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Chapter 5: What is infinite inflation?The curves in Appendix 4 are a characteristic representation according to recently published studies by the Executive Intelligence Review magazine. In fact, Curve B cannot be completely represented as the paper is too short. The growth of the financial aggregates trading, which includes the bond and stock markets, the financial derivatives markets, and international currency speculation, is represented by Curve B in a composite conceptional manner. Appendix 1, Figure 1 shows a more accurate representation of a single one, of the major elements. It shows the world wide total of all the financial derivatives in the system averaged out for a given year. This growth pattern matches that of Curve B in Appendix 4. In reality Curve B may be somewhat conservative. Several of the other elements within the financial aggregates system have increased much more rapidly. For instance, between 1966 and 1990 a whopping 613 fold increase in foreign exchange turnover for profit has taken place, which is an explosive growth by any standard. Is it any wonder, then, that the currencies of entire nations suffer from this ravishing trade? The growth in futures turnover was somewhat less, which has grown only 493 fold during this period. These figures are huge. They represent a 61,300% increase, or a 49,300% increase respectively. The total annual turnover in financial aggregates between 1966 and 1995 has risen from $1.69 trillion to $500.00 trillion, for a 300 fold increase. These are enormous values involved in these increases. If one compares the value added product to the total financial turnover, one finds the latter to be 440 times larger, which represents a separation of the financial world from the physical world in the order of 44,000%. In the mid sixties, the two aspects were close to even, which means that financial turnover was tightly linked to the exchange of physical goods. In today's situation, however, the financial world is highly inflated (App. 44,000%) in relationship to what it represents as an interchange medium to facilitate commerce. The effective inflation is actually worse than that, if one compares the generated claims (called profits) within the financial aggregates system to the free profit of the productive industry. The disparity may be as high as 90,000% and more. This figure, however, is still conservative compared to reality, because it doesn't include the debt load that the nation carries, which requires interest payments to be made that shrink the free-gain profit that the nation has realized in the productive industries, and turns these profits into a negative net amount. In other words, the financial claims are infinitely inflated in comparison to what they represent, as claims against the free gain in the physical economy. The result of this infinite inflation that is not recognized, is an illusion of monstrous proportions. On the surface it appears that no inflation exists in the system, except a lot of wealth, while in reality the perception of so-called wealth has been inflated to astronomical levels. The illusion, of course, does have the desired effect of raising, what is called "investor's confidence." It is this confidence that causes the citizens of the nation to empty out their savings into the infinite sink-hole of financial aggregates, which is happening every day at a rate of 10-25 billion dollars per month in the U.S.A. alone. What we see here, is a modern day gold-rush, operating in reverse. The inflation figure of 44,000% is based on an estimated $25 trillion in financial gains realized in the U.S. markets, which are are fundamentally claims against the nation's value-added production, which however, amounted in 1994 to only $1.3 trillion. If one subtracts from the value added production figure the cost of labor, the necessary taxes, and the cost of the business operations required to achieve the production, a net profit of 4-6% remains, which is a high figure for any productive industry around the world, so that the total free gain profit of the nation's productive effort amounts to something in the order of $0.0585 trillion. This free-gain is the profit to society that is achieved by its labor above the cost of production, against which all claims must be measured. In real terms, no other wealth creating processes exists than the productive activity of human labor. Even claims against real-estate property, for instance, have ultimately no meaning unless an income stream exists to satisfy the claim, which is in turn derived from productive activities. || - page index - || - chapter index - || - Exit - ||
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