It’s a multi-crisis, but it revolves around monetary management. It will take a global debt moratorium and a new monetary system. This will impose forced borrowing indexed to gold or a basket of commodities, and a tax reform replacing all income taxes with a wealth tax, thus rendering tax havens obsolete.
How we got here. History of financialization.
The stock market transmits the venom that kills entrepreneurship. Gerard Bardet
In 2020-2023 global debt will reach two and a half to three times global GDP, and of this debt one third is to be attributed to the States and two thirds to businesses: yes, private debt is twice the size of public debt.
Let’s say it right away: this debt will never be repaid either by the former or by the latter, and this state of affairs is well known in the highest political and financial spheres. For obvious reasons, no one is talking about it since the consequence of making such news official on the stock markets would be unmanageable.
If you needed an argument other than the colossal level of this debt compared to wealth produced by the planet to convince you, let’s look to the United States. There, the 30-year mortgage rate rises to 7.09% in summer 2023. Translation: the US financial market is betting on an increase in inflation in the long term. The 30-year loan costs more than the 10-year loan. If inflation were normal and under control, the opposite would be the case.
For the experts, it is inevitable: the global debt is out of control, it is not reimbursable and will therefore eventually be the subject of an early moratorium with the cancellation of cross debts, or without, will be erased of itself at the cost of massive state and corporate bankruptcies in an upcoming unprecedented crisis. The potential pressure it exerts on future financial costs ends up causing a loss of confidence in currencies, starting with the dollar which still claims to serve as the world’s reserve currency, which has become ridiculous. If only for proof of this, on August 10, 2023, the Fitch rating agency reduced the United States’ credit rating from AAA to AA+, a rating that should certainly be lower when we know that the American public-private debt (93.5 trillion USD for 32.6 trillion of public debt and 60.9 trillion of private debt) represents nearly 63% of their public-private wealth (147.7 trillion USD).
The BRICS (Brazil, Russia, India, China, South Africa, etc.) are not mistaken and are starting to work together to create a parallel world market, where contracts will be concluded in other currencies than the dollar. One of the possible scenarios for their conference in South Africa on August 22-24, 2023, underway as we write these lines, would be a proposal for a new reserve currency directly competing with the dollar… However, if they adopted such a solution, they would do nothing more than creating a new colossus with feet of clay: China, the group’s only credible economy so far, is experiencing an explosion of its real estate bubble which is endangering its entire banking system, including its four global systemic banks, and is already causing a rise in unemployment worthy of post-oil shock Europe, which must be coupled with a serious demographic crisis.
On another theme, let’s look at the Covid-19 pandemic and some of its economic and financial consequences. Pfizer achieved sales of 40 billion USD in 2021 and 100 billion in 2022 thanks to its vaccine. Its total, astronomical cash flow increased from 154 billion dollars in 2020 to 204 billion in 2021, and the analysts expect 264 billion in 2022 (Challenges). The vaccine, whose cost price is one dollar and which is sold for 15 to 19.50 USD, was certified in 2020 in the European Union, thanks to the strange diligence of Ursula Von der Leyen, its President: The ultimate details of her final negotiation of this vertiginous contract are hidden in an exchange of SMS between her and Albert Bourla, Pfizer’s CEO. MEPs such as Michèle Rivasi, Pierre Cartuyvels, Kathleen Van Brempt have asked written questions without getting an answer to date, and in the spring of 2021 the Bulgarian Prime Minister revealed that Pfizer will charge more to the EU for its doses of vaccine on contracts to come in 2022 and 2023. Information confirmed, during the following summer, by the Financial Times. “Pfizer raised the price of its Covid-19 vaccine by more than a quarter […] in the latest European Union contracts, while Europe has experienced supply problems and concerns over side effects competing products”, wrote the British daily which then detailed the new price: 19.50 euros per dose of Pfizer vaccine, against 15.50 previously. (Freed)
As a result of these opaque negotiations, the European Ombudsman, Emily O’Reilly, opened an investigation into the exchange of SMS on Thursday September 16, 2021, and in February 2023 the New York Times dared to file a complaint against the EU for… obstructing freedom of information!
When the profits of a firm on a single product reach such a scale, no government, no legislative power can prevent a planetary explosion of corruption…
So how did we get here?
To understand this, we have to go back to the Bretton-Woods conference of 1945. At the time, it was then established that, given the formidable economic and financial power of the United States and even more their relative wealth compared to the rest of the world, the dollar, convertible into gold at a fixed rate since its birth (Coinage Act of 1792) is stable enough and managed with enough discipline to serve as a reserve currency for the rest of the world. For this, the United States promised that the dollar would remain convertible into gold at the rate of 35 USD per ounce set in 1932. A system imposed by the strongest against the much more balanced solution of the Bancor proposed by John Meynard Keynes and which would have linked the currencies of the world in a common destiny, obliging States to monetary cooperation instead of the deleterious competition of currencies that we still suffer today. The first alert took place in February 1965. In application of the Bretton Woods Treaty, General De Gaulle, then President of the French Republic, demanded the conversion into gold of 191 million USD held by the French treasury. In that same year, your servant is in the USA in May for the first time in his life. I take the full brunt, in Saint Louis MO, of the sarcasm of engineers and executives who receive us, and who explain to me that this constitutes a betrayal of France. They are future clients, so I have to be courteous while trying to understand what they mean, because the functioning of financial and monetary markets is not part of my training as a young engineer.…
However, on the free market, gold had already reached the price of 100 USD per ounce, i.e. three times the official price. It was clear that De Gaulle was the first to declare that the dollar emperor was naked… America, engaged in a ruinous and unwinnable Vietnam War, was at the same time, it was said, too spendthrift with its project of « New Society » to control confidence in its currency.
Financialization kicked off in 1971, when President Richard Nixon unilaterally decreed the non-convertibility of the dollar into gold. That same year, an illustrious stranger named Klaus Schwab created the Davos Economic Forum. No one knew the exceptional role it will play, in a few decades, in promoting global financialization.
The first stone was laid in the world of the 1970s: little by little, the separation of budget balance on one side and of the money supply on the other was abolished. The right to mint coins, a sovereign right, is called into question. A central bank must manage the national currency independently of the government. The money supply can only increase by borrowing. At the time, it seemed conservative, it even had a German or Swiss flavor… however, no prophet of finance hailed the event by preaching a bright future, except the ultra-liberal Jacques Rueff who passed nearly unnoticed.
Then, between 1975 and 1987, we witnessed the progressive abolition of the Glass-Steagall Act which in the United States had seriously regulated the stock market and the financial and banking industry since 1933, F. D. Roosevelt being President. From now on, banks will be able to practice the two businesses of deposit banking and investment banking at the same time. A situation definitively confirmed by the creation of Citigroup in the United States in 1998 after the merger of the Citicorp bank and the insurance company Travelers Group, giving birth to the largest financial services organization in the world and providentially ratified the year following by the Gramm-Leach-Bliley Act Financial Services Modernization Act of 1999. From then on, public deposits will be used as collateral to carry out very large credit operations, by which a listed company can buy out another company in debt (leverage) much more widely than before.
It is the savings of the taxpayer and the citizen – your savings and ours – which will be used for a capitalist domination never seen before. Indeed Karl Marx said that, with capitalism, the rich could exploit the poor by controlling the ownership of the means of production and, consequently, of all the means of sale, purchase and investment available to their companies. From now on it is directly the most modest whose savings and even current accounts will provide the power of their own exploitation! Never seen! Marx hadn’t thought of that! And all this while creating an abysmal private corporate debt and a wage freeze which will then lead to massive household debt.
Under the administration of Ronald Reagan (1981-89) and also of Maggie Thatcher in the United Kingdom (1980-91), financialization then took off. It is being vigorously hailed as a benevolent and liberating revolution by all economists and politicians of the new religion, dubbed neoliberalism or neo-conservatism. It was under the reign of the former that a certain Alan Greenspan invented « Starve the Beast ». This ingenious system aimed to privatize public services by cutting public revenues through successive reductions in taxation in order to obtain the electoral favors of voters, while degrading the public service for lack of means. The said voters who will finally complain about the poor quality of said beleaguered public services and will demand that their money be returned to them in the face of such a result, leading to new cuts and tax cuts, until the death of the public service follows to make way for privatization, QED.
And we are witnessing at the same time in France a wonderful paradox: François Mitterrand, elected President of the Republic in 1981, after having left his Prime Minister Pierre Maurois for two years to try a socialist experiment in the management of France with, in particular, a temporary nationalization of the banks, will as early as 1984 straddle the neoliberal revolution on the occasion of their re-privatization under the threat of Reagan. Because the latter did not support the presence of communists in its government threatened France with economic reprisals if it chose a new devaluation of its currency, for example to support its reforms.
Then, it was the takeoff of the Buyback: Before 1982, a company listed on the stock exchange did not have the right to buy back its own shares. This, for an obvious reason: at a time when a few decision-makers are discussing the date on which this takeover offer will become public, as well as the price and terms of this takeover, the nature of the decision is necessarily confidential. During the period of this study, the decision-makers therefore committed insider trading, since they were informed of the project when the other shareholders were not… In 1982 the Stock Exchange Commission reintroduced this freedom. It became legal again in France in 1998, and in the EU in 2014. According to Goldman Sachs, the volume of buybacks in the United States reached 589 billion USD in 2007, and 729 billion in 2018, reaching 72% of spending in cash from Standard & Poor’s 500 companies. In France, before the Covid pandemic, the amount of buybacks had already reached the record figure of EUR 2.75 billion in the month of September 2021 alone… These cash resources are not devoted to research, innovation, and more specifically energy transition (starting with energy savings and storage), efficient fresh water management, and adaptation to change climate; plus, of course, the resulting job creations.
However, these are the absolute priority investments for Humanity: the sea level, stable for twenty-five centuries until 1900, has since risen by 200 mm, to reach 3.5 mm per year at the moment. However, 1 mm more of sea level, it is 240 million tons of water which was fresh and which has become salty…
Executive stock-option compensation has older origins. It was offered as early as the 1950s, in so-called high-tech start-ups. But financialization completely changed the dimension. The September 2002 cover of Fortune Magazine denounces the system for the first time.
The manager of a listed company who has actively managed the company and succeeded in setting up a particularly remunerative insider trading will be rewarded when he liquidates the option he has by contract on the sale of shares which have granted under privileged conditions. The ethics of financialization decrees that, as he is asked to betray his conscience and his ethical sense, he must be remunerated for it exceptionally. Mephistopheles could not have said it better.
And now, where are we going?
All of that is the past. But what will happen now?
We generally call green investments the investments that will be made necessary to ensure energy transition, management of fresh water, and adaptation to climate change. What exactly are we talking about?
Of 500 billion investment per year, answers the United Nations Environment Program. At the Bastille Committee, our own estimate for France alone is 100 billion per year. This is only the exceptional very long-term part (30 to 100 years) of these investments which will naturally be supplemented by current commercial and cash loans, in the short and medium term, which I am not discussing here. But on a planet already in debt far beyond reasonable and beyond what is considered financially viable, where will that money come from?
It is time here to talk about the real fortune of the planet.
If we consider the world’s financial assets, their value is set by the stock markets.
As the exceptional health of these markets makes us believe in a planet Earth fortune of the same order of magnitude as the debt, we could imagine that we can still finance the very long term by issuing ordinary shares in the companies that will undertake this colossal conversion. But this is a mistake: the value of these financial assets is vastly overvalued. It is kept by current speculation at an ultra-optimistic level, precisely to still pretend to justify the systemic increase in debt.
In November 2021 the French daily Sud-Ouest published:
A recent American study shows that since the beginning of the 2000s, the wealth amassed in the world has tripled. A paradoxical development, as it does not seem to benefit either the States or the economy. In twenty years, the wealth amassed in the world has been multiplied by three. This is according to a recent study by the international financial analysis firm McKinsey. Wealth would have increased from 156,000 billion dollars in 2000 to 514,000 billion dollars (i.e. 453,607 billion euros) in 2020. It is now six times the value of world GDP.
While the debt is only 2.5 to 3 times the world GDP… So is everything going so well? Of course not. Mc Kinsey, the most powerful international management consulting firm in the world, preaches for its chapel and participates in Washington’s economic propaganda. They want us to believe that we are richer and less in debt than we think.
This is further compounded by several major distortions, even illusions:
- The nations or groups carrying the largest share of the world’s debt are China with 40,000 billion USD in debt; the United States with 32,600 billion USD; the European Union with EUR 14,000 billion; and the United Kingdom with EUR 9,000 billion (three times more than France). However, it would naturally be on them that we would rely the most to undertake these green investments…
- Climate change will have the most negative effect on hot countries. Yet they are often the poorest and the most indebted.
- World population growth is slowing and is expected to fall to zero by the end of the century. Unfortunately, in reality, the population of Africa will continue to grow rapidly, while the rest of the world will already experience a significant decline, therefore an aging population.
- Another cause of distortion is the myth, generally made official by most governments, that « the » solution is simply to tax CO2, as if taxation, i.e. another drain on cash- available flows, could finance the very long term; and as if CO2 alone were considered the cause, and not just one of the symptoms, of climate change.
- Finally, there is the worst: tax evasion, which leads to around EUR 100 billion in lost tax revenue in 2021 for the French treasury alone (including 25% VAT fraud). In 2017, the International Monetary Fund estimated the global figure at EUR 600 billion per year. This figure of the very low range because being only what we can observe, has since only been able to increase…
It is therefore clear that in order to manage the global economy, including nature and the environment, we need an entirely new paradigm.
The management of such a loan could be an opportunity to create a Caisse Mondiale des Dépôts et Consignations (World Credit Intermediation, Deposits and Consignments Fund) as Louis XVIII did in 1815, on the advice of Emmanuel Corvetto, the former Minister of Finance of the Directoire, to free France from the war debts left by Napoleon. Naturally, those countries that would decide on a tax reform anyway necessary, would adopt the taxation proposed by the Bastille Committee, to which Swiss taxation is today the closest in the world, thus rendering tax havens obsolete. It is based on the gradual abolition of all taxes on income and their replacement, with equal fiscal revenue, by a progressive tax on wealth (IPP) – the net assets – of natural persons only. The crucial reason for this gradual change is that any tax audit has so far been limited by tax prescription for fraud (2 to 5 years depending on the country). Tax avoidance or fraud is repeated every year in each tax return (balance sheet) of the taxpayer. We can then legislate that the repeated fault will be subject to a penalty that is all the more severe as its origin is old (prison, confiscation of property). Tax optimization no longer makes sense. Tax evasion becomes very dangerous, especially since complicity in fraud could also be considered by law as entailing the same penalties as for fraudsters, no intermediary would risk it. Businesses in member countries would therefore end up no longer paying taxes except local land use tax, which will be a valuable advantage when they are going to launch green investments aimed at preserving the living kingdom on the planet, including us humans, without whom, in any case, no fortune would still exist under the sun.
André Teissier du Cros