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Addicted to Liquidity Injections
by Thomasz Konicz
Monday Jul 22nd, 2013 7:03 AM
Bernanke's announcement of lower monthly printing of money was enough to make stock exchanges collapse in many threshold countries that massively raised the interest level and produced a quick devaluation. The capitalist monetary policy of printing money and zero interest is caught in a vicious circle. The liquidity glut generates a credit-driven growth. The constant injections allowed the illusion of an economic recovery to arise. The capitalist work society can only maintain a kind of zombie life through money and credit-expansion.

Central banks have long been hostages of their expansive monetary policy

by Thomasz Konicz

[This article published on 7/9/2013 is translated abridged from the German on the Internet, http://www.heise.de/tp/druck/mb/artikel/39/39475/1.html. Thomasz Konicz is the author of “The Crisis Explained” and “The End of the Golden Age of Capitalism and the Rise of Neoliberalism” (cf. http://www.freembtranslations.net).]

It was a typical European compromise with the European Central Bank reacting to the latest crisis attack in the Eurozone. At the beginning of July, the European Central Bank presidentMario Darghi declared that the key interest rates in the Eurozone would remain permanently at a very low level of 0.5 per cent. “The council expects the important European Central Bank interest rates to be at the current level or below for a long time,” Darghi said. [1]

The European Central Bank wanted to lower the key interest rate to 0.25 percent but could not prevail in the European Central Bank council against the German resistance. [2] In Germany there will soon be elections. Lower key interest rates are very unpopular.

The announcement of a permanent low key interest rate that is still higher than the interest rates in the US should calm the pensions- and financial markets in the Eurozone. A government crisis in Portugal, renewed demands for another debt cut in Greece, falling stock prices all over Europe and a generally rising interest level in the southern periphery of the Eurozone make likely a flaring up of the debt crisis. The European Central Bank wards off the danger of a new Extensive European fire with the announcement of an unlimited continuance of its low interest policy – at least in the short-term. The interests in southern Europe decline slightly; the stock markets recovered a little. Investors knew that “the European Central Bank was ready in an emergency with its bond purchase program to prevent an escalation,” an analyst explained to the n-tv news broadcast station. [3] This means market actors rely on the headd of the European Central Bank Darghi's famous promise “to do everything tomaintainn the Euro” in an intensified crisis. This involves printing money and increasing the money supply by purchasing bonds (debts) for a short-term stabilization of the system. The additional liquidity glut acts as an economic stimulant that lowers interests, raises stock prices and stimulates awarding credits.


The latest European crisis was triggered primarily by the announcement of the American and Chinese central banks [4] to stop buying bonds which Washington and Peking carried out for quite a long time. On June 19, 2013 Fed chairman Ben Bernanke announced the gradual end to the monthly purchases of bonds in the volume of $85 billion executed under the term quantitative easing 3 (QE). Bond purchases will be reduced “later in the year” since the economy in the United States is gradually recovering, Bernanke explained. Only one day later the Chinese Central Bank signaled it would not pump any more liquidity in the overheated Chinese financial market. The financial institutes should manage their liquidity better in the future, plan spending better and hold ready sufficient funds, according to the official opinion of the Central Bank. All hell broke out on the global financial markets after this double blow in monetary policy. The Chinese financial sector passed into a short-term shock paralysis while stock prices collapsed worldwide and the interest-burden of the southern European crisis states soared. Interests on the so-called inter-bank market shot up in double digits because the banks did not want to grant any short-term credits to one another any more. In the US the previous capital outflow from the bond markets intensified to a “stampede,” [5] a wild uncontrolled escape (German word: Fluchtbewegung) in whose wake the interests for US government bonds rose quickly. [6]

This has been very disastrous in the threshold countries. Bernanke's announcement of a possible lowering of the past monthly printing of money – the key interest rate should remain at the historically low value of 0.25 percent – was enough to make stock exchanges collapse in many threshold countries that massively raised their interest level [7] and encouraged a quick devaluation [8] of the currencies there. These shocks in the semi-periphery of the capitalist world system were triggered by capital outflows that accelerated after Bernanke's announcement.

The methods by which the central banks brought these dislocations on the world financial markets under control again are typified for the late capitalist world system. Ultimately the currency guardians carried out a change in monetary policy given the escalation within the shortest time. [9] Both Chinese and American central bankers declared they would supply additional liquidity to markets to suppo9rt economic growth. The withdrawal of the Fed and the Chinese central bank on June 25, 2013 led immediately to a calming of the situation on the financial markets [10] that previously seemed to be losing control. During a June 27 press conference [11[, William C. Dudley, president of the New York Federal Reserve, explained that the Fed in the future could even expand bond purchases if the economic development lags behind the forecasts of the central bankers.


As a result the central banks launched a first attempt to end their permanent printing of money but were surprised by the furious market turbulence and turned back. Thus capitalism in its old days seemed to be like a credit junkie who can only maintain his functioning thanks to permanent liquidity injections of the central banks. The Fed already carried out the third Quantitative Easing (QE3) since the 2008 outbreak of the crisis that unlike the two preceding programs was not temporally limited. Printing money should continue until there is substantial improvement on the US labor market. In the meantime the system is absolutely “addicted” to these regular liquidity injections, the British Telegraph journal commented on June 20, 2013. [12]

“In the wake of the credit crunch, the West discovered quantitative easing – printing money by purchasing securities from banks and other private institutions – as a way to stimulate the economic recovery. Soon we became dependent on that. Now the Fed announces it will end this bad habit... However the panic on the stock markets triggered by the American intimation of a possible withdrawal from the QE … shows that the economic recovery is fragile and depends greatly on “government intervention.”

How did this dependence of the capitalist system on “government intervention,” on ever new “quantitative easing” come about? The zero-interest policy practiced by most central banks since the outbreak of the crisis does not function any more so the “dose” must be increased. The Frankfurter Allgemeine Zeitung newspaper formulated: [13]

“The American Central Bank began to increasingly buy up government bonds in the course of the financial crisis since the interests were practically at zero and the economy was still not robust. The state of indebtedness was relieved while a different goal was pursued: forcing down interests for government bonds and credit interest since its own key interest rates cannot be lowered any more.”


In the final analysis reanimating the awarding of credits and enlivening the economy altogether is emphasized with this expansive monetary policy. The US Federal Reserve since the eruption of the crisis has actually practiced an absolutely unique printing of money. [14] Its gigantic dimensions can be read off the balance sheets of the Fed. What amounted to around $800 billion before the beginning of the financial crisis in 2007 exploded in the meantime to $3.4 trillion. That is $3400 billion. In the last months the expansive US monetary policy contrasted with a reduction of the balance sheet total of the European Central Bank. [15] which did not recently initiate any programs of printing money. This monetary policy reserve – beside the German austerity dictate in Europe – contributed to the stubborn recession in the Eurozone. “Without the Fed the world economy would already have fallen into a deflationary spiral,” the economic blog Querschusse diagnosed.

The capitalist monetary policy that for six years consisted in continuously printing money and zero interests as a “state of emergency” [16] congealed into normality is caught in an absolutely vicious circle. The liquidity glut generates a credit-driven growth. In the threshold countries around four trillion dollars flowed in speculative profit-hungry capital that expected higher profits than in the centers of the capitalist world system. However these short-term credit-financed upswings are bought with increasing medium-term instability and with the formation of new credit- and speculation bubbles. Even the American housing market now experiences a slight recovery phase [17] with double-digit growth rates in housing prices.

The constant injections of ever new “liquidity” first allowed the illusion of an economic recovery to arise that was reason for Ben Bernanke to suggest an end to printing money. However the serious dislocations on the financial markets after June 19 indicate very clearly that this is really a mirage generated by printing money. As soon as an end of quantitative easing appears on the horizon, a collapse of the house of cards on the financial markets threatens which will lead again to an economic crash in recession.

The underlying idea of this policy is that the capitalist economic motor only needs a kind of monetary policy booster through quantitative easing to get going again is made a fool here. Obviously the system only maintains its functionality by printing money and zero-interest policy since the collapse of the gigantic real estate bubble in the US and Europe.


Rising interests in the center of the capitalist world system would strangle the global economy [18] and bring the apparent successful history of threshold count5ries in the semi-periphery to an abrupt end. Many industrial countries would also collapse under the quickly increasing debt burden. Since the outbreak of the debt crisis, the indebtedness in metropolitan areas has also exploded, as the FrankfurterAllgemeiner Zeitung newspaper noted [19]: “The private and public indebtedness [according to the Bank for International Settlements (BIZ)] has increased around $33 trillion since 2007 in the leading 18 economic countries.” This means the heroic struggle of capitalist crisis policy against the debt crisis in the industrial states alone produced a huge additional debt mountain of $33,000 billion within the last six years.

There is actually no system-immanent way of monetary policy out of this cul-de-sac. Bernanke only has the choice between printing more money together with a zero-interest policy or a gigantic financial market crash that would drive the world economy to the abyss of a depression. The central banks of China and the US actually only try to continue the finance market-driven deficit by means of massive state support and boundless printing of money. These deficit economies were made possible by the proliferating real estate markets before the financial crisis of 2007.

This hopelessness of capitalist monetary policy that was the hostage of the liquidity glut that it kindled is only an expression of the contradictions of the capitalist mode of production intensifying for decades [The End of the Golden Age of Capitalism and the Rise of Neoliberalism (20)]. It is a manifestation of a capitalist work society collapsing in its hyper-productivity that can only maintain a kind of zombie-life through a permanently increasing money- and credit-expansion [The Crisis Explained (21).



Reuter, Norbert, “Growth Euphoria and Distribution Reality”

Ulrich, Peter, “Economic Ethics After the Crisis”

Vogt, Joseph, “Demystification of the Market”