I will ask my Readers to study this Post carefully, then follow on with reading this article. I will warn you now that both are likely to bore you to death. You may get the impression that Japan is doing a better job than the rest of the World with their Working Age Population–which they are–and most of the rest of the World is destroying not only the economic viability of their Working Age Populations, but also destroying their job skills along the way. You will tell me that handles the first Post, but not the article; but I will then relentlessly insist that it also covers the second Piece. Shadow Banking–as used traditionally and gainfully today–searches hard to employ elements of the Working Age Population which would not be able to attain Work without imaginary finance. It simply is a Statement that a base level of Money systemically passed through a procedure will increase real Capital assets. It does not accomplish the real task of production profitability, which in the long-run remains mandatory to create the hard Capital assets ultimately needed to forestall the traditional economic Bust.
Statistical models may help to explain the dire situation. Production sectors reach capacity employment based upon the technological style of their production; technology universally utilized to reduce employment needs. Full capacity employment in a Production sector is considered reached when that sector could double functional output with no more than 10 hours of Overtime per Week for the Employed. Study of the Production sectors currently operating announce that almost all Production sectors are operating at capacity employment, with hardly more than one million laborers to be employed in the United States in real capital production. Shadow Banking simply creates a imaginary fund capable of financing Production commitments which are not really necessary for the current state of the economy; this simply to provide more Jobs supplying a Consumption Income of sufficient size to increase all Production sectors and their capacity employment. It is here where the entire Scenario falls on its face.
Consumption Income, even with vast expansion of Consumer Credit venues, does not expand as rapidly as Shadow Banking funds. Shadow Banking Production also acts in competition with hard asset production for the slowly expanding Consumer Income. All Production sectors–hard asset and Shadow Banking–suffer from an insufficiency of Consumption dollars received, Profits attained, and mortgage funding paid back to both Shadow and Real Banking. There is Wage Suppression by Businesses afflicted by lack of sufficient Sales, and slower growth of Consumption Income. Most economists will tell you that Shadow Banking is necessary, and that Quantitative Easing is a Must. The fact is that the first was the propellent of the last Downturn, and that the later will maintain the Downturn; simply by the protection of Shadow Banking. lgl