Most money being made today is from the financial transactions—the interests, the fees, and the creation of new kinds of exotic financial products that parse debt and resell it. Dealing in debt is quite lucrative. None of this actually produces wealth; it merely redistributes it more and more to the people at the top who have the money to lend.
The seventies stagflation were produced when the government stopped printing money to pay for the Viet Nam War and will happen again when this war ends. But it may happen sooner because as the economy becomes less secure and deflation becomes an eminent threat, China, Japan and Middle Eastern oil countries that are buying that debt may decide the Euro may be a better bet. When that happens as the old saying goes, “It will be Katie bar the door” to stop the rush to the exits.
At some point this must come unraveled in a rather nasty way. Whether it happens tomorrow or not is not the question, the answer is, it will happen and when it does it will be catastrophic for individuals, businesses, and government entities at all levels. What will happen to the big boys who created all of this? Well, most of them learned from the experience of Michael Milken the “Junk Bond King” who developed junk bonds, or “high yield debt”, to (guess what) finance leveraged buyouts. Indicted on 98 counts of racketeering and securities fraud, he pled guilty to six securities charges. He served twenty-two months. According to Forbes, he paid a total of $900 million in settlements and fines and still had a net worth of over $1 billion upon his release. His current net worth is estimated at $2.1 billion.
The private equity and hedge funds are not regulated by the SEC and most are registered offshore for tax and liability purposes. When it all falls apart most will be able to retire to their homes in the Mediterranean and live off their money in the Caymans, while the rest of us pick up the pieces.
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