On a discussion forum I participate in, the question arose, “if the media blamed the bailout not being passed for the stock plummet that followed, why did it plummet again after the bill was passed?”
The wealth the markets are losing never existed to begin with: All the wildly swinging ups and downs in the stock market are evidence that investment bankers are playing hot potato. They are looking for a New Bubble that can replace the housing bubble, just as hyperinflated house prices took over from the IT crash, but there is no new bubble anywhere in sight – although there might have been if we had committed to green energy a decade ago.
When house prices return to their real value, projected to bottom out around 2010, all that fictitious wealth – the difference between the real value of housing and the hyperinflated value that resulted from deregulation and bad lending – will just be gone. Until then, investors are madly and pointlessly shifting capital around the world, looking for somewhere it will at least be safe, if not grow – but no such place exists.
What we are seeing is a high stakes game of musical chairs. We all have to to keep running in circles until the music stops and another bank or industry goes down, then the world’s governments borrow a few more trillions from future generations to get the music started and the whole thing starts all over again with one less chair.
A lot of the the economic theory behind my perspective comes from this article by Eric Janszen. The article contains an anonymous quote from an early 18th century South Sea Bubble pamphleteer that stuck in my head:
One added to one, by any rules of vulgar arithmetic, will never make three and a half; consequently, all the fictitious value must be a loss to some persons or other, first or last. The only way to prevent it to oneself must be to sell out betimes, and so let the Devil take the hindmost.
I googled the quote and came up with a book: The Far East and the English Imagination By Robert Markley. The quote appears on page 222, along with a few other insights into the whimsical origin of growth based economics, most of which I am too lazy to retype. Here’s a small morsel:
As early as the 16th century, “stock” became not merely an inventory of existing commodities but a representation of potential wealth, of returns yet to be realized. What becomes “infinite”… is not the daily or annual production of specific estates or shipyards but the potential for that production to continue indefinitely if it is imaginatively freed from ecological, social and political constraints.
I understand why this model of economics would seem reasonable in the 17th century, when resource-rich virgin territories were being rapidly colonized, but now we must have a reality-based economic paradigm. It’s time we relegate this fanciful nonsense to the annals of history, where it can live on as a quaint relic of the past – rather than the rope with which we hang ourselves, our planet and our descendants.