Where has all the money gone?

US dollars are in strong demand at the moment. Foreign and crypto currencies, real estate and bonds are being sold at lowering dollar prices. Even corporate shares are wavering a little below their recent peaks. Everyone is running after greenbacks. The situation is so strained that the Federal Reserve has poured liquidity into the system to save it from breaking down. The need to pay taxes has been blamed for this upheaval. The corporate tax season does draw out a lot of cash, but it occurs at the same time every year and should have been provided for. This run on liquidity must have other causes, with taxes just being the tipping point. One obvious cause is near-zero interest rates. A long time ago Keynes estimated that below 2% most investors preferred to keep their funds in cash. That no longer holds, as Treasury bonds are being bought well below that rate. But most of the buying has been speculation on the rising prices of bonds, not on their measly returns. Now that prices are falling, however, everybody wants to get out. And this is happening just as the US Treasury is printing reams of new bonds that banks are obliged to buy. US dollars are in short supply due to hoarding, and in strong demand for the above mentioned reasons. This does not bode well for the coming months.

The futility of green washing

In the competitive world of profit capitalism, the planet has been used as a rubbish dump. The often dangerous wastes of mining and industry have been piled up, put in holes, poured into rivers, lakes and oceans, and diffused into the atmosphere. The leftovers and residues of consumption have also been thrown all over the place. Toxic compounds, heavy metals and micro-particles of plastic are present from North Pole to South Pole, in the air, the soil, water and all living organisms. And greenhouse gases are helping the Sun to roast the surface of the globe. This poisoning and heating is threatening most life forms, while a few, such as Sargassum, are proliferating as never before.

It has been estimated that between 1988 and 2014 humans consumed slightly more fossil fuel than in all their previous industrial history, going back to 1751 (1). It has also been said that the delay between carbon dioxide emissions and most of their greenhouse effect is from twenty-five to fifty years (2). If these two propositions are true, the relatively benign climate disruptions experienced so far are just beginning their accelerating violence. All that coal-powered electricity in China, India and other developing countries, all that oil and gas being pumped, dug and fracked out of the ground, all those cars, trucks, ships and planes that have added their exhausts to those of developed nations, it all took off in the 1990s with the breakup of the Soviet Union and the end of the Cold War. That fast acceleration in carbon dioxide emissions is now beginning to bite. And the same can be said for pollution induced illnesses (3).

Capitalism’s Cold War victory was planet Earth’s death toll. Production and profits came out of the doldrums to an era of unbridled growth. In the following decades the world’s production and consumption doubled, as did the quantity of pollutants. And capitalism’s rescue from the financial crash ten years ago nailed down the lid on Earth’s coffin. If public purses and public debt had not bailed out private speculators, the recession would have lasted, production would have slumped and defaults would have succeeded one another like rows of falling dominos. But in the ensuing chaos the world might have taken time to rethink its future. That did not happen and, after barely a year, everything was back to massive profits, debts and environmental polluting. The next lending crisis is not far off, and resolving it will be harder than last time because of its considerably larger scale. Unfortunately, these last ten years have been the tipping point beyond which there is no going back. Whatever happens now, the planet is irremediably poisoned and warming up faster and faster. No amount of green washing will change that.

1. “The GCP estimates that in 2014, we will release a record 37 gigatons (GT) of carbon dioxide to the atmosphere from burning coal, oil, and natural gas, and manufacturing cement. That’s a 2.5 percent increase over emissions in 2013, itself a record year. This brings the total industrial carbon dioxide emissions since 1751 to an estimated 1480 Gt by the end of this year. And, remarkably, more than half of these emissions, 743 Gt, or 50.2 percent, have been released just since 1988.” That was written five years ago!

https://blog.ucsusa.org/peter-frumhoff/global-warming-fact-co2-emissions-since-1988-764

2. This is not recent (2010) but it probably still holds.

“A paper by James Hansen and others estimates the time required for 60% of global warming to take place in response to increased emissions to be in the range of 25 to 50 years.”

https://skepticalscience.com/Climate-Change-The-40-Year-Delay-Between-Cause-and-Effect.html

3. https://www.counterpunch.org/2019/09/13/officials-ignore-pesticides-and-blame-alcohol-and-biscuits-for-rising-rates-of-disease/

On debt redemtion

People borrow to increase their spending. To pay back what they have borrowed, they then reduce their spending fractionally for a period of time. When the access to credit is generalised, this logical process has two consecutive and opposite effects. The first is an increase in demand, production and incomes. And that extra income compensates to some extent the drop in spending due to the credit pay back. Fuelled by debt, the economy grows. But at some point everyone has borrowed all they can or want to, and new borrowing tapers off. The amount of debt being granted approaches the amount that is being redeemed, and growth in spending, production and incomes slows down. The second effect is more paying back than borrowing, with less spending leading to economic recession. This fatality can be offset by the renewal of credit at term, which reduces the drain on spending to just the payment of interest. And, ultimately, interest rates can be lowered to or below the rate of inflation.

Free credit that is never paid back is a wilful attempt by central banks at bringing back economic growth. So far the results are far from conclusive. The main beneficiaries have been corporations that have used massive loans to buy back shares and to hand out more generous dividends, neither of which increases production or consumption. They just encourage more speculation. Growth has slowed in China, is stagnant in Japan and Europe, and the anaemic growth in the US seems driven by student debts and credit for car buyers, both of which have peaked and are being defaulted on in ever larger numbers. Mass credit multiplies exchanges but ends up as an unsolvable problem.

Wages, debt and profit

Wage labour began replacing bonded labour sometime in the Renaissance. But the advantages of hiring and firing over buying and selling became really obvious with the ups and downs of the Industrial Revolution. It was much less so in nations or regions where agricultural production predominated. And some have maintained bonded labour of some kind to this day. However, as industry developed and spread, so did the payment of wages. But the recurring question is how high or how low these wages should be.

A slave is bought or raised, and must be provided with food, clothing and shelter to preserve the investment. The slave’s labour must cover these expenses and produce a profit. The market value of a slave takes these factors into account. Serfs were tied to the domain they were born on. Their labour was divided between their own upkeep and that of their families, and the work provided to the lord of the domain. Both systems could function for agriculture, but neither was adapted to factory work, where people come together at the start of the working-day and separate when it ends.

The cost of a slave can easily be estimated, the cost of a day-labourer is less evident. Must he sustain his energy to work another day, and for how long? Should he be able to produce new generations of workers? The answers to these questions have largely depended on the supply of available labour. Industrialisation usually coincided with a rural exodus to urban centres. In England the move had begun earlier, when common land was progressively fenced off for private use as sheep pastures. When the steel, coal and cotton industries really started to expand in the early 19th century the labour was there, and more was coming in from everywhere, notably from Ireland. The working conditions described by Marx (Capital 1), or attenuated by Dickens and Hugo, were horrific. Wages could not regenerate the expended labour, but eager new hands were present to replace those worn away. Life was short and brutal, made up of violence, hunger and cold, with no expectations. And it was only when the death rates from air and water pollution and malnutrition reached alarming levels that the authorities passed some laws to counter those atrocities. As Marx noted at the time, the working poor were no better and often worse off than slaves, because replacing them cost nothing.

Wage labour’s conditions depend on its availability and, to some extent, on legislation and humane values. And the amount of labour available depends in turn on a nation’s natality and, more immediately, on immigration. The Industrial Revolution began in Britain and soon spread to Continental Europe, the US and somewhat later to Japan. Europe and Japan had labour reserves of peasants, whereas the US had to import labour from the start, bonded labour from Britain and slave labour from Africa, followed by immigrants fleeing misery in Europe. However, Western Europe also had recourse to migrant labour from East and South, while Japan finally brought in Korean workers under a very servile status. Standing armies and the death toll of war also put a strain on supplies of labour. And these variations of available workers have directly influenced their wages and their living standards.

The early stages of industrialisation were (are) frankly inhuman. But, as industrial production diversified and the means of production became more sophisticated, the corresponding work forces needed to be educated and fit. So working and living conditions improved and wages increased. And, as the evolving means of production brought increased productivity, capitalist profits could be maintained, and often grew faster than wages. The two World Wars, especially the second, also brought change. The mass conscription of young adult workers from all parts of production resulted in a reduction of available labour. In Germany and Japan the gap was filled by forced labour from occupied countries. In Britain it was filled by women and immigrants, and in the US by women, blacks and migrants. Extracting millions of men in their prime from the work force transformed the predominant wage scales. Women were being paid like men, blacks like whites, and even Mexican migrants were better off.

Total war had transformed the work force. At the end of hostilities, the disbanded armies and returning prisoners needed to reintegrate it. In Europe and Japan, reconstruction occupied everyone. In the US, higher education was offered to offset the massive return. The war imposed social mobility, with the ablest soldiers moving up the ranks. Their capacity to fight, lead and organise was more important than their class status. Worker’s new found assurance – they had lost it during the Great Depression of the 1930s – was won on European and Pacific battle-fields. And they brought it back to civilian life. But it was a white male assurance that did not include women and minorities. The 1950s saw a fast expansion of the middle-class, with working husbands and stay-at-home wives. And in the US, segregation did not let up during or after the war. The 1950s was when war production converted to consumer production. And all those bright new goods needed a solvent demand. Wages grew in consequence, and J. K. Galbraith came up with the concept of an “affluent society”. Then, just twenty years after Hiroshima, a new generation of conscripts began arriving in the Vietnamese war zone. The Vietnam War broke the myth of 1945 and its Victory Days. And the newly integrated army gave assurance to black soldiers, while the inextricable war eroded the assurance of white ones. There was a backlash in the US, with social unrest, student marches, draft evasion and urban rioting. And around the world the brave example of Vietnamese resistance to American military might gave hope to countless oppressed people. Ernesto Guevara called for multiple Vietnams around the globe.

By the early 1970s, despair resulting from the ongoing war and the violent repression of protest led to a lot of dropping out. A few went underground, but for most it was a search for alternative lifestyles, traditional or original, often syncretic. It was a middle-class movement, with a few proles happy for the ride but puzzled by what was going on. These were the children of the expanding post-war middle-class, who had benefited from all their parents’ economic and social gains. They had no fear of future want, which brought an illusory ephemeral sense of freedom. Some of them turned their coats in time to join the throng. Many died, “the needle and the damage done”. The rest grew old and their youthful ideals faded away. A generation’s most rebellious elements were side-tracked from class struggle by “Sex and Drugs and Rock’n’roll”, a revolt with only individual repercussions.

Since the 1970s wages have stagnated and jobs have become far more precarious. Union membership is at all-time lows, and wealth inequality has reached record highs. Warren Buffet observed a few years back that “class warfare” was being won by the rich, at present it is “mission accomplished” (1). Retrospectively the 1960s and 70s seem like a window of opportunity that was missed and then tightly shut. The generations who came of age in those decades lost their way along countless different paths, and many were dead-ends. The middle-class cannot change the world on its own. If it does not anchor itself firmly in the working-class it is powerless, and can only dream and fancy what could or might be. The middle-class is also the intellectual class, whose function is imagination and inventiveness at the service of wealth and power. They master the arts and sciences that glorify, fortify and justify the structures of domination, with some marginal criticism easily ignored. In the 1960s the criticism was massive, but it was superficial. The protest did not go to the core of oppression. It was unable to bridge the class divide and floundered into nothingness.

Thirty years ago the communist illusion in the USSR and its satellite countries fell apart. Having rotted away for decades, it came down suddenly in a pile of dust. Wealth was victorious and could cast aside all pretence of social concern. Safeguards were lifted and unbridled capitalism went on a rampage. The end to social programs was most flagrant in the newly formed Russian Federation, where life-expectancy and fertility were drastically reduced and the population count constantly dropped in the decade following the end of the USSR. Elsewhere cuts were made and laws were changed to allow ever more profiteering. The redistribution of wealth by taxation and social aids and services went into reverse, while credit became the habitual supplement to wages. The rich got richer, whereas governments and workers got deeper into debt. The 21st century has brought back debt bondage, as an increasing share of wages and taxes goes to servicing an accumulated mountain of credit. So much for the labourer and so much for the Lords of Finance, and the worker’s share is dwindling.

Over time the struggle between labour and capital has waxed and waned. Concessions have been gained and lost. There has also been collusion between the better paid categories of workers and capital’s exploitation of resources and labour in “developing” nations, which was the inheritance of Europe’s colonisation of the planet. The growing class of service providers - white instead of blue collars – was supplied with goods produced by cheap labour in foreign lands. Their increased consumption enhanced the sentiment of middle-class status, and their adhesion was reinforced by modest acquisitions of property. The turning point can probably be dated back to the oil crises of 1973 and 1979, when embargoes and multiplied prices revealed the industrial world’s total dependence on petroleum producing nations. But the most serious blow to Western Capitalism’s monopoly has been the lightning expansion of capitalism in China and its Asian allies, and to a lesser extent in other BRICS members.

America’s hegemony, imposed after WW2 and supported by its Western European and Japanese vassals, has long been contested by guerrilla movements armed with AK47s. At great cost to public purses these have mostly been subdued. The new threat is the Asian economic powerhouse led by China. The Chinese are catching up with Western lifestyles and that is putting a strain on global resources. Some have calculated that if America’s level of consumption was generalised the world would need five planets, “only” three in the case of Western European levels. That situation results from the systematic plunder of dependent nations, mostly in the Southern Hemisphere. China is a new competitor for that plunder, at a time when the planet’s reserves are increasingly perceived as limited, which they were from the start. China is encroaching on Western domains in South Asia, Africa and South America, and in the expanse between the Himalayas and the Mediterranean Sea with its Belt and Road Initiative. This is a growing source of tensions, with Huawei as its most prominent collateral damage so far.

Capital employs human and natural resources, and it needs a market. Access to markets has always been contentious. And capital always strives to monopolise them, because a cornered market is the most profitable. In theory monopolies are nefarious, inasmuch as they forbid competition and hinder technological evolution. In practice monopolies are encouraged and protected by laws on patents, copyrights and trade names. And governments tend to advantage their national capital over foreign ones. Market equality is often upset by import tariffs and subsidies, and access is handicapped by rules on health and safety. On the whole, the notion of free open markets is a fantasy. And the financial market offers the clearest example of monopoly. The US dollar was instituted as the world’s currency at Bretton Woods in July 1944, when all other industrial nations were bankrupt and in ruins. The dollar was the standard of value for everyone, and was itself backed by gold at a fixed rate of $35 a Troy ounce. But, by the late 1960s, an escalated war in Vietnam and increasing oil imports were causing a growing trade deficit, and that deficit was being redeemed with gold. The gold drain from the Federal Reserve stopped on August 15 1971, when the Nixon administration ended the dollar’s convertibility. And in February 1973 the dollar was floated against other currencies, by which time the price of an ounce of gold had risen to almost $50. The price of oil went up accordingly, and “petro-dollars” flooded markets. However, the US dollar kept its dominant position and remains the standard for other currencies to this day.

Capital seeks to monopolise the market and must obstruct competition by controlling patents and copyrights, and by legislation and tariffs. A monopoly allows higher prices and increased profits. But those profits need a solvent demand and wages do not suffice, so there is recourse to credit and debt to fill the gap. Credit is granted to individuals for food, clothing, recreation, transport and lodging, to governments for a balanced budget and to foreign nations for the payment of imported goods and corrupt practices. Capital does not consume its profits, it invests and accumulates them. That means they must be exchanged for money, or bartered directly for investments such as raw materials. To maximise its profits capital tries to corner the market, keeps wages and taxes as low as possible and grants credit to insure demand. The accumulation of capital relies on the accumulation of debt and, though capital can probably accumulate indefinitely, debt cannot. At some point the accumulated interest that is paid cancels the effect on demand of new debts. More and more debt is needed for a shrinking growth in demand. But if interest drops to zero, then debts can perpetuate themselves indefinitely. This is actually happening and is resulting in great difficulties for institutions that depend on interest for their revenues. Pension funds, insurance companies and banks are being obliged to make other, less secure investments. If lending is no longer a source of income it might just stop. And if credit stops, or even falters, finance and industry will come to a shuddering halt. The world owes three years of income and is consuming the resources of two planets. Something has to give way soon.

1. “There’s class warfare, alright, but it’s my class, the rich class, that’s making war, and we’re winning.”
https://www.nytimes.com/2006/11/26/business/yourmoney/26every.html?module=ArrowsNav&contentCollection=Business%20Day&action=keypress&region=FixedLeft&pgtype=article