Time for a change

The events of the past few months have disrupted just about everything. And governments have poured freshly minted money into what seems to be a bottomless hole, though a considerable portion has made its way onto the stock market, pushing prices up to constant new records. This certainly cannot continue indefinitely. It will grind to a halt in the not too distant future, even if Treasury debts backed by central banks and their monetary creations have no precise limits. This could be Modern Monetary Theory, where governments spend freely and, when there is too much money sloshing around and pushing up prices, they take back the surplus by taxation. Firstly, the overspending has been Gargantuan, and secondly, the only ones still able to pay higher taxes are the very rich. The MMT scenario does not seem credible, unless there is a fundamental transformation of political actions and property rights.

If humanity is to survive into the next century, it will have to change its paradigm of personal property and profit, for one of common wealth and solidarity. As this is unlikely, considering the military power and ideological control of property owners, those few who may outlive the coming upheavals will be those who have realised that transformation. Nations are held in the grip of profit capitalism, but some communities might be able to build different social relationships. Time is running out, but events will accelerate decisions, often in the direction of more power and control. Some will manage to break that fatal bond, most probably among people who have kept traces of ancient social unity. The global south may survive the destruction of the global north. When finance and technology fail, they will have a head’s start, on condition that global warming does not make the tropical regions uninhabitable.

The pandemic, devastating storms and unprecedented droughts are forewarnings of things to come. Still pending is the unravelling of financial structures. Stupendous amounts of future incomes have been and are being spent, at a time when their future materialisation is increasingly uncertain. All that credit – more than three times the world’s yearly income – is circulating in the system as cash, undistinguishable from actual incomes. And central banks are providing that liquidity by their capacity to create money out of thin air. It is impossible to predict how far credit can go before loss of confidence takes hold and brings its continued expansion to a halt. The probable mass defaults on debts in the wake of the pandemic, along with the impossible insurance against increasingly destructive meteorological catastrophes, could provoke the rupture sometime this year. When lending dries up, so will demand, production and incomes in a terrible downward spiral. The first signs will be a deflation of share and real estate prices. The speculative zeal will fade when governments slow down their money pumps and, hopefully, restrict their arms race to concentrate on the essentials of feeding and housing their populations, and providing them with health care.

Share prices go up and down, but only a small fraction of the total number of shares are bought and sold on a daily basis. And the price of a transaction determines the value of all other identical shares. The sale price of 1% (or much less) sets the price of the other 99%. This means that the value of shares is hypothetical. Their real value can only be established when they are sold. And that will depend on supply and demand. Most of the transactions on the share market are just money moving around. Some prices go up and others go down, as certain shares are favoured over others. For a general rise, more money must come onto the market from elsewhere. It can be company profits or debts used to buy back and write-off their shares. It can be income diverted from spending on travel, apparel, outings and entertainment. All added to the regular inflow from institutions and the wealthier public. A general drop occurs when money leaves the market. This happens when there is a widespread need for cash, such as property and income tax payments, or when incomes are failing, or when confidence wanes and cash seems a safer prospect. When share prices rise, everyone is happy, except those who had predicted the contrary. All share-holders feel richer. When share prices drop there is a reverse effect.

More money on the market pushes up prices, and that attracts more money. When money leaves the market prices drop, and that convinces or forces more money to leave. Both movements provoke emulation. However, company shares are the property of just a few. In the US the wealthiest 10% own more than 80%. This social class has been obliged to reduce its consumption by the pandemic, but their incomes have in general been maintained. These disposable incomes are probably part of the inflow of money, resulting in an even greater concentration of ownership. The popular “Robinhood” platform that opened stock market gambling to a wider public also contributed to the rising prices with millions of small inputs. These two sources seem to be fuelling share indexes in their constantly record breaking rise. Neither is inexhaustible. Over the past nine months those higher bracket incomes have been paid by government hand-outs, and no one knows how long that can last. The “Robinhood” phenomenon mobilised savings, possibly some credit and probably a part of the government’s stimulus cheques. That modest boost could not last long. The stock market fireworks are in the final spectacular stage, those moments that precede the end of the show.

Constant accumulation of personal wealth on a limited planet can only benefit a few and be detrimental for the many. The system has reached a point where it has spent its future, both financially and environmentally, leaving a chasm of nothingness. And, as it plunges, it is capable of taking most of humanity with it. The promise of a post-pandemic return to pre-pandemic normality is based on ignorance or wishful thinking, or it is a smoke screen to hide a known reality and avoid a general panic, or an insurgency. Americans own vast numbers of weapons, and the Capitol invaders seem to represent a fairly wide section of the working and lower-middle classes, not unlike the 2019 Yellow Vests movement in France. Last week’s relatively small, determined numbers were less supporting The Donald than they were attacking the ruling class. By emptying Congress they symbolically realised Trump’s un-held promise to “drain the swamp”. And the swamp reacted predictably with blurbs about the Constitution and Democracy being imperilled, and calls for more control and greater repressive measures. But if the MAGAs and BLM, the Proud Boys and Boogaloo, and many others all join up: Is that noise a revolt? No your Majesty, a revolution.