The abstract volatility of global Finance Capitalism opens the door to Fascism's scapegoating...
Highlights: Economics as the Modern Religion: --The modThe abstract volatility of global Finance Capitalism opens the door to Fascism's scapegoating...
Highlights: Economics as the Modern Religion: --The modern world is built on abstraction, on “economics” (political economy, more accurately, since it is a constant struggle of power relations). How much do you really understand of the global commodity chain, financial speculation, central banking, asset and stock pricing, etc.? --A society of immense inequality and economic volatility built on abstraction is vulnerable to manipulation. Instead of investigating these abstractions, consider how much easier it is to scapegoat more-visible, vulnerable groups during a crisis. This is the appeal of fascism in the age of global capitalism, where entire nations of millions are swayed by the dictates of the global markets that they do not understand. Whether the scapegoat is Jewish bankers or immigrants or petty criminals or social deviants, the actual vested powers remain sheltered behind capitalism's abstract social domination.
Macroeconomics: Trade Imbalances, Private Banking and Crises: --Post-Great Depression/WWII capitalism is heavily influenced by John Maynard Keynes, who is central here. Before we start abstracting to get at the roots (like Marx's unfinished Capital project), it seems prudent to get a grasp of the big picture (even if starting on the surface level). Varoufakis has a fascinating lecture comparing Keynes and Marx: https://youtu.be/A3uNIgDmqwI --Varoufakis quoting Keynes:
“As soon as a storm rises,” bankers behave like a “fair-weather sailor” who “abandons the boats which might carry him to safety by his haste to push his neighbor off and himself in.”
--The core “economics” lesson of this book is the role of trade imbalances and private banks in causing financial crises on the global stage. Let’s walk through this:
Trade Imbalances: 1) Global capitalism has no Robinson Crusoe self-sufficiency; countries rely on one another as buyers/sellers in the global markets. 2) “Asymmetrical relations” are thus the norm; some countries/regions are net exporters while other are net importers. 3) Furthermore, one’s trade surplus is the other's trade deficit. The hubris of nationalism: despite all the rhetoric on competition between countries, if the importers’ demand falls, then the exporters will suffer too. 4) The instability of capitalism: money flows from the deficit to the surplus regions/countries (i.e. to buy their goods). For large trade imbalances (ex. Germany vs. rest of Europe), this will be problematic as deflation grows in the deficit countries (money spent) while inflation spreads in the surplus countries (money accumulated). 5) Thus, global capitalism’s trade imbalances require surplus recycling mechanisms to feed the deficit countries' demand and prevent a slip in one area spiraling into a systemic crisis.
Banking and Financial Crisis: 6) Private for-profit banks provide surplus recycling during the good times (hence, Keynes’ “fair-weather sailor”). The surplus countries' profits accumulates in their banks, which lend back to the deficit countries because they have higher interest rates (due to their disappearing money). 7) This promotes the deficit countries’ demand, creating a reciprocal import-export boom, which further boosts financial confidence to lend more… All the while, the trade imbalance and the deficit countries' debts grow. Since this is driven by for-profit banks (i.e. with no interest on the long-term social needs of local communities), this quickly becomes a speculative bubble. 8) And here is why this is only “fair-weather” surplus recycling, because when financial confidence flips to financial panic (from the over-lending bubble bursting), the surplus countries' banks will leave everyone else out to dry by refusing to lend to the deficit countries. The deficit countries must now pay the bad debts overhead (Financial sector) so demand crashes (Productive sector), thus debt deflation. Systemic crisis hits global capitalism (thus, the adaptations of central banking as lenders-of-last-resort).
Flexible currencies as shock absorber: 9) Now, one shock absorber is flexible values for domestic currencies (i.e. the autonomy to implement this): a) For deficit countries: the option of currency devaluation (a) cheapens the deficit countries' exports, making them more competitive thus raising revenue and (b) shrinks debts in local currency relative to other currencies. Example: Iceland’s recovery post-2008 (which also included jailing white-collar criminal bankers). b) For surplus countries: high demand for surplus increases the value of the surplus countries' currency, which eventually makes their exports pricier thus less competitive. This suggests why surplus German elites were willing to consider a monetary union with France. 10) This balancing act is attacked by myopic elites, i.e. surplus countries' elites (“unfair” competition), deficit countries' elites (domestic assets devalued), deficit countries' politicians/nationalists (seen as “national weakness”), etc., and weary labor, i.e. deficit countries’ labour (negotiation gains lost from devaluation). 11) Flexible currency values were stifled by the gold standard (led to Great Depression), reliant on U.S. surplus during Bretton Woods and then U.S. deficit post-Nixon Shock, and now stifled by the Euro in Europe.
Bretton Woods as US Surplus Recycling: 12) New Dealers (went through the Great Depression, influenced by Keynes) understood the need for surplus recycling, building it domestically in the form of Social Security + Federal deposit insurance + Medicare + food stamps + (most significantly) the U.S. Military Industrial Complex, where the State and corporations negotiated to have production spread throughout the many varying asymmetrical states and districts (in particular the deficit regions). 13) However, after WWII, U.S. was so dominant that the New Dealers refused Keynes’ conception of an international central bank/surplus recycling mechanism (“bancor”). U.S. wanted to control the recycling of its own immense surplus. 14) Thus, the Bretton Woods system they created was predicated on U.S. preserving its surplus. U.S. would recycle its surplus by providing aide to rebuild Europe, and in turn Europe would provide the demand to consume U.S. surplus. U.S. would use some of its surplus profits to maintain this system by defending others’ exchange rates against trade imbalance effects and currency speculators. 15) New Dealers understood the need for shock absorbers to prevent any slump of the U.S. dollar avalanching across the world. So, U.S. propped up puppets Japan and West Germany as strong regional currencies issued by central banks backed by heavy industries.
Global Minotaur as U.S. Deficit recycling others’ surpluses: 16) This lasted until the late 60’s, when U.S. lost its surplus due to military overspending (genocidal wars on Korea, and especially Vietnam; I'm citing Hudson's Super Imperialism: The Origin and Fundamentals of U.S. World Dominance instead of Varoufakis who seems to focus on growing international trade competition), where foreign central banks took incoming U.S. dollars and exchanged them for U.S. gold supply. U.S. realized it could maintain hegemony by controlling global surplus recycling, even if it was not their own surplus. So, the Nixon Shock ended Bretton Woods, and U.S. switched to what Varoufakis calls the “Global Minotaur”, becoming the global deficit that fed on others’ surpluses (Germany, Japan, later China). 17) How would U.S. profit? As long as the surplus recycling took place in Wall Street, U.S. Finance was well-compensated from handling others’ profits, a “tribute” paid to the Global Minotaur (along with dollar imperialism, i.e. the control of printing dollars while global trade depended on it, where others fund your deficits while holding onto depreciating U.S. Treasury bills, and you have military power to not pay up unlike Third World countries: https://youtu.be/paUgY6SGlgY). 18) Thus, Financialization was initially required. Wall Street neoliberals refer to this era as “The Great Moderation”, ending the post-WWII Bretton Woods “Financial Repression” (where New Dealers distrusted and restricted bankers after the Great Depression). 19) Of course, unleashing banking means unleashing bubbles, as U.S. Finance took the world’s surplus profits and built a derivatives doomsday machine, bursting in 2008.
The Euro crisis: 20) European elites took Bretton Woods’ U.S. surplus recycling for granted. After the Nixon Shock, various monetary unions were tried, eventually leading to the Euro. The key fallacy is French and German elites’ shenanigans leading to economic union without political unity, thus no space for democracy (as even liberal parliamentary democracy is bypassed) or political surplus recycling. 21) Europe’s economy was kept going by U.S.'s Global Minotaur surplus recycling until the bubble imploded in 2008. 22) Ponzi growth becomes Ponzi austerity: European elites’ bailout loans are not meant to reduce deficit countries' debts, which simply cannot be repaid (this is the cost of the import-export boom and banking frenzy, and additional austerity is the nail in the coffin). The bailout loans are actually a transfer of bad debts (held mostly by the surplus countries’ private banks) onto the public (esp. deficit countries' public). 23) And so, we have come full circle and return to the problem of global capitalism’s abstractions, and how during a crisis this is a breeding ground for fascism (as history has also shown). Without a class-conscious analysis of the systemic structures behind power (esp. political economy), liberal institutions feed the divisions of nationalism, xenophobia, bigotry, etc.
--Still searching for an accessible primer to Finance Capitalism, as these are dives: -The Bubble and Beyond -The Public Bank Solution: From Austerity to Prosperity...more
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