The grand finale

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In recent weeks, the economic press has been awash with increasingly troubling data on the global economy. Among the notable examples are the crisis in the German automotive industry, brought on by the announced failure of multibillion-dollar investments in electric vehicles; dismal business confidence figures in that country; drastic personnel cuts at major tech firms; and the stagnation of the Chinese economy, which has required a stimulus package due to a real estate sector that has teetered on the brink of collapse multiple times in recent years.

On the flip side, equity financial markets have shown a starkly different picture. The Eurostoxx 50 is approaching its annual highs, Spain’s IBEX 35 is nearing its highest level since 2015, and the American NASDAQ-100 is at record levels. This is happening amidst plunging oil prices and declining inflation, which seem to assure significant interest rate cuts in Europe and the United States in the coming months. The latest development in the financial markets was the celebration, through market gains, of the stimulus plan in China—akin to celebrating that gangrene has spread from the foot to the knee.

Stock market aphorisms must be interpreted with due caution, but in these times, some are undeniably clear. For instance, when economic data, as in this case, point toward a recession, yet stock markets experience euphoria, we are likely on the verge of what is known as a “market crash.” A preview of this occurred last August, which appears to have been a deliberate experiment, taking advantage of low trading volumes typical of the summer period, which facilitate price manipulation.

What has just been described is tantamount to saying that the economy has run out of ammunition, and the anticipated interest rate cuts are the grand finale of a spree that has lasted since 2020, with markets virtually flooded by money created at the discretion of banking authorities.

As long as markets continue to celebrate as a success the flooding of the economy with money—because a large portion of that money flows into financial investments that grease the brokers’ machinery—while citizens’ purchasing power plummets due to chronically low wages and relentless tax burdens, we will continue to see reasons to denounce the profound immorality of a system characterized by the much-touted “freedom of movement for capital, people, and goods,” in which finance has devoured the economy, and, consequently, the powerful have devoured the weak.

Gonzalo J. Cabrera, Círculo Cultural Alberto Ruiz de Galarreta (Valencia)

Translated by the Gremio San Jerónimo