Push conglomerates and even states into cascading bankruptcies, or allow inflation to go unchecked
When Wall Street collapsed in 2008, triggering the global Great Recession, various explanations were offered: regulatory capture by financiers who had replaced industrialists in the capitalist pecking order; a cultural proclivity toward risky finance; failure by politicians and economists to distinguish between a new paradigm and a massive bubble; and other theories, too.
All were valid, but none went to the heart of the matter. So, what is really going on?
My answer: A half-century long power play, led by corporations, Wall Street, governments, and central banks, has gone badly wrong. As a result, the West’s authorities now face an impossible choice: Push conglomerates and even states into cascading bankruptcies, or allow inflation to go unchecked.
For 50 years, the US economy has sustained the net exports of Europe, Japan, South Korea, then China and other emerging economies
The lion’s share of those foreigners’ profits rushed to Wall Street in search of higher returns.
On the back of this tsunami of capital heading for America, the financiers were building pyramids of private money (such as options and derivatives) to fund the corporations building up a global labyrinth of ports, ships, warehouses, storage yards, and road and rail transport.
When the crash of 2008 burned down these pyramids, the whole financialized labyrinth of global just-in-time supply chains was imperiled.
To save not just the bankers but also the labyrinth itself, central bankers stepped in to replace the financiers’ pyramids with public money.
After two decades of a central-bank-supported bonanza of soaring asset prices and rising corporate debt, a little price inflation was all it took to end the power game that shaped the post-2008 world in the image of a revived ruling class.
So, what happens now?
The West’s authorities now face an impossible choice: Push conglomerates and even states into cascading bankruptcies, or allow inflation to go unchecked.
Yanis Varoufakis Project Syndicate 22 June 2022
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