Capitalism stops when money stops working. If the banking system collapsed tomorrow, it’d take everything with it. You couldn’t access your money. Businesses couldn’t buy stock. Services would stop. Everything that depends on money would stop.
Trade would have to stop. It’s a cascade effect. How do you buy or sell anything in that situation? You don’t. It’d be the recession to end all recessions, with huge layoffs. Crime would be the only way to get money, worthless or otherwise.
If you have any actual cash, you could have only so much, and inflation would go nuts in this environment, devaluing whatever cash you have. Black markets and their exponentially high prices would replace capitalism, consuming cash.
Doesn’t matter how rich you are, your current and future money is already someone else’s. Buying groceries could be like taking out a mortgage.
Given the famous competence of modern governments which refuse to address the most glaring issues on a minute-by-minute basis, an existential meltdown is the likely outcome. This pathetic, ineffectual, non-existent society would crash.
This is the worst case scenario, and it’s currently largely theoretical. Housing is the main symptom, but other price spikes are similar, and getting worse.
Sparklingly refreshing as all that sounds, much less theoretical are oceans of debt suffocating real money, having much the same effect. Capital basically disappears. It’d be worse than the health sector, pulling enormous amounts of money out of the real economy, the one you have to live with.
When regressive thinking, denialism, and fraud are the main working components of politics and management, the outlook isn’t all that rosy. Price gouging is doing immense damage. The glowing pictures of “great numbers” can’t manage, or apparently understand, a measly few percentage points of interest rate rises.
A lot of these people have grown up knowing nothing but low rates. When interest rates went to zero or negative rates, they managed the Great Recession of 2008 which nearly exterminated the American middle class. Now, they’re trying to fix increased rates with increased prices.
They’re trying to cover impossible debt positions with money people don’t have. It can’t work, and it won’t. It’s basic arithmetic, and they’re not good at it.
This process is entirely self-destructive. It’s the actual antithesis of capitalism. If people can’t pay for things, those things stop working. The price increases have created a huge demand for money that can’t be met. It’s basically the same thing as no access to money.
The credit market is under severe, increasing pressure. Even if the banks are solvent, the demand is reducing the availability of money for lending. Lenders are naturally risk-averse in this untrustworthy environment, trying to protect their own bottom lines.
Capital in the form of property is also under serious threat. Decreasing property prices mean shrinking capital assets, on a very large scale. This undermines a lot of collateral for raising money. Again, capitalism is its own worst enemy.
These factors aren’t being ignored, but they are being underweighted. The days of money for nothing are dying, and the next phase will be tough lending at higher rates. Add a war, and it’s even tougher.
The credit markets seem to be hoping the lines will go back to the Good Old Fictional Days, when anyone could borrow and lend any amount of money for anything. That won’t happen because it can’t. Everyone is way too exposed.
This total lack of realism is preventing any fixes. This situation can’t and won’t just go away overnight. A lot of damage has already been done. Silicon Valley Bank, Deutsche Bank, and Credit Suisse were unmistakable signs of a barely-avoided crackup in the credit markets.
The most superficial analyses of those three situations show that debt had been stockpiled; vast amounts of it. SVB was in a $200 billion hole. Credit Suisse was in a similar position. Deutsche Bank just made people very nervous after a long string of credit-based issues. They can’t be the only ones.
This is the QAnon stage of capitalism. It’s delusional, destructive, and dangerous. That absurd debt has to go. They were borrowing like there was no tomorrow, and for some, there won’t be. Hocking the future to pay for the present has never worked.
Ironically, there’s a very simple accountancy process that will work. It’s called a cutoff. As of X day, a line is drawn on debts. New, safer, processes are installed. Debt reduction at a strategic level neutralizes the risks. Write-offs are done if necessary to further reduce liabilities.
Let’s see if they can get this right.
