So now the markets have turned their attention to Italy. And, it seems, the markets are not to be trifled with. As they devoured Greece, and then Ireland, and then Portugal, so they are licking their lips at the prospect of Italy. When the 10-year yields on government bonds for those other Eurozone countries reached 7%, it was not long before they could no longer afford to make their next debt payments. They all protested fiercely that they would not, despite that, require bailing out, but bailed out they all were. Today, Italy’s 10-year yields reached 6.73%, and so the pattern looks set to be repeated. Except that it won’t. The former, relatively small economies, could be bailed out, but Italy cannot. An impasse if ever there was one.
We are all wearily familiar with this scenario, and with the way that it’s presented, so much so that we no longer really absorb what it means. But what it means is this: that “the markets” are calling the shots. They are no longer a means to an end, but are now the driving force catapulting whole peoples into penury, and the appeasement of which now justifies the setting aside of democracy itself. If the Greeks have the temerity to call elections, then the markets will punish them. The markets are to be obeyed.
But what are the markets? Not very long ago the markets were essentially a club of rather amateurish gentlemen who amused themselves by playing the tables just as they might at Monte Carlo. But now the markets are fundamentally an algorithm. Mathematicians have built models of a complexity that is equalled only by their blind foolishness. The algorithms have started to bet amongst themselves. If you want to imagine a technocratic dystopia, don’t worry about crazed robots taking over nuclear weapons installations and blowing us all to smithereens. In fact, you don’t have to imagine anything at all. You just have to observe what is already happening.
The logic as dictated by the markets goes something like this. If you, as a sovereign country, want to borrow some more money, and we, the markets, have decided you’re a bit of a risk, then we’ll up your interest rate. You’ll have to pay up, because if you don’t you’ll have to default. If you default, your banks will collapse. If your banks collapse, your citizens will riot. But hang about. Jacking up the interest rate makes that default ever more likely. And on top of that, it’s the banks who are mostly the very same market players that are demanding ever higher yields in the first place. That’s why default on sovereign debt will cause those banks to collapse. So the algorithms which make the banks raise their lending demands are feeding into the algorithms that calculate the banks’ likely collapse, which feed into the algorithms driving the currency exchanges, that feed into the algorithms that underlie the stock markets, and so it all goes on.
But when we talk about markets as if they were some primaeval force like tectonic plates, or ocean currents, that we can do nothing about, and which have an almost independent life of their own that is beyond our control or intervention, and that follow laws that cannot be altered just as if they were laws of nature, then effectively we have made the markets into a God. We have surrendered our sovereignty, our democratic and social futures, to a vengeful deity that will punish us if we do wrong.
But we created the markets. We can uncreate them, change them, make them serve us again. We do not have to live in fear of them. We do not inevitably have to serve them. Suppose we decided that we will not accept a yield above, say, 5%. What would happen? The free marketeer will tell us that the heavens will fall. That no-one will lend to Italy, and that Italy will then default. But who will lose first if Italy defaults? Surely it is those who have already lent Italy money. And who is that? Generally it’s those very institutions that are demanding ever higher yields. So surely the challenge to the markets is simple. Accept lower yields, or have Italy default. Take your pick.
But we daren’t offend the God of the market with such blasphemy. We daren’t call its bluff. The God of the market is a cruel God indeed, and it will surely punish those that cross it. Really? Like all the Gods before it, I suspect that this latest God may turn out to be more easily defied than we feared. I’m feeling lucky. How about you?