We Are Walking on Our Heads in an Inverted World

It has become almost impossible to think rationally, so deeply immersed are we in inversion.

To live in an inverted world means that we have lost sight of Reality and are now chasing Shadows; worse still, we completely confuse the Shadows with Reality itself.

We have been led astray by a Mephistophelian operation that consists in separating the Shadows from the Bodies.

The Shadows are the Signs; the Bodies are the Real.

Our signs have become so detached from the weight of reality that they no longer reflect it.

The reasoning we build with these signs has become idiotic — indeed, absurd.

We think with our feet and walk on our heads.

We think inside an inverted world, inside an Imaginary that is no longer a reflection of the real, but has freed itself from it and taken control over it.

Let me explain.

Since the early 1980s, we have sunk deeper and deeper into financialisation. This means we have developed a colossal financial sphere that grows at a much faster pace than the real world.The universe of financial assets we produce is increasingly disproportionate to that of goods, real wealth, and actual economic output.

To put it simply: the ratio of the mass of financial assets to GDP keeps rising relentlessly.

Or, to phrase it differently, since financial assets are in reality liabilities — mere promises — we are producing far more promises than we can ever honour.

It is, moreover, highly significant that the liabilities on the system’s balance sheet are called “assets.” This is the very mark of a neurotic, inverted world.

In short, we are inflating a financial bubble at a pace far exceeding the expansion of the real economic sphere.

We are creating a growing divergence — that is the core of my demonstration.

The fundamental problem of our systems is that we have had to financialise them in order to conceal all kinds of imbalances: insufficient demand to keep the machine running, insufficient cash flows for investment, insufficient public resources to fund government spending, insufficient profits to remunerate an excess of both real and fictitious capital.

Financialisation has been the answer to everything.

It has served to mask every problem, every conflict, every shortage, every gap. Economic gaps, social gaps, gaps in political legitimacy, intergenerational gaps, imbalances in trade between nations — everything, absolutely everything, has been addressed in the same way: by issuing financial promises, “bridges” between the present and the future.

Social protections essential to the survival of our delegitimised political systems have been “paid for” on credit.

The gap between what the United States buys from the rest of the world and what it sells has been financed by the creation of financial assets.

Financialisation has produced an imaginary world of financial assets — a world of promises — utterly disproportionate to the real world.In other words, the financial sphere has become far too colossal compared with the real economic sphere.

This gap keeps widening because the return on debt continues to fall. Debt no longer generates enough GDP to be honoured. It now takes more and more dollars of debt to produce one dollar of GDP.The system has reached a stage where, in order to honour its own promises, it must create even more promises.

This is exactly what is happening today: debts must be rolled over, liquidity must be produced to pay interest, holes from defaults must be plugged. New debt must constantly be created to keep the global bicycle from falling over.

To hide its instability and fragility, the world needs to produce more signs, more debt, more credit, more liquidity, more promises, more guarantees — in short, more of everything that unbalances it further.

This phenomenon has accelerated since the 2008 crisis, of course. We are hurtling down the slope, and the bicycle cannot stop without accepting the fall — that is, a new financial crisis that will destroy excess, fragile, and often rotten financial assets.

It is this widening gap that is making our systems increasingly fragile and unmanageable. The room for manoeuvre is disappearing; the shock absorbers are worn out.As a result, we are gradually losing the ability to regulate them.

The systems now command, and we obey. We have become hostages of our own systems.Our systems have become dependent on stocks of debt, budgetary imbalances, and financial instability.

Bubbles rule; they impose their own logic.

Our systems live under the law of “move or die.”

To escape this situation, the gap — the chasm — between the Financial Sphere and the Economic Sphere must shrink.

This is what was hoped for in 2010. It was expected that nominal GDP growth would catch up with the growth of debt and that the debt-to-GDP ratio would fall. Alas, the “green shoots” withered, and nominal GDP growth failed to overtake the expansion of debt. Instead of withdrawing the drugs, we had to administer even stronger doses.

We are heading toward the ravine, toward the great abyss.To avoid it, the mass of financial assets should contract while the mass of real wealth should expand. This means that inflation in financial assets should turn into deflation, while inflation in the prices of real goods and services produced should accelerate.

In plain terms: inflation of GDP — that is, rising prices of goods and services — is desirable because it is rebalancing. Inflation of financial assets, by contrast, is no longer desirable.

Yet we are doing exactly the opposite.

We seek to control and prevent rises in the prices of goods and services, while actively encouraging rises in stock markets and financial assets. We want to keep blowing air into the financial bubble.We are manufacturing growth, inflation, and levitation in the financial sphere. We are raising the ratio of the Imaginary over the Real.

The monetary fetish is more than a veil over real phenomena. It does more than conceal: it shows us everything — while inverting everything.