Financial dead-ends

Investments are basically bonds and shares. Money is lent at interest, or part of a company is bought and receives an equivalent share of the profits. In the first case the debt is redeemed at its term and the rate of interest is set down for the duration of the loan. In the second case the shares have no term, though they may be redeemed by a buyback, and profits tend to fluctuate up and down. However, both bonds and shares can be sold on the stock market at a profit or a loss. The stock of bonds and shares is continually increasing with new emissions of both. But most transactions on the market concern bonds and shares already in circulation. These constant exchanges push up prices if demand exceeds supply, and bring them down when supply exceeds demand. Logically the prices should be linked to the return on investment. But that cannot hold when interest rates are below the rate of inflation, and when many shares do not receive dividends. In those circumstances, which are the present ones, the only profit to be had from bonds and shares is to speculate on their rising or falling prices. Buying to sell and selling to buy can be very lucrative when the future forecast is correct. It can be costly if the forecast is wrong.

Investments on the stock market are mostly speculation on price changes. But there are some investments in new and existing companies that actually increase or modify the production of goods and services. They may also affect employment by an increase or a decrease. There is a surge of new companies when a new technology goes into mass production. It happens to some extent all the time, and occasionally something revolutionary comes along. Movable-type printing really shook Europe out of the Middle Ages. A similar jolt was given by coal-fired steam engines and coal-gas lighting. Then along came the internal combustion engine and the ubiquitous electric motor. And, of course, the most recent world changers have been the computer and its internet attendant. These particularly symbolic examples were accompanied by countless other innovations, either as part of the central element, or as fallout from it, and by a vast number of new companies and new branches of old companies. These major transformative technologies begin by adding to all existing ones and provoke strong growth in production and employment. Then they start replacing parts of the existing structure. And they inevitably make some preceding technologies partly or completely obsolete. This phasing-out of redundant productions puts a brake on growth and restores a more habitual rhythm. The expansion stage needs a lot of investments. New companies multiply at an amazing rate, and when the excitement dies down many simply disappear. Big companies eat small ones, and having spread out for a while capital returns to its usual path of concentration. How many car-makers were around in the 1950s, how many search engines in the 1990s, not to mention all the other domains of today’s quasi monopolies?

Renewable energy - solar and wind-driven electricity generation - is producing growth in investments as it adds itself to the existing energy production. But if renewables really do replace fossil fuels, then growth on one side will be accompanied by obsolescence on the other, and the result in terms of investments and employment will probably be negative. For the time being oil, gas and coal still rule production as sources of energy and of synthetic materials, and their global consumption is still growing. And as climatic disruption bites harder and harder and emergency situations multiply, the vulnerability of wind and solar energy and of electricity in general will become apparent, as opposed to fossil fuels that can be stocked in large quantities and transported by land, sea and air. When the electricity grid goes down from fire, flooding, wind or snow, fossil fuel motors are still running and are able to get things going again, whereas batteries have nowhere to charge up. Fossil fuels and electricity are complementary, but it is hard to imagine that one can replace the other.

The Digital Age has reached maturity and has started to produce obsolescence in all domains. At the same time extreme weather conditions are the cause of increasing destruction, be it crops, forests, buildings or infrastructure. The investment opportunities in production are shrinking, and rebuilding what has been burnt, swept away or blown down is all cost and no gain. If or when (some signs suggest it has already started) the chances of getting a return on productive investments becomes less and less likely, there must be a growing glut of money speculating on bonds and shares, and a growing demand pushing up prices. This process is completely sterile. It creates no wealth for society. Instead it drains wealth and periodically destroys it. More and more money goes into the market exchanging the same paper over and over again, to their more or less distant terms for bonds and to eternity for shares. When more money is put on the market prices go up. And when money is taken off the market prices go down. However, the market cannot draw in all existing money, so the uncertainty is about the level at which it has drawn in all it can. At that point prices stop rising and everyone wants to get their money out. This provokes panic selling and brings prices crashing down. In those cases the first out are the winners and the last in the losers. At present the cash pumps of central banks are getting close to the bottom of the barrel. The first to run dry will set off a chain reaction that promises to be spectacular.