‘Like champagne, bull markets remove inhibitions.’ -James Grant
My readings over the last several weeks have consisted primarily of David Stockman and Jim Grant – two sane voices in the insane financial world. Each have contributed wondrous thoughts and reflections on the nature of 21st century finance, which is primarily a story of the ‘corruption of capitalism’ (to use Stockman’s phrase) and the rise of bubble finance. This tragedy of course, is a result of the slow and pernicious takedown of free markets, especially in the area most people refuse to look: money and banking.
The consequences of the financialization of the world, which began to manifest as ‘fiat money’ was disconnected to its underlying commodity (gold) in the 1970′s, eventually led to a corruption of financial culture – not only the culture of Wall Street itself, but also down to the way Main Street treated its relationship with savings and ‘investments.’ There was a catastrophic shift in the mentality of the people as the Fed moved forward to an era of what David Stockman calls ‘Prosperity Management.’
The middle class in America forgot all about the importance of savings and frugality and instead bought into the lie that one’s future would be ‘taken care of’ if only it threw its money into the stock market. An important mechanism for the allocation of scarce resources into productive investments, the stock market is a vital piece of a free market capitalist economy. But when the United States government decided that money, credit, and interest rates would be controlled and managed solely by the whims of the central planners, no longer having anything to do with the multi-century long underlying commodity of gold, the stock market quickly became a betting center – a gambling house.
This post was published at David Stockmans Contra Corner on April 15, 2016.