Normally an astute investor uses the concept of financial pyramid where low –yield but liquid assets with predictable return are placed on bottom, medium-risk with medium return assets in middle and high-risk and high return items are placed on top as a thin icing.
This type pf risk structure does not give flamboyant results but on average exceeds the threshold of safe return along with income marginally above than expected in normal course of business or investment. The central thread binding this approach is that the chance of success spreads thinly on the top and thickly as it winds down to the bottom. In geoeconomics this is treated as safety lock.
The whole idea of safe and risk free investment was high-jacked when the concept of financialization was introduced in the America led west. Beginning with the financial sector of economy consisting of banks and other intermediaries this cancer spread to the manufacturing and productive industries that started using innovative ways of raising investment or finance such that there were plethora of products such as futures, options, derivatives, hedge funds and exchange traded funds, most of these bordered more on intangibility than on tangible nature.
What was alarming finally happened when financialization made inroads into households as well as coalescing towards routine financial transactions? ATM became ubiquitous and could be seen in super markets, shop arcades and even at street corners. Final nail on the coffin is the digital economy that led to the gradual abandoning of use of physical cash altogether. Even central banks have embraced what we call as central bank digital currency (CBDC) colloquially known as digital wallet.
Governments do not want to be left alone. America took the lead and brought out an innovation known as Inverted Pyramid where she went pell-mell in printing Dollars. USD currency in circulation amounts to 2.350 Trillion whereas US Dollar denominated debt is around 35.12 Trillion along with associated interest payment tallying up USD 763 Billion.
So far the beast is still being chained. But the smoothening statement put out to the press by US Fed gives only temporary relief: “As of June 2024, the US Federal Reserve has not decided to transition to a CBDC or supplement its existing monetary system with one.” There is wide expectation in the financial world that eventually USA would have digital wallet.
What is the net effect of all these developments? Financialization has turned the financial pyramid upside down ending up intangible high-risk assets being paced on the top and tangible assets parked at the bottom as a very thin line. In fact, if financialization blows out almost the entire globe would face major devastation in geoeconomics!
Cheers!
Muthu Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Business Strategist
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