Volume 43, Number 168,
January-March 2012
The New Financial Power
Kostas Vergopoulos*
Date submitted: February 8, 2011. Date accepted: August 15, 2011

INTRODUCTION

The total debt, both public and private, of so-called "developed" countries has increased 3 or 4 times faster than their gdp over the last decade (2000-2010). The United States and the United Kingdom are where this discrepancy manifests itself the strongest yet they are closely followed by the countries of the European Union. The "tiger and dragon" economic models of the yesteryear, like those of the uk, Ireland, and the usa, are deeper in debt today to the point where they come off as the privileged victims of the international debt crisis manifesting itself at the level of the current world economy. A recent imf study estimates that in 2015 the average public debt of the g-20s member countries will exceed 115% of their gdp. McKinsey Global Institute 2010 projections likewise state that by 2050 Japan's public debt will reach 600% of their gdp, while the uk's will reach 500%, the usa's 450%, France's 400%, Germany's 300%, and Italy's 250%.

We are apparently facing an unprecedented rapid accelerated growth of the financial sphere in relation to the "real" economy. This discrepancy can be interpreted as an acceleration of debt or as a deceleration of income and production (a "delay" in the productive sphere) which is backed up by the drop in labor productivity in western economies since halfway through the last decade, or as a "disconnection" and "virtualization" of the financial sphere in relation to the "real" sphere. In the case of the first option we would be dealing with a crisis of the "real" economy, in the second it would be a matter of a financial crisis. Either way, the image of western countries such as the United States and the United Kingdom, is that of a catastrophe of biblical proportions: a broad and deep deindustrialization which could only be compared to the WWII air raids. A terrible production crisis coupled with large scale unemployment. While the exact nature of their deep organic relationship has yet to be defined, both aspects of the current crisis, the financial and the productive, are nonetheless co-dependent rather than autonomous. Either way, when it comes down to it, it is a matter of overcapitalization and, naturally, overproduction, which will always end with a drop in production and the destruction of capital. The concept of overcapitalization can be applied to both the different ways of capital creation as well as to those of finance creation. There is nonetheless no reason to choose between either explanation for the current crisis as aspects of capital find themselves in a strong organically interdependent relationship (even if this relationship reveals itself to be adversarial in nature). In the end, the appearance and make-up of a financial sphere leads to the progressive and rapid contracting of the real economy´s sphere.

The American economist Paul Krugman (Krugman, 2010b) speaks of a "state of stagnation." It now seems clear that the financial sphere's transformation into a new financial power ultimately implies a regression and long-term stagnation of the capitalist system. In order to ensure its own financial and monetary gain, the new financial power imposes said stagnation, regression (via deflation), and a fall in production. This means that today's chief concern is not financial bubbles, but rather the long-term stagnation of employment and economic activity.

The virtualization of the financial sphere progressively and increasingly determines the narrowing of the real economy's sphere. Paul Krugman's state of stagnation encompasses both the real sphere and the financial sphere. The real sphere's "stagnation" implies finance's reticence to commit to the eventual dynamics of recovery. On the other hand, finance's reservations also explain the real sphere's "stagnation." The financial sphere's transformation into a financial power implies that finance, a tool meant to help the long-term stagnation that threatened the capitalist system in the 1970s and 1980s, no longer constitutes a solution but has actually become an integral part and aggravating factor of this problem.

* Researcher at the University of Paris VIII. Email: kvergo@gmail.com

1 I would like to thank Iván Mendieta (Faculty of Economics-unam) and Alejandro Valle (Economics Post-Graduate Studies-unam) for their help in submitting this paper to the journal Problemas del Desarollo.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 48, Number 191, October-December 2017 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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