#endnotes collective

This chain of bubbles and busts [in the global economy] began in Latin America in the late 70s. An influx of recycled petro-dollars (stimulated by sub-zero real interest rates on the dollar) generated a whole series of risky financial innovations (including the infamous “adjustable rate loan”), which all collapsed when the Volcker shock brought interest rates back up. It was recycled surplus dollars from Japan that saved the US economy from the subsequent deflation and enabled Reagan’s redoubled Keynesian spending programmes. Yet the US thanked Japan for its kindness by devaluing the dollar relative to the Yen in the Plaza Accords of 1985, sending the Japanese economy into a[n] asset-price bubble of even greater proportions, which finally collapsed in 1991. This in its turn set off a series of bubbles in the East Asian economies, to which Japan had exported its manufacturing capacity (in order to get around an appreciating Yen). These economies, as well as other Latin American economies that had pegged their currencies to the dollar, then imploded as a delayed result of the dollar revaluation in the reverse Plaza Accords of 1995. Yet this merely shifted the bubble back to the US, as the US stock market bonanza created by the appreciating dollar gave way to the dot-com bubble. In 2001 the latter turned over into a housing bubble, when US corporate demand for debt proved to be an insufficient sink for global surplus dollars. If the last two bubbles were largely restricted to the United States (although the housing bubble also extended its reach to Europe), it is because due to its size and seniorage privileges it is now the only economy able to withstand the influx of these surplus dollars for any sustained time period. If we place this phenomenon in the context of the story of deindustrialisation and stagnation described above, it becomes plausible to envisage it as a game of musical chairs in which the spread of productive capacity across the world, compounded by rising productivity, continually aggravates global overcapacity. Excess capacity is then only kept in motion by a continual process that shifts the burden of this excess on to one inflated economy after another. These latter are only able to absorb the surplus by running up debt on the basis of excessively low short term interest rates and the fictitious wealth this generates, and as soon as interest rates begin to rise and the speculative fever abates the bubbles must all inevitably collapse — one after another. Many have called this phenomenon “financialisation”, an ambiguous term suggesting the increasing dominance of financial capital over industrial or commercial capital. But the “rise of finance” stories, in all their forms, obscure both the sources of financial capital, and the reasons for its continued growth as a sector even as finance finds it increasingly difficult to maintain its rate of return. For the former, we must look not only at the pool of surplus dollars, which we have already described, but also the fact that stagnation in non-financial sectors has increasingly shifted investment demand into IPO’s [initial public offerings], mergers and buy-outs, which generate fees and dividends for financial companies. As for the latter, the dearth of productive investment opportunities, combined with an expansive monetary policy, kept both short and long-term interest rates abnormally low, which compelled finance to take on greater and greater risk in order to make the same returns on investment. This rising level of risk (finance’s measure of falling profitability) is in turn masked by more and more complex financial “innovations”, requiring periodic bailouts by state governments when they break down. Unprecedented weakness of growth in the high-GDP countries over the 1997-2009 period, zero-growth in household income and employment over the whole cycle, the almost complete reliance on construction and household debt to maintain GDP — all are testament to the inability of surplus capital in its financial form to recombine with surplus labour and give rise to dynamic patterns of expanded reproduction.40 The bubbles of mid-19th century Europe generated national rail systems. Even the Japanese bubble of the 1980s left behind new productive capacity that has never been fully utilized. By contrast the two US-centred bubbles of the past decades generated only a glut of telecommunication wires in an increasingly wireless world and vast tracts of economically and ecologically unsustainable housing. The “Greenspan put” — the stimulation of “a boom within the bubble” — was a failure. It merely demonstrated the diminishing returns of injecting more debt into an already over-indebted system.