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Welcome to Finance Market Capitalism

by Ernst Lohoff Saturday, Nov. 15, 2008 at 4:18 AM

The financial market escapades must be the problem because capitalism itself cannot be the problem. The state bailout measure prepares the ground for inflationary developments.



Crisis management, the short-term attempt to avert “the worst” creates facts of great range and historical dimension

By Ernst Lohoff

[This article published October 26, 2008 is translated from the German on the World Wide Web,]

The bursting of the US American real estate bubble has triggered a chain reaction: one bank failure after another. Worldwide the stock exchanges are in free fall and the world economy is greased. Out of fear of “the collapse of the whole payment system” (German bank president Axel Weber), the central banks flooded the world financial markets with liquidity and lent money capital to private money institutes that do not trust each other any more. At the same time national governments crafted one bailout package after another to stabilize the situation and took over the accumulated losses.

The US was the trailblazer. All other states are now following. Conceding a guarantee for savings accounts, Chancellor Merkel pulled 480 billion euro out of her hat to support the local banking system. This measure alone catapulted the German state indebtedness from 63 to 83 percent of the gross domestic product.

Since the financial markets began their historically unique high-altitude flight toward the end of the 1970s, there were always failures and setbacks. No shock had the striking force and quality of the current disaster. This time a special world region was not wiped out like the 1997 Asian crisis or a single sector struck like the crash of the New Economy. The whole financial superstructure amassed over three decades fell in a landslide worldwide.

If the gigantic spontaneous nationalization of distressed financial capital prevents a core meltdown and breaks the downward economic spiral, the face of capital changed worldwide this fall. A crisis management that tries to avert “the worst” in the short-term creates facts of great range and historical dimension. That states will later be free of the debts piled on their shoulders is pure wishful thinking. The culmination point is crossed that divides the age of fictional capital in two parts. The stock index was driven to ever-new records and volumes of the US-American financial markets swelled 25-fold compared to 1980. A new era of history began in the sign of continual devaluation processes and financial market socialist emergency administration.

As Marx emphasized for the cyclical crises of his time, the great acute crisis attacks always start from the financial markets. However the real causes should not be sought there. Rather the financial superstructure is a symptom for deeper processes involving real accumulation. This is also true for the world economic tremors of our days.

The current debate fades out this structural background for reasons of legitimation production. The financial market escapades must be the problem because capitalism itself cannot be a problem. In the 1990s, belief in capitalism coincided with belief in the boundless financial market dynamism. With the crisis, the unilateral criticism of financial capital and speculation rose to the all-dominating form of capitalism critique. Up to deep in the liberal camp, this was hammered as a defense of the “solid indigenous market society against irresponsible financial capital.”

The myth is of the “sound real economy” dragged to the abyss by a hyper-trophic financial superstructure. The real economy is turned upside down. In the 1970s, the capitalist mode of production already struggled with a fundamental structural problem. With the discontinuance of the Fordist process and the across-the-board rationalization in the course of the micro-electronic revolution, a self-sustaining growth based on real labor commodification and capital accumulation was impossible. On the economic surface, this could be seen as the phenomenon of “stagflation.” All western economies had low growth rates at the end of the 1970s and high double-digit inflation rates. The release of fictional capital was the reaction to this fatal situation and its dissolution. The creation out of assets out of nothing by accumulating debts and claims would inaugurate a speculative financial superstructure and growth possibilities for real capita. At no moment would the demanded closing of the casino have meant the liberation of the global sweat lodge and high tech firms, only its closure.

This is crucial for the present perspective and is not a mere historical question. The collapse of the financial markets undoubtedly strains the real economy today as an explosion strains airline passengers, not as hauling a piano turns a stroll into a torment. A capitalism that can manage without insane speculation movements would be a pathetic reality on today’s production levels.

The political class today uses a language similar to the language of the global justice movement Attac. This rhetoric limits the emptying of the burst bubble at any price. The socialization of the astronomic write-off need and the money-creation orgies only have the goal of channeling the unavoidable asset-correction by postponing this as far as possible into the future.

The strategies for mastering the crisis show certain parallels to Japan’s development in the 1990s when the country passed through a ten-year depression phase after the collapse of real estate speculation. At that time the triangle-combination of ruthless money-creation, nationalization of losses and creative accounting was applied. The central bank there lent money for years with negative real interests, that is interests clearly below the inflation rate. However the monetary policy measures at that time hardly had the desired effect. This is commonly explained by saying money emigrated across the Pacific and fed the US-American bubble as money capital seeking investment. This only had an indirect positive effect on the real Japanese economy when the Far East export economy was stimulated.

This time there is no outside where the multiplication of fictional capital could continue uninterrupted. Debt assumption and liquidity creation will not have more effect than in the Japan of the 1990s. To the extent that the state liquidity as raw material of modern bubble formation is not changed into fictional capital, to the extent that the refinancing of their debts on the capital markets catapulted upwards becomes a problem for all states, the state bailout measure prepares the ground for inflationary or hyper-inflationary developments. Politics has a considerable influence on the further crisis process. But only its speed and form can be controlled, not whether the great development movement continues. If claims and property titles are devalued, will the process assume the form of inflation? The world economy heads straightaway to the condition from which it once triggered the insane speculative movement on a basically higher level. The stagflation of the 1970s, the coexistence of growth weakness and constant money devaluation threatens to return as an interlocking of depression and runaway inflation.

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