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Capitalist pyramid scheme may come crashing down

Dave Ransom  |  Issue: May | June 2020

‘There will be no recovery.  There will be social unrest.’

 

outdoor homeless shelter in Las Vegas

LAS VEGAS, NEVADA—This is criminal. Homeless are giving spaces to sleep outside in a parking lot while thousandS of empty hotel rooms are empty. This the government’s response to shelter in during the corona virus. PHOTO: MEDIAPUNCH/REX/SHUTTERSTOCK

 

The economy was on thin ice even before the virus hit. Wall Street commentators said all it would take to push it over the edge was a “black-swan” event – something unexpected that came from the sky.

The coronavirus is that event.

Since the 2008 financial crisis, central banks (including the U.S. Federal Reserve) have been pushing trillions of dollars into the capitalist economy to keep it afloat. They have put huge amounts in cheap loans into the hands of banks, corporations, and speculators.

While the rest of us have struggled to make ends meet, these capitalists have been using that money to make more money, widening the class divide.

But robotic production has been lowering both wages and profits in industry, so there have been few places for that cash to go productively.

Instead, corporations have used it to buy back stock, thus artificially inflating stock prices. Hedge funds have thrown billions into the stock market, too, further driving up prices. And they have thrown billions into buying the “junk” bonds that zombie corporations issue to keep themselves afloat.

Speculators also flowed billions into the one thing they could still reap profit from – real estate. They drove up rents and housing prices, sucking the last remaining dollars out of working-class pockets.

Now, that pyramid scheme seems about to come crashing down.

“The risks have been building in the financial system for decades,” the Financial Times of London wrote in early March. “The rise is most striking in the United States, where the Fed estimates that corporate debt has risen from $3.3 trillion before the financial crisis to $6.5 trillion last year [2019], the FT wrote.”

With businesses laying off and shutting down due to the pandemic, they foresee a domino effect – corporations defaulting on their bond payments, speculators (who used bank loans to buy those bonds) also defaulting, thus throwing a wrench into the whole banking system.

With the whole capitalist system in collapse, it would be far worse than 2008. Even Trump administration officials now predict 20 percent to 30 percent unemployment. It could be much worse.

What happens then? One of Europe’s biggest capitalists, industrialist Jacob Wallenberg explained: “There will be no recovery,” he said. “There will be social unrest.”

In effect, it will be a brave new world, one in which, as the old song says, we the people “bring to birth a new world from the ashes of the old.”

Not a bad outcome, when you think of it.

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