Varoufakis: Coronavirus has sparked a perfect storm of nationalism and financial speculation

Yanis Varoufakis:

Before 2008, Wall Street played a crucial role in recycling non-US surpluses that were the repercussion of American deficits into global investment funding. After 2008, the refloated Wall Street could not perform that task, channelling much of the abundant liquidity not to fixed capital investment but to share buy-backs and other asset purchases. The result was that the post-2008 economy is characterised by savings being permanently in excess of capital goods investment. Since savings are the supply of money and investment its demand, the permanent excess supply of money explains the permanently low, or negative, interest rates. It also explains the downward pressure on median wages against a background of rising asset prices causing unbearable inequality and thus producing the political triumphs of xenophobic nationalism.

In precisely the same way that the increased liquidity after 2008 failed to rebalance savings and investment globally, so will any renewed monetary “easing” to counter the ill effects of Covid-19 fail to return the global economy to its pre-February state. Of course, as happened after 2008, speculators will make a mint and nationalist forces will milk the ensuing discontent for all its worth.