Welcome to Finance and Fury the Furious Friday Edition

On the last episode we talked about the City of London Corporation, a mini plutocracy

Today we are exploring at what point does a financial sector state to crowd out real economic growth? Referred to as the ‘financial curse’

I have found some contradictions to my previous beliefs – research shows a tipping point

Why is finance important?

  • We all use it
  • Each economy has stages with a financial system
  • Reaches an optimal size
  • Beyond this point a financial system starts to inflict damage
  • Profitable techniques start to impact the creation of wealth
  • There is a limit to useful roles of a financial system

The Tipping Point:

  • Financial crisis
  • Supporting the creation of wealth vs extracting it from other parts of the economy
  • Shaping laws, rules, thinktanks and culture
  • The damage it does

Measurable impact: link to database

  • Finance becomes a net drag on GDP growth and productivity – misallocation of resources
  • Negative relationships between rate of financial sector growth and rate of productivity growth
  • Bank incentives shift after GDP to debt reaches a certain size
  • What do credit booms do?
  • The ratio of household debt reflects what?
  • What does the IMF study show?

Real life examples:

  • Britain and the City of London corporation
    • What kind of hit has it put on the UK economy?
    • Lost economic output and misallocation costs
    • No longer lending into new business, mostly each other, housing and commercial real estate
  • USA
    • The cost of the 2008 financial crisis
  • Australia
    • Credit to the private sector surpassing 100% of GDP makes financial sector contribution to economic growth negative
    • When interest rates are lower there is less incentive to save and more incentive to borrow

The Unmeasurable

  • Finance curse inflict damage in many areas
  • Economic, cultural, democratic and social effects

Summary:

  • With too little and too much financial sector, we would be doomed
  • Resources are being misallocated
  • How some investments come at the expense of other investments I own?
  • Next week we will dive deeper into the share market and Milton Freedman

 

Thank you for listening, if you want to get in contact you can do so here.

Furious Fridays: The dark side of electricity price capping

Furious Fridays The dark side of electricity price capping Welcome to Furious Friday! I recently saw a news article about Australians being “promised new laws to slash up to $832 from their annual electricity bills” This article outlines; This is a “federal government...

Say What Wednesdays: Should I lock in a fixed rate on my home loan with interest rates so low?

Say What Wednesdays Should I lock in a fixed rate on my home loan with interest rates so low? Welcome to Say What Wednesdays – Where we answer your questions about personal finance and the economy! This week’s question comes from Michael. His question related to...

Should you start a business?

Hello everyone, and Welcome to Finance and Fury. The last episode was about finding the right job, from your purpose in life.  In today’s episode, we will be looking at investing in a business, by creating one. To start: There is lots of work in planning and...

Has the first domino in the next banking crisis fallen?

Welcome to Finance and Fury Snuck this episode in ahead of time – only reading about news yesterday – need to do some further digging – but is it Time to sell shares in anticipation of a crash? Today – run through some news that you might not have seen – financial...

How much do you really know about cash and how it works?

Episode 26 How much do you really know about cash and how it works? In this episode we discuss Cash. We will run through what type of asset it is, how the currency system works, and how it can be manipulated! We also discuss: The good old days of the Gold Standard...

Say What Wednesdays: The good and bad of Ethical Investing

Welcome to Finance & Fury, the ‘Say What Wednesday’ edition, where every week we tackle questions from you guys. This week the question comes from Jason; “My question is about investing with an Environmental, Social and Governance (ESG) / Ethical investment focus....

Investment allocations and structures that can last the test of time and how to ensure that this can be passed to the next generation of family members?

Welcome to Finance and Fury, The Say What Wednesday Edition.  Today's question is from Mario  Thanks so much for continuing to put together your insightful and informative podcasts. I have a question about investment strategies that last the test of time and can...

Premiums are on the rise…but is Private Health Cover worth it?

Say 'What' Wednesday Premiums are on the rise...but is Private Health Cover worth it? Welcome to Finance & Fury, Say ‘What’ Wednesdays! where we answer your questions on finance and economy. Today’s question comes from Mike – ‘Hey mate, loving the show, what’s...

Furious Fridays: What part of progress should governments have?

Welcome to Finance and Fury the Furious Friday edition. This is part 6 in the series, the second last episode of the series. So this is 2 more than expected in the series, which I guess is good for me. To do the last subject justice, I have broken it into 2 episodes...

How do I make an Investment Strategy?

Welcome to Finance and Fury, today’s episode is a flow on from last Monday’s Investment philosophy episode and narrow down into an Investment Strategy. To invest properly, your investment beliefs need to expand into a strategy, an implementation plan. So Today: Expand...

Pin It on Pinterest

Share This