects the poor and the working stiff more than anyone else. Don’t forget the money created by the banks, unlike the hard earned money of the working class, entrepreneurs, etc. is actually fictitious, i.e., phony! The money spigot is almost exclusively funneled to those closely associated to officials of the banks as well as to the powerful politicos of a country. In many of these criminal schemes, the viability of projects or actual commercial needs of entities are used only as pretexts to milk the system.
As always, when the time comes for repayment of the massive debts, the policy of ‘extend and pretend’ is promptly enacted to save the connected crooks. Small businesses facing difficulties are usually foreclosed and sold, often to the same insolvent companies of the oligarchs. Ultimately and invariably, it is always the sheeple that ends up paying for the whole mess through various measures; austerity, bailouts, taxation, inflation, etc. The massive bank credit created, not only brings unbearable inflation to the majority, but also solidifies polarization within society. The Ethiopia of recent years is a good example of these above phenomena. During the last two decades the country managed to create plenty of parasitic oligarchs that have no clue as to what productive work is. By and large, these empty suits were allowed to command and control the country’s resources, either directly or through entities (some foreign) associated with the power that be. The gullible sheeple is systemically goaded to worship such criminals as if they were the epitome of entrepreneurship. Pathetic!
The ‘Mafiosi State’, the informal state operating behind the formal state leveraging all institutions of political governance, the market and civil society, is the main culprit behind the whole scheme of grand corruption, unheard and unseen in the country’s recent history! Such vicious crimes must be punished to avoid repeats!
The result of a highly polarized existence within as well as between countries is mostly due to this phony money creation. When it comes to chronic polarization even the rich countries are not spared. The instability of the financialized global economy is another of the symptoms of the fast decaying globalization of late modernity.