The Endogenous Financialization Trap: Why the Wealthiest Governments Can Print Money but Still Can’t Build a Better Society
Jo M. Sekimonyo
10/7/2026
If the problem were simply a shortage of money, this would be difficult to explain.
The deeper problem may be institutional. Public money does not enter an empty economy. It passes through systems of finance, ownership, pricing, administration, intermediation, and asset accumulation that shape what each additional dollar actually produces. A government may therefore possess immense fiscal capacity while remaining surprisingly weak at converting that capacity into better social and productive outcomes.
What Is the Endogenous Financialization Trap?
I call this the Endogenous Financialization Trap, or EFT. It is a self-reinforcing process in which financialized systems of provision progressively absorb sovereign fiscal capacity through pecuniary claims, intermediary rents, asset-based accumulation, and institutional reproduction. As more public resources flow through these structures, they can become larger, more entrenched, and more politically difficult to replace. The result is that additional government spending may produce progressively weaker gains in productive capacity, human capability, or social well-being.
In simpler terms, a government can become very good at mobilizing money while becoming much less effective at turning that money into better outcomes. The constraint is no longer simply financial scarcity. It is the institutional architecture through which public money must travel.
Pecuniary Absorption: Where the Money Goes
The key mechanism inside the EFT is what I call pecuniary absorption. Public money does not move directly from the government to the social outcome it is meant to produce. It passes through institutions that can claim part of that expenditure before it becomes a hospital bed, a home, a classroom, a transit system, or productive investment.
Pecuniary absorption occurs when fiscal resources are increasingly captured through financial claims, intermediary fees, administrative layers, rents, asset-price inflation, financing costs, and institutional structures whose growth is not matched by comparable gains in productive capacity or human well-being.
This does not mean every intermediary, financial return, or administrative cost is unnecessary. The issue is proportionality. If the institutional cost of delivering a service rises faster than the service itself improves, more public spending may simply reproduce the existing architecture.
That is how a society can spend more and still feel as though it is receiving less. The fiscal problem is no longer only how much money is available, but how much of that money survives the institutional journey into real developmental outcomes.
How the Trap Reinforces Itself
The EFT becomes a trap because the process is self-reinforcing:
Financialization → Pecuniary Absorption → Weaker Developmental Transmission → Greater Dependence on Financialized Provision → Further Financialization
As financialized institutions absorb a larger share of public spending, less of each additional dollar is converted into productive capacity or human well-being. Weak outcomes then create pressure for still more public spending, but that spending often flows through the same institutional channels. The system therefore expands without necessarily becoming more effective.
Over time, dependence deepens. Governments, households, and service providers become increasingly reliant on the very arrangements that weaken developmental transmission. Reform becomes harder because those institutions are no longer peripheral to the system. They have become the system through which essential services are delivered.
The United States: When More Spending Does Not Mean Better Outcomes
The United States offers one of the clearest illustrations of the Endogenous Financialization Trap because it combines extraordinary monetary capacity with a health-care system that absorbs enormous public and private resources through highly complex institutional channels.
Government spending on health care does not move directly from the Treasury to patients. It passes through insurers, hospital systems, pharmaceutical companies, administrative networks, billing structures, contractors, financing arrangements, and increasingly financialized ownership models. Each layer can perform a legitimate function, but together they create multiple points at which public expenditure can be absorbed before it becomes an improvement in care.
The result is not that additional spending produces no benefit. It is that the relationship between spending and outcomes can weaken. More money may finance higher prices, greater administrative complexity, intermediary costs, debt obligations, or returns to asset owners without generating proportional improvements in access, capacity, or population health.
Under the EFT, this creates a difficult feedback problem. Poor outcomes generate political pressure for more spending, but the additional spending is routed through the same institutional architecture. The system becomes more expensive, more entrenched, and harder to reform.
The constraint, therefore, is not simply whether the United States can afford to spend more. It is whether additional fiscal capacity can escape pecuniary absorption and be converted into better health outcomes.
Two Different Financial Traps
The Endogenous Financialization Trap should not be confused with subordinate financialization, which is more common in peripheral economies. There, developmental constraints often arise from external debt, hard-currency dependence, currency hierarchy, volatile capital flows, import dependence, and balance-of-payments pressures. Governments may want to expand spending but face limits imposed by their position in the international monetary and financial system.
The EFT describes almost the opposite problem. A country may possess deep financial markets, substantial monetary sovereignty, and enormous fiscal capacity, yet still fail to convert that capacity efficiently into social and productive gains because domestic institutions absorb too much of the spending through financialized claims and intermediary structures.
One reflects constraint under external financial dependence; the other reflects dissipation within monetary and financial abundance.
Both can weaken development, but they operate through very different institutional mechanisms.
The Question Is Not Only Whether Government Can Spend
Monetary sovereignty can expand what a government is financially capable of doing. It does not guarantee that public spending will be converted into affordable housing, better health, stronger infrastructure, productive investment, or improved human well-being.
The Endogenous Financialization Trap identifies one reason why. When essential systems become deeply financialized, additional public money can strengthen the very institutional structures that weaken developmental transmission.
The central question is therefore not simply, Can the government afford it? Nor is it only, How much should government spend?
A more important question may be:
What will the existing institutional architecture do with the money once it arrives?
That is the problem the Endogenous Financialization Trap is designed to explain.
Jo M. Sekimonyo
Co-author of Monetary Architecture and the Political Limits of Money Creation
Co-developer of the Endogenous Financialization Trap (EFT)
The framework discussed in this essay is developed further in the working paper: