In recent years, the dominance of finance has emerged as a central theme within the socio-economic and political landscape, leading to significant discussions about its implications and future trajectory. As Charles Hugh Smith highlights, the finance, insurance, real estate, rental, and leasing sectors combined contributed over 20% to the United States’ GDP in 2023, a substantial increase from 10% in 1947 and an even greater rise to 50% by 2010. This dramatic financialization of the economy has transformed it into a system where the actual use-value of resources is often overshadowed by their abstract financial representations. From labor and commodities to currencies and income streams, everything has been commoditized, creating a “financial doppelganger” that can significantly distort real-world value. Thus, a critical examination of this financialization era unveils not just economic statistics, but a broader framework through which society navigates its realities.
The surge in the assets of non-bank financial institutions is indicative of the massive transformation from a productive to a speculative economy. In the early 1980s, as unlimited credit became accessible, non-bank assets soared from approximately 40% of GDP to an astonishing 200%. This growth has far surpassed the levels witnessed during periods recognized for stability and shared prosperity, known as the “Trente Glorieuses.” As a result, while the financial system has ballooned, the wealth it generates tends to concentrate within a select few who have easy access to credit and the financialization machinery. The stark imbalance has raised serious concerns about the sustainability of an economy that no longer relies on productive capacity but instead thrives on speculative activities and financial abstractions that provide little real-world benefit.
Moreover, the costs inflicted by this financial system are profound. Analysts Epstein and Montecino estimate that the total cost of maintaining the current state of finance involves significant economic inefficiencies, amounting to around $688 billion annually, or 4% of GDP. Cumulatively, from 1990 to 2023, these costs would reach a staggering $22.7 trillion—an amount surpassing the entire U.S. GDP. The implication is clear: an economy overly dependent on the distortions created by financialization is not just unstable but vulnerable. This precarious foundation is under threat as imbalances deepened over the decades manifest as widespread societal and economic tensions.
Smith outlines an urgent need to consider the moral implications of the situation. He alludes to discussions with a successful Millennial entrepreneur, who voiced concerns regarding the consequences of any measures aimed at curbing financialization, such as reinstating the Glass-Steagall Act. There is a general apprehension that even modest reforms might trigger an inevitable collapse—referred to as the “Everything Bubble”—which would have catastrophic effects across all societal levels. Recognizing that both approaches to managing the financial system seem fraught with risk, Smith encourages a heartfelt inquiry: what should we prioritize for future generations? This moral question becomes paramount as the very fabric of society hangs in the balance.
While the immediate impulse may be to mitigate the effects of financialization, Smith proposes a dual strategy: either implement gradual deflation of the financialization bubble with prudence or allow it to burst entirely while preparing for the aftermath. The reality remains that the economic structures and relationships now in place cannot simply be unraveled without risk. Restoring historical regulations or imposing limitations on financial practices could lead to abrupt changes, thus pushing the system toward collapse. The outcome would witness significant suffering, and the fear of leaving future generations to face the consequences reflects not just economic prudence, but a deep moral imperative.
As the conversation surrounding the financial system unfolds, Smith ultimately suggests that enduring the pain of reform now may be preferable to the catastrophic fallout of inaction. The reckless indulgence in excessive financial speculation and the subsequent failure to address the underlying issues invite inevitable repercussions. Such consequences are not merely theoretical; they represent a looming reality that encompasses all societal strata—a reality formed from decades of unchecked greed, corruption, and misinformation. With the awareness that all financial systems are also moral constructs, the pressing question remains: How do we navigate this challenging landscape, while retaining a commitment to ethical responsibility toward future generations?