Debt and Destruction
The dichotomy in Paul's narrative, mentioned earlier, is manifest again, when he says,
“The most pressing issue, if states are to help drive the transition to a new economic system, is debt. In today's world, developed countries are paralysed by the size of their debts. These are, as we saw in chapter 9, projected to become stratospheric as a result of ageing populations. Over time, there is a danger that austerity plus stagnation will shrink the size of the economies from which the debts have to be repaid.” (p 274)
But, how on Earth is that consistent with the underlying assumption of abundance and zero marginal costs, as a result of the role of info-capitalism? It represents money illusion. For the reasons I have set out earlier, and elsewhere, the huge mountains of debt – both private and public – are the other side of the huge asset price bubbles. The default of the former will simply be the other side of the bursting of the latter, both thereby cancelling each other out. As Marx says, such events simply represent the transfer of wealth from one set of hands to those of another. The unsustainable nature of those bubbles was illustrated in 2008, as soon as interest rates began to rise. As the global economy is once more growing, at an increasing pace, despite the austerity, and attempt to stimulate speculation, the demand for money-capital is rising, and interest rates are, therefore, rising. They are rising, today, from much lower absolute levels than they were at in 2008, and so their proportional effect will be that much greater.
A much bigger, much more violent financial crisis than 2008 is, therefore, imminent, as these interest rates rise. It will not be a matter of individual states, like Greece, defaulting on their debt, as happened in the 2010 Eurozone Debt Crisis, but of all these various debt instruments – shares, bonds, CFO's, MBS's and so on – all becoming near worthless, just as these near worthless bits of paper were turned into massively inflated repositories of social wealth over the last thirty years, via speculation. At least with tulips, the tulip bulbs had some value, even after the tulipmania had ended. In the same way that the NASDAQ went from nothing to 5000, in the few years before 2000, and then crashed by 75%, or Bitcoin went from nothing to $20,000, overnight, and then crashed to $5,000, on its way to zero, so the prices of all these bits of paper is headed to near zero, relative to their current prices.
So, it will not be necessary for states to write off their debt. What speculation and the market has inflated, so the same speculation and the market will destroy, as these bubbles burst explosively. Debtors will then simply demonstrate the old adage in such conditions, that cash is king. States, and companies will buy back their bonds at these near zero prices. In the 1930's, legendary speculator, Sir John Templeton, used what money he had to buy shares in the 100 cheapest stocks, on the London Stock Exchange, as they had all fallen to a small fraction of their level before the Wall Street Crash. It provided him with the basis of his personal wealth, and for him to establish the Templeton investment management business. And, for ordinary individuals, as property prices crash by 70-90%, it will mean that all those millions previously excluded from owning their house, or moving up to a better one, they will be able to do so, whilst rents will tumble, and as land prices tumble, the cost of building new houses will be slashed too.
The consequence of this will not be de-globalisation, as Paul suggests, but will be a massive spur to real capital accumulation, as the money flows out of financial speculation and into the real economy. Indeed, we should be designing a strategy to take advantage of that financial collapse, now, rather as Templeton did, because, as Marx says, and as Templeton demonstrated, such financial crashes represent a transfer of wealth out of the hands of those who are caught holding on to those overpriced assets, when the crash comes, and into the hands of those holding cash, who are able to buy them up at near zero prices, after the crash.
Paul says,
“To be brutally clear, this would reduce the value of assets in pension funds, and thus the material wealth of the middle classes and the old; and by imposing capital controls you would be partially deglobalising finance” (p 275)
But, whilst the nominal value of those funds would fall, the yield on these assets, which produces the revenue, which is what is required to meet pensions would rise significantly. The monthly pension contributions of millions of workers would then also buy many times the quantity of shares and bonds they do currently, which, in itself, would constitute a huge transfer of wealth out of the hands of the top 0.01%, who currently own those shares and bonds, and into the hands of workers, who are thereby enabled to buy them at much cheaper prices.
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