Sunday, July 2, 2023

"Gradually, Then Suddenly? Crisis Capitalism and Its Disavowals"

From The Philosophical Salon, May 29:

Perhaps the best way to grasp the meaning of our New Normal is to frame it as the irreversible paradigm shift towards “crisis capitalism”. The key macroeconomic implication is that today’s capitalism no longer needs crises to enhance its capacity for growth; rather, it needs them to hide its chronic impotence. What changes is therefore the epistemic function of “crisis.” While in the past it led to new economic cycle, a crisis today serves to facilitate the aggressive management of socioeconomic decay – for the boom-and-bust engine is flooded, and Schumpeter’s “creative destruction” leaves behind only rubble. However counterintuitive it may seem, the credit addiction of ultra-financialised capitalism needs the real economy to shrink, mostly by way of a continuous stream of calculated shocks – the job of today’s “emergency industry”. And precisely because of its inherent impotence, crisis capitalism is politically authoritarian.

It is revealing that today’s critical voices, whether conservative or progressive, share the same nostalgia for a world that is withering away: that liberal-democratic “work society” which capital itself is making obsolete. Even those radical thinkers who insist on seeing an emancipatory potential in the present condition are more often than not liberals in denial, since the emancipation they invoke relies on the very categories that got us where we are. In other words, they fatally underestimate the totalitarian appetite of crisis capitalism. This is understandable, since the limits of capitalism (as a totalising social formation that blindly pursues its own end) are also the limits of our imagination: being over-determined by capital, we struggle to see past its value system. However, perhaps it is time for us to question the actual sustainability of our existential comfort zone, for history tells us that, as a rule, humanity’s descent into barbarism is expedited by political disavowal – the same stubborn disavowal that today unifies conservatives, progressives, and much of the so-called radical left. What the political class fails to consider is that capitalism is perfectly capable of reproducing its categories – from wage labour to commodity production – within a totalitarian framework; just as it is perfectly capable of faking a liberal façade while gradually suspending the social contract.

Calculated crises and selective defaults

The main lesson of the last three and a half years is that the manipulation of financial markets translates directly as the manipulation of reality. “Systematically distorted markets” equals “systematically distorted reality”. The master discourse of our time is no longer the labour-based economy, but the finance-driven supervision of socioeconomic implosion, which the “pandemic” has inaugurated globally. The growing decoupling of a work society in freefall from the artificially propped-up financial stratosphere – where distortion across the spectrum of asset classes is the norm – suggests that a new capitalist era based not merely on surveillance but especially on manipulation and control has begun.

The aim of central bank monetary policy is no longer the stabilisation of prices, but the stabilisation of decline – so that the markets can continue to flourish. For example, the Federal Reserve’s rate-hike cycle started in March 2022 is tightening credit to the real world, which is only a cosmetic measure against inflation but crushes the economic resilience of ordinary people. The crisis of US regional banks is a particularly instructive case in point. From the perspective of financial capitalism, the banking wreckage started with the collapse of Silicon Valley Bank on March 10, 2023 is, in a perverse sort of way, existentially necessary, because a credit-doped economy that has no way of re-igniting a labour-intensive cycle of growth thrives on calculated crises and selective defaults, which must be ascribed to external rather than systemic factors. The debt-soaked system piling on risk needs a steady flow not only of liquidity (credit) but also scapegoats and alibis – from “pandemic emergency” to “regional bank failure”. Why?

Financial actors know that, as far as today’s markets are concerned, any red-button alarm is followed by the Fed leaping into action to push risk assets higher and galvanize the speculative sector. Everyone, from mega banks to investment funds and retail investors, knows that the “fair value” mechanism of financial markets is rigged – which is precisely why they continue to have faith in it! In this context, sacrificial lambs like SVB trigger artificial rallies based on buy-the-dips, short squeezes, corporate buybacks and other strategies that are now factored into the “silent reward” agreement insured by the Fed. At present, it seems everyone is front-running the Fed’s pivot to lower rates, which is expected by the end of the year.

It must be added that collapsing regional banks through rate hikes was (yet another) stroke of evil genius on the part of our financial aristocracy, being predicated on the knowledge that, at this stage, the mega banks like JP Morgan would not risk contagion, since they are still (but for how long?) buffered by sufficient reserves. As a matter of fact, these banks ended up consolidating their positions thanks to cheap mergers & acquisitions (e.g., First Republic Bank) as well as billions in deposits moving out of disgraced regional banks and into their coffers. Nevertheless, we should also bear in mind that the banking crisis inaugurated by SVB was a failure of the underlying collateral – US debt securities. Essentially, SVB collapsed because it held a high volume of traditionally safe long-term Treasuries (US government bonds) that suddenly lost their value. As interest rates went up, the price of these bonds fell, making the bank’s debt exposure untenable and causing the bank runs. The overarching point being that, while an opportunistic event, the banking crisis is at the same time a symptom of systemic breakdown.

Differently put, opportunism is a form of disavowal. By choosing a scapegoat in advance, the system kicks the can a little further down the road. But how long is the road itself? Arguably, the dead end is already in sight. It is crucial to keep in mind that, once the insubstantial financial scaffolding built on “dumb money” and layer after layer of derivative bets falls apart, society will break; the whole world as we know it will suddenly decompose. The current economic system is in a perpetual state of deficit, and as deficits expand, they require increasing amounts of inflationary cash. A debt-based system like ours can be compared to a black hole sucking cash like spaghetti. Most banks’ exposure to derivatives is already through the roof (Goldman Sachs alone is exposed to over $53 trillion in derivatives). Because in our inflated environment a liquidity freeze can happen at any time, the Fed (in lockstep with other major central banks) not only has to remain vigilant if it wants to keep confidence levels high, but must also find ways of pre-emptying potential collapse. How? For instance, by nudging the system towards selective defaults through which to justify rescue & consolidation packages. Risk is still the name of the game, though of a rather different variety.

Controlled demolition now means that even the increasingly fragile financial system is being dismantled piece by piece in preparation for the new monetary infrastructure, which is likely to be based on Central Bank Digital Currency. However, a substantial crisis will be required if the new system is to be implemented successfully. We will have to be traumatized so hard that we not only accept but even beg for our new digital chains....