“The evil markets” are your mom’s savings

By | January 11, 2014

Whenever something bad happens, we always try to find who is responsible, someone to blame.

Our mind works on logic. When someone is killed we get very nervous, but quickly calm down when a culprit -the murderer- is found. Actually, we calm down even more, if we find the motive (the reason behind the murder), particularly if it is logical from our point of view. When someone kills for no apparent reason or if the culprit is not found, we feel restless as our mind cannot apply logic to what has happened. Historically, police has arrested non-related “usual suspects” in relation to media-covered crimes just to calm the population.

This diabolic economic crisis seems designed by an architect who is fulfilling his evil desires in phases, and it seems we are in a spiral of events that we can’t get out of. We are set for a long crisis because this is a crisis of values, not an economic one.

But we must find a culprit to throw to the lions in the circus so people can go home anesthetized. And it is better to have just one guilty one than several, since the human mind prefers simple and direct data. Since the beginning of the crisis of 2008, our “thinkers” (those who we vote to think on our behalf) sought who to blame. It was not easy to find, but they actually came up with a brilliant one: it was decided that it was the “evil markets” fault. The decision is brilliant for several reasons:

1. They are very powerful, a prerequisite to be credible.

2. They are abstract, which is great because they cannot defend themselves and therefore can never deny being guilty.

3. They are outside our country, and blaming things on other countries is always easier in a crisis. Historically, politicians have greatly benefitted from having a foreign enemy.

No wonder that every week we see people on the street with a banner against the financial markets, or throwing eggs at the stock market, as it is the only physical symbol of that being that nobody really knows what it is, the “financial markets”.

When you find people blaming the evil “financial markets”, ask them to back it with some arguments, to explain the reason why they are the culprits. I bet they will not find a single one with a convincing argument, yet, they will be thoroughly convinced about it.

So who are really “financial markets”?

They are your mother’s savings.

This one of the best definitions. In fact, they are the savings of a German worker or Chinese or Indian. Ok, so not just your mother’s savings, but actually the savings of all parents in the world with much more weight by those parents of the countries that have more assets and can lend / invest other countries. This means the savings of parents from countries like USA, England, Germany, China, India, Canada, Norway or the Netherlands, but also those of every country in the developed world, are concerned about the crisis and potential global defaults.

Why are the savings from your mother.

Quite simply, the 13 countries with the largest pension funds in the world, make up the figure of 26,496 billion, representing as much as 76% of the Gross National Product (GNP) of those same countries. In terms of total volume, the first and greatest are the savings in pension funds in the U.S., with 58% of the total amount of all pension funds. Japan is still far away. The life savings of Japanese households account for 13% of the total, and England is the third largest with 9% of the total (according to World Report 2011, conducted by consulting firm Towers Watson).

The money from pension funds, which guarantee that the lifetime savings are not lost, are invested via “financial markets” in bonds, stocks and currencies among other assets.The managers of these large pension funds should ensure to get a reasonable return so that when the families retire, they get as much as possible. So if they’re afraid their borrowed money (bonds) or invested (stocks) in a country or a company may be lost, immediately decide to withdraw it and invest or lend in another country or company that will inspire confidence and reliability.

The question is, should we blame the one that stops lending the money he manages to a country or company or should we criticize the one that it has misused?

Pension funds are the major players in the “financial markets”, although there many other investment vehicles such as “hedge funds”. But in all cases, they just manage savings of individuals, institutions, foundations, companies, etc.

Other big players on the “financial markets” which are not among the categories above are those countries such as China, India, Brazil, Russia and Norway with huge surpluses of money which invest astronomical sums in stocks and bonds of major Western countries. But let’s not get deceived, that who manages the foreign reserves of the Chinese central bank is actually managing the money of all Chinese people who work 15 hours a day and manage to save some money.

In short, the “financial markets” are actually the savings from your parents. So each time someone speaks of the evil “financial markets” think that at the end of all those shells are the savings from the world’s population. Do not criticize the managers for trying to protect those savings, instead, incentive them to invest in your country or company.

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