SLEEPWALKING INTO THE VOID – tekst objavljen u dodatku nemačkog dnevnika Junge Welt od 18/12/2019.

jw_294_Kapital Monopol

All the omens for the next recession are palpable. The only question is how deep the crisis will be and what will trigger it. It is safe to say that nothing has been learnt from the Great Recession of 2008/2009. Despite promises of systemic transformation: tough new regulations, breaking up of the large banks, taxes on speculative transactions etc., the financial system remains unchanged, shielded by the Basel IV regulations framework, serving as a fig leaf.

The casino is running as usual – government debt, corporate and personal debt are ballooning. Financial problems are mounting within a dangerous economic and political context not seen since the end of WWII. When the new crisis emerges, political discord and economic rivalry between the West and China, (as well as the possible in-fighting among the West) will likely prevent the coordinated actions by the main global economic players, like those implemented in 2008.

The Great Recession (2008/2009) started with the subprime market and the next one could begin with the – subprime market. The only difference is that loans (so-called leveraged loans) are this time granted to companies with poor credit rating instead of granting them to individuals with dubious credit history. And yes, the junk bond market is booming too. Constantly seeking higher returns in the environment of unreasonably low-interest rates, banks are doing the same as they did in the prelude to the Great recession – gambling with the global financial system for its own benefit. The nature of the beast remains the same.

The global economic structure is now hanging on a thread – on absurdly low-interest rates and consequently, their facilitation of continuing debt repayment. On a discredited pretext that low-interest rates fuel investments and consumption, central banks are effectively subsidizing debtors; in fact, they are merely kicking the can down the road and postponing the credit crunch.

The seeds for the new crises were sewn eleven years ago when the cure for the Great Recession was declared to be monetary policy – print money, thus cut interest rates and the crisis will be over soon. This Friedmannian recipe, derived from his analysis of the Great depression (1929) could not solve the problem – the most overrated economist of the last century was wrong. Deep structural crises could not be solved by palliative monetary measures.

Putting aside banking lax regulation and moral hazards it produces, the other fundamental cause of financial crises is related to income distribution and the inequality it creates. Without fair remuneration, people do not have much of a choice but to rely on bank loans in order to maintain a decent standard of living. Since salaries are almost stagnant, it is becoming increasingly difficult to repay loans (with interest). Inevitably, indebtedness will continue to rise. The depth of this problem is currently masked by the low-interest rates, but sooner or later, it will resurface.

For businesses, the damage has been already done. Interest rates (the instrument of market discipline) are helping zombie companies to survive and multiply, but when the rates eventually rise and all hell breaks loose, the financial system will face new havoc.

It seems that every effort is being made to avoid rethinking economic policy. Neglecting fiscal policy instruments, resisting the overhaul of tax system, neglecting public investments, continuation of austerity, insisting on schwarze Null, seems to have only one purpose – to keep the illusion that the neoliberal edifice is still sound and that the market system will solve all the problems. It is irresponsible to sacrifice the future only to keep that ideology alive.