Saying the modern market economies are similar to feudalism is a metaphor that helps us understand the true nature of the modern financial system, Bezemer says.
One defining trait of feudalism was a sharp distinction between lenders and debtors, he says. Landowners diverted the profit from the land to their own benefit. In many countries the financial system serves a similar function.
It is like an economic machinery that pumps the money out of the real economy into the financial economy
Today’s desk jobs provide significantly better living standards than those of the factory workers in the industrial era or of the peasants in feudalism. But one cannot help to notice that total wages paid are decreasing with relation to the profit they produce.
In addition, while the financial system doesn’t like to distinguish productive and improductive debt, there is still a clear distinction. If an enterprise with a good product or good ideas borrows money to grow, that is productive investment. On the other hand, we have the mortgage system, where money is being lent against real estate collateral. In this case, the real estate is already there and the credit neither creates new value, nor does it stimulate innovation.
The fundamental problem here is that the debt volume grows without a growth in revenues from manufaturing or innovation, thus the repayment of the debt may become problematic
There are clear signs of growing risks – such as the economic slowdown in China – which, coupled with the increasing ratio of bad debt should make us more cautios. In the past few years of economic boom we have “overfilled our glasses”, but the cycle is coming to an end. The fact that we still have economic growth and high employment levels only serves to mask the inherent fragility of the financial system, but the threat remains, Bezemer concluded.
