Brian Holmes on Fri, 11 Dec 2009 03:26:39 +0100 (CET)

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<nettime> Carry On (was: Paul Krugman etc)

Nicholas Ruiz III wrote:

> The new idea I suggest revolves around shares and derivative contracts
> being issued to a Pubilc Trust, an active governmental trading
> institution that would post all gains as income for the public etc etc

In New York City in early 2008 we organized a Continental Drift session 
at 16 Beaver where a critic of the financial markets, Henry C.K. Liu 
whom you can read in the Asia Times, explained that the housing bubble 
was going to be the last one. Why? Because in the logic of bubbles, each 
one has to be bigger than the one before, and given that this one had 
reached all the way down into the savings-and-borrowings of the lower 
middle and working classes, it would be impossible to find more capital 
than that, the whole cookie was in the oven and when it came out burnt a 
new recipe would have to be found altogether. Henry C.K. Liu thought a 
bunch of crazy artists were the perfect kind of people for the present 
moment, cause they could think up something new while the old order was 
tanking. Well, guess what? Due to the kinds of counter-cyclical policies 
that every bureaucrat and monetary official gushes over at the beginning 
of every TV interview (stimulus for Goldman Sachs & co) it now appears 
that the result of the mega-bubble of 2007-08 will be... a zmega-bubble, 
this time in "global assets," i.e. investment-quality whatever, as long 
as its FAR AWAY.

It's called the carry trade, it used to go from Japan to Brazil and 
Australia and now it goes from the US to points everywhere. It works 
like this: to fight off the new Great Depression, interest rates in the 
US are basically zero, once a little inflation is factored in anyway: so 
you can borrow for free (zmegabanks only need apply). So what's a good 
zmegatrader to do? Borrow in America and invest, not in Joe Schmo's 
cement plant (which is in Thailand now anyway) but in any kind of asset 
in a less troubled zone of the world economy where you can still get 
five percent return or more. By doing this the added advantage is, all 
these capital outflows drive down the value of the dollar, and as the 
dollar goes down, the profit earned on your foreign asset increases with 
the increased value of the foreign currency. People did this out of 
deflation-prone Japan for ten or fifteen years, they got particularly 
rich in Latin America because of the risk premium adding up to over ten 
percent return on the free yen, and now it can be done on an even bigger 
scale out of the USA with the free dollars. The massive bailouts, the 
"quantitative easing" (i.e. liberal abuse of the printing press), all 
that financial stimulus is getting poured into these easy opportunities 
to make money on the interest-rate differential, plus whatever 
speculative premium you can scrape up to boot. The limit comes either 
when the US dollar gets so low that it can't go down anymore (cause it's 
still by far the biggest economy of the world and the linchpin of the 
whole system), or more ominously, when some kind of geopolitical crisis 
occurs and there is a new "flight to safety" ie the greenback. Whatever 
the cause, at some point sooner than later panic ensues and it's game 
over all over again. Nouriel Roubini has written an important article in 
the FT about this, called "The Mother of All Carry Trades," and 
experience shows, you gotta read Nouriel Roubini:

So what does that mean for the average nettime-grade cultural critic? 
That we should all go back to explaining the mystical Code of finance 
capitalism and try to become Nicholas Ruiz the IV, V, or VI, ie that we 
should all do like a good bourgeois according to Wallerstein, namely 
invest and aspire to live off our rents and become an aristocrat? My 
perspective is that instead of the boom-bust going on forever as it 
seemed fated to in the 80s, it now looks as though the increasing scale 
of each new crisis will bring about, A. major increases in the level of 
social violence due to more and more people being trashed each time the 
bubble bursts, and B. increasingly big returns on the 
climate-contradiction, in the form of environmental disasters that will 
contribute ever more to the major increases of A. What I find myself 
increasingly drawn to in the moments when I have no energy for critical 
analysis and social/environmental justice campaigns, is some kind of 
science-fiction that could portray what things look like after a little 
of that old ABABABA.

For example, let's not tax our poor heads too hard by looking more than 
just one year into the future: Imagine that the Democrats totally lose 
the mid-term elections due to Obama's obvious failure to do anything but 
placate the financial elites - whatever, we can imagine he proposes a 
Public Trust of bailout money invested in the carry trade to fix every 
bridge, heal every sore, broken leg, broken heart and so on, but then at 
the last minute, surprise surprise, because of a vote in the Senate it 
turns out to be yet more Private Options for Goldman and J.P. Morgan and 
the hedge funds - and so America swings back into some mounting rabid 
Republican talk-radio fury, the carry-trade bubble bursts in our faces 
and the Yellow Brick Road vanishes into the mud again, yet another ten 
or fifteen percent of the middle classes are trashed, tuition at the 
universities goes up 75%, the National Guard gets deployed around 
hospitals to keep the uninsured at bay, a few cities get torched due to 
the restiveness of the hungry and excluded, Sarah Palin starts 
campaigning for Rogue of the Century, the Christian Fundamentalist 
Family Bible finds a home under every Christmas Tree, fascist vigilantee 
camo becomes THE patriotic outfit for the New Year, etc etc etc. 
Whaddaya think? Time for an exit strategy? Maybe an earth divestment 
fund? Quantum Lunar Escape anyone?

Actually I think I'll carry on with the critical analysis and the 
social/environmental justice, but maybe with a greater sense of urgency. 
Could it be that more same turbo-capitalism is not what we need in the 
21st century?

good luck, Brian

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