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Commentary :: International
"Game Over"
09 Mar 2019
The financial economy uncoupled from the real economy.

By Ernst Wolff

[This article published on December 10, 2018, is translated from the German on the Internet,]

The financial world reached a turning point at the end of 2018. For nearly ten years, the central banks kept the global financial system artificially alive by creating trillions of dollars, euros, British pounds, Japanese yen, and Swiss franks out of nothing and awarding credits at low-interest rates.

With that, they initiated a development that no one could foresee. The financial markets have gone from one record to the next over a period of 115 months. The whole also had a shady side because the measures meant

• less and less money flowed into the real economy compared to the financial markets,

• the tax revenue cannot keep up with the money development on account of tax avoidance practiced intensively in the financial sector,

• fewer and fewer public investments are undertaken,

• the infrastructure crumbles worldwide,

• conservative investors like insurances and pension funds were forced to speculate and take disproportionately high risks,

• old age provisions were aggravated through savings and preparing the way for a future increase of old age poverty,

• private households, businesses, and states were increasingly heavily indebted,

• more and more investors enter the markets with borrowed money,

• the greatest bubbles of all time arose on the financial markets,

• and social inequality exploded worldwide.

Since this development of the global financial system threatened to explode existentially, the central banks led by the FED have been replacing their "slack" monetary policy with a "stricter" monetary policy. This means, they reduce the money flow and raise their interests.

In several cautious steps, the FED has raised its key interest to 2.25% and corrected its balance with $50 billion a month. This has grown to more than $4.5 trillion. This summer the European Central Bank limited its bond purchases begun in March 2016 and will abandon them entirely at the beginning of 2019.

This reversal in monetary policy acts on the financial markets like a drug withdrawal on an addict and therefore leads to dangerous instability. But that is not all. It strikes the system at a time when the system is confronted with an accumulation of problems: the trade war staged by the US, the Italian bank crisis, the national uprising in France, the sanctions against Iran, the capital flight from the threshold countries, the escalating derivative sector menacingly in the background and a developing global recession.

A more unfavorable collision of black swans (possible trigger for a system collapse) can hardly be imagined. If the central banks hold fast to their rigid monetary policy, the development of the financial markets can be divided into three steps:

1st Stage (in which we find ourselves): Through the withdrawal of money, less is speculated and prices begin falling. The first investors who entered the markets with borrowed money withdraw and the prices drop. Conservative investors forced into speculation become nervous, sell and the prices fall again.

2nd Stage: The high debt state of many market actors comes to light more clearly; mistrust grows and leads to increasingly more hesitant awarding of credits. Since serving their debts was harder and harder for debtors, they had to sell more and more securities which led to a further decline in stock prices and sales.

3rd Stage: The exchange losses expand because of the continuing downward movement on the exchanges. The first creditors demanded their money back from the debtors. Individual insolvencies occurred followed by larger insolvencies. This makes more creditors skeptical and leads to the dreaded "margin call" - a nationwide demand for debt repayment. Higher payments become due in the derivative sector which even strains the big banks. Calculating exchange professionals fall into a panic and a downward spiral begins that cannot be stopped anymore.

The whole process is comparable to an avalanche that starts slowly, picks up speed, explodes and drags everything in its fury.

We are now in the first stage of this process. This does not mean the crash will come soon. No one can predict the speed at which things happen. But one thing is clear. When the central banks out of fear of collapse thrown their rigid monetary policy overboard and pump new money at lower interest rates into the markets (in the negative realm in the case of the European Central Bank), they will only fire a limited flash-in-the-pan but cannot prevent the definite collapse.

The message of the global financial sector at the turn of the year 2018/2019 is clear. The casino closes its doors. The game is over.


The situation seems contradictory. We live in an exceptional situation that the world has not seen before. The global economic and financial system has been clinically dead since 2008. It only functions because it is artificially kept alive by the central banks like a patient in the intensive care unit. $18 trillion was pumped into the global system.


The unparalleled monetary policy of western central banks is in a cul-de-sac

A hyper-inflation threatens on the horizon

By Ernst Wolff

[This article published on January 2, 2018, is translated from the German on the Internet,]

The situation at the beginning of 2018 seems extremely contradictory. The economy grows, the stock market posts all-time records, the unemployment numbers fall and industry shows an optimism not seen for a long time. At the same time, the world congeals under the greatest debt burden of its history, suffers in the greatest social inequality and sees itself exposed to even higher risks than before the 2007/ 2008 crisis.

Where do we really stand now? Can we look calmly to the future or do historic dangers threaten? Is there an economic theory that can answer these questions?

The Economic Theories of the Past Cannot Help Us

These theories cannot help for a simple reason. We live in an exceptional situation that the world has not seen before. The global economic- and financial system has been clinically dead since 2008. It only functions because it is artificially kept alive by the central banks like a patient in the intensive care unit.

Since the near-collapse of 2008, the largest central banks of the world pumped between $14 and $16 trillion into the global financial system and lowered the interests almost seven hundred times. The greatest part of this "cheap" money flowed into financial speculation and ensured a historically unparalleled distortion of the markets.

Assuming stock prices say anything about the profitability of a business is completely over. Big businesses all over the world have used the cheap money to buy back their own stocks and artificially force up prices ($214 billion by March 31, 2018, according to The Real World Economic Review).

Imagining costs and interest yields of state bonds say anything about the economic and financial strength of a country belongs to the past. The central banks rescued whole countries from bankruptcy by buying their bonds and generating markets through artificially-created demand where it really did not exist anymore.

The Manipulation is Unparalleled

Central banks intervene directly in the stock markets and ensure that even tottering businesses keep their heads above water and others are treated far above their actual value. For example, the Swiss Central bank (SNB) is the largest shareholder with Apple, Alphabet, Microsoft, Amazon, and Facebook and held US shares in the amount of $91 billion at the end of 2017/2018. Remember, the SNB can create the money with which it buys shares.

All this means we live in a system artificially driven and inflated by money creation and the lowering of interests. But this has fatal side-effects because central banks function according to the same principles as the rest of our economic- and financial system. The money they create must be paid back and is not given away. Thus the global mountain of debts constantly increases.

Fueling inflation is a proven means for relieving the burden of debts. The higher general price level lowers the number of nominal debts in relation to other money values. However, bringing about such inflation requires the methods used since 2008: money creation and the lowering of interests.

For some time, central banks all over the world announced a tightening of their monetary policy after ten years of cheap money because the past policy increased the risks of over-indebtedness and did not bring the desired result. The FED has taken very timid steps in this direction. However, the largest mountain of debts in history stands in the way of a further tightening of monetary policy. The bankruptcy of countless debtors was the consequence of ignoring enormous holes in the treasuries of creditors. The system could be plunged into the next crisis that may be more serious than 2007/2008.

A Hyperinflation at the End

The situation in which we are mired can be described as follows. The central banks have adjusted to a monetary policy that produces some positive phenomena on the surface that cannot be canceled without causing the collapse of the system as a whole.

In other words, the global financial system is like an addict who experiences brief upswing phases again and again because of the drug injections. However, their organs are intensely damaged from time to time and sometime or other - without notice - their functioning breaks down.

No one can predict when this will happen - whether in 2018 or later. Only one thing is certain: the means of manipulation available to central banks are largely exhausted. Only negative interests remain after low- and zero interests - and with that the destruction of classical banking, namely awarding credits. After the flood of newly created money, only the creation of even more money remains - and the way into hyperinflation.

The only way out could be orderly debt cuts on a large scale. However, politics and economic interest groups are obviously not ready for that.


By Heinz-J. Bontrup

"We produce more and more with fewer and fewer workers. This increased productivity has led to an exorbitant multiplication of wealth on the side of the owners of capital. Only an overdue reduction of working hours with full wage compensation offers a way out of the long-lasting misery of mass unemployment. The de-growth theme (growth-decline post-growth) is a theme more for the entertainment pages than for level-headed realistic economic reflection.

Renouncing on a productivity-driven growth on the background of private and public investments, mass unemployment and precarious labor markets with a marked low-wage sector (despite a legal minimum wage that is now introduced) is more social romanticism and cynicism toward the unemployed, the poor and precarious workers in the country. When an economy does not grow and even shrivels completely irrespective of the economic order, a misery economy inevitably arises as in the case of Greece. Then the environmental conservation myth demanded so rightly and coherently by growth critics does not even have a marginal chance of conversion or introduction at the end."


The central banks maneuver between the plague and cholera instead of taming the international financial casino at last

By Ernst Wolff

[This article published on August 25, 2017, is translated from the German on the Internet,]

The international financial elite will meet in Jackson Hole, Wyoming from August 24-26, 2017 for their annual monetary policy conference of the Federal Reserve Bank of Kansas. Under the motto "Promoting a Dynamic World Economy," leading representatives of central banks will discuss the real problems in the financial sector with economists and top managers from all over the world.

Unlike what the motto suggests, the meeting takes place on the background of a world economy dragging along that can no longer keep going despite intensive efforts for ten years. The reason is that the global real economy is bled white by a financial sector whose manipulation has reached a historically unparalleled extent and is ruled above all by the central banks.

Since the 2007 crisis, the mammoth central banks have pumped more than $18 trillion into the system ("creating liquidity") and raised the interests worldwide more than 670 times ("ensuring cheap money"). The cheap money was allocated to stimulate the economy, it is said. However, the lion's share flowed directly into the global financial casino where it drives up stocks and real estate prices to dizzy heights, generates a massive mountain of debts and creates the greatest imbalance ever seen between the real economy and the financial sector.

The Motor of Development: The Central Banks

The opposite happened even though politicians of all shades and colors promised to draw the necessary conclusions after the 2007/2008 financial crisis. The financial sector is regulated less today but the sums are greater and the risks higher than before the near-crash of 2007/2008.

In the meantime, the central banks have become the motor of development. In the first five months of this year, they created and brought into circulation $1.5 trillion. To that end, they created state and business bonds as new money and acted as big shareholders.

The Bank of Japan is one of the ten most important shareholders while the European Central Bank keeps insolvent states (and their governments) above water. The Swiss National Bank has worldwide partnerships with more than 1500 businesses and 20% in stocks.

Corporations use the cheap money obtained from central banks mainly to buy back their own stocks and force up their prices again (and the bonuses of managers coupled to them) - a mechanism that causes the stock price of a business and its success in the market to have nothing to do with each other.

Two Options That Both Lead to Ruin

That the global printing of money did not lead to inflation felt in everyday life in the past is because firstly money hardly flowed into the real economy. Secondly, the purchasing power of the majority disappears in many countries because wages stagnate or even fall internationally - on account of the expanded low-wage sector. Therefore, an industry cannot raise prices without reducing the demand and its own profit.

Enormous inflationary bubbles arose on the stock-, bond-, and real estate markets while hardly any devaluation of money is felt in everyday life. Moreover, the cheap money seducing to borrowing has produced huge mountains of debts that cannot be reduced in many cases - on account of the stagnating real economy (so-called "rotten credits").

Both problems - the bubbles on the markets and the historic all-time record in debts and rotten credits - set the central bankers of the world before an insoluble problem with only two options:

limiting the printing of money and raising interests again to prevent a further increase of bubbles or even to reduce them

on the other hand, lowering the interests and supplying the money market with additional cheap money to make possible the repayment of credits and preventing the genesis of more rotten credits.

Only Way Out of a Hopeless Situation

The present financial system is in a rather hopeless situation. Either the bubbles will burst or the mountain of debts will collapse. Both variants endanger our social structures. Mass unemployment, the bankruptcy of a huge number of medium-sized businesses and drastic cuts in social services and pensions will be the consequences. This could generate considerable political unrest and end the relative peace in Europe.

To prevent such a development, our elected parliaments and governments must dry up the international financial casino and break its disastrous influence in the real economy and politics.

Comments - Gisela Weber, 8/26/2017

The monetary-, fiscal- and financial systems are manmade. We can change them - along with the necessary change of consciousness... Do we want whole countries to be driven to ruin through speculation? Wouldn't limiting this and preventing havoc be more reasonable?

Luzia Osterwalder, 8/27/2018

A rule is a patriarchal construction, not a human right. A people can survive without rule but there can be no rule without the people.

Gisela Weber, 8/27/2018

Unfortunately, we are more and more a pseudo-democracy... Most people run in a hamster wheel and can hardly see beyond it.

Luzia Osterwalder

For a long time, we had base democracies in pre-patriarchal time with the Iroquois (North American Indians) and with matriarchies that still exist (for example, the Mosua in China).

Our democracies are pseudo-democracies. On Election Day, we delegate our self-and joint determination to a few who ultimately decide against our will...

Governments are not interested in granting relief to the people. In my opinion, bringing back decision-making authority to the base is most important...
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US late-stage capitalism is a tottering economy
11 Mar 2019
US late-stage capitalism is a tottering economy, not a booming economy. The tottering economy is still deluged with foreign capital. The financial sector is like a patient in intensive care only kept alive by financial injections. It's time to rethink state, market and neoliberal myths. Shriveling the financial sector and expanding the public sector should be two lessons from the 2008 financial meltdown. Who are learning the lessons?

In 2018, corporations spent $1 trillion in buying back their own stock. $18 trillion was given to "Too Big to Fail" banks. Private risks became public risks. In the 1960s, 40% of federal revenue came from a tax on corporate profits. Now that is only 8%.

Taxes are the price we pay for living in an interdependent democracy (cf. Chief Justice Oliver Wendell Holmes). All personal and corporate success was and is based on state investment in roads, schools, hospitals, clean water, safe food, airwaves, and community centers. The two GOP tax bills gave $8 trillion to corporations and households with over one million dollars.

Communities and states suffer under revenue shortfalls. Corporations shift profits of $12-22 trillion to tax havens like the Cayman Islands, Switzerland, and Delaware. Do we live under the rule of law or under the rule of Humpty Dumpty, words mean what I say they mean?

Resistance is part of our nature as antibodies are part of our bodies. "Making America Great" easily becomes "making corporations great." Amazon paid no tax on $11 billion in profits in 2018. What will other corporations do? Are we witnessing the self-destruction of late-stage capitalism?

Are we "bright-sided" so we run from negative or system analysis? We no longer have a "watchdog media." Instead, the media is a "lapdog" media. Celebrity news, sports updates and weather analysis dominate as foreign news and counter-arguments fade.

The state should fulfill the public interest, create family-wage jobs, incentivize investments so the future is environmentally-friendly, redress market failure, fight poverty, and help those under the wheel. Instead, lobbyists craft the laws and Congress is an errand boy for the banks. New jobs must be created for those entering the labor force. Can their choice be reduced to Amazon factory jobs or Uber drivers?

US Trade Deficit Rose 12% in 2018

The Twitterer is the incompetent and the clueless, who turns from policy and principle to opportunism and show.

Cutting everything but the military leads to cynicism and plutocracy, exploding inequality without countermeasures.

Returning the money to HUD, food stamps, the Dept of Education and the EPA, social security, Medicaid, Medicare would be a sign of humanity and partnership.

Social spending enables people to keep their heads above water and makes all the difference between being subjects and being objects. Visit Vancouver B.C. and experience social enlightenment in their 26 community centers!

40% of corporate profits are shifted to tax havens. Here is a link to "The Missing Profits of Nations" by Gabriel Zucman and others in June 2018, 52 pp