Joining the dots is a simple enough exercise. If we do so, we might see a well-defined narrative outline emerge, whose succinct summary reads as follows: lockdowns and the global suspension of economic transactions were intended to 1) Allow the Fed to flood the ailing financial markets with freshly printed money while deferring hyperinflation; and 2) Introduce mass vaccination programmes and health passports as pillars of a neo-feudal regime of capitalist accumulation. As we shall see, the two aims merge into one.
In 2019, world economy was plagued by the same sickness that had caused the 2008 credit crunch. It was suffocating under an unsustainable mountain of debt. Many public companies could not generate enough profit to cover interest payments on their own debts and were staying afloat only by taking on new loans. ‘Zombie companies’ (with year-on-year low profitability, falling turnover, squeezed margins, limited cashflow, and highly leveraged balance sheet) were rising everywhere. The repo market meltdown of September 2019 must be placed within this fragile economic context.
When the air is saturated with flammable materials, any spark can cause the explosion. And in the magical world of finance, tout se tient: one flap of a butterfly’s wings in a certain sector can send the whole house of cards tumbling down. In financial markets powered by cheap loans, any increase in interest rates is potentially cataclysmic for banks, hedge funds, pension funds and the entire government bond market, because the cost of borrowing increases and liquidity dries up. This is what happened with the ‘repocalypse’ of September 2019: interest rates spiked to 10.5% in a matter of hours, panic broke out affecting futures, options, currencies, and other markets where traders bet by borrowing from repos. The only way to defuse the contagion was by throwing as much liquidity as necessary into the system – like helicopters dropping thousands of gallons of water on a wildfire. Between September 2019 and March 2020, the Fed injected more than $9 trillion into the banking system, equivalent to more than 40% of US GDP.
The mainstream narrative should therefore be reversed: the stock market did not collapse (in March 2020) because lockdowns had to be imposed; rather, lockdowns had to be imposed because financial markets were collapsing. With lockdowns came the suspension of business transactions, which drained the demand for credit and stopped the contagion. In other words, restructuring the financial architecture through extraordinary monetary policy was contingent on the economy’s engine being turned off. Had the enormous mass of liquidity pumped into the financial sector reached transactions on the ground, a monetary tsunami with catastrophic consequences would have been unleashed.
As claimed by economist Ellen Brown, it was “another bailout”, but this time “under cover of a virus.” Similarly, John Titus and Catherine Austin Fitts noted that the Covid-19 “magic wand” allowed the Fed to execute BlackRock’s “going direct” plan, literally: it carried out an unprecedented purchase of government bonds, while, on an infinitesimally smaller scale, also issuing government backed ‘COVID loans’ to businesses. In brief, only an induced economic coma would provide the Fed with the room to defuse the time-bomb ticking away in the financial sector. Screened by mass-hysteria, the US central bank plugged the holes in the interbank lending market, dodging hyperinflation as well as the ‘Financial Stability Oversight Council’ (the federal agency for monitoring financial risk created after the 2008 collapse), as discussed here. However, the “going direct” blueprint should also be framed as a desperate measure, for it can only prolong the agony of a global economy increasingly hostage to money printing and the artificial inflation of financial assets.
At the heart of our predicament lies an insurmountable structural impasse. Debt-leveraged financialization is contemporary capitalism’s only line of flight, the inevitable forward-escape route for a reproductive model that has reached its historical limit.
A SELF-FULFILLING PROPHECY: SYSTEMIC COLLAPSE AND PANDEMIC SIMULATION, 16 August 2021
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