The latest on the global economy: screwing ordinary people again

All the world’s largest banks are insolvent, due to bad debts, and they will go bankrupt without government intervention. The major Central Banks in the US, Europe and Japan are creating money in an attempt to stop these banks going bust. The governments will, at the behest of the banks, try to avoid nationalising those banks – they will give the banks the money in return for no increase in control over them, although cosmetic changes to “regulation” will be talked about. The new money will be given directly to the banks so that they can “recapitalise”, write off debts and start lending again to “consumers”, so that people can borrow more.

Note that the newly created money is NOT to be given to “consumers” (i.e. ordinary people) in form of higher wages or higher incomes of any sort. The chief economist at the Financial Times identifies the main problem with the world economy: “The highest priority is to halt the free-fall in demand”. What does he mean by this? He means that people have stopped spending. There are two ways to increase demand and spending: increase people's incomes or increase the amount they borrow to spend. Now, most people's incomes have not been going up much. Remember: nearly all the increase in wealth from the last 30 years has gone to the wealthiest 10% of the population. Inequality of wealth has increased hugely. Median incomes have hardly increased at all, and now they are decreasing.

The governments and banks know that they need to increase demand, and get “consumers” (i.e. ordinary people whose average real incomes have hardly increased over the past 30 years) spending again. But they want to make sure that the money is borrowed by those consumers, and that the current bank system is kept in tact. At all costs they need to avoid increasing the real incomes of the non-wealthy – because then the non-wealthy would be able to buy what they need without borrowing, and the banks would not be so necessary. In short, people are to borrow the money, and get themselves further into debt, because modern Western economies and financial institutions depend on keeping most people is a state of debt-slavery.

When the banks make profits they keep them; when they lose money they are bailed out and everyone else pays. Then they are given more money to lend, so that the process can start again. This is all in keeping with the basic principle of state capitalism: socialism for the rich, free markets for everyone else. As Nicolas Taleb (who predicted this current crisis) says: “Banks have never made money in the history of banking, losing the equivalent of all their past profits periodically – while bankers strike it rich.”

In sum: The governments and the banks are hoping that they can manufacture inflation by creating money, and that this will force people to keep borrowing. Whether this attempt to create another credit boom will succeed or not remains open.

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