Financial Times Warns Value of Real United States Assets Is Shrinking as Financialization Grows

The column argues that paper claims are expanding faster than the tangible assets and output that back them.

A Financial Times column argues that the value of real assets in the United States is shrinking even as financialization rises, describing an economy in which paper claims grow faster than the physical capital and production behind them.

The observation matters more on a day when a supply shock is pushing up the price of a tangible commodity, oil, at the same time that equity valuations built on future earnings are falling. The gap between the price of financial claims and the value of the real things they represent is exactly what widens when credit expansion runs ahead of productive investment.

From a sound-money perspective, a long stretch of low interest rates and abundant credit encourages capital to flow into financial engineering and asset prices rather than into new productive capacity. The result is a larger volume of claims supported by a slower-growing base of real output, which becomes visible when a shock forces investors to reprice both at once.

What this means

When financial claims grow faster than the real assets and output behind them, the gap is eventually closed either by asset prices falling or by inflation raising the nominal value of real things. Holders of long-duration financial assets, whose value depends on distant future earnings, are the most exposed to the first path, while holders of tangible assets and commodities benefit from the second. An oil-driven inflation scare arriving alongside a technology-stock selloff is a live example of both pressures appearing together.

What to watch

Whether capital rotates from long-duration technology shares toward commodities and tangible assets, which would show investors acting on the real-versus-paper gap.
The direction of real interest rates, because a sustained rise raises the cost of the credit that financialization depends on and forces a repricing of paper claims.

Financial Times Warns Value of Real United States Assets Is Shrinking as Financialization Grows

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