Permanent Distortion: How the Financial Markets Abandoned the Real Economy Forever
Nomi Prins
Public Affairs (October 2022)

Who are the “winners” and “losers” within today’s financial and monetary system?

Nomi Prins is convinced that today’s financial system “is as unhinged from the realities of classic capitalism as it is from the economy.” This epic divide between finance and the real economy is what she has defined as a [begin itaics] permanent distortion [end itaics].

According to Prins, “The saga of Permanent Distortion follows the money. More than that, it exposes why the rise of populism, social unrest, regional proxy wars, and technology-driven financial alternatives driven by economic fragility will increase. Without a dramatic course correction, each new twenty-first-century crisis will build upon the last, creating an ever-greater pile of debt, asset bubbles, and central bank aid. the disconnect between the markets and the real economy will widen. This will spark a massive alteration in the global power paradigm. Most people will continue seeking out fintech, decentralization, and other alternatives to escape a broken financial system. This will amplify financial, political, and socioeconomic pandemonium — and give rise to a new definition of money itself.

Welcome to permanent distortion….” (Page 5)

In 1937, then President Franklin Delano Roosevelt shared these observations when discussing the nation’s struggle to recover from the Great Depression: “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have so little.” I thought of those remarks as I worked my way through Prins’s narrative and especially when absorbing and digesting the material in Chapter 7, “The Three Is: Infrastructure, Inflation, and Inequality.”

Here is a selection of brief excerpts from that pivotal chapter that suggest the thrust and flavor of Prins’s thinking:

o “What American history [i.e. U.S. history] has shown, from the time of President Lincoln’s authorization of the transcontinental railway in the 1870s to the establishment of President Eisenhower’s interstate highway system in the 1950s, in that in times of upheaval, certain types of infrastructure can pay for themselves and remain largely hedged against inflation and even recession-proof.”  (Page168)

o The COVID virus “did not care about borders or cultural differences. Even with lockdowns, breakthrough cases and transmissions across countries were unavoidable and inevitable. The truth was that the most vulnerable emerging economies did not have the capabilities to develop or pay for vaccines, let alone implement sweeping vaccination programs…Instead of the world coordinating efforts among governments and leaders, negligent and selfish nationalism took precedence. Rather than developing a global plan to prioritize the manufacture of the greatest number of doses and distribute them around the world as fast as possible, leaders turned inward.” (175-176)

o In response to the Fed’s pivot to pivot to raising rates in January 2022, market volatility spiked up “in a panic-like series of intraday movements reminiscent of those in March 2020…The Fed was caught between another rock and hard place of its own making. Again, the Fed had articulated no exit plan at the onset of the pandemic. So when it signaled a series of rate hikes, markets reacted with stomach-crunching choppiness. Trying to serve two masters, the market and the economy had again shown itself to be an approach that would never self-correct without pain for both, which become increasingly apparent as 2022 unfolded.” (185)

o Then in November, two dozen business groups (including the U.S.Chamber of Commerce and the Business Roundtable) sent a letter to officials in the Biden administration just prior to meetings with President Xi Jinping, urging that the Biden administration remove tariffs on China to help temper inflation.  “As inflation and inequality prevailed, and the economy stumbled along waiting for the positive impact of physical and social infrastructure developments to take firmer shape, most stock markets closed near record highs for 2021. Truly something had to give.” (188)

As is also true of countless other seminal works of non-fiction, this book is research-driven as indicated by the NOTES section (Pages 247-317) and by Prins’s attributions to her secondary and tertiary resources. I also want to cite passages of greatest interest and value to me:

o Financial markets: permanent distortion (Pages 1-2, 97-98, and 231-241)
o Concerns about the monetary system (2-5, 11-!6, and 22-45)
o Get-rich-quick schemes (9-16 and 20-24)
o Central banks and monetary policy (11-12, 25-30, 40-60, 77-78, 98-99, 129-133, and 142-143)
o (11-12, 28-35, 40-60, and 176-189)

o COVID 19: Impact (15-19, 119-166, 170-186, and 202-203)
o Flow of money (!7-18, 25-28, 42-60, 69-80, and 98-114)
o Bailouts (21-22, 35-36, 77-78, and 212-213)
o Main Street (21-23, 138-144, 149-155, 185-186, and 195-198)
o Central banks: easy money (22-23, 40-60, 120-123, 133-134, 184-185, 204-205, and 220-221)

o Global debt (23-24, 35-37, 114-121, and 233-234)
o Financial markets: social unrest (33-37, 44-48, and 55-57)
o Inequality gap (47-50, 58-59, 71-72, 82-85, 92-93, 114-115, 141-143, 148-149, 161-162, 173-174, and 185-187)
o Wealth gap (49-50, 58-59, 71-72, 82-85, 92-93, 161-162, and 173-174)
o Bubbles (64-65, 142-!43, and 213-219)

o Power plays and popularism (69-94)
o Donald J. Trump (80-82, 84-94, 102-106, 124-125, 132-134, 157-159, and 164-167)
o China: Pandemic (119-142 and 156-158)
o Response to COVID 19 (119-148, 150-160, 163-166, and 173-176)
o Jerome Powell (123-125, 128-129, 131-133, 135-146, 154-155, 166-167, 181-184, and 216-217)

I am among those who believe that change is the only constant in human life. That seems to be true whether or not you believe in a diety that is an all-knowing and all-powerful Creator who is everywhere. And It is also true whether or not you believe in natural selection. As Prins clearly indicates, “The epic divide between finance and the real economy” is what she has defined as a [begin itaics] permanent distortion [end itaics]. “This is not a phrase chosen lightly. There’s no going back from here. There’s a seismic shift between, on the one hand, economic growth, wages, and a decent standard of living and, on the other, market-driven wealth accumulation that during a devastating global pandemic munted nearly five hundred new billionaires in 2920 alone — the equivalent of one born every seventeen hours. And that rift is permanent.”

Nomi Prins may be right. If so, this book is a head’s up. If not, it may yet be possible to resolve the rift (with creative destruction? blind luck? divine intervention?) and re-establish an appropriate balance between finance and the real economy.

Author’s final observation: “One thing is certain: the era of permanent distortion is just beginning. What this means for the global economy, markets, and humanity is that this will be the biggest transformation the world has ever seen.”

Let us all hope that this transformation is for the better….