Bankers and Parasites

A parasite has two strategies. It can feed off the host until it's presence overwhelms the host's defenses leading to illness or death. This strategy will work as long as it can easily find new hosts. If the balance between parasite and host favours the parasite, the parasite will rapidly infect the population until it reaches such a low density that the parasite is unable to find new hosts and the parasite's demise is at hand as well. Or a parasite can ensure it's survival by feeding off the host but do no harm. The parasite stays with the host while it's eggs or young are expelled and they are required to find a new host. The banks have parasitic qualities. It feeds off the interest paid by the host community, the borrowers. There's nothing bad about parasite-host relationships. The balance between the two is of importance. The bankers have taken just enough in the past to ensure their success without threatening the health of the economy. The discharge of new debt has been able to locate new hosts leading to an expansion of the credit industry. However, we have reached a point in the relationship where the banks have saturated the economy with debt. There is very little room for growth, as there is a dearth of willing and able borrowers. The food for the banks is withdrawing, threatening their survival. The relationship between the banks and economy at this stage is what is about to play out. We are in an unstable position where the dynamics of host and parasite are in flux.

The world economy is slowing down. It has to. A consumptive economy eventually depletes it's savings and reaches a point where it has to produce again or face the inevitable collapse. The US economy is consumptive. It has fed off it's store of wealth since it outsourced it's manufacturing to cheaper, more efficient nations. The typical Asian works harder, longer, and for less. China is the largest foreign holder of US debt, not because they have full faith in the potential growth of the US, but because they know the money they lend will be recycled back to them when the American consumer buys it's exports. What started out as China feeding off of the US, has reversed, and now the host has become the parasite feeding off the wealth of China. This dynamic is changing. The US consumer is spent. They are cutting back on spending because their debt burden has become too honorous and their perceived wealth has eroded. The demand for China's exports is diminishing. It follows that China is receiving less money and they have less profits to cycle back into the US. The US is losing a major creditor which has allowed them to maintain a high standard of living, while China's largest market which has fuelled their growth is shrinking. This relationship is due for a rebalancing.

The US has gone from being a creditor nation to a near bankrupt one. A growth industry of the US that has developed has been it's innovative debt products. Large institutional investors purchased loads of US debt wrapped up in complicated bundles. There was a belief that the US consumer could continue to spend borrowed money with no limit. This notion crashed a year ago when a critical number of home buyers foreclosed on the mortgages and these debt bundles became toxic as no one wanted to buy debt that may not be repaid. There was too much risk involved so the market for these debt instruments froze. The holders of this debt refused to sell them at market values because they would take a beating on their investment. The so called credit crisis began in earnest. Banks saw their assets vanish as real estate prices plunged. Debt is only as good as the promise to repay and many promises have been broken. The lucrative business of selling debt has hit bottom and for an economy based on selling and spending credit, this is bad news. Reality is slowly settling in that people can't spend what they don't have. The demand for credit has withdrawn even with interest rates approaching zero. Few banking institutions want to lend and fewer people want to borrow. The product of the banking industry is failing to find new hosts.

The central banks and the politicians they control sense their potential demise. Thus they have decided to become the lender and spender of last resort in an effort to stimulate the economy while average people are reckoning with their personal debt. The banks are squeezing them. A parasite will do only what it knows. It feeds off it's host. The Federal Reserve of the US is owned by private banks. It is the bank for bankers so naturally it will do what is in the best interests of the banks first and not neccesarily the people at large despite what they claim. They believe that what is good for banks is good for the economy. They believe that credit creates business and wealth. The parasite believes it's survival is critically important for the survival of the host. Actually, the economy is struggling because the parasite has infected the population with it's toxic debt and it will not let the system cleanse itself by letting the bad loans default. The bankers and politicians will not accept responsibility for their greed and flawed policies. They have manipulated the monetary system to their benefit, acquiring wealth and power over the years. Governments and all the businesses that depend on it's seemingly unlimited spending have expanded, consuming a larger and larger portion of the wealth generated from the productive part of the economy. The burden placed on people who produce the neccessities of life and are at the base of all economies is taxing, and ultimately the balance will have to be restored to a more equitable level.

The question that remains to be answered is how the parasite-host relationship plays out. Will the attempt to save the banks at all cost take the productive economy down by sucking all the working capital out of the system, until it is in such a dismal state that the bankers and the debt they produced wither away, leaving the essential vestige of a bloated industry? Or will the debt that was pumped out of the banks be subjected to the harsh reality of the marketplace, and force those who took on the risk, take the loss, wiping out a few banks and businesses but leaving behind a leaner, deflated economy intact? Neither choice is pleasant. There will be hardship and ruin as the economy struggles to keep the peace and feed the people. My guess is that the present strategy of throwing money and resources at the banking industry will persist until there comes a turning point when it will become all too obvious that the money creation is having little positive effect while the imbalances become more pronounced. Increasing debt cannot cure a debt crisis. It exacerbates it. We are living in a strange time when what was once considered bad is now good. Intuitively, piling on more debt doesn't lead to prosperity. I choose to trust my common sense that reducing debt is a better strategy in the long run. Extend that belief outward to the economy and the result will be a deflationary environment that will see the banking industry become less profitable, but the economy as a whole will be more stable once the balance is restored.

The rebalancing must occur. It won't be easy but the years of living comfortably on the backs of cheap Chinese labour and credit are over. China will have to accept that the credit they extended to the US will not likely be paid back. It will default one way or the other. The US dollar will likely collapse in value. The US needs to start manufacturing again. The banks depend on the demand for debt for it's growth. Without borrowers they have no business. In an ideal world there would be no debt and the people of the world would live their lives doing what they need to do to live as comfortably as they can, living within their means. This is disastrous for bankers. The reality is that the economy will not collapse. Food will still be grown, oil will still be pumped out of the earth, cars will still be manufactured, clothes will still need to be sewn, doctors will still heal the sick, and there will still be a need for banks. Life will not come to a stand still because of a monetary crisis. The resources of the world that the population lives off of will still be available. The economy will reorganize. The labour of the people is what keeps the economy running, not debt creation. The host does not depend on the parasite for survival.