The Economic Situation (5/6)
This two-pronged approach had a clear goal. On the one hand, inflating asset prices via money printing, protects the paper wealth of the top 0.01%. With this top 0.01% equating their wealth and power with these asset prices, and with austerity limiting economic growth, it gives a clear incentive to use existing wealth and revenues to speculate in these assets, rather than to invest in real productive-capital. The further speculation, causes asset prices to rise further, which becomes a self-fulfilling prophecy. At the same time, austerity slows economic growth, which means that the demand for money-capital for productive investment is reduced. That means that the pressure on rising interest rates is reduced, and lower interest rates again means rising asset prices. A slower pace of economic growth also means the demand for labour-power grows more slowly, so that wages rise more slowly, so the pressure on profits is removed, so again, investment can be financed from profits rather than borrowing, causing interest rates to fall, and asset prices to rise.
That has been the situation since 2008, and anyone who thinks that the aim of economic policy after 2008 has been to stimulate economies simply does not understand that the dominant sections of capital are primarily concerned with their own wealth and power, not in the state of the economy. A rapidly growing economy in 2007/8 is what caused the financial crash of 2008, and gave them a big shock, which they intend to do everything possible to avoid repeating, including measures to deliberately slow the growth of the global economy, and to divert money instead into speculation in asset prices.
Paul sees stagnation, and assumes that this is the consequence of some underlying economic crisis, whereas it is, in reality, a deliberate consequence of economic policy to try to hold back economic growth, so as to hold interest rates down, and keep asset prices inflated. But, the reality is that, after 2008, despite this two-pronged approach, of QE to buy up assets, and inflate their prices, alongside fiscal austerity, to hold back economic growth, and so restrain interest rates, and so inflate asset prices, global economic growth did continue. That it did is testament to the strength of the underlying long-wave uptrend. To coin a phrase, QE and austerity has “flattened the curve” of economic growth, but, in doing so, it has only lengthened its duration. It continues to be the case that millions of small capitalists, who continue to derive their revenue from profits, have an incentive to invest in real capital accumulation to that end, rather than speculate in financial assets. And, when the revenues on those assets represent tiny yields, that is all the more the case. A 1% return on £1 billion of assets is fine. It brings you £10 million a year. A 1% return on £1 million, not so much. It brings you only £10,000, meaning you would also have to become a wage labourer, to obtain the income required to live! Similarly, in large parts of the globe, the failure of developed economies to invest in real capital accumulation represents an opportunity for them to do so, and, thereby to seize markets and market share.
In 2018, the consequence of that became apparent. Global economic growth again began to increase. Interest rates began to rise, and the Federal Reserve itself was led to end its policy of QE, and start to sell some of the assets on its balance sheet. At the start of 2018, the Dow stood at over 26,616, and as it became clear that the Fed was withdrawing stimulus, it started to slide. Some of that was pulled back in following months, but as global growth continued, and the Fed continued to withdraw its stimulus, stock prices slid further, with the Dow ending at 21, 792. The US stock market dropped by 20%, with consequent drops in other global markets. And, it was in that context that Trump then began his global trade war, which led to a sharp reduction in global trade, and economic growth. In Europe that was exacerbated by the effects of Brexit, again a political cause of crisis rather than an economic cause of crisis. It led to Trump demanding that the Fed begin buying bonds again, and reducing its official interest rates, which it did, and which, once more, reversed the falls in asset prices. The slow pace of global economic activity is not at all the result of underlying economic weakness, but is the consequence of deliberate economic policy to restrain it, so as to hold down interest rates and keep asset prices inflated. And, indeed that is the immediate consequence of the government imposed lockdowns too.
No comments:
Post a Comment