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[Translated from Gegenstandpunkt: Politische Vierteljahreszeitschrift 3-10, Gegenstandpunkt Verlag, Munich]
Since its beginnings in the markets for American mortgages, the great financial crisis has gone on for over three years now, and for the moment, those in charge are rather satisfied with themselves. A number of bankruptcies have been wound down or prevented by the state. Masses of worthless financial assets have been stowed away in bad banks or carefully written off, with state license and assistance. The ultimate powers have boldly intervened, preventing a massive financial meltdown by having their central banks provide liquidity and by granting loans from special government funds. Speculation against particularly heavily indebted eurozone countries and their common currency has been averted. After the deep recession of 2009, good money is being made again in the financial industry and the real economy — at least as far as German exports are concerned.
On the other hand, that mustn’t fool anybody into thinking that the crisis is “already” over. Experts are warning against announcing prematurely that all is clear and interpret “market signals” this way: from the money markets, which speculate on and then against the dollar and the euro; from the capital markets, which spurred on Greek bankruptcy while at the same time buying low-yield German bonds; from the global commodity markets, on which German firms are enjoying unexpected export success while America is failing as an “economic locomotive”; from the Chinese market, too, whose welcome boom is now suspected of crumbling soon. These are all reasons to worry — but about what exactly? Is inflation looming because of the masses of state-created liquidity? Or is deflation to be feared instead because of the weak U.S. economy, a lack of economic growth in Japan, and austerity policies in Europe? Will the crisis be followed by another bubble inflated by state credit, cheap money, and dyed-in-the-wool speculators? Or should one brace for longer-term stagnation and, at best, a dual-speed world economy? What kind of a risk does rapidly rising government debt pose? Or is there still too little of it to promote a sustained economic upturn? Is the speculation against Greece and the euro a scandal? Or do the speculators only bring up a painful subject, exposing the common currency as a misconstruction that cannot cope with the crisis? Is the credit guarantee for over-indebted eurozone countries a step toward regaining fiscal stability — or toward abandoning it once and for all? And so on, and so forth.
Such considerations are an indication of the economic situation brought about by the governments of the leading capitalist nations with their political management of the crisis, and by the managers of finance capital, who do their business on that basis. Just to recall the starting point: the relentless destruction of assets in the financial sector and its impact on the rest of the economy drastically reveal that a credit business that boomed for years created far too much money capital, far too much for its further expansion — it is no longer growing and is thus worthless. This brought about the threat of an annihilation of bank capital and society’s monetary assets deposited with the banks, as well as a complete paralysis of all payment transactions. The states have prevented this catastrophe by providing liquidity per decree and by compensating the financial losses of their credit institutions at the expense of their national budgets. In this way, they have put a stop to the continuous devaluation of over-accumulated capital triggered by the crisis, replacing devalued capital with self-created fictitious capital. The fact that the masses of money capital thus kept viable exceed any amount that might be rendered profitable has an effect on the money made available and the debts with which the states are refinancing the banks, i.e., putting their prohibition on devaluation into practice: the financial industry is not financing any new growth that would correlate with the masses of credit. Instead, it is conducting a still unfinished series of tests on the tenability of the guarantees with which the states have held up the annihilation of capitalist assets and the collapse of money circulation. The result of this test is the distinction between government bonds that have been deemed secure — rated highly and bought in huge amounts at low interest rates — and those of other states whose creditworthiness has been deemed questionable or whose bankruptcy has been subject to speculation. And it has turned out very quickly that this has been, in fact, the aim of all these nations’ crisis management. All the calculations underlying their rescue operations and all their supporting measures are aimed at preventing the losses of assets and the collapse of businesses in their own nation, and at restoring growth on their own territory — the necessary devaluation of capital without any prospect of expansion must take place elsewhere, so that the capital at home in their own country will accumulate again. There are winners, able to attract finance capital, who have not regained the level of successful accumulation existing before its annulment, but have means for restoring the conditions for new growth — and there are losers, who feel compelled to carry out the writing-off of wealth and the closure of sources of wealth, i.e., to bear the costs of the crisis in their own territories.
What the states are putting into practice at the moment is a model case of the competition of nations in a crisis — and to that extent, it is at the same time a lesson about the economic might of political powers and its limitations.
At the peak of the financial crisis, states replaced the lost funds of the banking industry by ordering their central banks to supply the banks with as much legal tender as they desired, more or less for nothing, by waiving normal collateral requirements. The ultimate powers have the might to do so; by using their sovereign power over their societies, they create a universal equivalent out of nothing. What they thereby replace are the means of payment that the banks normally use for their business, i.e., for handling society’s payment transactions: mutually promised payments, tokens of the credit they grant one another. The banks lost these means of payment the moment the failure of a big American bank led to the ultimate collapse of the certainty, no longer to be taken for granted, that credit institutions were solvent in the short, medium, and long terms and thus able to meet their short-, medium-, and long-term financial obligations. When the banking sector loses this trust, i.e., the credit banks grant each other, it is indeed no longer able to pay. The solvency of this sector does not consist in a stock of money in unconditionally valid form available to financial institutions as legal tender in their deposits, but in their mutually granted assurance that they are able to fulfill their payment promises and obligations at any time on the basis of their successful business activities. Reserves in cash or in similar form serve as evidence of the absolute reliability of this assurance. The banks that provide the entire society with liquidity are liquid not because they hold money but because they have lent out the money entrusted to them, invested it in securities, or used it profitably in some form or another, i.e., have transformed it into money capital by giving it away. The mutual trust upon which their ability to pay relies does not derive from wealth available in the form of money but from the credit institutions’ involvement in the overall process of capitalist enrichment, confirmed by positive results on their balance sheet. This, however, is what their ability to pay depends upon: their involvement in the business of others, of whatever sort, must prove its worth as their source of money, as money capital — not in each individual case, but overall, so that they can credibly demonstrate the overall success of their business on their balance sheet. If that demonstration is no longer reliable — and it is none other than the banks themselves that come to such a conclusion — then the institution thus discredited is bankrupt. And if the financial sharks withdraw their rock-solid trust — always accompanied by edgy mistrust — not only in their partners’ business success but in the majority of institutions, then the worst-case scenario of a general insolvency is at hand.
This was, in fact, the case with the Lehman bankruptcy in the fall of 2008. And the same thing — nearly — happened when, in the spring of 2010, a huge speculative campaign devalued Greek government bonds, evoking the risk of a state bankruptcy: this not only devalued the debts of an American bank or a Mediterranean country, but also all the creditor banks’ liabilities based on these debts, i.e., the debts booked as assets in the hands of all the institutions they were doing business with. Consequently, all their payment obligations and, eventually, a plethora of money capital proved to be worthless because they failed to deliver the promised money accumulation, being too much in relation to what, under the best of circumstances, could be turned into a surplus. And these masses of worthless credit were so huge that their destruction would have led to a collapse of trust, putting the system at risk, and consequently resulting in a full-fledged crisis of liquidity.
So the states stepped in to help. They mobilized their central banks, which normally function as a source of reserve liquidity for commercial banks’ payment transactions, thereby affirming the banks’ usual method of providing liquidity by creating and granting credit as the tried and true way to supply society with money. Moreover, a central bank seeks to control the creation of credit and the credit-financed business by setting interest rates and the conditions under which it feeds the credit industry with money. In this case, central bank money replaced the credit money that, under normal circumstances, represents the commercial banks’ flourishing credit business, which was no longer the case. This preserved the banks’ liquidity, but what this money did not replace was the banks’ money in the sense that the credit industry creates and uses it, and which they demand from each other, i.e., a means of payment that not only embodies the legally protected power of access but the accumulation of money, connecting the banks as successful centers of money capital. Central bank money is a stopgap; and it is not meant to be anything else. It is not meant to replace the ability to pay that the banks provide for each other, but to rescue their business so that the normal process of creating money can get going again. This is how states, on the one hand, not only reveal the economic power inherent in their sovereignty, thus demonstrating that the market-economy wealth that money represents does not at all exist in useful goods but in the power of disposal over them, secured by the state monopoly on force. At the same time, states make it clear that what matters to them is not wealth as such, but wealth as a business means for banks and for the business they credit, as functioning money capital. And in this respect, the legal tender that replaces the liquidity of banks is indeed worthless: it represents credit that the banks no longer grant each other; it represents not business with credit but its large-scale collapse; in a sense, it acknowledges the crisis of finance capital. Its value exists solely in the state’s refusal to allow the banks to invalidate the credit money along with the credit.
The practitioners, the politicians in charge, and the advisers in the financial business, however, do not see the matter in such a negative political-economic way. For them, liquidity, wherever it may come from, is the prime and “systemically” relevant condition of the business they do, or that they support; and this condition was restored through the state’s substitution of credit. From this viewpoint, in this brave “look forward,” however, everything still depends on how the capitalist business world makes use of this condition. Until now, the results have been meager. Investors big and small, together with their financial advisers, are reported to hardly know where to invest the abundant “liquidity in the markets.” Much of it goes into speculative investments that are barely different from the financial products being devalued — except for those plentiful cases where speculation is ridiculously claimed to be a tangible and reliable thing because it refers to concrete things like land or food, whose value is in fact purely speculative — but this is not quite what the states intended for the money they created. The experts are mulling over the ramifications of these huge amounts of money, as quoted in the introduction. Will they lead to inflation once business and trade have taken off again? Or will there be no growth, not even inflation, deflation perhaps, if confidence in the future continues to remain fickle? So amidst all the pragmatism of crisis management, state-sponsored liquidity is of no use as a business means as long as the crisis has not cleared away the large amounts of money capital that are not producing any yields. But lingering doubts that the “artificially” expanded money supply may not turn out to be a blessing after all only spur on politicians and experts to come up with remedies for creating liquidity that will lead to increased investment without encouraging speculators to behave foolishly. What makes these remedies so ridiculous, however, is that they hardly recommend anything other than doing the right thing at the right time and avoiding mistakes. But their clear intention is to support their own national location of capital in its competition with others. And who knows: one nation’s central bank may well be successful when it increases liquidity more resolutely than other guardians of money, whose national economies will therefore exit from the recession much later; or when its restrictive procedures succeed in retaining business confidence in the increased amount of money, keeping its options open for later manipulations. Such considerations meet with some interest from the various leaders, at least as an indication of their own strengths and others’ weaknesses, or vice versa.
Especially given their competition with each other, it is not enough for national crisis managers to create liquidity in the exact, right amount. There is yet another aspect which those in charge have to deal with — and it may never become clear whether it has to do with the reason for the liquidity problems, an effect of these problems, or a further consequence of their reason: the financial world is suffering from losses in assets that inhibit any regular business that follows legal requirements. This opens up a second field of political activity, with its own unavoidable requirements and challenges: the states are replacing the losses of those banks rated as “systemically relevant,” partly by lending money on securities that have become worthless, or buying them up through the central bank; partly by depositing money with these banks, or even by taking over entire banks, on the account of the national budget. As the excessively used term “systemic” indicates, governments are doing this out of pure necessity, not to reward gamblers — as especially populist critics bemoan — and not at all out of a socialist bent, as fans of a free market economy claim. They are doing so, on the one hand, in order to rescue society’s monetary assets deposited with the banks; and on the other hand, to secure the debt financing so vital to business in the market economy.
That is because all the money that this society owns and has deposited with the banks exists there in the form of their financial business: debts, securities, and so on; i.e., that mass of financial funds which banks provide to each other and to the rest of the credit-needy world, and which companies use to make capital advances. This delicate construction is in a shambles for the above-mentioned reasons. It is not because of the devaluation of certain individual claims and legal titles or because individual depositors have withdrawn their funds; those are damages a strong credit system could surely bear. Rather, a crisis takes place when one loss of assets triggers the next: a loss of confidence in particular investments “dries up” parts of the capital market; the partial breakdown of trade devalues traded commodities; this devaluation affects issuers and investors alike. The negative result brings to light that the entire business sector is based on the fact that one financial capitalist’s debts are the foundation of another one’s assets; and the entire market economy is based on the power of the banks, thus inflated, providing the required operating capital through credit creation. A crisis is nothing other than the practical result, generalized through the credit trade, according to which the sheer mass of assets on the books and in circulation has no economic justification at all: there are too many of them for them to offer a reliable prospect of a yield or any other profitable use.
This is where the states provide a substitute. When debts are no longer traded as money capital, and to the extent that the banks are getting closer to admitting that their booked monetary assets are worthless, and that they are not able to create and grant any more credit, the ultimate powers intervene with a sovereign decree: they re-capitalize their “stressed” banks — not with money earned or invested, not with assets collected or successfully accumulated, but with a sovereign guarantee. The capital with which these banks do business does not consist in any material property, but in their power to vouch for the credit on their books, and to enable companies to do business with debts. And for this power, a sovereign decree is in fact as good as having disposal over others’ money and worthy debtors, which is, after all, also based on nothing but the established rule of law.
What the political crisis managers have no intention of doing is replacing the so capitalistically productive circle of debts and money capital with government regulation. It is this very circle that they want to get rolling again. Therefore, they are organizing their intervention in line with market economy procedures: they purchase dubious assets that are meant to be channeled back into the capital markets — some time later, once the markets have recovered — or they make capital investments in compliance with corporate law or other relevant commercial laws, with the intention and prospect of divesting the corporate stock later to private investors, or even to the rescued financial institution itself. In their guarantees for the important national financial institutions, national budgeters do not make their decisions dependent on the state of their budgets. After all, their central bank needs nothing more than legal authorization — or even just a creative interpretation of the law — if it wants to provide banks with fresh capital through the purchase of “toxic” securities; that which thereby becomes working capital for the credit industry is in fact nothing but the power of the state. Yet the central bank operations are carefully designed and entered in the books as if they were business operations like any other. And the guarantees that are charged to the national budget and with which the rescued banks operate are refinanced, to the extent they are actually used, through the issuance of treasury bonds, i.e., underpinned by fictitious capital created by the state, in conformity with the customary procedures of the capitalist debt economy. In this way, the state provides shaky banks with guarantees in the form of capital contributions, at the same time providing the capital markets with fresh material. The financial industry is meant to market this material in its tried and tested ways, to use it as a source of profit, and to turn it into investment opportunities for investors. It is allowed and encouraged to assess its value and find a market price for it.
And so it happens. It turns out that the new material, the vast amount of state-issued fictitious capital, has not had much impact on the reason for the devaluation of the old money capital, the “toxic” papers, whose crash had all but ruined the banking sector. Taken purely economically, the national debts that replace lost capital can hardly be better than the ruined capital they replace — in political-economic terms, they merely reproduce those parts of the accumulated finance capital that, being an over-accumulated financial mass, have already been pulled out of circulation. There are too many of these national debts, like the securities lost by the banks because the former are unable to grow and are therefore worthless. The capital markets, however, see no reason to shun these government bonds as having no economic justification. The authority of the ultimate powers makes all the difference. The supreme guarantor of national capitalism is not directly affected by the loss of confidence between credit institutions. But now that the new government bonds have to be assessed by speculation, the financial industry makes dutiful use of its liberty. In the midst of the financial crisis, this means that the industry feels challenged, and even considers it a requisite of solid business administration and proper risk management, to put the state’s authority to create a substitute for ruined business to an uncompromising test. In this respect, rating agencies do their duty; they don’t want to be criticized again for having carelessly rated dubious bonds too highly. And the vanguard of the speculative community is seizing the opportunity to reveal the relative soundness of these state guarantees by attacking the guarantors of the masses of new fictitious capital, to possibly expose their groundlessness, and in any case to make a profit. The soundness of state guarantees is being tested by comparison.
In Europe, this speculation first hit Greece — a state whose debts have not been directly involved in the financial crisis or with the masses of credit that the big capitalist powers have created in order to halt the spiral of devaluation. From the outset, experts have been offering an explanation of Greece’s increasingly precarious financial situation that leads miles away from the crisis and European crisis policy, back into a long history of allegedly endemic Greek mismanagement — which, incidentally, shows nothing more than the economic defeats that a small state at the European periphery has suffered from its exposure to the merciless competition that companies and states in the European single market enforce on each other, using the common currency as their instrument.[*] But the campaign has not been restricted to this special case. Portugal is the next country that has had to pay ever higher interest rates for new loans and been confronted with speculation on its growing financial problems. Now there are worries that the debts of Spain and even Italy might become the target of the next speculative “attack.” The markets need only demand higher interest rates for financing these countries’ debt restructuring needs; commercial banks and saving banks need only speculate on derivatives from hedging operations on rising interest rates and on the devaluation of government bonds — and that would be enough to make it impossible for states to finance their need for money. With interest rates on the debts of these states rising, other European capitals and financial centers worry that the speculators might continue on like this, that the markets might start panicking, that financial problems could spread, and that banks and ultimately the payment system would once again come under threat. With the onset of a collapsing euro, there is no question about whether all states using this money will be affected. It doesn’t much help the member countries that they borrow on their own account: their funds nonetheless represent the credit of all euro nations, so doubts about the creditworthiness of individual euro states erode the substance of the common credit money, inevitably straining the credit of all others. That would hardly be of any significance if what was at stake was in fact only the very special payment problems of one or two truly unimportant euro states. But all involved fear that the security of their credit is affected; and there is no secret as to why. With their counter-crisis policies, they are all overextending their credit beyond all measure, that is, beyond the standard they have themselves prescribed with their Maastricht criteria as a condition for the reliability and capitalistic usefulness of their new currency. And in particular, they have expanded their credit beyond the measure of growth that they instigate, or rather do not instigate with their debts, since for the moment they are only compensating losses. At any rate, all the euro states suddenly see themselves as dominoes that will collapse one by one once the first one falls. Therefore, no state can be allowed to go bankrupt. The community has reacted, first with massive financial assistance to Greece, then, in the face of ongoing speculation and with the euro starting to decline, with a general credit guarantee of over half a trillion euros, plus a further quarter of a trillion from the IMF and other sources.
This act of strength is indicative both of the logic of speculation and of the policies aimed at warding off the feared consequences. The states thereby affirm the judgment of the speculators: without such a guarantee, European credit would be questionable, and the value of the euro could not be supported. With it, however, the skepticism of the financial markets and the financial bets of the crisis profiteers are proven wrong: the many hundreds of billions of euros dispel any doubts simply by making the solvency of all states, even the weaker ones, independent of the markets’ speculative calculations. This makes an offer to the markets: this large sum is not meant to be really paid out, but to provide security for the money that the banks are meant to lend to the euro states, in particular to the weaker ones, or to invest in their bonds and bills. By making this 500 billion decision, however, the states do not make themselves dependent on the markets: they simply make the decision, and risk a gigantic pile of new debts without having marketed one single bond. Yet they do not reject the speculators; rather, they seek to impress them and win them over for the credit that they might request from them in the event of a real emergency. They demonstrate explicitly that they rely on the trust that they still enjoy with the markets. To maintain that trust, however, the states are quite active: they have long been fostering it in the form of the European Central Bank’s readiness to purchase government bonds from the banks. Although this means that the ultimate powers are providing their own finances, the speculative calculations of the financial institutions are not turned away. Their objective is that creditors and investors should freely determine the value that they attach to the European government debts and acknowledge them as a good financial commodity on the basis of their own calculations. In political-economic terms, they should confirm them as fictitious capital. This is how the states empower speculation…
With that, the circle is complete, and it functions. For a time at least, the markets have ceased their speculative “attack” on the sovereign debts and the credit money of the euro states. The circle functions because speculation aims at exactly what the states can do against it, or can offer for it, represented by the magnitude of the agreed financial guarantee. It is about the financial power of nations; and the entire affair reveals what an absurd matter that is. One thing is for certain: the call for states to be able to repay their debts — repeatedly made for ideological purposes — is not entailed in this. If this is supposed to mean more than that states redeem old debts with new loans at maturity, then all the capitalist societies would have long since been hopelessly bankrupt. More important are gross national product and national debt, i.e., the entities that the Maastricht criteria have set into relation to each other, but definitely not in the sense that the inventors and fans of these criteria conceived them. These criteria have obviously been reduced to absurdity by the size of debts that the states have run up, and promise to run up in the future, and by the success this promise has had with the speculators. The economic capacity of states — which is subjected to rigorous examination by the markets and which, in the case of the euro countries, has been deemed sound for the moment — has an entirely different substance. It is made up of the mass of fictitious capital which states vouch for and which the financial companies have accepted as a solid commodity and as useful material for their business, along with the prospect that this fictitious capital will lead to a level of growth that represents a further increase not only in government debt, but in capitalistic accumulation. These two items also entail the amount and the rate of growth, both past and expected, of the capitalist process of production that utilizes the entire survival of society, including the costs of state power, as a huge source of capital. Furthermore, this capacity is comprised of the internal sovereignty and external clout of state power, i.e., its toughness, determination, and, ultimately, the success with which it utilizes its national resources, manages its people, and uses its financial sector as a source of finance. And it finally means that all these components of a decent public welfare are honored by finance capital as a condition for accumulation.
The economic power of states thus composed is politically asserted and speculatively assessed in the comparison of nations — this is shown clearly by the speculations against the euro and the defensive measures of the EU member states If the credit guarantee offered to the financial institutions — serving their interests momentarily — is to be convincing, it is important that it not be backed by shaky dominoes that have joined up together — although this may also have an effect — but by Germany, a state that can offer two arguments in its favor, both of which are convincing in a market economy: it holds a top-notch position in the competition of nations; and finance capital recognizes that, too, very practically by accepting — notwithstanding all capital losses, all credit bubbles, and all budget deficits — German state debts as money capital by purchasing and marketing them in large amounts despite their low interest rates, and by betting on them all the more while speculating against other euro-state bonds. On the one hand, its superiority will not protect the German nation against the risk that speculators could also bet against its credit, and that a returning crisis may ruin it, too. The Merkel government admits this when it announces that preventing the bankruptcy of euro countries is the only alternative for rescuing Germany. For the grand credit guarantee to be successful, it is necessary that Europe’s leading economic power, in conjunction with its weaker competitors, demonstrate the joint European financial power. But on the other hand, an indispensable condition for success is that nations with as yet unquestioned euro credit and the weight of a large volume of capital and credit support the joint action.
The politicians in charge never miss an opportunity to explain to their patriotic public that they aren’t being selfless. They act jointly in order to strengthen their individual competitive position, both globally and vis-ŕ-vis their partners. And that can be seen in the fact that the gap between them isn’t narrowing — just the opposite. No state hsa gone bankrupt, but for some, borrowing costs remain high, though no longer as unaffordable as at the peak of the crisis; while for a few others, borrowing is extraordinarily cheap. That is how the calculations of financial institutions work: they constantly calculate the possibility of a default on the liabilities of sovereign capitalist states and, by adding a risk premium to the interest on these liabilities, turn that possibility into a numerical quantity. And the crisis policy of states is aimed precisely at this calculation. They all court the international credit trade, whose business they have rescued for no other reason than to secure its services for their own financial needs and their own national economy. They court its favor because their budgetary freedom and the growth potential of their national economy depends on its services. That is the purpose for which they use the credibility of their fictitious capital and their will to protect it And that is the difference between winners and losers.
The issue at stake —and the fierce battles fought over it — is drastically exemplified by actions of the German government. First, its finance minister delays the loans for Greece until the last minute, firmly rejecting any possible payment obligations on the part of his government; then he supplements the grand credit guarantee for the euro partners with his insistence that the currency union urgently needs a workable procedure for government insolvency, one that would preferably exclude overindebted countries from the club automatically. Germany would rather sacrifice a member of the union than the stability of euro credit and of the common currency — this is the message the financial markets are supposed to take note of and reward by giving preferential treatment to German government bonds. Speculators, with their mistrust of the huge amounts of new state debts — including Germany’s! — that in essence only replace assets that have become worthless, are to look to other states for compensation. Germany, by contrast, should be granted the competitive advantage of refinancing its debts at especially low rates, and of having cheap and easy access to funds for promoting its recovery. It is not in its competition with Greece that Europe’s leading economic power needs such an advantage, though it is on Greece that good part of the financial losses resulting from the financial crisis has been imposed. Rather, Germany needs this competitive edge in the economic struggle with its powerful European rivals. Nor does Germany shy away from competition with the number-one–ranked global economic power; instead, it seeks to gain a better standing as an issuer of credible fictitious capital than America with its excessive dollar debts. The Merkel government makes this clear in a way that comes close to an open challenge: it explicitly counters the Obama administration’s insistence that Germany should stimulate the world economy, thus enabling the U.S. to also make some money, instead showing dogged determination to use strict austerity measures in the interest of a sound national budget. This does not mean that its finance minister will spend less money; rather, it is intended as a signal to the financial markets, i.e., as an aid for reaching a decision in comparing the quality of debts from the center of Europe with those from America.
This is how politicians deal with the crisis: they attend to the conditions needed for the renewed growth of their national economies. They know that the crucial condition consists in the affirmation of their efforts for a stable financial system, and they organize a productive debt economy accordingly. They do everything to ward off any hindrances from their own economies. And by doing so, they actively implement the destruction of excess capital in all its forms, mainly by shifting the burdens onto weaker competitors that have to succumb to the negative rating of the financial markets, thereby ultimately reducing their budgets and decimating their economic basis.
The fact that crisis management is a competitive affair is something that ruling politicians take as a given — so much so that those with the most aggressive national spirit declared early on that they wanted their nation to ‘emerge from the crisis stronger than before’ — as German chancellor Merkel has repeatedly said. They want to become crisis profiteers. This, of course, means out-doing their partner countries. From the outset, the purpose of the costly rescue of the financial sector and of the restoration of its solvency has clearly been for the banks to prove their revived capitalist productivity on the national site for capital by granting the credit that the government takes and the economy needs.
To achieve that, policies informed by the crisis of this sector are required that foster the soundness and the security of speculation. Of course, the lessons that the politicians in power have taken to heart have nothing to do with the political economy of the crisis — the over-accumulation of debts functioning as money capital, and their continued consolidation through the constantly growing mistrust of capital market actors. The content of these lessons consists in the shrewd analysis that the failure of the sector doing its business in risk can only be attributed to intentional or negligent miscalculations of the risks they take and trade on, to exaggerated speculations and a lack of safeguards, and possibly fraud. It is thus clear what the state has to do: implement better regulations and better controls in order to neutralize all those customary financial practices that have been identified as blunders and held responsible for the disaster in this sector. American authorities in particular are pursuing perpetrators with new authority and new zeal, and they curtail professional greed by restricting management compensation in the case of especially dodgy and lucrative business transactions, and by levying a special tax. That ensures some commercial decency in speculation and blocks a first source of trouble. Transparency is prescribed for particularly opaque financial products, and dubious transactions have to be cleared via public platforms; this is supposed to ensure reliability. Rules and criteria for the protection of risky financial transactions conducted by banks, which make money on marketing such risks, have been tightened. Or rather: these rules are being negotiated; stress tests have been conducted in order to find out if, and how well, major financial institutions could cope with potential crises; if need be, equity ratios and reserves will have to be amended. Those are the preventive measures against the next crisis, namely a further loss of confidence within the credit system. In certain individual cases, financial bets that have become unpopular with the national money guardians are to be prohibited.
Legislative and judicial interventions of this kind impact the credit business because they concern its very foundations. After all, the products of the financial industry consist of nothing other than legal relations between debtors and creditors. It is their contractual relations that turn money and debts into capital and produce a yield; the ‘process of capitalist expansion’ is defined by contract details. The sector relies on and utilizes nothing but rules and laws — reliably codified state power — when it makes money merely by giving money away, and by using fictitious capital as a tradable good that has a price. The substance of these legal relations is nothing other than the risk that the contractual partner takes as creditor or investor: his money is gone, exchanged for claims to an increase of advanced capital; these may be booked as accumulated assets since they are legally binding, but by definition their fulfillment no longer lies in the hands of the investor but depends on the other contract party. It is risk that turns a contract for money and debts into money capital. And it does so according to a basic logic: the greater the risk incurred, the greater the yield. Every permission and every obligation has an immediate impact on the profitability of the potential business transactions; everything that provides security reduces yield. Therefore, the ultimate powers have to act with utmost care when they intervene with regulations, as regulations in the interest of safety could all too easily put off investors and credit managers instead of attracting them. An excessive concern with security and over-regulation would be entirely wrongheaded: instead of making itself and its legal system attractive for speculators, the state’s excessive interventions would only hamper the contractual ingenuity of the most creative credit wizards and securities designers, driving their employers away to less regulated countries. The nation would thus not prevent the worst risks or avoid new implosions; on the contrary, it would risk losing the very sources of wealth that it intends to secure again for its own interests.
So when the authorities take corrective measures, they make sure that they keep the banks happy, and keep them in their country — at the expense of other national locations for capital that fail to attain the required combination of freedom and security. Consequently, speculation is rampant again in London, and the financial district (the “City”) is making money as if there had never been a crisis or a national rescue operation to the tune of half a year’s GNP. This is being observed in the continental capitals and financial centers, with less suspicion than envy, and largely emulated. Stress tests have been arranged in such a way that the major national financial institutions pass muster right away and attain a solid and reliable standing in the financial world. The neighboring countries then promote the quality of their domestic banks, which merit the unconditional trust of international business, by claiming a much higher standard for their own tests. Switzerland, for instance, does so in order to compensate for the losses its financial industry has incurred as a result of efforts on the part of Germany and other countries to impose honesty in tax matters on their wealthy citizens in order to soften the impact of the crisis on their national budgets. Taxes on financial transactions, which amounts to a deprivation of liberty, is ruled out on account of competition. The democratic spin on this issue is that such taxes could only be levied globally, and since the major competitors would never follow suit, any attempts to impose such a tax would be futile. Proponents of such a special tax, which in their eyes would ensure the soundness of the financial sector and its benefit to the public, criticize this refusal as proof that politicians are powerless and have capitulated to the power of finance capital. However, they thereby ignore that the power of the banking sector is licensed by the state and the result of political will — that is what has elevated the interests of finance to its superior rank. Not only that, but they either fail to understand the competitive calculations of states, which reckon to profit nationally from the extensive involvment of global money capital in their financial centers; or they are advocates of those nations that persistently lag behind in competition over the unstoppable growth of the financial markets. The governments, for their part, fight to exploit the services of the financial sector they have just bailed out, and to market their own financial demands at favorable terms.
This demand is exorbitant, and competition for satisfying it is fierce — for several reasons. First of all, the governments frequently have to honor loan guarantees — at least partially — that they accepted in order to avert the worst impacts of the crisis, and they have to take over bank debts or foreign sovereign debts to avert bankruptcies that might imperil the system. The sovereign acts required to do this have to be properly refinanced. Secondly, the governments again and again have to refinance the loans which they used to buy up the fall-out of the destruction of debt in the crisis. Here, too, each percentage point of interest rate that a state can spare itself, thanks to the interest the financial sector is taking in it, is of advantage; it dumps another piece of the burden resulting from the devaluation of capital onto weaker competitors, which the sector exploits with higher interest rates. Finally, all governments need a lot of money to stimulate the general growth the banks fail to finance. This is crucial because reinvigorating the national economy does not simply mean stimulating it in general, but capturing global market share. It is important to make more money in other countries than they can make on one’s own soil. To achieve that, business opportunities have to be taken advantage of earlier and better than the competition does, so that, firstly, the country can emerge from the crisis ahead of its rivals and, secondly, can improve its position for the long term.
The above mentioned controversy between the American and German governments about the advantages and disadvantages of a rigid austerity program provides a clear example of this competition — along the lines of “emerging stronger from the crisis than entering it.”
— The Obama administration has spent an enormous sum of money on credit assistance for big, insolvent corporations; on the partial or complete takeover and on debt relief for other firms, especially from the savings and mortgage bank sector; on economic stimulation programs; and so on. It has accordingly amassed huge amounts of debt, which can still be marketed as money capital all over the globe. Despite all this, the domestic economy is failing to produce the hoped-for comprehensive recovery, let alone growth of a magnitude that would justify the massive credit given. The president holds his predecessor’s failed policy responsible for that: he had blindly relied on the self-interest of big business to drive growth, but dismally failed, as can be seen in the decline of the domestic industry, the mortgage crisis, and the Wall Street disaster. A head of government does not have to know that his country, with its long-lasting boom, made a significant contribution to the over-accumulation of capital, which has, in the course of the last three years, been deprived of its basis, namely the rock-solid trust of finance in further growth opportunities. Nor does his opposition have to be any wiser, an opposition that has declared Obama’s economic engagement to be a cardinal sin against America’s national dogma, according to which only private initiative is a true blessing, and in the light of this doctrine Obama’s activities are the real reason for the critical condition of the nation. The president bemoans the country’s disastrous balance of trade as the worst legacy of the Republican era: America earns too little money from the rest of the world; instead, it pays out billions daily to other countries. This is how the administration is taking note of the fact that a large part of the global devaluation of the over-accumulated money capital appears as an increase of the national debt that America has used to prevent bankruptcies, to rescue companies, etc. There is not only the internal dispute with the opposition about stimulation programs that are meant to produce the final breakthrough to renewed growth, but also the call for America to improve its trade balance substantially. To this end, Obama demands from the world’s export champions a policy that gives the American economy a solid boost. The People’s Republic of China owes America an exchange rate of its currency that constrains Chinese exports and reduces the costs of American imports, thereby allowing U.S. industry to take its share of the economic boom on the opposite shores of the Pacific. Germany has to pursue a debt-financed growth policy, also allowing America’s exporters to make money, thus pulling the leading global economic power out of its crisis.
What matters most is therefore growth; a kind of growth for which companies will increasingly employ a national workforce so that honest U.S. citizens can earn money again — after all, it’s all about creating jobs in America, not elsewhere. Secondly, America’s economy has to grow on the backs of other nations, using their debts; it is foreign money that has to be made: this is the more remarkable side of this demand. U.S. dollars still can buy anything anywhere, and U.S. debts are still in demand all over the world; the president, of course, would be the last person to question that. However, for things to remain this way, for the destruction of assets in the crisis and for the massive growth of sovereign debt that is used to manage the crisis not to change the position of the dollar, the same president declares that American trade balance deficits have to be reduced by all means. The government thereby follows a politico-economic necessity it does not have to understand; namely, the conditions which establish the validity of a national currency as world money that are also true for the U.S. dollar. Ever since liabilities between sovereign states stopped — directly or indirectly — being settled with precious metals, i.e., with a commodity recognized as international money, the national capacity to pay for liabilities in global business transactions has been based on the credit that nations mutually grant each other and the money of the other nation. The authorities have entrusted the appraisal of the national currency to international money traders, who recognize it as world money and assess how well it can be used for business, as expressed in the exchange rate. The amount of demand for a national money that arises from cross-border trade is an important determinant in their calculations; in particular, in a situation when the financial crisis destroys the capital that such money represents, and puts its state-created substitute to an especially critical test. In this case, it is still the sovereign power that uses its nation’s economic capacity and its recognized authority as guarantor of its currency to secure its validity. But, conversely, the disposition over a money that is supported by the economic and political power of other nations reaffirms the state power as guardian of that money. In the case of the U.S., this factor is only of minor relevance; the president certainly does not believe that the export industry would be able to bring down the dollar debts the administration has accumulated abroad, and that its positive balances could warrant a stable dollar. With his demand, however, he recognizes that his administration seriously has to do something about the creditworthiness of his country: the status of its debts and a sound exchange rate of its world money are no longer beyond doubt. By insisting on a more favorable trade balance, he requires the capitalist “real economy” to verify the value of his state debts that have exploded as a result of the crisis.
But Obama’s demands directed at his main trans-Pacific and trans-Atlantic rivals testify, on the one hand, to an unbroken ambition, and on the other hand, to a certain embarrassment. In the case of China, the Americans have obviously lost their traditional certitude that they automatically profit from any flourishing business in the world. Calling for a rise in German debts to revive the American economy turns the well-known balance of power between the American and the European markets, manifest in the daily trading on the stock exchange, on its head, and is close to an admission of economic-political impotence. In any case: the government has certainly enough power to ruin other nations’ business with America and thus one of their most important sources of revenue. The Chinese are faced with that threat. On occasion, companies like Toyota or Airbus get to feel the full thrust of the patriotic American struggle for its national location for capital. And it is a challenge to competitors when the president, in his fiery “state of the union” address following the Gulf oil spill, invokes the necessity and the national resolve to make sure — by building up a new industry for generating energy — that the dollars made from oil imports will in future remain in the country, and that jobs with good prospects will not emigrate to China.
— The German government rejects its transatlantic partner’s proposition by affirming the unquestionable necessity of stabilizing national budgets and implementing a strict austerity policy to this end. At the same time, it is piling up mountains of debt: for stimulation programs, not unlike those of the Obama administration, and also — among other things —for subsidizing sectors from which the government expects future growth and superior conditions for growth on its national territory. Germany, too, seeks to be victor in the competition for a new energy industry. But the more debt it incurs, the more stubbornly the government proclaims the stupid household wisdom that a state cannot possibly spend more money than it takes in. There’s a method behind that, clarifying two things: firstly, the above-mentioned message to the financial markets that German government bonds are foolproof, which is why they deserve to be in excessive demand despite rock-bottom interest rates, and that German money can be absolutely relied upon, even though other states also use this money. Secondly, the government proclaims its unyielding determination not only to defend the nation’s positive balance of trade — criticized by the American government in view of its own deficits — but to expand it. For with its export successes, Germany has — according to the optimistic expectations of its political leaders and all experts — more or less managed to exit from the crisis, notwithstanding all mountains of debt and all the still unsettled bills from the huge destruction of assets, and with the unfinished business with the piles of “toxic” securities. The German economy is growing again; with money earned in foreign countries. And this is good for a number of reasons. Firstly, at least some of the many debts the nation has incurred are paying off again. Secondly, German business is more profitable than that of its foreign competitors. Not only does this mean a welcome increase in global market share. In the current phase of the crisis, this means, thirdly, that an increasingly smaller part of crisis losses are allotted to Germany, and the persisting annihilation of excess capital does increasingly greater harm to foreign locations of capital. Fourthly, a positive balance of trade and booming exports give more striking evidence of the nation’s creditworthiness than anything else; namely, and fifthly, that its material basis is sound: Germany is generally outperforming its competitors in terms of unit wage costs, i.e., in terms of exploiting wage labor. And it is not inclined to share — or surrender — any part of its success.
This message is targeted especially at Germany’s European neighbors, who are faced with unfavorable trade balances vis-ŕ-vis their big partner and complain about the unfair competitive advantage of a German wage level that has been lowered over the last several years, along with the enduring successes of German capital in rationalizing production. Such complaints are sharply rebuffed by Berlin, as is America’s complaint that the German government has promoted exports by administering a nationwide reduction in consumption. The rivals are expected not to demand concessions in ‘labor-productivity’ but to emulate the German model. After all, if a state would only try hard enough, it would have no problem establishing the basic condition required to reinvigorate national growth in order to exit from the crisis: radical reforms to reduce the cost of the people, both in their capacity as an efficient labor force for capital and in their lesser capacity as a pure cost factor that, as surplus population, has been sorted out of the process of capital expansion, as a burden for the welfare state and for the economy, which, in the last instance, will have to bear the costs for it anyway.
Capital, for its part, doesn’t hesitate to carry out the bulk of this task. With lay-offs and the reduction of those wages that can still be earned, the companies lower the part of capital assigned for wage payments, thus establishing the precondition for a profitable use of the remaining rest. But there remains enough to do for the governments: with their social policy, they organize the new general level of living of their nation. They license and even subsidize new low-wage segments in their national labor market. They reduce the component of wages and salaries that has traditionally been confiscated for social security contributions, and has ever since been attacked by employers as ‘indirect labor costs’, and criticized by the unions as a cost-driving factor at the expense of the ‘labor factor’. In addition, Europe’s politicians revise their outdated insurance systems for the ordinary people, which can no longer be financed as hitherto vis-ŕ-vis shrinking wage totals and persisting mass unemployment. By relieving their budgets from the costs of all sorts of public welfare, they free up funds for productive purposes, at the same time demonstrating to the financial markets that they have their debts well under control, use them wisely, and are therefore creditworthy. This is an obligation owed in particular by ‘over-indebted’ states that don’t have much financial power to offer; within the framework of European solidarity, this obligation is imperiously demanded by the strong leading powers and readily obeyed by the governments of potential candidates for bankruptcy.
In addition to that, the German government passes regulations for short-time work that modify the cancellation of redundant labor cost in a forward-looking way: namely by sparing capital from paying wages, the public purse from paying out full unemployment benefits, the part of the workforce that would otherwise have been laid off from being fired immediately and from plunging into welfare status — but also by significantly cutting their wages. In effect, employers are subsidized so that they can dispose over a ready labor pool at any time. Even before the financial crisis, the former social-democratic government’s „Agenda 2010” had already created the most important precondition of the surefire profitable employment of that pool: by new forms of low-wage labor, by wage cuts effected by contract and agency work, by lowering the general wage level, and by new welfare standards in the administration of mass poverty. The disposition of German workers who prefer having any job over earning a living wage has certainly not been introduced with this Agenda; but the looming prospect of being unemployed - under the rule that social welfare has to be lower than the minimum wage — has turned this maxim into a principle in the German world of labor that is generally taken for granted, universally accepted, and of course also offensively supported by the unions. This is paying off now in the form of the upswing that the government diagnoses, on which it congratulates itself and its people, and which it uses as evidence to confront its European colleagues with their failures in wage and social policy. The economic upswing does not, of course, prevent the government from identifying — for reasons of good husbandry — elements of an obsolescent standard of living that range from ‘secure pension’ to winter fuel allowances for the very poor, which the nation can no longer afford if it is to stay ahead of global competition during the crisis.
The U.S. government is faced with the same situation, but more the other way round. Even before the crisis, opening up new investment sectors for American capital in low-wage countries — above all, on a large scale, in China — along with low-wage firms competing in America itself has made precarious the existence of a sizable part of the population. A particularly beautiful example is the great number of over-indebted home owners in the ‘subprime’-segment: nearly three years ago, the banks that had been speculating with this clientele became suspicious of them so that they ended their own game. Now, the massive impoverishment as a result of the crisis — which experts in their own cynicism perceive as weakening consumer climate and collapsing consumer demand of the broader public, seen as crucial for America — reduces to absurdity the old principle of social policy that a hard-working American will always get by. This is happening so massively and so extensively that the new President-in-chief sees yet another state of emergency, caused by former political failures. He takes on the task to manage with political interventions the repercussions of this impoverishment — public health hazards, among others; hunger among the unemployed; and the like. Basically, the administration expects for itself and for the nation a more efficient management of the critical social emergencies and, as a result, substantial cost reduction. The opposition guarantees that the whole affair will not — contrary to its purpose — unexpectedly degenerate into a charity event for American paupers: with its policy of obstruction, it makes sure that public money and national laws are not abused for the purpose of socialist paternalism, thus protecting the hard working Americans’ way of life.
In this way, democratic crisis managers worldwide become active on the field of unit labor costs, and of a level of social welfare costs that is conducive to their reduction. Not even the German fanatics of standard-setting austerity programs will likely believe that cost reductions in these spheres will allow them to cover the costs of the crisis. But they see to it that the wage-dependent majority — those with jobs and those laid off, each and everyone to the last state pensioners, welfare recipients, and sick and invalid persons — are not spared their part in the national crisis management. All the small workers and victims of the capitalist mode of production, in Germany, in America, and elsewhere, can make a contribution so that the material basis of the system will function again; so that the financial capital will regain trust, not least in the productivity of a respectable government; so that the money markets will regain momentum — so that the burden of the crisis falls on other countries.
This is precisely the way it takes place, the crisis.
© GegenStandpunkt 2011