There are no more “saves” available for the next market meltdown.
The past 24 years can be viewed as an era in which risk declined due to the dynamics of globalization and financialization.
The ascent of China as “workshop of the world” generated a deflationary wave of lower prices for products (due to lower labor costs and lower quality components) that blunted the inflationary impact of the global economies adding $150 trillion in debt since 2000. Global debt, public and private, now tops $315 trillion, 333% of global GDP.
Absent the deflationary impact of globalization, this vast increase in money sloshing around would have sparked inflation. Absent the vast expansion of money via financialization, the expansion of production and consumption enabled by globalization could not have occurred.
At the same time, central banks coordinated policies to steadily reduce interest rates, reaching effectively zero or negative rates (when adjusted for inflation) in 2009 and beyond. This reduction of rates far below historic norms enabled creditors to borrow more even as their debt service costs fell.
Financialization vastly increased leverage and the commodification of credit/debt, enabling emerging-market nations and enterprises and consumers globally to increase their borrowing/spending.
Globalization generated incentives for nations and their central banks to “play nice” and cooperate with other governments and banks to spur profitable (and happily deflationary) trade. These coordinated efforts enabled the global economy to avoid the potentially fatal disruptions of the Global Financial Crisis (GFC) in 2008-09.
Despite localized droughts and extreme weather, global food production increased by expanding land in production and intensifying agricultural methods.
All of these risk-reducing trends are reversing or reaching diminishing returns.
If this is what passes for competence while we cheerlead “the Roaring 20s”, then our delusion has reached “what looks like a permanently high plateau.”
That America is mired in a crisis of competence appears to be yet another issue that can’t be addressed directly as it might upset the narrative control that all is well and everything is getting better in every way, every day.
And so we sugarcoat the incompetence, the endless delays, the sclerosis and the decline in quality and functionality as if these are all signs of rude, vibrant health rather than signs of systemic decline and decay.
Relatively straightforward infrastructure projects now face years or even a decade of delays / zero real-world progress. I can name several projects in my county where the environmental impact studies and various governmental reports have consumed six years, during which the harbor remains closed, the roads are unpaved gravel, the park is closed and the bridge is awaiting repairs.
When the public rightly complains of years of inaction and foot-dragging, local officials throw up their hands in frustration as all the necessary approvals and funding must wind their way through the impenetrable thickets of state and federal agencies, a leisurely process over which they have no control.
As for the private sector, I’ve often detailed the immense, systemic decline in the quality of everything from the ingredients in packaged food to “stainless steel”, as well as the equally immense burden of unpaid “shadow work” demanded of us all just to manage the complexity thickets generated by “progress.”
Energy and Its Interconnections With Our Financialised Economic System
Petroleum geologist Art Berman recently posted an article discussing an issue regarding the mainstream energy transition narrative that I wanted to highlight. This is the connection between our monetary/financial/economic systems and energy, something that as Art argues is apparently not understood by most (all?) of the cheerleaders of this energy transition.
Or, perhaps it’s not that most don’t understand it, but that the complexities and interconnections are (conveniently?) ignored/dismissed/denied/overlooked/simplified as part of the bargaining/magical thinking/avoidance of anxiety-provoking thoughts that takes place in attempts to provide a ‘solution’ for what is for all intents and purposes a ‘predicament’ that at best might be mitigated at the margins — I’m referring to human ecological overshoot here, but also the recurring ‘collapse’ processes that complex human societies have been experiencing since our first experiments with them many millennia ago.
As Art concludes in his article: “Most of the world’s leaders and the public accept that we are in the early stage of an energy transition away from fossil fuels to renewable energy. Few of them understand what that means for our financial system because renewable energy — for all of its progress and benefits — cannot replace our 383 billion fossil energy slaves.
Money creation is nothing but debt. Debt is an IOU on future energy. If future energy can’t provide the same returns as present energy, money supply and credit will radically contract. A future based on renewable energy will collapse the money supply and the financial system.”
The importance of this connection cannot perhaps be overstated given the degree to which our many complexities have grown to be dependent upon our monetary/financial/economic systems. The impending implosion of these systems places the hopes/dreams of a ‘smooth’ energy transition in great peril; in fact, I would argue it’s an impediment that cannot be avoided and may be as or more significant than the hard geophysical limits of Peak Resources. I also believe this aspect helps to connect the dots between a number of themes that I have written about over the past handful of years as I reflect upon and attempt to come to a better understanding of the immense complexities involved in our predicament of human ecological overshoot and the recurring collapse processes that impact our societies.
I’ve written about fiat currency’s role and our economic/financial systems in our predicament and recurring societal collapse a number of times and from a variety of angles[1]. In particular, I’ve highlighted the debt-/credit-based nature of our relatively recent economic growth dynamics and how this is not sustainable since it pulls potential future growth and, more importantly, all the concomitant resources (especially energy) into the present leaving less and less resources to access and use in supporting our complexities down the road — and on a finite planet this self-evidently means the practice is not sustainable, not even close. And, due to the law of diminishing marginal returns, we need to do this resource drawdown more and more quickly just to maintain status quo complexities — to say little about efforts to pursue continuing growth expansion, the biogeophysical limits to this, and the speed at which it adds to already overloaded planetary sinks and degrades our ecological systems.
While many go to great lengths to deny/bargain with/rationalise away this perspective (including the notion of hard biogeophysical limits), it seems these systems have become little more than a Ponzi Scheme as a result of the approach that has been taken — especially their financialisation. We have, for better or worse, been inclined to pursue perpetual, exponential growth to now keep them from collapsing and having to face the consequences of such an implosion. And these consequences will be significant, especially for so-called ‘advanced’ economies who are the main beneficiaries of this arrangement.
Perhaps the most salient and problematic consequence of a monetary/financial/economic systems ‘collapse’ for our complex societies would be a cessation of global energy averaging systems; that is, trade of goods. For families/communities/regions/nations dependent upon import of goods (especially food, potable water, shelter needs, and the energy that underpins virtually everything), this could be disastrous if local circumstances/resources cannot support population needs. And, given the way and amount that humans have expanded across the globe — particularly the last couple of centuries — most localities cannot support their populations with locally-derived resources; again, not even close.
For example, in considering my home province of Ontario, Canada, the 15+ million (and growing) population imports well over 80% of its food needs and a very significant portion of other important goods. Very little of our basic needs are met with local resources indicating our population is well beyond the natural carrying capacity of our immediate environment and almost wholly dependent upon international trade — and the situation is made worse each passing year as more and more of the limited arable lands get ‘paved over’ in the pursuit of human expansion. In no uncertain terms, should trade-based supply chains breakdown for any reason our population will be in a very dire situation. The ‘inconvenience’ of Covid19 lockdown supply chain issues that was recently experienced by many regions was just a drop-in-the-bucket compared to what may arise in the wake of credit-based, supply chain ‘disruptions’ — to say little about geopolitical-based disruptions that are beginning to expand and can be argued to have a base in resource access/control.
I’ve also repeatedly touched upon the ruling class’s abuse/leveraging/manipulation of these systems to meet their primary motivation — the control/expansion of the wealth-generation/-extraction systems that provide their revenue streams[2]. In order to maintain their privileged positions atop the power/wealth structures inherent in complex societies, the ruling class have taken control of virtually all of society’s interconnected systems (e.g., government, media, academia, security, etc.), but especially the monetary/financial/economic ones. This provides this relatively small group of individuals/families with, at least for the time being, perpetual income/wealth to sustain their living standards and privileges — particularly because of the very significant dependencies on the various systems by the masses that have been established, especially over the past century+ (i.e,. a loss of skills/knowledge to be self-sufficient breeds total dependency upon those providing basic goods such as food, potable water, shelter needs, and energy).
“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. …We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of.”
-Edward Bernays
Given these organisational tendencies in large, complex societies it should be no surprise, that at the behest of those that stand to profit significantly from their pursuit (i.e., accumulation of wealth and the power/influence that flows from this), we have been guided towards maladaptive strategies via legislation but also very much by way of narrative management/control[3]. In order to sustain/expand the various wealth-generation/-extraction rackets, the ruling class has created broad-based narratives/stories to not only legitimise their positions atop our sociopolitical and socioeconomic systems but also to dissuade the masses from questioning the pursuit of perpetual growth on a finite planet.
“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. …We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of.”
-Edward Bernays
The world’s ruling class and profiteers are motivated to pursue the infinite growth chalice at every opportunity (making a bad situation worse) and in order to keep the various rackets going/expanding (that they control and profit from) they spin/market this as both inevitable and necessary despite it being the exact opposite path for ‘sustainability’, long-term survival of our species, and health of our planet and its various ecological systems. They insist that growth is ‘progress’, only beneficial, has no limits, and can be accomplished in an ‘environmentally-friendly’ (aka ‘green/clean’) manner. Anyone who challenges this zeitgeist is a tinfoil hat-wearing, doom-loving conspiracy theorist and must be excised from spreading their mis-/dis-/mal-information.
In particular, it is completely against the interests of the ruling class for the masses to be independent and/or self-sufficient as this challenges their wealth-extraction/-generation systems and thus positions of power and privilege (see the most recent denigration of home food gardening as being bad for the environment[4]). Rather than risk a loss of their revenue streams and the influence it brings, they steer beliefs towards the support of actions/policies that in the end create greater and greater dependency upon the complex systems they own and control.
It is because of these interconnections between our energy/resource needs/wants and the ruling class’s control/influence upon these various systems that I have personally come to the conclusion that probably one of the last places we should look to/depend upon for a ‘rational’ approach to our ecological overshoot predicament and pending societal collapse is our sociopolitical systems — a ‘rational’ approach being to pursue degrowth and self-sufficiency policies[5], not continue chasing the perpetual growth chalice and sociopolitical dependencies.
While our sociopolitical systems are marketed/trumpeted as ‘representative’ and ‘for society/the people’, when one wipes away this surface narrative they are anything but[6]. They have been created by and remain controlled by society’s ‘elite’ in order to benefit a relatively small number of our species at the expense of the rest of us, as well as the entire planet and its other species. This group’s motivations are, despite narratives to the contrary, diametrically opposed to human ecological ‘sustainability’.
Not wishing to believe or acknowledge the predicaments/insoluble problems we are mired within and believe that we have agency in our lives and society, we story-telling apes have crafted a variety of soothing, cognitive dissonance-reducing narratives to help minimise our anxiety and avoid reality[7]. It seems it is in our uniquely human nature to avoid anxiety-provoking thoughts by telling and believing in stories that are disconnected from physical realities and also overlooks our ecological systems dependencies. We have tales that put us above and beyond the vagaries of the natural world and capable of overcoming biogeochemical limits at the wave of a wand called human ingenuity and technology. And, not surprisingly, our ruling class have dominated the storytelling and leveraged them to their advantage, creating a number of rackets from which they benefit significantly[8].
In particular, tales have been weaved about smoothly transitioning away from the fundamental resource that has underpinned our significant exponential growth in technology (i.e., hydrocarbons), allowing us to — for the moment — ignore the hard, physical constraints of living on a finite planet and believe we stand outside/above Nature and, as a result, created ‘solutions’ that are exacerbating our dilemma by leading us further into ecological overshoot[9]. They are exacerbating our predicament through the continuing expansion of our global, industrial societies, our population numbers, and the prolonged avoidance/denial of it.
Rather than face the anxiety-provoking thoughts that arise from the realisation/awareness that our most adaptive ability — tool innovation and use to enhance the extractive exploitation of our environment and leverage it to our needs/wants — is, in actuality, facilitating our demise (and perhaps that of most other life on the planet), we have employed protective psychological mechanisms to convince ourselves that our eyes are lying to us[10]; that our tools and the human ingenuity from which they arise are not only our greatest asset but will, regardless of impediments or even physical laws, ‘solve’ all potential difficulties/problems we encounter.
The leveraging of hydrocarbons through our tool innovation/use (along with some other ‘innovative’ catalysts, such as credit-/debt-based fiat currency) and subsequent exponential expansion has helped to put us in the predicament of ecological overshoot with all the associated symptom predicaments a result (e.g., biodiversity loss, sink overloading, resource depletion, etc.)[11]. But rather than recognise and acknowledge the one-time cache of easy-to-access and easy-to-transport dense energy resource as a main reason for our ‘progress’, we have woven narcissistic narratives that place the reasons upon our unparalleled ingenuity and tool-based innovations.
Those of us who have become aware of our predicament and have attempted to speak out/raise awareness of it tend to sit on the margins. Given most people wish their beliefs confirmed as opposed to challenged, we have experienced the emotional ‘reactions’ that accompany the speaking of anxiety-provoking thoughts — particularly ad hominem attacks. I, personally, have experienced this most often when I challenge the mainstream narrative around non-renewable, renewable energy-based technologies and the notion that they can smoothly replace hydrocarbon-based energy and products[12]. I would argue, however, that there is overwhelming evidence that this approach is putting us further into overshoot and reducing the natural carrying capacity of our planet especially as a result of the various planetary boundaries we have already or are close to broaching.
On top of this human ecological overshoot predicament are the recurring processes of complex society collapse, a phenomenon that has impacted every human complex society to date and that also appear to have been sped up by our exploding growth. I’ve written extensively about such complex society collapse particularly through the lens of archaeologist Joseph Tainter’s thesis elaborated upon in his monograph The Collapse of Complex Societies[13]. What’s important to focus upon here and gets us back to Art Berman’s point is the economic nature of ‘collapse’ within Tainter’s framework.
Fundamentally, when the ‘benefits’ of participating in and supporting the sociopolitical system one exists within have for some time been far less than the ‘costs’ associated with it (and, yes, it can take a long, long time — decades to centuries), regions/communities/families ‘abandon’ the behaviours necessary to maintain the system. In one form or another, they ‘opt out’. As more and more people make this choice, the various complex systems of society are undermined eventually resulting in societal ‘collapse’. This recurrent ‘collapse’ process appears to be occurring simultaneously with our human ecological overshoot predicament, creating a double whammy of dilemmas for our species.
Given the pre/historical tendency for the masses to abandon support for their sociopolitical system in the face of ‘costs’ exceeding ‘benefits’, it seems logical to deduce that the breakdown of energy-averaging systems due to diminishing returns on resource extraction (especially energy) will result in a similar loss of support. Maintaining support (in order to sustain privileges/revenue/etc.), even if just passive in nature, is an important consideration for the ruling class and it is increasingly likely (and I would argue we are witnessing this currently) that the ruling class will tighten their grip in order to sustain their privileges for as long as they can.
“Controlling the general population has always been a dominant concern of power and privilege…”
-Noam Chomsky
All of the above is interconnected, and these two phenomena of ecological overshoot and complex society collapse are impacting our species and planet at the same time, creating nonlinear feedback loops that appear to be speeding us towards some consequences we are ill-prepared for — to say little about emergent phenomena and Black Swan events. Uncertainty shrouds the timing and manner in which things will play out. Pre/historical precedents and bio-ecological principles, however, are strongly indicative that the future will not be one of a smooth transition to some technocornucopian-based utopia — not even close.
I have little doubt that the coming phase shift for our global, industrialised world will be transformative in nature, but probably not in a way most are hoping/wishing for; particularly for citizens of ‘advanced’ economies who have ‘benefitted’ the most from our extractive and exploitive behaviours and actions.
[1] See [NOTE: the following is a sampling of my posted Contemplations that discuss the topic/issue referenced and not all have been uploaded to my blog or Substack; it is an ongoing project at this time]:
-Feeding the Growth Monster: Fiat Currency and Technology (BlogMediumSubstack)
-Fiat Currency: Debasement and Infinite Growth (BlogMediumSubstack)
-Fiat Currency, Infinite Growth, Finite Resources: A Recipe For Collapse (BlogMediumSubstack)
-Greenwashing, Fiat Currency, Narrative Management: More On Climate Change and Elite Confabs (BlogMediumSubstack)
-Energy Future, Part 1 (Medium)
-Our Banking System: Government vs. Private Control, Part 1 (Medium)
[2] See:
-Finite Energy, ‘Renewables’, and the Ruling Elite (BlogMediumSubstack)
-’Net Zero’ Policies: Propaganda to Support Continued Economic Growth (BlogMediumSubstack)
-Climate Change And Narratives To Support Continued Economic Growth (BlogMediumSubstack)
-More Greenwashing: ‘Sustainable’ Development (BlogMediumSubstack)
-Are We Being Duped Regarding Climate Change? (BlogMediumSubstack)
-Beware the Snake Oil Salesmen: Climate Change and Elite Confabs (BlogMediumSubstack)
[3] See:
-’Renewables’ and the Overton Window That Ignores Biophysical Realities. June 1. (BlogMediumSubstack)
-On Narrative Control and ‘Fact Checking’. December 21. (BlogMediumSubstack)
-Decline of ‘Rationality’. January 15. (BlogMediumSubstack)
-The Road Not Taken. Feb 19. (BlogMediumSubstack)
-Primary Motivation For Society’s Elite. Mar 6. (BlogMediumSubstack)
-Carbon Tunnel Vision, Externalised Pollutants, And Story-Telling Apes, April 19. (Medium)
[5] See:
-Preparing For Collapse. Apr 4. (BlogMedium)
-It’s Too Late For Managed Degrowth. November 15. (Medium)
-Local Community Resiliency And Political Systems, April 9. (Medium)
-Local Self-Reliance Is Imperative To Pursue In Light Of Ecological Overshoot May 8. (Medium)
-Only Local Leadership Can Help Communities Now, May 20. (Medium)
-Collapse Now To Avoid The Rush: Our Long Emergency, June 6. (Medium)
[6] See:
-Who Do Representative Governments Actually Represent? (BlogMediumSubstack)
-Loss in Trust of Government: A Stage of Collapse (BlogMediumSubstack)
-Ecological Overshoot and Political Responses (BlogMedium) Substack)
-Climate Change ‘Solutions’: Follow the Money (BlogMediumSubstack)
-Faith in Government: A Misplaced Belief (BlogMedium)
-Democracy: It’s Not What You Think It Is (Medium)
[7] See:
-Mythical Narratives Everywhere to Avoid Reality (BlogMediumSubstack)
-Finite Energy, Overconsumption, and Magical Thinking Through Denial (BlogMediumSubstack)
-Cognition and Belief Systems in a ‘Collapsing’ World: Part One (BlogMedium)
-Magical Thinking to Help Avoid Anxiety-Provoking Thoughts (Medium)
-Magical Thinking About the Energy Transition (Medium)
-Reality is an Inconvenience to Beliefs (BlogMedium)
-’Renewables’, Electrify Everything and Marketing Propaganda (BlogMediumSubstack)
-Degrowth, Green Growth, And The Ruling Caste of Society. (Medium)
-Leveraging Non-Renewable, Renewable Energy-Harvesting Technologies To Expand Wealth-Extraction/-Generation. (Medium)
-Ruling Caste Responses to Societal Breakdown/Decline. (Medium)
-Ruling Elite Rackets Everywhere… (BlogMedium)
-Rackets: Keeping the Curtains on Reality Drawn (BlogMedium)
[9] See:
-Electrify Everything: The Wrong ‘Solution’ (BlogMediumSubstack)
-Electrify Everything: Neither ‘Green’ Nor ‘Sustainable’ (BlogMediumSubstack)
-Growth Greenwashing: A Comforting Narrative. (BlogMediumSubstack)
-Climate Emergency Action Plan: Electrification and Magical Thinking. (BlogMediumSubstack)
-The Growth Ponzi Must Be Kept Alive (Medium)
-We’re In A Predicament But Insist On Making It Worse (Medium)
[10] See:
-Grieving: There Are No ‘Solutions’ to Overshoot. (BlogMediumSubstack)
-’Clean’ Energy and the Stages of Grieving. (BlogMediumSubstack)
-Sometimes People Don’t Want to Hear the Truth. (BlogMedium)
-Overshoot, Hydrocarbon Energy, and Denial: Avoiding the Pain. (BlogMedium)
-Growth and Denial: A Bad Combination. (BlogMedium)
-Avoiding ‘Collapse’ Awareness. (BlogMedium)
[11] See:
-Infinite Growth, Finite Planet; What Could Possibly Go Wrong? (BlogMediumSubstack)
-Fossil Fuels: Contributing to Complexity and Overshoot. (BlogMediumSubstack)
-Ecological Overshoot, Hydrocarbon Energy, and Biophysical Reality. (BlogMediumSubstack)
-Overlooking Ecological Overshoot. (BlogMediumSubstack)
-Exponential Growth, Natural Carrying Capacity, and Ecological Overshoot. (BlogMediumSubstack)
-The ‘Predicament’ of Ecological Overshoot. (BlogMediumSubstack)
[12] See:
-Criticising ‘Renewables’ is Not a Sin. (BlogMediumSubstack)
-’Renewables’ Are The Solution: Just Ignore All That Ecological Systems Destruction Over There. (Medium)
-Enough Already You Malthusian Doomer! (Medium)
-Non-Renewable, Renewable Energy-Harvesting Technologies (NRREHTs): For and Against…Again. (Medium)
-Critiquing Renewables Is Simply A Right-Wing Conspiracy. (Medium)
[13] See:
-Energy-Averaging Systems and Complexity — A Recipe For Collapse. (BlogMediumSubstack)
-Declining Returns, Societal Surpluses, and Collapse. (Medium)
-What Do Previous Experiments In Societal Complexity Suggest About ‘Managing’ Our Future. (Medium)
-Societal ‘Collapse’: Past is Prologue. (BlogMedium)
Expediting ‘Collapse’: Financialisation of Our Economic System
A very short contemplation that deviates from the ‘series’ I’ve been writing on several psychological mechanisms that impact our cognitions regarding overshoot and collapse. This is a brief comment (with a slight edit) on an article by The Honest Sorcerer whose writing I discovered a few months ago and have found to be quite excellent (probably because I get positive, confirmatory ‘feedback’ in the sense that their philosophy/analysis aligns with a lot of my own thinking; in fact, some commenter has actually accused me of being The Honest Sorcerer) — I highly recommend reading their work.
Apart from the inevitability of diminishing returns on investments in resource extraction (particularly energy-related ones) that you highlight brilliantly, I have to wonder about the role of some other phenomena in our complex global industrial civilisation that are leading us quickly towards ‘collapse’ (to say nothing really about our fundamental predicament of ecological overshoot).
In particular, I look at the extreme financialisation of our economies — especially via interest-bearing credit/debt expansion — that has led to pulling resources from the future that necessitates the pursuit of the perpetual growth chalice (and, as you point out, this is a pointless endeavour given the harsh reality of physical limits on a finite planet).
The financial industry (central, private, and shadow banks particularly), along with the complicity of our political class, has allowed/cheerlead the explosion of debt instruments that I would contend does not only allow us to avoid reality for some time but also contributes to price inflation as we have gargantuan amounts of ‘wealth’ chasing decreasing resources.
The real kicker I agree is our bumping into physical limits that not just dampen our pursuit of growth — that is required to keep the gargantuan Ponzi scheme that is our economy from expanding — but very likely is the pin that has burst the biggest economic bubble in our relatively short history on this planet. Ponzi schemes have a tendency to collapse when they can no longer expand and physical limits on a finite planet ensure the one we’ve created to ‘sustain’ our global economy is on its way to implosion.
Of course, overshooting limits (be they biological in nature or economic) can carry on for some time before the actual ‘pain’ is felt — the human penchant to deny reality helps here in the extreme. This is perhaps why Black Swan events are the ones that create the greatest impact on us; in our denial (and our inability to assess risk very well), we fail to prepare for possibilities that increase our anxiety — like collapse. Better to live in a fantasy world of human ingenuity and technology always being there to rescue us than accept that we are simply walking, talking apes that don’t understand complex systems and how our tinkering with them always, eventually backfires.
This dynamic–making problems much worse by forcing more of whatever worked in the previous era into a saturated, increasing unstable new era–receives little attention or understanding.
Eras may last decades, and only those who’ve lived long enough to recall previous eras have experienced the transition from one era to the next. The era of financialization, globalization and low-cost, abundant oil/natural gas began over 40 years ago in 1981.
The era of digital / Internet technologies took off about 30 years ago. All of these dynamics accelerated in the early 2000s, roughly 20 years ago.
Only those 60 and older experienced working in a previous era (pre-1981).
All of these dynamics are entering a phase of nonlinear turbulence as the changes are outpacing these highly streamlined / optimized systems’ ability to self-correct.
This nonlinear instability is being accelerated by doing more of what worked in the previous era, in the mistaken belief that the 2020s are simply an extension of the eras that began 40 and 30 years ago.
The fixes that worked in the past won’t resolve the nonlinear instability because all these dynamics have reached saturation: adding more debt no longer generates organic expansion of productivity, all it does is inflate an even larger and more unstable credit-asset bubble.
Globalization has been optimized to the point of saturation: the potential downsides to national security outweigh any remaining marginal gains in corporate profitability.
Financialization has so distorted the economy that gambling on useless speculations is now viewed as the best (or only) way to get ahead.
When a system has absorbed all it can absorb, adding more is just a waste of resources.
We’ve entered a new era, and so the fixes and incentives that worked in the past 40 years no longer work.
The EU’s crisis isn’t limited to energy. It is a manifestation of the global breakdown of Neocolonialism, Financialization and Globalization.
The European Union (EU) was seen as the culmination of a centuries-long process of integration that would finally put an end to the ceaseless conflicts that had led to disastrous wars in the 20th century that had knocked Europe from global preeminence.
Wary of the predations of the U.S. and rising Asian powers, European nations sought the economic and diplomatic strength of a confederation that would be greater than the sum of its parts, a union that would restore Europe’s rightful place as a global power.
This worthy goal was undermined by the destructive dynamics of the past forty years: Neocolonialism, Financialization and Globalization.
These dynamics are unstable due to their internal contradictions. In classical colonialism, the Core dominates the Periphery with force, extracting economic value by exploiting the subject states’ commodities and forcing the colonies to buy the valued-added finished goods produced by the colonial power’s domestic economy.
This extractive model was at odds with the liberal worldview of the colonial powers which held self-rule and open markets as necessary to stable prosperity. The contradictions of classical colonialism led to its collapse as colonies broke free and the colonial powers were forced to navigate a more open global economy.
Beneath the glossy vibe of strength through unity, the EU institutionalized a Neocolonial Model in which some EU members are more equal than others, a divide that was starkly revealed in the debt crisis of 2011-2012.
Eventually the “flock of timid and industrious animals” changes their minds about how much exploitation by the few is acceptable.
You may have noticed the news flow beyond the hot war in Ukraine is largely focused on capital:financial capital (markets, liquidity, interest rates, commodities, central bank tightening, etc.) and political capital (geopolitical maneuvering, sanctions, revising energy and defense policies, etc.)
Notice who’s left out, unnoticed and invisible? The serfs, the bottom 90% who have been decapitalized in the developed world and exploited in the developing world for the past 45 years.
With capital ascendant, the vast majority of financial and political gains flowed to the top tier of speculative capital (banks and billionaires) while the purchasing power of labor (i.e. wages) has been in a 45-year descent. (See chart below)
This disemboweling of labor transferred $50 trillion from labor to capital in the U.S. alone. Financialization and globalization devalued labor and working-class assets such as savings and boosted leveraged speculative bets only available to financiers and corporations, for example, stock buybacks funded by the tsunami of free money for financiers unleashed by the Federal Reserve and other central banks. (See chart below)
Even though the corporate media gives it no notice, serf-expression will become increasingly consequential. No, serf-expression is not a typo for self-expression, the core doctrine of modernism. By serf-expression I mean the serf’s expression of what is no longer acceptable. Another term for this is cultural revolution. I address social and cultural revolutions in my new book, Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States.
When the serfs no longer believe in the divine right of banks and billionaires, then the concentration of economic and political power in the hands of the few will no longer be acceptabl…
…click on the above link to read the rest of the article…
The era of abundance was only a short-lived artifact of the initial boost phase of globalization and financialization.
Global corporations didn’t go to all the effort to establish quasi-monopolies and cartels for our convenience–they did it to ensure reliably large profits from control and scarcity. Not all scarcities are artificial, i.e. the result of cartels limiting supply to keep prices high; many scarcities are real, and many of these scarcities can be traced back to the stripping out of redundancy / multiple suppliers of industrial essentials to streamline efficiency and eliminate competition.
Recall that competition and abundance are anathema to profits. Wide open competition and structural abundance are the least conducive setting for generating reliably ample profits, while quasi-monopolies and cartels that control scarce supplies are the ideal profit-generating machines.
The incentives to expand the number of suppliers, i.e. increase competition, are effectively zero. America’s corporations spent $11 trillion buying back their own stocks over the past decade; that’s equal to the combined GDP of Japan, Germany and Italy. If adding new suppliers to the global supply chain were profitable, some of that $11 trillion would have exploited those vast profits.
The financial reality is attempting to compete with an established cartel that has captured regulatory and political mechanisms is a foolhardy waste of capital. If firing up a new supplier of essential solvents, etc. was so captivatingly profitable, the why wouldn’t Google and Apple take a slice of their billions in cash and go make some easy money?
The barriers to entry are high and the markets are limited. A great many specialty lubricants, solvents, alloys, wires, etc. are essential to the manufacture of all the consumer and industrial products that are sourced globally, but the markets are narrow: manufacturers need X amount of a specialty solvent, not 10X.
…click on the above link to read the rest of the article…
The over-indebted, overcapacity global economy an only generate speculative asset bubbles that will implode, destroying the latest round of phantom collateral.
For those seeking a summary, here is the global financial endgame in fourteen points:
1. In the initial “boost phase” of credit expansion, credit-based capital ( i.e. debt-money) pours into expanding production and increasing productivity: new production facilities are built, new machine and software tools are purchased, etc. These investments greatly boost production of goods and services and are thus initially highly profitable.
2. As credit continues to expand, competitors can easily borrow the capital needed to push into every profitable sector. Expanding production leads to overcapacity, falling profit margins and stagnant wages across the entire economy.
Resources (oil, copper, etc.) may command higher prices, raising the input costs of production and the price the consumer pays. These higher prices are negative in that they reduce disposable income while creating no added value.
3. As investing in material production yields diminishing returns, capital flows into financial speculation, i.e. financialization, which generates profits from rapidly expanding credit and leverage that is backed by either phantom collateral or claims against risky counterparties or future productivity.
In other words, financialization is untethered from the real economy of producing goods and services.
4. Initially, financialization generates enormous profits as credit and leverage are extended first to the creditworthy borrowers and then to marginal borrowers.
5. The rapid expansion of credit and leverage far outpace the expansion of productive assets. Fast-expanding debt-money (i.e. borrowed money) must chase a limited pool of productive assets/income streams, inflating asset bubbles.
6. These asset bubbles create phantom collateral which is then leveraged into even greater credit expansion. The housing bubble and home-equity extraction are prime examples of these dynamic.
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Given that the economy is now totally and completely dependent on inflating asset bubbles, it makes no sense to invest for the long-term.
Beneath the endlessly hyped expansion in gross domestic product (GDP) of the past two decades, the economy has changed dramatically. The American Dream boils down to social and economic mobility, a.k.a. getting ahead through hard work, merit and wise investments in oneself and one’s family.
The opportunities for this mobility in the post World War 2 era broadened as civil rights and equal rights expanded. The 1970s saw a disruption of working-class mobility as high-paying factory jobs disappeared, leaving services jobs that paid less or required more training, i.e. a college degree.
The U.S. economy took off in the 1980s for a number of reasons, including computer technologies, federal stimulus (deficit spending) and financialization (a topic I’ve covered many times). With millions more college graduates entering the workforce and the Internet creating entire new industries, the opportunities to “get ahead” increased across the social and economic spectrum.
But something changed in the aftermath of the dot-com bubble bursting.The fruits of financialization–highly leveraged debt gambled for short-term gains in markets–were extended to everyone with a job (or a willingness to lie) via liar loans, no-document loans and subprime mortgages.Just like bigshot financiers on Wall Street, J.Q. Citizen could leverage a couple thousand dollars in cash (or even better, borrow the closing costs via a 105% of value mortgage and put nothing down) and buy a McMansion worth $250,000 or even $500,000.
The only difference between bigshot financiers and J.Q. Citizen was the scale of the leverage and gamble: J.Q. Citizen could leverage a few grand into hundreds of thousands, while the financier could leverage a bit of collateral into mega-millions.
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We need democratic control of the financial sector. An interview with Saskia Sassen
The World Economic Forum. Photo by Studio Roosegaarde (Flickr)
Every year to coincide with the World Economic Forum, the Transnational Institute based in Amsterdam launches a State of Power report to expose and deepen our understanding of the mechanisms that elites use to maintain power and concentrate wealth. For its eighth edition, the report has focused on the financial sector, asking why it has grown more powerful despite causing the financial crisis of 2008. The report features this interview with renowned sociologist Saskia Sassen who has written extensively on how finance has changed the nature of cities today and how its logic of extraction has fuelled new forms of expulsions and dispossession. The interview concludes with a discussion of fractures in the power of ‘high finance’ and how citizens’ movements might take advantage to advance a democratic control of money.
How powerful is finance today and from where does it derive its power?
First, finance shouldn’t be confused with traditional banking. We need banks – they sell money – whereas finance is a mode of extraction, just like mining: once value has been extracted they don’t care what is done with it. A traditional bank wants its customers’ children to be future clients, so it cares about relationships, but finance doesn’t care at this personal level, except if they are very, very rich.
Second, finance is a dangerous sector because financiers have learnt how to financialise just about everything. And they do this not through traditional banking practices, but through algorithms and highly speculative manipulations. They have invented instruments to serve themselves rather than whoever they are advising. Which means they often don’t lose even when their clients do.
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When the global financial crisis resurfaces, we the people will have to fill the vacuum in political leadership. It will call for a monumental mobilisation of citizens from below, focused on a single and unifying demand for a people’s bailout across the world.
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A full decade since the great crash of 2008, many progressive thinkers have recently reflected on the consequences of that fateful day when the investment bank Lehman Brothers collapsed, foreshadowing the worst international financial crisis of the post-war period. What seems obvious to everyone is that lessons have not been learnt, the financial sector is now larger and more dominant than ever, and an even greater crisis is set to happen anytime soon. But the real question is when it strikes, what are the chances of achieving a bailout for ordinary people and the planet this time?
In the aftermath of the last global financial meltdown, there was a constant stream of analysis about its proximate causes. This centred on the bursting of the US housing bubble, fuelled in large part by reckless sub-prime lending and an under-regulated shadow banking system. Media commentaries fixated on the implosion of collateralised debt obligations, credit default swaps and other financial innovations—all evidence of the speculative greed and lax government oversight which led to the housing and credit booms.
The term ‘financialisation’ has become a buzzword to explain the factors which precipitated these events, referring to the vastly expanded role of financial markets in the operation of domestic and global economies. It is not only about the growth of big banks and hedge funds, but the radical transformation of our entire society that has taken place as a result of the increasing dominance of the financial sector with its short-termist, profitmaking logic.
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The door for compromise and restoring a functional relationship between the United States and China appears to have closed. The 10 per cent tariffs on US$200 billion of Chinese goods, rising to 25 per cent from January 1, is the final straw. There will be more negotiations to come. At some point, there may be announcements of compromises and a positive outlook. But, for now, the reality is that China and the US have gone into rivalry mode – a rivalry that will define the 21st century.
The dispute began with US President Donald Trump’s complaints about the bilateral trade balance and access to China’s market. It then morphed into a dispute on intellectual property rights violations and China’s economic model of subsidising technology development. Now, it is about global strategic rivalry.
The US’ contention is that China makes money from the US and is using it to push America out of Asia and elsewhere. It is difficult to see how the US could climb down from this position. To follow its rhetoric, it will try to cut off China from its market and block technology exchanges.
This rivalry may bring short-term pain to both nations, and to the world, but it may prove beneficial to all in the long run.
The lack of external checks has led to rising internal imbalances in both countries. Since the end of the cold war, the US has been marred by surging inequality, while bubbles and ignorant hubris have come to occupy the central ground in China’s economic management and political thinking.
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The Status Quo is in trouble if the bottom 95% wake up to the asymmetric gains that are the only possible output of our hyper-financialized economy.
The core dynamic of the U.S. economy in this era is asymmetric gains: the gains in income, wealth and power are increasingly concentrated in the top slice of the economy and society, while the income, wealth and power of the majority stagnate or decline.
The Status Quo must paper over this widening gulf with threadbare narratives that no longer match reality: for example, we’re an ownership society. We sure are: the vast majority of the nation’s productive assets are owned by the top 5%.
The U.S. economy has changed, but the transformation is largely invisible to the average participant and conventional economist. The previous iteration of the economy expired in the 1970s, an era of stagflation (stagnant growth and rising inflation that eroded the purchasing power of most households), higher energy costs and increasing global competition, an era in which the “external costs” of industrial-scale pollution finally came home to roost and the early stages of digital technologies began impacting human labor.
Stocks and bonds were destroyed in the 1970s. Investing capital in industrial production no longer generated outsized profits.
The 1980s ushered in a New Economy based on financial magic: the outsized profits flowed to those with access to credit and the tools of financialization: buying assets with borrowed money, selling the assets off in the global marketplace and reaping enormous gains by producing no goods or services.
We now inhabit a hyper-financialized economy in which the only way to get ahead is to speculate. For the middle class, this means speculating in housing: if you hit the jackpot and your house soars in value, then leverage this new wealth into the cash needed to buy a second property–or extract the equity to fund a more luxe lifestyle.
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It is not possible to coherently discuss the “New Normal” economy without discussing financialization–the substitution of credit expansion and speculation for productive investments in the real economy–and its sibling: globalization.
Globalization is the result of the neoliberal push to lower regulatory barriers to trade and credit in overseas markets. The basic idea is that global trade lowers costs and offers more opportunities for capital to earn profits. This expansion of credit in developing markets creates more employment opportunities for people previously bypassed by the global economy.
Though free trade is often touted as intrinsically positive for both buyers and sellers, in reality trade is rarely free, in the sense of equally powerful participants choosing to trade for mutual benefit. Rather, “free trade” is the public relations banner for the globalization of credit and markets that benefit the powerful and wealthy, not the impoverished.
Financialization and mobile capital exacerbate global imbalances of power and wealth.
Trade is generally thought of as goods being shipped from one nation to another to take advantage of what 18th century economist David Ricardo termed comparative advantage: nations would benefit by exporting whatever they produced efficiently and importing what they did not produce efficiently.
While Ricardo’s concept of free trade is intuitively appealing because it is win-win for importer and exporter, it doesn’t describe the consequences of financialization and the mobility of capital. In a world dominated by mobile capital, mobile capital is the comparative advantage.
The mobility of capital radically alters the simplistic 18th century view of free trade.
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