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.
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