Saturday, July 8, 2023

"Senile Economics: Bubble Ontology and the Pull of Gravity"

 From The Philosophical Salon, February 6:

What are the drivers of senile capitalism? I will list five of them in no particular order, and then proceed to discuss their interconnections:

  1. Debt. The only road into the capitalist future continues to be signposted by liquidity creation programmes. Creating cash “out of nothing”, and setting it in motion as credit, is the elementary monetary strategy that keeps our societies from staring into the abyss – like the cartoon character who, having run off the edge of a cliff, floats in mid-air before acknowledging gravity. However, the pull of gravity is now irresistible, and the descent has begun with a violent bout of currency devaluation.
  2. Bubbles. Financial bubbles, inflated by cheap credit feeding a delusional mechanism of perpetual motion, are the only meaningful measure of wealth-production left. Nothing but keeping the bubbles from popping matters to the minions of the “beautiful machine”. While the financialised economy balloons away from its social bond, human existence turns into collateral for the speculative algorithm.
  3. Controlled demolition. Wage dumping and downward competition for fewer and fewer jobs is the necessary other side of the bubble paradigm. For the speculative markets to persist, the “work society” must be gradually downsized, since today’s artificially inflated financial assets and real demand are mutually exclusive. Simply put: Main Street is a liability for Wall Street, which is why consumer capitalism is now morphing into the management of collective immiseration.
  4. Emergencies. Our existential condition during the terminal phase of bubble-to-bubble capitalism is an intrinsically terroristic meta-emergency ideology, a permacrisis that must accompany us from cradle to grave. In this respect, the pseudo-pandemic of 2020 was only the icebreaker. Let us not delude ourselves: a world that is set on defending so fanatically its own implosion has many more shockers in store for us.
  5. Manipulation. Media propaganda in the age of digital hyper-connectivity comes naturally, so it is only natural that senile capitalism, sensing its collapse, makes the most of it. A stubborn confluence of blind stupidity and cynical calculation is at work here. As George Orwell predicted well before the internet, it comes down to telling lies while believing them: ‘The process [of mass-media deception] has to be conscious, or it would not be carried out with sufficient precision, but it also has to be unconscious, or it would bring with it a feeling of falsity and hence of guilt.’[i] Jean Baudrillard called the result of this process ‘hyper-reality’.

Capital’s perpetual-motion machine 

Having run out of monetary tricks, the financial elites have painted themselves into a corner. The debt-based speculative system they have pumped for decades through money printing and artificial suppression of interest rates can no longer be sustained without significant “collateral damage”. Bourgeois economic theory’s illusion that money can move autonomously, as if through a perpetual motion machine, is finally being exposed. The current inflationary spike is the first obvious symptom of a cancerous disease rapidly spreading through the social body, forcing a large share of the population – including the increasingly insolvent middle classes – to choose between putting food on the table and paying the bills. By now it should be sufficiently clear that any money-creation programme – which are desperately needed to prop up the financial sector – will cause further erosion of purchasing power, therefore requiring new creative methods to control the impoverished masses. The alternative to this scenario is for Central Banks to keep on raising rates until the market bubbles pop – which would get us straight to the hard-landing scenario.

The illusion of financial perpetual motion works as follows: the expansion of credit pulls money into risk assets whose valuation grows as demand increases; soaring financial assets then serve as collateral for more borrowing, setting in motion a feedback loop where credit feeds asset valuation feeding collateral feeding credit. Under the illusion of eternal liquidity expansion, leveraging capital to buy assets to use as collateral for more credit is all that matters. And as long as the self-fulfilling loop holds, debt-service obligations can be rolled over. But if interest rates rise and collateral drops in value, suddenly the borrower begins to sweat and starts selling assets, which soon turns into herd behaviour. With the deterioration of collateral, assets are at risk of dropping below the outstanding debt, which causes liquidity to dry up and, eventually, bubbles to pop. This is the stage we are approaching, where the fake wealth-creation loop reverts into a death spiral: asset valuations fall, collateral shrinks, credit collapses. The paradox of our time is that the speculative money inflating the bubbles has no real value substance; but if the bubbles burst, all hell breaks loose....