The limits of debt

Since 2008 debts have been piling up faster than ever. Total world debt has been estimated at $247 trillion, which is more than three times the world’s product and up 11% from last year (1). Central and regional administrations, cities, towns and villages, big and small businesses, households and students have been borrowing as though there were no tomorrows. This is in line with financial and corporate profits, and has inflated the prices of real estate, stocks and bonds. The question being, how far can this borrowing spree go? It seems obvious that at some stage the boom will go bust. But even a slowdown has an effect on sales and profits, and that would be enough to deflate the bubbles and bring down the banking-credit construction.

Buy now and pay later means an increase in spending, followed by small reductions over a period of time. That is interest for debts repayable at term, and interest plus fractions of the loan in other cases. This works quite well when incomes are growing, as the slack in spending caused by the debt’s repayment is compensated by more income. However, when incomes are stagnant, as they have been for most employees in the developed world over the last two or three decades (2), then the slack in spending lasts as long as the debt’s repayment. This means that the boost in spending due to a new debt is cancelled by the slack in spending of previous borrowers. Supposing a debt of $100 at 8% interest is paid back in twelve $9 instalments. In this case, the reduced spending of eleven past borrowers who are paying back ($99), just about cancels the increased spending by a new borrower ($100). At some point the accumulated paying back of past debts and interest equals the value of new debts (3). That is when growth in spending stops.

Governments seldom pay back their debts, as they are systematically renewed. But they are obliged to pay interest. A government, whose debt equals its national GDP, must increase that debt by the same percentage of GDP as the percentage of interest it is paying, without spending a penny more. With world debt at three times world product, just paying interest represents three times the going rate (say 3%) as a percentage of world product (9%). For the past few years, rates of interest have been kept artificially low by central bank interventions on the market, in the US, the EU, Japan and China. This situation seems to be ending, as interest rates are rising again. That means that future debts will be more expensive, but it also means that existing debts will be devalued. Debt bought at 2% interest can only be sold at two thirds of its original value, if interest rises to 3%. When rates rise, the face value of a debt can only be obtained at its term. Pushing down interest rates encouraged borrowing and sustained demand for goods and services. Now that they are rising, demand will slow down, and debt holders will lose money, two sure paths to recession. So central banks will buy up more debt to keep rates low, and there will be more borrowing. Or maybe that cannot work a second time, in which case there is financial disruption ahead.

1. https://www.reuters.com/article/global-debt-iif/global-debt-load-at-a-record-247-trillion-in-q1-iif-idUSL1N1U51A2

2. If more people are employed, even with miserable wages, spending goes up, as do borrowing and profits.

3. In the case of treasury and corporate bonds, it is their renewal at term that requires a lot of new borrowing. These borrowing cycles could explain the periodic ups and downs of business cycles.

Oblivion lets history repeat itself

The slogan “above the parties”, the appeal to “men of all parties”, and the boast that they would “stand far removed from the strife of parties and represent only a national purpose” was equally characteristic of all imperialist groups, where it appeared as a natural consequence of their exclusive interest in foreign policy in which the nation was supposed to act as a whole in any event, independent of class and parties. p. 250

[…] because no definite goals or programs could be deduced from the sentiment of tribal belonging, […] made a virtue of this shortcoming by transforming parties into movements and by discovering that form of organisation which, in contrast to all others, would never need a goal or program but could change its policy from day to day without harm to its membership. […] For the only thing that counts in a movement is precisely that it keeps itself in constant movement. p. 260

[…] began to appeal to the same growing masses outside all class strata […] None of the old parties was prepared to receive these masses, nor did they gauge correctly the growing importance of their numbers and the growing political influence of their leaders. p. 262

[…] it would be wise not to pay too much attention to nationalist slogans which the movements occasionally adopt for purposes of hiding their true intentions, but rather consider […] that the rank and file is not disturbed in the least when it becomes obvious that their policy serves foreign-policy interests of another and even hostile power, and that denunciations of their leaders as fifth columnists, traitors to the country, etc., do not impress their members to any considerable degree. p. 266

The origins of totalitarianism, Harcourt, Ch. 8, III

Hannah Arendt wrote this in the 1940s (published 1950), and was describing “movements” that appeared at the turn of the 20^th century, and more notably after 1918. “These men began to tell the mob that each of its members could become such a lofty all-important walking embodiment of something ideal if he would only join the movement.” (p. 249). Movements were replacing parties that had represented class and sectorial interests. They rose to power across Europe to produce one-party regimes or totalitarian ideologies. They took over the state apparatus or destroyed it. Movements are back in vogue and taking centre stage. Donald Trump won the presidency thanks to a movement called Make America Great Again, while the Republican Party climbed awkwardly onto the band wagon. And French president Emanuel Macron was also brought to power by a movement that he had the presumption to call “En Marche”, which shares his initials, means “in motion” or simply “Forward!”, and refers to the refrain of the French national anthem (1). If these two mature republics succumb to the attraction of motion without direction, then the rest of Arendt’s description may apply, especially after another financial collapse.

1.

Aux armes, citoyens
Formez vos bataillons
Marchons, marchons!
Qu'un sang impur
Abreuve nos sillons!

In an artificial world

The passage from animal to human took a long time, and is still quite mysterious. The two basic elements seem to have been tools and language. This had to be accompanied by the upright position, which freed the hands and developed the glottis. Of course some animals use tools, and quite a few build homes above or below ground, and just about all life forms communicate among themselves, in one way or another. But human hands are particularly good at grasping lightly or strongly in a double coordinated action. And the human voice has such a wide range that it can name everything with a different sound. Archaeological finds seem to show that over two million years elapsed between not quite simian ancestors and modern humans, who can be traced back three hundred thousand years or more. During that vast lapse of time, the human species evolved towards a larger brain, smaller teeth, more agile hands and fleeter feet. This is peculiar. Other animals did not grow bigger brains with respect to their body mass, and their extremities merely adapted to movement in water, on land, in the air, in trees etc. This human peculiarity must be linked to the distinctive use of tools and language. Both demand large memory banks, and both develop reasoning powers. Creating, using and transmitting utensils and words encouraged brains to grow in size and capacity. And the upright position made this cerebral expansion possible. Hand held tools, especially weapons, meant standing on two legs, and things moved on from there.

Tools and language mediate the environment. The first act on it and shape it, the second describes it and transmits knowledge about it. The effect of this mediation transformed animals into humans. It seems there were several starting points, and quite a few unsuccessful branches. However, one of these lineages passed through countless generations, mingled with others and ended up as Homo sapiens, or anatomically modern humans (AMH). This lineage started out of Africa seventy to a hundred thousand years ago – finds in America suggest it was earlier - and migrated to the other four continents, apparently mixing with other compatible species (Neanderthal) and finally replacing them. Its mediation of the environment had developed considerably, with cave paintings, stone and ivory sculptures and delicately shaped flint blades. The languages spoken have left no trace, though they undoubtedly existed, as did numerous artifacts made from perishable wood, leather and plant fibres. And moving from drought ridden Africa to colder climates meant tanning hides and making clothes. As the environment was increasingly mediated, so humans became ever more separated from their animal ancestry.

Fast forward to the end of the last glacial period, to the beginnings of agriculture, the first urban concentrations and the earliest written records. By then humans had fantasised their origins as an extra-terrestrial creation. They had become so different, so special, that their existence could only be the result of a supernatural intervention. Fast forward a few more thousand years to the industrial revolution two centuries ago. By then humans had assimilated their exceptional status, and Europeans in particular seemed destined to rule the world and dominate nature. A manifest destiny based on technological tools and the language of science. The notion that humans were a species among countless others in an interdependent ecosystem was definitively swept aside. The planet could be harnessed and driven to produce an artificial brave new world. The abstraction of language would build castles in the sky, and the science of machines would push back nature to the periphery, to extinction. Tools and language had extracted humanity from its animal matrix and turned it into a universal predator. The sword and the pen have been the instruments that provided this dominion. They and their modern counterparts are the source of absolute power, of life and death, and of command and conviction. Humans have strayed far from their essential beings, and have been lured further still by private ambitions of wealth, fame and glory. They have gone too far to turn back, and now their artificial structure is beginning to fall apart.

Pension gamblers

Retirement pensions are funded in two different ways. Either they are paid by ongoing contributions, or contributions are accumulated as capital whose income will pay pensions after retirement. In the first case, the funding comes directly from contributions, and in the second, from rent, interest and dividends. One expresses solidarity between those who are active and those who are retired, the second shows faith in long term investments and fund managers. In both cases pensions are paid with labour’s added value. Income is redistributed, either directly, or as the result of past investments. Pensions are a consented share of domestic product, or they are part of the profits appropriated by capital.

Having pensions depend on rent, interest and dividends - or increasingly on capital gains, aka stock market speculation (1) - means everyone, active and retired, must support the system that produces these forms of income. Everyone is a capitalist, like it or not. It also means that pensioners present and future are the potential victims of fraud, bad financial management, inflation and market disruptions. Their funds can grow or shrink unpredictably, and the final outcome is always a gamble.

Whatever system is in place, pensions are part of the value produced. It can be one where contributions by the active members of society insure the upkeep of their elders (2). Or it can be a long term speculative accumulation of capital providing uncertain results. One relies on and materialises the social cohesion between generations, and validates the commonwealth. The other strengthens the isolation of each individual, left alone and responsible for investment decisions. That the second dominates is just a sign of the times.

1. https://www.truthdig.com/articles/wall-street-is-the-definition-of-a-ponzi-scheme-literally/

2. This also applies to those who are handicapped or out of work.

How ripe is Wall Street?

Many transactions can be settled with credit, with postponed payments. Some cannot, and the most obvious are those concerning taxation. Taxes demand cash, a requirement that is repeated every year at about the same dates. This means there is seasonal selling on the stock market, when taxpayers are preparing their quarterly contributions. One of these dates is mid-September, which adds on to fees for school and university, and to the backlog of summer vacations. Households are in need of cash and will realise some of their invested savings. September is selling season for stocks and, at the end of the month, government closes its fiscal year and discloses its balance sheet. A sizable deficit weighs down on an already depressed market, and October is when panic selling by over-leveraged investors sets in.

Stock market crashes are autumnal events that depend on long term circumstances such as profits to earnings ratios compared to historic averages, the general level of debt and the position in the ten year business cycle, and on the volatile ambient feeling of optimism or pessimism. It seemed probable last year, but the moderate dip only occurred at the end of January. That could be due to Asia’s different festive calendar and tax deadlines, and to its share of global GDP that is approaching America’s. Tremors can come from emerging markets, but Wall Street remains the giant hub of world finance. It is only when the New York Stock Exchange crumbles that everything comes crashing down. A year on and the fruit is even riper.

Gender segregation

In hunter-gatherer societies most of the hunting is done by men and most of the gathering by women. When the selection and planting of seeds and tubers began, it seems logical that it would have been a woman’s task, while men were off hunting and fishing. And it would follow that the ownership of gardens and fields was transmitted from mother to daughter, along with the knowhow. When the selection and breeding of animals began, it seems logical that it would have been a man’s task, while women continued gathering. And it would follow that the ownership of the herds was transmitted from father to son, along with the knowhow. The primitive division of labour developed into two separate and contradictory cultures. So when the herdsmen conquered the planters, matriarchal and patriarchal property and its transmission came into conflict. The French economist and historian Emile Mireaux saw a survival of this in the Homeric poems and the roles played by Helen and Penelope, who are queens with prince consort husbands. Mireaux also considered the Oedipus myth to be a cautionary tale, about how difficult it was for a son to inherit his father’s crown, when royalty was transmitted from mother to daughter. He had to kill his father and marry his mother. This could be assuaged by marrying his sister, which was practised for a while by Egyptian sovereigns. Matrilineal societies disappeared a long time ago, with a few last leg survivors such as the Trobrianders studied by Malinowski. If wealth was power and power was might, then men held it by right, not as a woman’s consort having to fight off contenders. And to insure their paternity they locked up their wives.

Male dominated societies can only exist when physical strength is all important. That is no longer the case, even on the battlefield. In fact the only activity where strength separates men from women is sport. And the ideological significance of sport helps to maintain the distinction in gender capabilities. Machines have cancelled the muscular differences between men and women, whereas sports segregate them completely. It seems unlikely that gender equality can progress further, as long as absolute sexual inequality is publicised on playing-fields around the world.