A Correction.

The stock exchange prices have fallen, on average, just under ten percent in the last week. This is described, by professional market analysts (people who are paid by speculators in the stock market to say things about the stock market) as a “correction”. That is, the stocks were overvalued by ten percent. Now they are correctly valued. This is correct, this is how capitalism corrects itself, and the Stock Exchange is a House of Correction.
What has actually happened, disregarding all this bullshit?
The stock exchange prices were, obviously, a bubble. This was not, however, a coincidence, an accident which had to be corrected by the market. The bubble was deliberately blown, almost certainly, by the US Federal Reserve, which created hundreds of billions of dollars, a process called “quantitative easing” (QE), and then ploughed this money into the bond market. Evidently this then found its way into the stock market. The process was global, but was particularly applied in the U.S. stock market, which explains why the US market managed to rise so much and so rapidly in spite of the obvious fact that the prospects of the companies in the market were not particularly bright.
The problem with quantitative easing is that it potentially creates inflation in the long run. Inflation may or may not be a serious problem in the current global economy — it’s assumed that the real danger is deflation (falling prices, basically), but nobody really knows. However, what people do know is that the entire financial system has, for thirty years, been built on preventing inflation. Therefore, quantitative easing was cautious, was only used to inject money indirectly into the economy (that is, the money wasn’t given directly to anyone who might spend it) and came to an end in June 2011, after which everybody breathed a sigh of relief. For the neoliberals who dominate global finance, quantitative easing must have felt like keeping your family solvent by renting your children to brothels.
On the other hand, everybody knew that quantitative easing was the only thing which was keeping global financial markets afloat. This is because virtually all the expansion of money in the Western world is going into corporate profits which are then kicked back to the ruling class. This tremendous transfer of wealth from poor to rich is happening because the companies have fired workers, frozen the wages of those who are working and extended their working hours, and stopped making fixed investments in productive activity. If you do that, you can make profits in the short run, but in the long run the obvious problem is that there is a contraction in the number of people capable of buying goods and services and therefore the profits start to diminish. Our old friend Marx’s decline in the rate of profit must kick in at some stage, so long as capitalists absolutely insist on following Marx’s script.
The only other option was for governments, the only actual force serving market interests, to borrow money and spend it. Unfortunately, that has been happening to a tremendous extent in 2009 and 2010, and as a result the budget deficits and the national debts have soared to unmanageable levels. If you keep running a double-digit deficit for more than a couple of years, your debt will soar. Right this minute you can keep interest rates low and the cost of servicing the debt will rise more slowly — but unfortunately interest rates are ultimately determined by the banking system, and eventually the system will make you raise interest rates (especially because this is the only neoliberal method for restraining inflation). Hence, unless you also have double-digit economic growth, you are bound to see your debt servicing grow as a proportion of your budget, and therefore, your actual public spending shrinking.
What this means is that Western governments are running into trouble. They have borrowed more than they could afford in order to bail out their banks, only to discover that this did not translate into rapid economic growth. The reduction in salaries for the working and middle classes has reduced governmental income, locking governments into a state of seemingly permanent deficit and pushing many states’ national debts into unsustainable territory. Now they fear a rise in interest rates. They don’t want to borrow more, especially not in order to give the money to rich people who give nothing back to the state. Those rich people have forced their governments into this corner, yet no government dares acknowledge this, or respond to it by, for instance, raising taxes on the rich.
So, what governments are doing instead is to cut public spending — naturally, social welfare spending, which rich people insist on governments cutting. This means that the economy will not only not grow — it will contract. Very probably it will contract so much, and most particularly in the areas where the government obtains its revenue (sales and middle/working-class income), that governments will wind up having less revenue than before, and therefore the deficit problem will remain much the same, or might even increase. Everybody knows this, but nobody says so, because nobody has the courage to face down rich people, and particularly, nobody has the courage to raise taxes on the highest-income people who are demanding these cuts. (Raising taxes on such people is the only sure-fire way to obtain income without damaging the economy — because the rich are not investing that money in anything productive, so it might as well be taken away from them and used for something more economically desirable.)
Everybody knows this, but the people who know it best are, of course, the rich. They know that the policies which they have demanded have simultaneously bankrupted Western countries and rendered them less capable of recovering from bankruptcy. They also know that the only alternative to those policies would be that they should pay for that recovery — either directly, through taxes, or indirectly, through investing in keeping the stock market high, the banks solvent, and the productive economy growing, in the way that the rich did in the past. However, they are not prepared to do this, which is why they have channelled wealth so completely into profits rather than reinvestments. Essentially, having lived the sweet life for thirty years, the rich are not prepared to change their behaviour and live the sour life for two or three years, any more than bankers are prepared to change their corrupt practices merely because they have caused the greatest banking crisis in human history.
What’s more, it would at best be a huge gamble for the rich to step in. The recent market crash lopped more than four thousand billion dollars off the world’s stock exchange values. No billionaires, no group of billionaires, have four thousand billion dollars to throw around, not in real money. The danger is that in providing the “organised support” which the bankers offered the New York Stock Exchange in October 1929, hoping to repeat the policies which ended the Panic of 1907, they would simply lose more money, just as the bankers did in 1929. The financial system has become uncontrollable even to the people who pretend to control it. All that the rich can do is hide the fact that they are not in control, and manipulate the surface details of the market to their own advantage. For over thirty years the rich have been playing what amounts to a rigged roulette wheel. Now the wheel is spinning out of control, and the only thing they could do is stop playing under conditions which enable them to pocket their winnings — and one problem is that many are still in denial about that wheel, and want to be allowed to go on placing bets forever, blindly believing that nothing will ever come between them and their undeserved billions.
But when to get out, and how, and why? The logical thing to do was to get out after QE folded up a couple of months ago. There were, however, reasons not to. For one thing, the market was going to sustain itself for a while on its own momentum. Nobody could be absolutely certain, but it could be weeks, even months, before the stock exchanges headed southwards. The markets would be jittery, with many aware that there were problems, and when the market swings up and down wildly, there is enormous potential to make money. So it was sensible to keep the bubble inflated for as long as possible. In addition, the U.S. was doing its best to focus all the attention on Europe — because much of the world’s money was flooding into U.S. Treasury bonds, thus enabling the U.S. to finance its imports — and so long as the world wasn’t looking at the biggest bubble of all in New York, it would be possible to keep things inflated.
There was another opportunity. It’s hard to be sure, but obviously the “debt ceiling” crisis was a way to use the global financial crisis to political advantage. Although the President of the United States has done everything he can to help the ruling class and crush the middle and working class, the rich would naturally prefer a Republican in power. One reason is that the current President is a Democrat, and the Democrats once were aligned with the American trade union movement and thus some Democrats have a residual distrust for absolute plutocracy; furthermore, the Democrats created the soft social-democratic policies of the New Deal which generated thirty years of economic growth under conditions more egalitarian than those prevailing now. The fear is that somehow, the Democrats might bring back those dark times when the rich were less relatively rich than they are now.
The “debt ceiling” crisis was caused by the desire of the Republicans to compel the President to impose savage spending cuts, thus alienating his base, slowing economic growth and virtually guaranteeing his defeat in 2012. The Republican threat was that if he did not do what they ordered him to do, they would prevent the U.S. from borrowing money, precipitating a global economic crisis and wrecking U.S. credit. Therefore, it was absolutely essential, while the negotiations were doing on, for the economy to remain stable, and if possible to seem as if it were growing. If the economy had crashed during the negotiations, the President might have decided that he had nothing to lose from taking a more moderate and conservative line, and might then have raised taxes instead of slashing services. He could also have blamed Republican intransigence for the crisis.
So it seems likely that the American rich, the greatest concentration of wealth on the planet, might have offered the market the organised support they are not usually prepared to offer, up until the deal was signed. Then, of course, they could withdraw it — because there was nothing that the President could do once it was signed. It is impossible for the U.S. to borrow more than the very limited amount that the Republicans are allowing it to borrow, meaning that nothing can be done to stimulate the economy or bail out failed companies. Hence, not only is there now an economic crisis, and one which is not obviously directly connected with Republicans or the rich. It is also a crisis happening under conditions where the American Presidency is essentially impotent. He has tied his own hands and now must face the heavyweight champion, the mother of all recessions.
So what is happening is simple. The rich are getting out of the economy which they have looted and ruined, and doing so with their wealth intact, and in a way in which does the maximum harm to their self-defined political enemy. Of course this means that the Western economy is probably collapsing, but the rich knew that it would collapse anyway. They can always move to one of the BRIC countries if things get really tough in the West. But most probably something will turn up — at least, that is what they are hoping for. Maybe the West will start sprouting dictatorships like Latin America in the 1960s and 1970s, and the dictatorships will pull the rich’s chestnuts out of the fire by force, compelling the poor and the middle class to sponsor their masters at gunpoint. We can’t be sure.
All that we can be sure of is that nothing good is coming down the track.

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