How austerity and speculation reinforce each other
[This is bad, but not bad enough. See Abigail Field here. --lambert]
With no aggregate demand, there's no real investment to be had. So the 1% piss their money away on the ponies. As they always did, but now that's all they do:
But less well understood is the role of austerity in making all of these solutions more difficult. With few attractive options to lend to businesses, which have little incentive to invest in plant and equipment in a stagnating economy, excess liquidity piles up on the balance sheets of banks and corporations. With lax regulation bankers have more and more incentive to undertake the dangerous gambles like those at JP Morgan. People must demand and politicians must enact an end to the policies of the austerity buzzards who are squashing jobs and economic growth, and preventing investments in people and in the transition to a green economy. As Keynes understood, unless the government takes a lead in job creation, a stagnating economy with massive liquidity will only encourage more speculation and more financial instability.
Ya know what I think we need?
We need a grand bargain.