Writers and film makers talk about the need for a suspension of disbelief. That is, we all know that a man cannot fly, so how could we sit and enjoy a Superman film, whose central thesis is about a man who can fly? We can only do so by suspending disbelief. Having watched the film, we can go back to our belief that men cannot fly. Watching the events unfolding around Greece, and the comments of various bourgeois pundits and politicians, as well as the response to events by financial markets, it seems once again that in order to follow this story we again have to suspend disbelief.
The various bourgeois pundits are asking us to believe in things that simply, on any rational basis, are not possible. Some of the things they are asking us to believe are simply a repetition of the lies being put out by conservative politicians, but even where that is not the case, they want us to believe a scenario of how things could be resolved, which is simply unbelievable – not just difficult to believe, but logically, practically and physically impossible. What is more that is increasingly not the case just with Greece, but with what we are being asked to believe about the global financial system as a whole. For example, its not just Greece that is about to default on its debt. Yesterday, Puerto Rico announced that it simply could not repay its debt on its Municipal Bonds. Half of all US Municipal Bond Funds have Puerto Rican bonds in their portfolio.
Puerto Rico is not the only one. Detroit has also basically gone bust, Chicago is heading in the same direction, and large numbers of other cities, across the US, are in a similar position. Last week, I pointed out that the Chinese stock market is in a huge bubble, having risen by 128%, in the last year alone. I suggested that in the face of the institutions not reaching a deal with Greece, Asian markets were likely to crash when they opened on Monday. The Chinese Stock Market crashed by 7.5%, before later recovering, and closing down 3.5%, despite intervention by the Peoples Bank of China, which cut official interest rates further, slashed banks' reserve requirements, and made credit even easier.
This reflects a situation I set out more than five years ago, of a series of bifurcations in the global economy and financial system. We have a number of economies which have been acting rather like Britain did in the 19th Century, China being the most notable, in that they have been pumping out vast quantities of commodities into the global market. But, that has not been matched by an equal value of commodities moving in the other direction, at least not from a range of the economies importing those commodities, such as the US and UK. Other economies have been sending large quantities of commodities to China, in the form of the raw materials, energy and so on it has required to keep its industrial engine going. The consequence is that many of these latter economies, as well as economies like China, have been building up large surpluses. Those surpluses have been matched by large deficits in economies like the US and UK.
At the same time, those large companies, particularly in the high value areas of production, such as various forms of new technology, have themselves built up vast reserves of cash, as their rate and mass of profit has soared in the last three decades. But, workers and small capitalists have themselves built up increasing amounts of debt. In fact, in both the US and UK, one form of debt that did not even exist 30 years ago, on any kind of significant level, student debt, has taken on significant proportions. The average UK student now goes into the world with a debt of around £80,000! In the US, student debt stands at over $1 trillion, and is one of the only forms of debt that you cannot wipe away by declaring bankruptcy.
In the US, the 2008 housing crisis that acted as a spark for the financial meltdown was founded upon huge amounts of mortgage debt built up to preposterous levels, for the simple reason that house prices were continually inflated, and the reason the prices could be continually inflated was because borrowers were allowed, and encouraged, to take on ever increasing levels of unsustainable debt, to pay for houses at increasingly unsustainable prices. The same thing happened in the UK, but here the resolution of that contradiction is yet to play out, in its inevitable manner, via a violent crash in property prices, as it did in the US, Ireland, Spain and so on.
But, this is another illustration of the suspension of disbelief. In 2000, the NASDAQ stock index in the US, hit 5000. The price of technology shares had been rising often by high double digit percentages, every year from the mid 90's. The Financial Times wrote that it was a bubble, others said it was a bubble, but other financial pundits, particularly those representing the equity funds, came out to say, no this time it was different. By March 2000, the NASDAQ crashed. It fell by 75%! Its only just, 15 years later, got back above 5,000 and many believe that its once again in a bubble.
When I bought my first house in 1977, I paid £5,000. Today, the average house price is said to be £200,000 plus. That is a 40 fold increase in less than 40 years. But, wages and other living standards have not risen 40 fold during that period. Its what led even one Tory Minister to compare house prices with the price of a chicken. If the price of chicken had risen in the same proportion as house prices, he said, then a standard chicken today would cost you £47. These house prices, like stock market prices are quite obviously not unsustainable, any more than was the NASDAQ at 5000 in the year 2000.
The Dow Jones Index rose 1300% between 1980 and 2000, but its economy grew by only a small fraction of that amount. The Dow Jones today is 1700% higher than in 1980, and again that is many times the actual increase in its economy during that period. You have to suspend disbelief to allow yourself to accept that these astronomical prices can continue, rather than running for cover, in the sure and certain knowledge that their must be an almighty crash when appearance comes into line with reality.
If you allow yourself to believe that a man can fly, and on that basis jump off a 100 floor building, you might be able to sustain that suspension of disbelief for a while, as you appear to fly. But, eventually the reality of that flight catches up with you. Falling is not flying. And that is a good parallel with the build up of debt to sustain high house prices, and stock prices. What appears to be rapidly growing wealth, as these asset prices rise, is in reality merely growing debt.
Another example, is given by the statements of various financial pundits. At almost every opportunity in the last few weeks, they have lined up to announce that for this or that reason the Federal Reserve will not raise official interest rates until next year. Why? Because they know that the inflated level of stock and property markets is based upon these low official interest rates, and the oceans of liquidity that the banking and shadow banking system has been pumping into financial markets. And so, these prophets of the free market find themselves in the position of having to argue that central planners can dictate the price of loanable money-capital! Why because, as soon as they stop their suspension of disbelief, as soon as they stop watching the movie, and return to the real world, they have to recognise that the astronomically high levels of shares, bonds and property are not sustainable. They look down, and see there is nothing below holding them up, and so they must fall to earth.
That is not possible for such pundits, because their whole existence depends on the movie continuing, on the continuance of the suspension of disbelief. But, they are supported in that, because all of those people who have seen their fictitious wealth in the form of their shares, and property prices rise, have every reason to continue to suspend disbelief too. Why wouldn't they want to see the movie continue in which they see their apparent wealth rise year on year, without any effort or hard work from themselves? It is the movie that newspapers like the Daily Express, whose readership is made up of such people, is happy to contribute to.
And of course, the reality behind the situation in Greece is not really any different. Just like the people who were encouraged to buy houses at ridiculously high prices, or who have been persuaded to take on increasingly ridiculous levels of student debt, which many will never be able to repay, let alone recover in higher earnings, during their lifetime, so Greece, and other peripheral Eurozone economies were encouraged to take on debt, to finance their own unsustainable levels of consumption. Of course, in the case of these economies, it is not the ordinary citizens who undertook this unsustainable consumption, in large part, other than those who also thought they could get rich quick by investing in property, which inevitably crashed, it was the rich who were the ones borrowing to buy Mercedes imported from Germany, or who were making millions from shady construction schemes, often tied to corrupt politicians, an so on.
And once again, in listening to the comments of conservative politicians and pundits it is again necessary to suspend disbelief to not simply fall around laughing, or tear your hair out in despair. Greece has to suffer this austerity, because they over borrowed and overspent in the past, they say, rather like if you drink too much, you shouldn't complain about the hangover that follows. But, the trouble here is that the people who suffer not just a hangover, but the lobotomy, are not the people who overbought or over borrowed. The rich Greeks who did that, have long since taken their ill-gotten gains out of the country, along with the corrupt politicians who for decades created such a clientelist state. It is the ordinary Greek worker and peasant, who had no say in any of those decisions, and was no part in robbing the country blind, who is being asked to make good the cash in the coffers that the rich robbed out of it.
A similar thing was seen in Ireland, where property prices were again driven sky high before collapsing by 60%, and where on the back of it, the banks over lent, and lent to finance construction schemes that collapsed. It was not the banks that suffered the consequence of that. They got the Irish capitalist state to bail them out, just as the capitalist state in many other countries, including Greece, bailed out the banks that had caused this catastrophe. And, the state then asked the ordinary citizen who had been no part of this scam, to pick up the tab. If the workers in Ireland, Portugal, Spain, Italy and other countries are themselves able to step outside the movie theatre and end the suspension of disbelief, they would this week be on the streets, like the workers in Greece, demanding that an end be put to any further bailout for the banks, and thereby for the rich money lenders who for decades have gained from lending out money recklessly, but want to take none of the consequences when they fall due.
Because, what is the truth about this debt, and these banks and other financial institutions. The reality is that if all of the debt were wiped away tomorrow, it would make not one jot of difference to the ability of any company to continue to churn out whatever it produces. It would have no detrimental effect on real wealth whatsoever. What is it that a bank produces? Nothing other than debt! Nothing other than a claim to a share of future revenues, without contributing anything to the production of those future revenues. If all of the debt were simply cancelled, if all share values effectively fell to zero, if property values fell to near zero, it would have nothing but a massively beneficial effect, for the vast majority of people.
The only people who would suffer, as Marx points out, are the owners of that fictitious wealth. But, the destruction of the fictitious wealth of an infinitesimally small number of money lending capitalists is nothing compared to the beneficial effect it would have on promoting real wealth creation. And, in fact, Greece is again an example of that.
Marx talks about bankers being prepared to destroy millions of pounds of real wealth, in the form of productive-capital, just to defend the fictitious value of bits of paper. In other words, they were prepared to send the real economy into a recession in order to defend then the value of the pound, and the various debts that existed. That is exactly what we see again today. In Greece, the movie we are watching has billions of Euros being poured into a bankrupt Greek economy. But, of course, the reality is that none of this money actually even touches the sides of the Greek economy. Rather like the payment of Housing Benefit to poor tenants, which actually just goes straight to grasping private landlords, so nearly all of the money coming into Greece, from the IMF and ECB, goes straight out again to pay the interest, and repay the capital to those who recklessly lent to Greece, over the last 20 years. In other words, once again the reality is that the ordinary Greek citizen is asked to suffer increased austerity, whilst the well heeled money lenders, get bailed out with billions of Euros fed through Greece, and straight back out to those lenders! The real losers if the support for Greece stops will be those lenders who will no longer keep getting supported by this drip feed from the taxpayers of Europe.
During the last five years, real productive-capital, and the potential for creating profits in Greece has been decimated. The economy has shrunk by 25%, unemployment has soared, and instead of the proportion of debt to GDP falling, it has risen from 120% to 180%.
But, perhaps one of the greatest acts of suspension of disbelief has to be to swallow the line being pushed by the conservative politicians in Greece, and across Europe. Spokespeople from New Democracy in Greece are so brazen as to be unbelievable. They seem to have learned from George Osborne and the Tories that if you are going to lie about your opponents, make it a very big lie. It is New Democracy that was the government responsible for taking on much of this unsustainable debt, and for going along with the fiddling of the figures so as to get Greece into the Euro. Of course, they were not alone, PASOK was just as guilty, and both paid the price electorally for having done so. Syriza is only the government, today, because of the economic and financial chaos that New Democracy and PASOK created over decades.
Yet, having come to office only five months ago, it is Syriza that the conservative politicians want to blame for the current situation. That is rather like the way the Tories, in Britain, for 18 years, under Thatcher and Major, not only failed to repair the roof whilst the sun was shining, but actively stripped the roof, and oversaw the destruction of the fabric of the building, as they allowed roads, hospitals and schools to fall into disrepair. At the same time, they too drove down wages, and encouraged workers to consume by taking on debt, which created the conditions for the financial crisis of 2008.
It was Labour that began to repair that situation after 1997. Yet, Osborne and Cameron were able to not only blame Labour for the financial crisis, but also to claim that Labour had overspent! You have to have not been paying attention to what was actually going on, or else to have completely suspended disbelief to swallow that story.
And that brings me to the last example of where there is a suspension of disbelief going on. It is the idea that Syriza could in some way accept the offer that was being put to them. Over the last few weeks, conservative politicians in Greece and elsewhere have been gloating, as Syriza made concession after concession to the institutions. “You see,” they chuckled, “Tsipras has had to succumb to reality and climb down, for all his rhetoric.” They anticipated that at some point Tsipras would split Syriza and form the coalition with the centre right To Potami that they had wanted to force him into after the election at the beginning of the year.
Now, having been telling us that Tsipras was making concession after concession, these same conservative politicians now tell us that Tsipras and Syriza were making no concessions at all, that they were negotiating in bad faith, and that it is they who are responsible for the collapse of talks! But, no one can believe this nonsense, today, because the world those politicians and the right-wing media lived in has gone. For weeks, social media has been reporting what was actually going on as far as those talks were concerned.
Paul Mason reported it here. But, other journalists, including those from papers like the FT, have been reporting over the last week or so, that it has been the institutions that have been playing games. First we were told that the proposals put forward from Syriza were a good basis for a deal, and then within hours, the institutions came back with masses of red lines through the document, being described by some as though they were marking Syriza's homework.
There has been no doubt for some time that the institutions were really after regime change. Some right-wing pundits seem to believe that some form of national government could be established in Greece, but, of course, it can't, or at least not one that will stand up when the first political wind blows against it. There is no part of Syriza that could be part of such a government, the centre right around New Democracy has effectively been destroyed, PASOK has more or less disappeared. The only way such a government could come about is if there were new elections, and the people voted for right-wing parties.
But, new elections would mean several weeks elapsing before any resolution. Moreover, as things stand the likelihood is that in any new elections, it would be Syriza that would be returned with an increased majority, probably no longer needing the Independent Greeks. On Sunday, Syriza effectively wins either way. If the people vote No, it will have a strengthened mandate, and the bluff of the institutions will have been called. If they vote Yes, Syriza will resign, and new elections will be held, or else someone else will be asked to form the government. But, as things stand, Syriza will then be able to adopt a position of extreme opposition, using its majority of seats in Parliament to simply vote down any austerity measures proposed by the next government.
The conservatives across Europe and their media are running around like headless chickens trying to present the vote on Sunday as a vote to stay in or leave the Eurozone. It isn't, it is a vote to accept or reject austerity, and instead to build a better Eurozone, built on the kind of principles of solidarity that the EU was supposed to foster. Several years ago, Mario Draghi said he would do everything required to defend the Euro, but at the first real test, he has failed to do so. The conservatives have tried from the beginning to present Syriza as anti-EU, because that fits their narrative. They cannot allow an alternative narrative that breaks the spell of the idea that the only solution to the massive debt, and inflation of asset prices that their policies have created, is austerity and the continued bail out of the money lending capitalists. A No vote on Sunday will be part of breaking that spell.
Greek workers should vote No on Sunday, and in the meantime workers across Europe should mobilise against the conservative forces trying to push Greece out of the Eurozone. Syriza should feel no responsibility to bail out the Greek capitalist banks. Let them go bust along with their debts to other banks and governments across Europe. Syriza should support the workers of those banks taking them over and turning them into a Greek worker owned co-operative bank, freed of its bad debts and non-performing loans. The government, as soon as the ECB cuts off support, should instruct the Greek central bank to take government paper in return for the deposit of electronic Euros into the governments account, so that it can continue paying wages and pensions and other bills.
The problem, as Marx sets out is not a lack of money. To the extent any economic problem exists it is a lack of capital. If people have funds in their accounts, they do not need Euro notes and coins to make payments. They can be made by electronic transfer, payment by debit or credit card, or even good old fashioned cheques! Provided people in Greece, continue to produce real value, and surplus value, there is no reason why what is an externally induced liquidity problem should be turned into a solvency crisis. The insolvency of Greek businesses, and families should not be induced simply in order to continue to hide the actual insolvency of the Greek and global banking system.