DrugchartThere’s an awful lot of guff being produced about the holy, inevitable, all-powerful markets. First, despite the evidence of this financial crisis, very few are debating whether we should continue to have our economic future determined by the direction in which trillions of pounds of complex financial instruments slosh around. Richard Murphy did so, although his piece uses the word “feral” so often that it started to look very odd to me.

Choices were made to open our economy up to volatile shareholder capitalism. It’s not some scientifically proven approach to economics, any more than it’s god-given. These choices favoured some, notably the buccaneer capitalists and pension funds whose exploits Adam Curtis set out in The Mayfair Set (Google Video). And they turned over others, most obviously those who directly faced redundancy at their hands, but also the wider set of taxpayers whose interests they undermined. We could still make other choices, or at least we could if all the parties of government weren’t utterly beholden to these modern-day Gnomes of Zurich (Westminster, primarily, not that there’s evidence the SNP would take a different economic approach if they had the levers to hand).

Second, though, markets don’t “give verdicts”. They look for margins and they put a value on risk. When interest rates are cut, you regularly hear “the stock market responded positively”, as if these reified and disembodied forces were independently assessing those cuts as indicators of a stronger economy in the future. Utter nonsense. Falling interest rates mean bonds deliver a lower return, so, relatively, the stock market becomes a more appealing place to buy. Sure, if a proposal comes forward to relax restrictions on deepwater drilling, shares in Cairn or Shell will rise, but that’s an expression of expected change in the relative return on investment, not “confidence” or somesuch anthropomorphic sentiment.

The current fiasco isn’t primarily driven by Greek debt or even Republican reluctance to raise revenue from those most able to pay. Nor is it a collective judgement on the future of the Euro (doomed as it surely is at least in anything like the current form), any more than Black Wednesday was a view that Britain’s economic interests would be better served by sterling not being pinned to a basket of European currencies.

Black Wednesday occurred because a UK Government committed itself to a particular exchange rate band despite the existence of a free trade in currencies, a trade an earlier phase of that same Tory government had opened up. That meant George Soros and the gang could freely bet against them, and the traders knew Norman Lamont would have to keep buying while they kept short selling.

Right now, what started as a similar series of minor chinks in the single currency, apparent only to specialist traders and some politicians outside the soggy centre in both directions, is becoming a series of chasms. It’s not that the markets have a view on whether a single currency would idealistically be better or worse for European economies, just that there are self-fulfilling margins to be made in the diverging rates of return on member state bonds. Traders have found a new game, and no amount of austerity, cuts to public services or privatisation (the icing on their cake) will end that game. Either the chasms get closed with a single economic and fiscal policy for the Eurozone – effectively an end to national politics – or, sooner or later, they’ll smash it like a piñata and take all the taxpayer-funded sweeties.

The American situation is a little different, largely because of the disproportionate power the Chinese hold over the US economy and policy-makers. Each month a balance of trade deficit pushes roughly $20bn from American consumers to Chinese companies, and the Chinese in turn bought US Treasury bonds – up to a peak of more than $1.1tn in October last year.

Effectively, the Chinese have been pushing home the economic advantage they hold by virtue of using cheap (or sometimes slave) labour. Not only are they draining capital from the USA, but they’re using it to gain massive leverage and undermine the US Government’s autonomy. The American economy has acted like an enthusiastic addict, welcoming the dealer’s reliability. But the signs are that the Chinese administration thinks this phase will have to come to an end. The Chinese even used the same language when upbraiding the Americans’ “addiction to debt”, in just the way I imagine some heroin dealers shake their heads sadly at their customers – “not you again – I thought you’d gone clean, man.”

The disconnect between the real economy and the tides of profit-taking and short-termism has never been larger, while the consequences of market failure for everyone outside the gilded feral elite have never been higher. The question is – will policy-makers anywhere ever be brave enough to go through the short- or medium-term pain of restraining the markets, trying to force the genie back into the bottle, and trying to build an economy where the interests of society, the workforce, and the planet come first?

Some would say it’s impossible, but read the business pages (or, increasingly, the front pages) if you want to see the kind of world they’re saying is inevitable. How far through this sequence of ever-deeper crashes and ever-shallower and more unequal recoveries will we have to go before there’s a willingness to address the real problems here? And that’s before we consider the additional risks the economy faces as oil production gets ready for the bumpy ride down from the plateau of its final peak. The signs aren’t promising.