Guess
who will pay again for the oncoming chaos ...
Speaking on
The
Real News, Michael Hudson gave
a simple and clear explanation of why the stock market booming,
praised by Trump, has nothing to do with the real improvement of the
economy. Instead, it shows the real nature of financial capitalism
that has reached its limits. And all it could give us from now on, is
a repeated sequence of financial bursting bubbles until its ultimate
collapse.
As Hudson
pointed:
The answer
is quite simple. The question is, who is buying these stocks? It's
not individuals. It's not even pension funds. It's not the private
sector. Almost all the stock purchases are bought back by
corporations in share buybacks.
In other
words, companies are buying back their own stocks in order to push up
the price because that's how executives are paid. They're not paid by
increasing output or even increasing profits. They're paid by how
much they can push up the stock price, and there are two ways of
doing this easily: one is to use earnings simply for share buybacks,
buy your own stock and push it up, or you simply pay out the earnings
in dividends.
What you
don't do if you want to increase the stock price is you don't invest
more in research, you don't invest more in capital, you don't hire
more labor, and you don't expand the markets. In other words, you
give up. You say, 'the economy has reached an end, it's not going to
grow from here, we are taking the money and running, we are just
going to use the earnings that we have to help the stockholders', so,
the stock market is actually the reverse of how the economy is doing.
The price of
almost anything is a result of how many people are buying and how
many people are selling. What's happened is basically the individuals
and the private sector is selling the stocks. Normally this would
push down stocks, and the reason it's selling is most investors think
that the reason stock prices have gone up is because the Federal
Reserve has flooded the economy with low-interest money and people
are borrowing at 1% in order to buy stocks that are yielding 5 or 6%
and they're pocketing the difference.
But now,
everybody thinks that this is going to come to an end. The Federal
Reserve says it's going to raise interest rates. Same thing in the
European Central Bank and the Bank of England. They expect higher
interest rates are going to push down stock prices because it's not
going to pay people to borrow to buy stocks anymore. Most investors
today are looking for the stock markets to make a big decline. They
don't want to hold them.
Who is going
to want to buy stocks that are going to go down in price? The answer
is the corporations are going to buy it because the stock managers
aren't penalized if they make a bad investment. If the stock price
goes way down, the company loses because they had a huge loss on its
shares that it bought back, but the managers of the company clean up.
They're paid the bonus because they're paid according to how much
money they can push in to buying up their own stock to support the
price. If you say you're going to pay a high price for anything,
that's going to raise the price and they're pouring the corporate
earnings into their own stocks, not into investment.
Costas
Lapavitsas spoke
about the roots of this zombie-type transformation of capitalism. As
he points, financialization is basically a profound historical
transformation of modern capitalism that really began in the 1970s,
and it's now been running for about four decades.
One of the
major economic changes of this transformation is
related to nonfinancial economic activity.
Big business has become
increasingly capable of financing investment out of retained
earnings. It retains its profits, and on a net basis it finances
investment pretty much out of that. Of course, it still uses banks,
but it doesn't rely on banks on a net basis to finance investment.
That gives it a certain degree of independence from banks.
In addition to that, big business
has made so much in retained profits - currently U.S. big business is
sitting on piles of cash - that it can use those funds to play
financial games, to engage in financial transactions and financial
activities on its own account. So big business has financialized.
Large enterprises have acquired some of the character of financial
institutions, have become bank-like, and they engage in these
transactions, and they change the structure of their own organization
as they do that.
So, today, the picture given by
Michael Hudson is that of a highly saturated system. A financial
machine that is broken, temporarily fixed by the state to run for a
while until it's broken again, etc. These vain efforts to keep it
alive come with a huge price passed on the working class. It appears
that the banking/corporate parasites realized that the system is
already dead, so, they just want to take as much as possible and run
away right before the ultimate collapse.
Well, guess who will pay again for
the oncoming chaos ...
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