Tuesday 30 August 2011

Recurring questions: Do stock market gains equate to economic recovery?

Do gains in World stock markets mean that the long awaited economic recovery is underway?

If you choose to believe the reaction of economics "experts" in the mainstream media, then the gains are really positive news meaning that the global economy is finally coming out of recession and that the recent falls can be forgotten about.

If however, you are disinclined to believe the media "experts" that were incapable of spotting the sub-prime mortgage scam for what it was and ignored the pre-2007 warnings that reckless borrowing to fuel property price inflation was going to end in economic disaster, perhaps you should ask another question:

Who are the beneficiaries of increasingly dramatic fluctuations in the money markets?

Hint: The unregulated speculative derivatives market is estimated to be worth 20x the GDP of the entire World. Nowadays there's vastly more money invested in bets about whether stocks are going to go up or down than is invested in actually making or doing things in the "real economy".

To take the UK as an example, the much hyped national debt of 876 billion (58% of GDP) was borrowed to spend on all kinds of beneficial stuff like universal healthcare, universal education, the military, infrastructure projects, science, research subsidies, policing, welfare, local services, libraries, foreign aid, industrial support and even a few ill advised and not very beneficial foreign invasions, while the sum just unconditionally handed over to the banks to pay down their appalling gambling debts (which is misleadingly excluded from the national debt calculations) is £1,376 billion (91% of GDP), this figure doesn't even take into account the economically destructive consequences of holding interest rates artificially low for years, a £325bn money printing scam (quantitative easing) and the countless $trillions in secretive ultra low interest loans to British banks from the US Federal Reserve.

Meanwhile neoliberal politicians are queueing up to shaft ordinary working & taxpaying people with their "austerity measures" based on the great neoliberal lie that "the state has been spending too much on welfare, healthcare, education and other services" when they know full well that the state has borrowed far more in order to prop up the corruption riddled, unstable and transparently defective neoliberal economic system.

The uber-rich neoliberal financial services clique are laughing all the way to the bank. They have benefited from taxpayer funded bailouts to kept their reckless money making scams from collapsing into the chasm of debt they had created. Now they are enriching themselves in the game of short selling sovereign debt before their self fulfilling prophecies about imminent downgrades come true, then brazenly chelping away that ordinary people need to suffer more "austerity" because their governments have too many unaffordable debts.

The $1.2 quadrillion speculative derivatives market dwarfs all of the real economies of the World, (it is 80x the size of the much hyped US government debt). The reason for this is that it is far easier to make money in unregulated financial speculation than it is to invest in employing anyone in the real (and regulated) economy to actually make things or to provide real services. The unregulated and unstable debt fuelled behemoth of the speculative derivatives market leaks it's inherent instability into the comparatively tiny real economy. The tendency to look for causal factors in the real economy is the same kind of futile outdated thinking as maintaining traditional twentieth century tribal political allegiances when all of the mainstream political parties have been infiltrated by followers of hardline neoliberal orthodoxy. Claims that worries about the Greek sovereign debt crisis caused the latest global market collapse are not so much "tail wagging the dog" theories as "flea wagging the dog" theories.

In order to make their obscene amounts of money, the speculative derivatives traders need to create unstable market conditions in order to maximise their gambling yields. All the talk about market confidence is as meaningless as the jumbled post hoc list of factors media "experts" like to espouse as reasons for the latest market surge/market collapse. Derivatives traders want the stock market to rise in order that it can crash again, they want it to crash again in order that it can rise.

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