Wednesday, 11 October 2017
QE: the financial elite’s magic money tree and the birth of finance communism
Sometimes you read something that just blows the lid of reality and makes you mad.
In the latest issue of the New Statesman, Christopher Thompson describes how QE is the greatest redistribution of wealth to the rich in history, helping increase wealth for the rich through $8 trillion of central bank money creation, helping spur a $100 trillion expansion of wealth at the top since 2008. The result: 13 zeros added the balance sheets of bankers, stock holders and all those with significant financial assets. Is it any wonder that populism is on the march and people no longer trust mainstream politicians?
This article should be read as a manifesto for revolution. By bailing out the rich, and squeezing the rest through rising asset prices (the house you can’t afford, the giant mortgage you must pay) and wage depreciation, QE should be seen as a form of financial crime — disguised as an economic rescue. No doubt central bankers and politicians genuinely believe they saved us — but really they saved themselves at our expense.
More than that, this is a new model of state finance capitalism — or we could call it finance communism. A permanent guaranteed income for the financial elite, and permanent stagnation and austerity for everyone else. Traditional economics — both neoliberal and Marxist — holds that capitalists use their capital to invest in production and out of this they make a profit.
Neoclassical economics holds that this profit is a reward for risk. Marxism holds that it is surplus value taken from labour (or as rent for land).
But the age of QE effectively marks the end of traditional capitalism. Previous acts of primitive accumulation, to use the Marxist term, occurred during colonialism, slavery, conquest and imperialism. This accumulation then funded early industrial capitalism in the UK and Europe.
According to the believers in traditional free market economics, there was no plunder, rape and colonially induced mass famine, simply voluntary trade in which everyone got richer from the 18th century onwards. (I read this fairy tale every day, a faith that facts cannot impede.)
With less of these opportunities available in recent decades, and traditional honest capitalism also struggling due to financialisation and stagnant wages, the corporate elite must now find new ways to extract wealth and rent from the rest of society.
Old fashioned exploitation is still there, but it is supplemented by state backed extraction. Take the Iraq war: this was a plunder exercise — not just of Iraq’s wealth, but of no-bid contracts (often simply cash in suit cases for fake work) financed by the US Treasury to the tune of $1 trillion. Then, just as the war booty was drying up, along came QE.
This huge bailout is disguised through central bank bond purchases. “Central banks don’t just hand over this money regardless. They do it by buying bonds, most of them issued by governments, from financial institutions such as pension funds and insurance companies, which hold them as investments,” Thompson explains. “Bonds” are just tradable pieces of debt.
This is the best description of what happened after 2008 I’ve read. The central banks of the US, UK and Eurozone (as well as Japan) created $8 trillion for the 1 per cent, or $10,000 per head for the rest of us. Noticeably this vast cascade of magic money has not trickled down. Real wage stagnation has hit incomes of the bottom 90 percent while asset prices for the wealthy have soared in the biggest housing and stock bubble in history.
“Thanks to central banks’ money spigots, rising property, stock and bond markets have helped global private wealth grow by two-thirds since 2008 to $166trn, according to the Boston Consulting Group,” writes Thompson. That's a $100trn wealth gain.
“Banks have been the biggest beneficiaries,” hedge fund boss Paul Marshall, co-founder of Marshall Wace, wrote in September 2015. “Asset managers and hedge funds have benefited, too. Owners of property have made out like bandits. In fact, anyone with assets has grown much richer. All of us who work in financial markets owe a debt to QE.”
As a result of QE “financiers have used the new-found money to go shopping, all at the same time. Suddenly, demand for assets significantly exceeds supply. This pushes up the value of investment assets — including shares, which have surged to record highs despite weak economic growth, and bonds, and also fine art, London property and vintage Château Lafite,” writes Thompson.
QE can’t be stopped, or the markets might panic. They are addicted and so $131bn in new bond purchases by the central banks is added each month in Europe and Japan. National and private debt expands continuously.
What comes next? The 99 per cent must find leaders and policies to take the trillions back. In the next crisis, the rich must take a haircut, and the helicopter money must go to the bottom 90 percent. The people must be bailed out. Look out for parties and leaders who put that in their manifesto. We won’t get fooled again.
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