Excess Speculation

“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation.”

John Maynard Keynes1

In a young political economy, that is, in a political economy that has made a new start with new money after a collapse, speculation is virtually unknown in the early stages . All earnings flow back into consumption and surplus earnings directly or indirectly through bank deposits into urgently needed investment.

This situation changes in the course of time, as a result especially of two developments that reinforce each other: Firstly, with saturation setting in, the demand for necessary investment declines. Secondly, increasingly larger surplus earnings accumulate in a few hands in the form of monetary assets. These accumulations of monetary assets together with diminishing investment opportunities and consequently declining returns are a temptation to enter riskier businesses. Many are content with state-licensed casinos, others gamble with their money in pools and sweepstakes and others again find it more interesting and especially more secure to speculate in the stock exchange. With ever newer and ever more complicated permutations, the stock exchange itself becomes a sort of casino. And in order not to restrict the participation to only a few “super rich” in the stock exchange monopoly but also to engage “ordinary folk”, clever brokers and financial agencies offer ‘investment funds’ and similar facilities, so that even they, with modest sums, have an opportunity to join in.

Hundreds of thousands have had the experience in one of the first worldwide operating funding agencies, which was established by the almost legendary Bernie Cornfield in the sixties, that even something like this, with a broadly spread risk, can misfire and almost ten years later can be mismanaged into insolvency.

How do the banks behave?

Initially sceptical and regarding the funds as competition, the banks eventually leapt into this business on a large scale, if only to avoid losing customers and their money to others. Thus even the smallest savings bank now offers its less well-to-do customers the chance to participate in the game. Moreover, banks could make the savings, piling up in their customers’ accounts, profit-earning while, at the same time, collecting the commission on every game.

But not satisfied with that: banks finally began on their own, to turn ‘cart wheels’ with customer’s deposits, so as to manage interest payments for the savings entrusted to them in a way that is not totally without risk. For this purpose, special divisions with more or less well versed specialists were set up, and they in the beginning all too often (and for a long time undisturbed), had a few of their own ‘horses’ running alongside. Only when they brought the bank into serious difficulties, was it made public. One only has to recall the bankruptcy of the German Herstatt Bank with its clever foreign exchange providers, or the story of those hired speculators, who, in the nineties, brought the old-established British Baring Bank to the brink of bankruptcy at the Singapore stock exchange. How many millions and billions were wasted will never be known

But not only experts from the banking and stock exchange environment ventured increasing amounts in the world of speculation. Even large enterprises with oversized ‘war chests’, entered the lucrative business, in which, smaller players mostly, with less insider knowledge, got the worst of it. To save on bank commissions, the big firms even set up their own sections specifically for speculation with dozens of employees, who make the surplus billions ‘work’ in this way. To what extent one can make money with such dealings is seen, for example, in the ‘explosion’ of liquid assets of Siemens, which since 1980, increased from three to almost 30 billion DM. As is well known, Volkswagen had less luck in this racket. An amount to the tune of half a billion vanished almost unnoticed in not-so-legal channels.

The consequence of such developments was and is that our money, once thought of as a means of exchange, has been degraded more and more into a means of speculation. The more this mistakenly understood liberalness in money transactions increases, the more dangerous and explosive does the whole situation become.

What are the consequences of stock speculation?

While in the past stocks were often thought of as a sort of life insurance – sometimes even over generations as, for example, the legendary Suez canal papers -, they have become today more a means of speculation. It is true that dividends are an incentive for buying, but, in view of the drifting apart of market and nominal values, market profit is the more crucial factor. At the present levels of stock exchange euphoria, stocks of companies, which for many years, have only ever posted losses and have never distributed dividends, are being negotiated at fantasy prices .

As two people are always needed for every share purchase on the stock exchange, and both of them believe they are making a correct call, the result is open. Who actually had the instinct for profit can be seen only afterwards.

Normally – just as in a casino – only the players are affected by speculation losses. But if it comes to an extended boom in the stock exchange, and sometimes to the bursting of a balloon, the ripples and waves emanating from it will also touch normal economic performance. This is especially true for the banking sector, if they have carelessly financed purchases on the stock exchange with loans. However, during these price crashes, no ‘multi-digit billion money losses’ occur, as can be read sometimes even in business magazines. What gets lost, are largely exaggerated hopes for profit, i.e. speculative air, which was blown into the balloon by the speculator himself. These losses only occur when a) one has bought stocks at a higher price and b) sold them after a crash in the stock exchange at a lower price. But since the issuing banks also sometimes lose their head in such situations and – due to the absence of functioning circulation safeguards – let the money printing presses run. Such a crash can sometimes even jeopardize the purchasing power of money and, with it, the complete economy.

Wilhelm Hankel described years ago what manifold effects excessive speculative developments can have in his book “Vorsicht unser Geld” (Caution, Our Money):

“When asset turnover reaches 15 to 20 times that of the turnover of real goods in a given time period, then this ‘speculative factor’ carries 15 to 20 times more weight than… export and import prices which are valued in the home currency. One earns more with pure money trade than with the ‘honest’ trade of merchandise. But that is not all. The previously assured money standards and money costs become uncertain – especially the interest rate.”

And he also described the consequence for all of us:

“70 per cent of the recipients of fixed salaries and wages, which depend on the economic situation primarily in the first and industrialized world, can only raise a weary smile about the advantages of a free, deregulated and totally borderless world capital market. They suffer the consequences of world-recession, debt crisis, exchange rate chaos and escalating interest rates and they know that the frenetic and uncontrolled roulette and casino atmosphere of these markets is the actual and deeper reason for all the self-made problems: from unemployment to stock exchange uncertainty and company bankruptcies.”

How large are the stocks of shares in the world
and how are they distributed?

According to the figures given by the World Bank, the total worldwide stock of shares at the end of 1997 had a market value of 20,178 billion dollars. How these billions are distributed over the twelve stock-rich countries is depicted in figure 54, in dark columns with the scale on the left given in percentages.

Figure 54

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With about 8,500 billion dollars and with that almost half of the total stock of shares, the USA was at the top, followed by Japan with 15 per cent and Great Britain with close to 9 per cent. Germany took fourth position, but with its 3.3 per cent it was closely followed by the remaining eight countries with Brazil at the tail end with one per cent of the shares. All the other countries in the world, not mentioned here, had even less and had to be content with jointly holding 16 per cent of the shares, approximately as much as Japan alone held.

The astonishingly low share holdings in Germany had essentially two causes. Firstly, the German firms preferred bank credits for their financing, as they avoid the disclosure of their balance sheets and also do not have to grant shareholders a say. Secondly, the Germans would rather invest their money for fixed interest rates. In total, only 16 per cent of the total monetary assets are placed in shares, and as regards private households, it is only 9 per cent, in contrast to the USA, where approximately 40 per cent of shares are in the hands of private households..

What does the per capita distribution
of shares look like?

The per capita share holding calculation – once again considering the twelve stock-rich countries – is also given in figure 54 as the light-colored columns, in dollars per person. From the figure it is clear that in this breakdown, it is not the US-citizen, but, as per the calculation, the citizens of Hong Kong and Switzerland who were by far the richest. In Hong Kong at least, the high per capita amount may be due to foreign shareholders or foreign companies that have their headquarters there. Shares holdings of between 20,000 dollars and 30,000 dollars still fall to the lot of the citizens of USA, Japan, Great Britain and the Netherlands, whereas German citizens have to be content with the third last place of 8,000 dollars per head.

As for the ‘rest of the world’ the per capita distribution of shares appears even bleaker than the stock of shares. Here, every citizen has to be content with 613 dollar of stock, which is one thirtieth, when compared to the average value in the twelve countries, which amounted nevertheless to 19,000 dollars!

What is the reality in distribution?

Of course the per capita distribution that has been carried out here over the total population might raise many question marks. It does not, for example, reveal the number of people who hold any shares at all, and it also says nothing about the concentration of stocks. In Germany, for example, only 18 per cent of the population hold shares, whereas in the USA and Great Britain it is 25 per cent and in Sweden even 35 per cent. In contrast, in Japan, only 9 per cent of the population hold shares, which, in view of the high total level of stock, leads to the conclusion that it is either concentrated in the hands of banks and companies or in the hands of a few families.

In Germany, for instance, the whole Quandt family that was mentioned earlier – the principal shareholder of BMW – held a block of shares worth more than 9 billion dollars in 1997 and thus more than one third of the total company capital. But the Quandt family is relatively poor when their shares are measured, for example, against those of Bill Gates, who holds 22 per cent of Microsoft shares in his hands. Since their value of 1997 was estimated at about 200 billion dollars, his fortune of about 44 billion dollars or a good 88 billion DM is almost ten times bigger than that of the Quandts. And as the price of Microsoft has gone up in the meantime to 500 billion dollars, and thus the block of shares to 110 billion dollars, the difference has become even larger. How questionable such present day market prices are in reality, becomes clear if one divides the value of Microsoft of 500 billion dollars by the 29,000 employees of this company. The result is about 18.5 million dollars or 34 million DM per workplace!

“Spiegel” presented the unreality of such stock exchange values in a different way at the beginning of 1999: With its 29,000 employees and a turnover of 14.5 billion dollars, the stock exchange value of Microsoft was larger than that of eight of the biggest German corporations put together, which, with 1.3 million employees achieved a turnover of 378 billion dollars!

Which parameters determine what happens
at the stock exchange?

Up to now we have dealt with shares and their values. Developments at the stock exchange, however, are determined by the volume of transactions. We must distinguish between two different types of sales, namely, the trade with newly issued shares and the trade with already existing ones. In figure 55, the differences in the stock levels and trade levels are presented in relation to operations at the German stock exchange in 1998.

Figure 55

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If we consider the developments from the view of the real economy, then only the smallest item in the figure is of importance to it, that is, the sale of new shares, which was stated to be 90 billion DM in 1998. For, only to the extent of these newly issued shares, had new funds been fed into the economy and increased the total stock of shares. As this stock – stated to be 1,550 billion DM – however increased by a good 300 billion DM in the same year, the difference of the 90 billion DM was due to a rise in stock exchange prices.

Let us now look at stock broking. This was three and a half times the stock, which simply means that all shares were transacted three and a half times in the course of one year. The total turnover column of 10,700 billion DM or double the size, is because, in addition to stocks and shares, fixed interest-bearing bonds i.e. debentures etc. are also transacted there. From the gross domestic product (GDP) column in the background of figure 55, it can be seen that this total turnover in the securities exchange in 1988 is almost three times as large as the annual output of the German economy!

Besides these stocks and bond exchanges, there are also others: futures exchange, term deposits and foreign exchange. The turnovers of all these three trading activities increase not only through the expansion of the traded volumes, but also – at least, this is the case with shares – through market values, that are pushed higher through trading. They increase particularly during ever faster repetitions of the sale and purchase of shares.

This increase in turnover was made possible by the progress of electronic trading, round the clock and across the globe. Whereas in the past, stocks were held over generations, the holding period nowadays is becoming increasingly shorter. This is how, for example, the stock exchange turnover increased 130-fold from 1980 to 1998. In New York and elsewhere, these increases reached such proportions that they could no longer be managed by conventional stock exchanges anymore. Instead of the so called trading floor, which used to be characterized by an excited, gesticulating and sweating mass of people, transactions increasingly shifted over to electronic devices. In this way, the high-tech stock exchange Nasdaq began its operations in New York in 1971 and in 1999 it achieved, on peak days, a share turnover worth more than one billion, during which, in specific cases, newly issued shares were bought and sold many times in a matter of a few hours. The computer network of this electronic market is set for a total of two billion transactions daily – five million per minute! – and an expansion of up to eight billion share movements per day has been targeted for the year 2000. For this adaptation alone, 500 million dollars are being invested!

Private shareholders are hardly responsible for this increasingly larger and frenetic stock exchange activity, but rather a few dozen big banks, investment funds, insurance and especially pension funds in the world, which have multi-digit billions of assets from millions of investors and pension savings at their disposal. In US-pension funds alone, deposits amounting to 7.4 trillion dollars were amassed in 1998. In 1970 it amounted to just 200 billion.

By constantly buying and selling these stocks, often for marginal profits only, all these players try to exceed with their annual profits those of their competitors in order to gain more customers for their company. In addition, stock exchanges, brokers and banks naturally stimulate the business, because they collect a commission fee on every transaction and are therefore always the winners. Even when the commission fee is only between 0.2 to 1 per cent of turn­over, this is a roaring trade. A large proportion of the total of 1.2 million people employed in money trading in the London financial center make a living from it and– according to conservative estimates – produce seven to ten per cent of the British national aggregate! In foreign exchange trade alone, an equivalent value of 640 billion dollars is traded daily, i.e. about one third of the global foreign exchange turnover. Currently, the total world wide financial transactions exceed normal world trade by more than 50 times and the trend is increasing. In 1975, these transactions had already amounted to one fourth of world trade!

To what extent worldwide share values have drifted away from reality in this wondrous way, is depicted in figure 56. Whereas in 1985 they had moved in step with the world economy, they moved away in the following 15 years – almost explosively – from this reality base.

Figure 56

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Considering that in the USA, the unions hold about ten per cent of the total shares, then the divergence in the nature of interests is explicable, in the same way as is the block of stocks held by the Vatican. For, as is generally known, the highest price increases and with them gains on the stock exchange can be realized with rationalizations and laying off employees.

Stock speculation and the real economy

Stock exchange related headlines and pages full of price quotations in newspapers have the affect that the relevance for the real economy of developments at the stock exchange is often overestimated. Financing via banks and the issuance of bonds and debentures are still of more importance than stocks and shares. Even the frequently unreal exchange rate fluctuations of shares have neither a direct influence on general economic activity nor on asset value or the order situation of the concerned company. At most, the prestige of companies is influenced by such price changes, which naturally may have a medium-term effect on the situation concerning orders, especially on the financial gains resulting from any new issuance of shares by the company.

During price crashes, real wealth does not get destroyed – as can often be read even in business magazines – and by no means does money get destroyed. Shares are not money, not even a credit balance which would enable one to demand money back from someone. Shares only confirm a property share of the capital assets of a company, which consist in buildings, machinery, material stocks, patents etc. These do not change during price crashes and, moreover, they are not destroyed by it.

The often totally unreal price rises that precede the collapse usually come about through conjecture, rumor or the recommendations of analysts. The resulting impulse in demand often only triggers the announced price increase and this in turn leads to a self-amplifying snowball effect.

Can prices fluctuate?

Of course, prices can fluctuate around the real value of a company and justifiable expectations can also be exaggerated. But such increases never move too far away from reality. Such a take-off is inevitable, though, when the number of speculators or when the supply of money for the purpose of speculation increases goes beyond the increase in traded shares, specifically: when the demand for shares is greater than the supply. In such cases – exactly as in merchandise markets – the prices tend to rise, which can be described as a sort of marginal inflation. While such marginal price rises of merchandise diminishes the further demand, it attracts more demand in the speculative stock market. This amplifies the snowball effect on its own. Such over-development of systems, however, can only function as long as the number of players, or the money they pour in, constantly increases. As this expansion hits natural limits at some point, this escalation must come to an abrupt end.

In principle, this hyper-activity at the stock market – as in the twenties of the last century or in our times – is a sort of chain-letter-system or pyramid game system – in which the majority of the participants, especially those who entered the game in its final phase, have to foot the bill. These processes are comparable with large-scale rip-offs that were in practice a few years ago in Bulgaria and Albania and even in Germany, with profit promises of 70 per cent or more. They also functioned according to the avalanche principle, as long as more and more players put more and more money into it. And they broke down when this was no longer assured. Just as in such games, in the end, not only hopes, but also financial assets are destroyed, so does it with stock exchange speculation conclude in a huge crash including bankruptcies of large companies. Although fixed interest deposits are normally assured through insurance funds and, in cases of necessity, by the state, even in the case of a bank insolvency, there is nothing like that at the stock exchange. Only the actual value of the company remains as backing and, in the case of a collapse, it is just the value of a pile of scrap.

One positive aspect of such a destruction of excessive monetary assets might be in considering such a crash as the price for saving the capitalistic system for another while, or the chance for a new start without revolutions, or even worse.

Are there also localised slumps in prices?

Of course, massive losses of financial assets on the stock exchange can also happen in a targeted way, as for example, in relation to a specific line of business. According to newspaper reports in May 2000, America’s online-companies have, for example, without exception, lost something between 50 and 90 per cent of their stock exchange value. And one third of the 272 internet-stocks, which were traded for the first time in 1999, are now worth less than at the date of issue (“Die Zeit”, May 11, 2000). In this case, every single buyer had to manage very heavy losses, to the benefit in the end of the issuing companies, which not only spent the money thus raked in for publicity purposes but often put some of it “on the “side”, too.

The money invested has by no means vanished from the economy along with the monetary assets of the speculators – as is very often assumed. Since it has been spent in some way or another, and is now, for example, in the pockets of subcontractors, who had been suppliers to the bankrupt company. But even if the person, who had established the company, had been able to put aside a few millions and had deposited them in some accounts, the money concerned still continues to circulate through the credit granting activities of the banks.

What sort of absurd situations come about with price euphorias at stock exchanges, especially in the so-called new markets, the totally unreal discrepancy with the actual value of the company often comes to the fore. Thus, a company in the USA, which sold flight tickets via the internet, could achieve higher stock exchange prices than several airlines put together. The shares of some other internet companies were traded at dream prices, even though some of them had been in the red for many years and spent a large part of their annual turnover on marketing.

Some companies even give away credit vouchers in the streets in order to boost sales. Some buy customer addresses at prices which are higher than the anticipated annual turnover, etc. In short, the billions that are collected via the stock exchange from shareholders and investors are in some cases really wasted.

Derivatives and other types of speculation

Money invested in the stock exchange relieves the normal credit market from putting too much money on offer. This means that interest rates in the capital market are less likely to decline to a deflation-critical level. Since normal investment possibilities at the stock exchange have their limits, too, and prices cannot be driven up ad infinitum, ever new possibilities are thought up to catch and capture over-escalating monetary assets. For example, the so-called derivatives belong to this category; they are derived financial instruments that are based on other financial businesses. They are traded under several names such as futures, options or swaps. They are, however, more or less comparable to bets on changes in the prices of shares or exchange rates and interest rates. With these bets, huge profits can be made on small investments, but naturally huge losses, too.

These derivative businesses have not only developed exclusive markets, that are largely uncontrolled, but also large special funds. One of the largest of these so-called hedge funds, which was accessible only to banks and normal investment funds with deposits amounting to multi-digit billions, the LTCM, made headlines by the end of 1998 with a bankruptcy running into billions. And since the losses had threatened the very existence of some banks that participated in the dealings and because the possible problems arising from it were unpredictable, some of the larger banks of the world, including even the Federal Reserve Bank of the US, took part in an immediate rescue operation. According to insider information, more than three billion dollars are said to have been necessary.

This example shows once again that at the end of all speculation, all too often, the losses have to be paid for by the general public and thus by those who had played no part in the whole stock exchange lottery. Or expressed in other words: profits are almost always privatized, but losses often get socialized. A particularly distressing and shameful fact in the LTCM bankruptcy was that it had been managed by two university professors, who, of all people, were awarded the Nobel prize for their research in financing a few years ago!

But not only do such derivatives have strong leverage effects. In normal stock exchanges, too, sometimes even relatively small sales result in enormous losses or gains, even when this is seen at first only in price tables on paper. If, for example, the price of 100,000 shares is 100 and today 5,000 of these shares are offered on the stock exchange, but only 1,000 demanded, then inevitably – if the trade is not abandoned – the price of the shares on the stock exchange will clearly decline below the previous level of 100. This does not only concern the 1,000 units sold, but also the price of the remaining 99,000 shares. Thus the total extent of the loss on paper is many times higher than the difference realized on the stock exchange.

The problem of currency exchange
rate speculation

Another playing field, in addition to the bond and stock exchanges, is the currency exchanges, at which currencies are bought and sold. The so-called exchange rates give the price of one currency expressed in terms of another. An exchange rate of 1:2 between dollar and DM means, for instance, that one has to give two Marks for one dollar or one receives two Marks for one dollar.

Until recently, the actual purchasing power could be deduced from the exchange rate of different currencies, as they were set in such a way that the exchanged amount of money could buy the same amount of merchandise in the other country as it could with one’s own money in one’s own country. Such exchange rates which reflect the “purchasing power parity” of currencies, changed slowly, either as a result of different macro-economic performances or because of a differently developing purchasing power of the particular currencies.

The era of equal exchange rates are long over. Only a fraction of the purchase and sale of currencies is done for vacation or trade purposes. Moreover, money itself has become an object of trade and currencies are continuously entered and exited according to the needs of investment. That means that, at the end of the day, foreign exchange is bought, sometimes only for a few days or hours, in order to sell it again – without actually using it or even having the intention of using it. The decisions to enter or to change into another currency are largely influenced by differences in interest rates or by anticipated changes in the exchange rate, which, after all, often get triggered by these massive sales and purchases.

What are the consequences
of currency speculation?

The abuse of currencies by speculation had been firmly established at the beginning of the seventies, when the continuing maintenance of fixed exchange rates, set in Bretton Woods, began to be questioned. Anyone who anticipated the increasing necessity for devaluation of the dollar by buying too-low valued currencies, could in a very short time reap profits, which eclipsed all other possibilities of effortless income.

Later attempts to fix the exchange rates were a repeated invitation to such operations. The larger the amounts of money that were invested for speculative purposes, the less prepared the states or issuing banks were to defend the exchange rate over a long period of time against speculation through supportive buying or selling. Just think of the speculation against the Bri­tish pound and Italian lira at the beginning of the nineties as a result of which even the Bank of England was brought to its knees. On this occasion, a single speculator called George Soros could make profits amounting to one billion dollars within just a few days. While profits in the stock exchange generally are at the expense of other speculators, in speculation against the issuing banks, the taxpayer has to foot the bill.

In the end, this speculation in the currency markets, also depends on the right moment of entry and exit. If one misses the right moment of getting out or if one trusts the promise of a fixed exchange rate too long, as for example, in the tiger states in 1998, long term investments at least may incur losses amounting to billions. That is why such investments are carried out in increasingly shorter time intervals. This reduces the risk for the investor, but it increases it for those disadvantaged and these are almost always poor countries. Massive withdrawals of foreign capital have economic and social consequences for the affected country, which go beyond the losses of speculators. Just think of the enormous set back in their economic activity including impoverishment and economic plight for the population, which East Asian countries had to cope with in 1998, and which in some cases led to violent reaction and civil war types of uprising. The losses of the investors, however, were mostly ironed out by measures taken by banks or by the efforts of the world currency fund.

Strictly speaking, speculators behave in such cases like road hogs who trigger a major collision resulting in a lot of damage to property and life and then, with only a few scratches to their own car, do a hit-and-run without ever having to worry at all about being punished for it. This is not to deny the share of responsibility of the governments of the affected countries, for example, by keeping exchange rates fixed for too long, by promising too high interest rates or other political errors, but it is no excuse for the rich nations, who dump their excessively growing surplus of monetary assets into these countries with as little risk as possible for themselves.

Quite a few years ago, the World Bank realized that about 15 to 20 times as much money is transferred across borders worldwide, as is necessary for world trade. In the meantime, the discrepancies have grown many times larger. This means that our world is burdened with enormous capital transfers, which are not intended for purchases or investment, but which hunt for profits from speculation. Just like vultures around a dying animal, they gather especially in the vicinity of ‘dying’ exchange rates or currencies or trigger their demise themselves. Even state-owned banks sometimes play poker against their issuing bank.- The madness can not be exceeded any more.

Consequences

Incredibly huge and ever increasing amounts of surplus purchasing power, running into billions, are drifting around the globe and overflowing issuing banks and politicians – who, if they do anything at all – usually do the wrong thing. Looking at the whole thing from a distance then, it seems that governments (who are supposed to enhance the well-being of their people!) as well as the people in-charge in issuing banks (who are supposed to keep the currency stable!) are led by the nose by the speculators. By speculators to whom they have officially given the opportunity and the permission to play this ‘game’, and in which they increasingly get defeated.

In 1992 Bernard Esambert, the Director of the Rothschild-Bank in Paris and advisor to the French president, deplored in a TV show “the crazy hegemony of money” which had led to “a system that can no longer be controlled democratically, neither by the central banks nor by the nations”. And even the former President of the Deutsche Bundesbank, Hans Tietmeyer, felt compelled to complain at the meeting of the elite of the world in Davos in 1996:

“I sometimes have the impression that most of the politicians do not realize yet, how much they are under the control of the financial markets and are even ruled by them.”

More and more, the money markets are becoming a sort of world government, which reduces the politicians to supernumeraries and assistants. And increasingly, the financial markets are becoming sort of theatres of war as can be read in newspapers headlines. While in the beginning it was easy to talk about the ‘dollar monopoly’, in 1992 the newspapers had already begun to write about “guerilla warfare in the foreign exchange market” in which “the crucial weapon” was the dollar, about a “battle over the Pound” or “head-on attack on the Franc”, which, however could not even, be “beaten back”.

Characterisations of this kind of economy, that range from “casino” via “turbo capitalism” and “brutalo capitalism” to “predator capitalism”, show a trend, that appears ever more powerful, albeit an inconspicuous sort of power, which – like the hidden exploitation through interest rates (which is termed by many as the most ingenious form of slavery) – is increasing constantly in a way that is barely measurable. Despite all this, the “clean hands” of the beneficiaries remain spotless. And the bulk of our citizens are fed in dozens of magazines the “court reports” of the “honorable society”, even when they themselves are having to tighten their belts.

In order that the “guerilla war between the currencies” can continue to be pursued tomorrow, young people at school are invited to delve into the “secrets of the stock exchange” and to practice speculation with fictitious capital. The most successful are rewarded with real money. Of course, they do not hear anything about the dangers of this “cool” game and even less about its background and consequences.

Instead of living from the fruits of one’s labour, today more young people believe that they will be able to live a much better life in the future through speculation. And the question as to where all the money for the profits of speculation is actually to come from without any work being done is asked just as rarely as the one about the origin of income on interest. – Money does not only rule the world; it is gradually turning it into a madhouse.

Should the scope of allowed capital transactions
be imited?

Freedom and liberalness can be practiced in complex relationships only within the framework of restrictive rules and clear boundaries. Limits to freedom always arise when its pursuit is associated with restrictions, disadvantages or dangers for others. Complete freedom inevitably ends in anarchy.

Anyone who, for example, understands road traffic freedom to mean that one can travel at any desired speed in any desired direction, override all rules regarding right-of-way and leave the traffic to the ‘full interplay of forces’, will quickly discover that the traffic becomes chaotic and the streets are turned into battle fields.

Exactly this idea of freedom is maintained for capital transfers and regarded today as natural and necessary. And this sort of ‘freedom’ is even defended by those in charge in politics. Even the low taxation on all speculative operations, as proposed by the US-economist James Tobin decades ago, and with which at least its frenetic nature could be slowed down, was largely rejected. Instead of restricting the abuse of the liberalness granted through sensible regulations, there is a widespread belief in getting rid of the last vestige of any remaining regulations worldwide, so that markets can help themselves. But the exact opposite is the case: a completely unregulated market destroys itself, no different from any other unregulated organism!

What is taking place at the stock exchanges today, whether with stocks and shares, foreign exchange, derivatives or other still newer financial instruments, looks more like what is happening in a madhouse than in a building that vouchsafes to people space and opportunity to live and work. Here something has gone astray, something that can only be subsumed under the term ‘feverish delusions’. The starting point and trigger for all these ‘metastases’ is a monetary system that is, by design, prone to an accelerating self-proliferation and thus to – irrespective of what form – self-destruction.

—————–

1 John Maynard Keynes, “General Theory of Employment, Interest and Money”, 1936, p. 159

 

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