THE BUBBLE MACHINE

By Robert Kurz

[The crash of the financial markets was not an accident but the foreseeable consequence of a system that long struck its limits. This article published in the Swiss WoZ-Die Wochenzeitung, November 27, 2008 is translated from the German on the World Wide Web, www.woz.ch/artikel/rss/17198.html.]


Crises belong to capitalism as the cyclone belongs to the weather. Despite all their turbulences, they were not taken very seriously in the last decades. This is also true for the global financial market crisis swelling since 2007. Since they seem to pass like all past economic storms, the media discourse always refers to the “time after.” Who are the winners? When must they be confronted?

That a global shock of historic dimensions could still occur may not be said loudly. When capitalism in its social forms appears as the “eternal return of the same” (Karl Marx), capitalism also produces an irreversible development of productive forces that has an effect on the exploitation conditions.

A rationalization process of a new quality made productive workers quickly superfluous for the first time in capitalist history after the end of the Fordist upswing with the third industrial revolution of microelectronics since markets could be extended. According to Marx, abstract labor forms the substance of capital. A progressive uncoupling of the financial super-structure from real surplus value production could only compensate the rapid erosion of this substance. Instead of substantial exploitation, an unparalleled expansion of the credit system occurs as an anticipation of future surplus value whose real fulfillment was always illusory. Global mass unemployment or under-employment and the global inflation of “fictional capital” (Marx) constituted the backside of the same coin.

ABRUPT REVERSAL

The financial bubble economy first began in the form of an extension of state credit according to Keynesian doctrine. Since the growing state indebtedness can no longer be adequately serviced by the fiscal exhaustion of real surplus value substance, an escalating inflation with double-digit rates in the West and hyperinflation in the periphery were the consequences since the end of the 1970s joined with increasing growth weakness (stagflation). In this situation the elites carried out an abrupt reversal or about-face with the neoliberal revolution. The Keynesian public “deficit spending” and state regulation were blamed for the misery. However Keynesianism and neoliberalism are not as opposite as people wanted to believe but only moderated relatively different manifestations of the same continuous forms of exploitation.

The labor market reforms and social cuts in the course of neoliberal economic policy intensified the “de-substantialization” of capital and the melting away of domestic purchasing power. Conversely the excessive deregulation of the financial markets only transferred the inflation of fictional capital from state credit to the financial bubbles of fictional financial capitalist property titles. Therefore the assets inflation only led to a corresponding monetary inflation because it was mediated through transnational streams of money outside the national currencies.

THE NEW DIVISION OF LABOR

A social division in the core capitalist countries went along with the neoliberal turn, as everybody knows. The welfare state mutated to a repressive crisis management of a growing mass poverty. Nevertheless finance-driven growth seemed as though it would continue endlessly. This impression was reinforced when a recycling of the financial bubble in the so-called real economy began in the 1990s.

The political economy of the US, the last superpower, was at its center. Since Ronald Reagan, a double shift has occurred – from state credit to private assets inflation and within state credit from social- and cultural programs to a forced deficit military economy. For the financial markets, the guaranteeing military power of world capital was regarded as the “safe harbor” of monetary investments that absorbed a disproportional share of the fictional global capital.

An adventurous global division of labor arose. While the domestic purchasing power stagnated or declined everywhere, it was nourished in the US by the jobs of the military-industrial complex and the relatively broad diffusion of financial titles. Although mass poverty increased even in the US, the middle class carried out a consumer wonder this way that was no longer supported by real net products.

THE CHINESE ILLUSION

As the backside of the stream of fictional money capital, the US grasped the surplus goods of all the regions of the world, especially Asia, through one-sided import streams. In the meantime, dollar credits of export regions face the astronomical US foreign trade deficit. This seemingly real growth is built on sand because it was supported by financial bubbles and did not start in income from real surplus value production. Therefore the shift of industrial jobs to the growth states China and India is also an optical illusion.

This finance-driven growth went along with debt crises and stock market- and currency crashes that at first remained regionally restricted to Japan, the southeast Asian tiger countries, Russia, Argentina and so on. After the turn of the millennium, the end of the flagpole seemed reached with the bursting of the dot-com bubble and the following recession. This collapse could still be cushioned by an excessive lowering of the key interest rate, particularly of the US Federal Reserve under Alan Greenspan. That was the Fall of neoliberal monetarism, which had postulated a strict limitation of the money supply.

Greenspan’s dollar glut kindled a global deficit economy fed by the mother of all financial bubbles, the real estate bubble in the US and in parts of Europe and Asia. Its bursting since 2007 has broken every past framework and seized the global banking- and credit-system. The worldwide debt mountain built up over decades slips.

The hopes that we could get off with a mild recession show that the real situation is hardly grasped in its historical dimension. People acted as though the drama mainly took place in the financial skies and the repercussions on the real economy would be curbed. In reality, the opposite is true. The neoliberal epoch of the financial bubble economy was not an aberration that could be annulled by a little more regulation and bankers’ morality but a necessary consequence of deficient real exploitation conditions whose renewal is nowhere in sight.

BOUNDLESS CONSEQUENCES

We face a crash of the world capitalist operating system that requires more than a surface correction. The inexorable real economic collapse must seize the whole linkage of the world economy (including China and India) according to the domino principle. No autonomous growth can help out as a locomotive. The illusion of one-sided export streams is at an end.

The reality principle of substantial surplus value production that cannot be fulfilled any more prevails in relation to the crashing deficit economy and threatens to take down all areas of life. In the past decades, all reproduction has become dependent on the inflation of fictional capital from the individualized capital-based old-age provisions to the privatized infrastructures and the cultural industry. The new dimension of the crisis has no sectoral limits.

The extent of the crash that is still denied was manifest in a recent complete about-turn of the elites. The apparent return to Keynesian regulation and state credit has nothing to do with a renewal of “orderly” welfare state conditions. The management of the bankrupt estates of destroyed billions already overstrains state credit ratings. Not a single euro or dollar is gained in purchasing power. Additional necessary economic programs will inevitably open the gates of inflation so the old stagflation returns strengthened. No anti-Americanism and no subjective apportioning of blame help. This ideology production only shows how repressed are the objective limits of the dominant way of life.