How the Systemic Crises Occur
Possible Next Systemic Crisis?
Could it be that another financial crisis will occur due to a systemic crisis caused by the development of the financial system itself? Quite possible scenario!
[Quoted from: Costas Lapavitsas, The financialization of capitalism: ‘Profiting without producing’, Published online: 11 Dec 2013, https://www.tandfonline.com/doi/full/10.1080/13604813.2013.853865]
The global crisis of the 2000s has lifted the curtain on the transformation of mature and developing capitalist economies during the last three decades, confirming the pivotal role of finance, both domestically and internationally. Finance-related capital permeates economic activity, and interacts with financial markets in ways capable of generating enormous profits but also precipitating global crises. Contemporary capitalism is ‘financialized’ and the turmoil commencing in 2007 is a crisis of ‘financialization’.
The essence of financialization is simple: profiting without producing. In other words, "making money from thin air." There is another side to financializing the economy: from the point of view of money, it doesn’t matter what you produce, "Computer chips, potato chips: what’s the difference so long as they’re monetized?"
If there is no difference what to produce and if it does not matter how to make a profit, economy eventually turns to chaos.
First, financial bubbles are easy-to-inflate, then they blow leaving losers without their money and financiers with super-profits. Do you think Mavrodi robbed only Russia? He managed to build several pyramids in "civilized" countries, as well. Actually, the idea of financial pyramids was not born in Russia.
Second, money begins to go not to where they can raise production but to where it makes more money, easier and faster. Therefore, banks are investing less in real production and more in a variety of financial speculations. By the way, this fact explains such a "strange" phenomenon as an increase in the number of bursting, bankrupt banks.
Third, economic blackmail becomes open. In the United States, as a result of the financialization of production, several companies have been formed that help “raise the finances” of small monopolies, the only manufacturers of individual components for armaments. Previously, financial relations with suppliers to the US Department of Defense were carried out through a special procurement department that determined the acceptable prices for supplies. Nowadays this department does not exist anymore. The company which came to the aid of small monopolies is in negotiations on their behalf with the Department of Defense. At these negotiations, company offers: either the Department of Defense agrees to pay these monopolists 8 times more than before or they stop their production. And the customer has to surrender. Do you remember? "For want of a nail the shoe was lost." This is about the current situation in a financialized economy.
If it doesn’t matter what to produce to gain more profits, then such "strange stories" become the norm:
[Quoted from: US military industry is going downhill: Experts assessed bottlenecks in supplying troops with equipment and weapons, (in Russian), http://nvo.ng.ru/realty/2019-07-11/2_1052_main.html]
... a few years ago, a factory that manufactured one of the main parts for a voltage switch in ignition devices and in missile crash systems was acquired by the owners of another company who closed the production of these parts. For two whole years the Pentagon was not aware of this fact, and then its specialists had to urgently solve this problem.
The result of this financial “lawlessness” is the destruction of “techno-fabric” in the key industries that determine the security and survival of states.
[The concept of "techno-fabric" was introduced by economist Vazgen Avagyan in his book "Technomics", (in Russian), https://www.knizhnyj-larek.ru/news/vazghen-avagyan-tekhnomika/]
A personnel problems are the striking manifestation of destruction of techno-fabric:
[Quoted from: US military industry is going downhill: Experts assessed bottlenecks in supplying troops with equipment and weapons, (in Russian), http://nvo.ng.ru/realty/2019-07-11/2_1052_main.html]
... the compilers of this report also point out the serious problems associated with aging of the workforce and monopolization of military orders by single suppliers, which leads to an increase in the risks of the Department of Defense when purchasing the aircrafts.
[Here the following report is mentioned: Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States, https://media.defense.gov/2018/Oct/05/2002048904/-1/-1/1/ASSESSING-AND-STRENGTHENING-THE-MANUFACTURING-AND%20DEFENSE-INDUSTRIAL-BASE-AND-SUPPLY-CHAIN-RESILIENCY.PDF]
Recruitment of highly professional programmers became a big problem of this industry. As noted in the report, it’s becoming increasingly difficult for human resources departments to hire qualified and capable software engineers, which becomes a critical problem for the aviation industry as the complexity of aircraft software grows.”
The document also notes that the Pentagon’s plans to gradually upgrade existing weapons systems of the US Army do not involve the creation of radically new military equipment and thus leads to the emergence of a “generation of scientists and engineers who lack experience in developing, designing and manufacturing new perfect combat systems and means."
Do you think this applies only to the United States? C'mon!
In 2009, a disaster occurred at the Sayano-Shushenskaya hydroelectric station in Russia. According to eyewitnesses, "multi-ton rotors of turbines ran around the room like crazy." One reason for catastrophe was poor balancing of the rotors:
[Quoted from: V.A. Shadrin, Diagnostics of hydraulic units of the Sayano-Shushenskaya hydroelectric station named after P.S. Neporozhnogo, Vestnik ChitGU No. 11 (78), 2011, (in Russian), https://cyberleninka.ru/article/v/diagnostika-gidroagregatov-sayano-shushenskoy-ges-imeni-p-s-neporozhnego]
The initial causes of the catastrophe at the hydroelectric power station are, according to the expert of the parliamentary commission, academician of the Russian Academy of Sciences O.N. Favorsky, the head of the energy section of the Department of Energy, Engineering, Mechanics and Control Processes of the Russian Academy of Sciences, the following:
"1) operation of unit No. 2 in excess of the permissible vibrations;
4) there was practically no qualified control of the rotor vibration after repair, there was no balancing (no specialist). There was no normal repair service and supervision of equipment suppliers over their operation.
All this is a consequence of the replacement of specialists by managers in the last 20 years."
Why wasn’t there a specialist in rotor balancing? It turned out that by that time there was not a single experienced balancer of turbine rotors in the country. There were less than a dozen of them all over the country, usually more were not needed. In the period of active financialization of everything in the country all of them were fired "because they were not needed." They did not have an opportunity to teach anyone their unique experience, the very mixture of knowledge and art without which such unique specialties can not do. Such specialists are usually "grown", subject to the transfer of experience from generation to generation, for several years...
The Consequences of Trade Wars | Financial and Systemic Crises | Financialization as an Economy Disruptor