May this crisis be an opportunity!

May this crisis be an opportunity!

June 15, 2020 0 By Michel Santi


For the common good, but also purely and simply for the preservation of capitalism, this crisis must be got to grips with because the cause and effect relationship between the accumulation of debt and inequalities is, for me, at the source of it all. The fact is that the drop in debt for the most well-off – increasing and undeniable these last two decades – is inversely proportional to the rise in debt for the lowest 90%. The richest among us therefore find themselves to be direct-line creditors to the 90%, and they also hold other forms of credit in bank deposits, life insurances policies, and company shares. At the same time, we are in the presence of a legion of debtors who are folding and are on the verge of collapsing under the pressure of the series of crises and poor state governance.

This combination of a tiny minority exempt from debt and about 90% of the population whose debts are piling up is of course weakening an already-compromised economy that could really have done without it. This is why there is inflammatory, even hateful discourse against central bankers, and why the spectre of conspiracy theories blaming the central banker for all our woes is pure fantasy. It is not just because their close-to-zero (or zero) interest rates have not exacerbated inequalities, for the simple reason that the least well-off do not have sufficient savings to be penalised,meaning to say they are not earning money from holdings since they do not possess any. And nor is it because of the extraordinarily loose monetary policy of the central banks that the deficits are digging deeper, deficits that are generated in some way automatically by an appetite and ever-growing propensity to save (in uncertain times), to the detriment of investment in the economy.

It is in fact this frantic and quite obsessive quest for security that has massively constricted real interest rates. It is this obsession over safe heaven values that has left privileged actors and institutions in search of liquidity with no other option but to get into even more debt. It’s these spiralling deficits that have frozen aggregate demand and consumption for economic actors who can now only fulfil their respective roles with more debt. It’s this decline of consumption that has in turn led to a further entrenchment of debt. The fact is that the most well-off have not played the game: they have not directed at the least a substantial part of their savings into investments in the economy, because they have perverted the original function of the stock market, to provide liquidity, turning it into a cash-cow for quickfire profit. This is one example among many others that have driven investments drastically downwards, and this is despite the nearly-zero interest rates that were meant to, in theory, revive collectively beneficial investments.

With the aid of this crisis, governments must disrupt and go beyond this lose-lose choice that has so far obliged them to prefer increasing unemployment over increasing deficits. In our current situation of zero and even sub-zero rates within touching distance for governments, it is essential that they make the most out of this unprecedented opportunity to create sovereign wealth funds that will literally invest in businesses’ capital, including SMEs, in order to straighten out the trajectory and weigh in on redistribution. Intelligent government intervention and more public-private partnerships has to stimulate investment and consumption without worsening debt for the 90%. This is because excessive debt is the source of our fragility and instability, and our economies cannot go on forever in this hellish cycle of swelling and exploding of speculative bubbles.