interesting article thanks!
"Dilemma
This produced the dilemma of overproduction.
One "escape route" from the conundrum of overproduction, and for maintaining and raising profitability, was "financialisation".
Unsold Japanese cars in a UK showroom
Overproduction: many cars made, but no-one to sell them to
With investment in industry and agriculture yielding low profits as a result of over-capacity, large amounts of surplus funds have been circulating in or invested and reinvested in the financial sector - that is, the financial sector began turning on itself.
The result has been a divergence between a hyperactive financial economy and a stagnant real economy.
This was not accidental - the financial economy exploded precisely to make up for the stagnation owing to overproduction of the real economy.
Profits, not value
One indicator of the super-profitability of the financial sector is the fact that 40% of the total profits of US financial and non-financial corporations is accounted for by the financial sector although it is responsible for only 5% of US gross domestic product (and even that is likely to be an overestimate).
The problem with investing in financial sector operations is that it is tantamount to squeezing value out of already created value. It may create profit, yes, but it does not create new value - only industry, agriculture, trade, and services create new value.
Because profit is not based on value that is created, investment operations become very volatile and prices of stocks, bonds, and other forms of investment can depart very radically from their real value.
Profits then depend on taking advantage of upward price departures from the value of commodities, then selling before reality enforces a "correction", that is, a crash back to real values. The radical rise of prices of an asset far beyond real values is what is called the formation of a bubble. " |
