I do not know what GameStop does to make money in the conventional sense, and, to be honest, I never want or need to know. This information is neither here nor there in what I call post-Lehman Brothers capitalism, or the Age of Infinite Money. Nevertheless, there has been too much noise lately about GameStop's stock "blowing up [the markets] like Tom Berenger in Platoon."
In this post, I will provide the analysis, and CNN Business will provide the background:
The GameStop stock surge began for a legitimate reason: The company announced on January 11 it had added three new directors to its board, including Chewy co-founder Ryan Cohen. Investors liked that Cohen brought digital experience to the table... GameStop's stock [then] rose a little less than 13% that day. But this wasn't a normal, momentary stock surge. Two days later, it rose 57%. Then 27%. The next week, it surged 10% twice and 51% another day. This week, it rose another 18% then 93% and more than doubled today [January 27, 2021].
Some are saying this is a sign of the bad times that are just around the corner. Not only is GameStop in a gigantic bubble, but so is the whole stock market. Dow Jones' value has doubled since Trump won the 2016 presidential election. And at that point, it had already doubled during Obama's presidency, which began right after the crash of 2008. But there are two events that have made it clear (at least to me) that market-crashing bubbles are a thing of the past.
When economists and business journalists explain the crash of 2008, they point to all of the money made funny during the Clinton and Bush years by an explosion of securities innovations, low capital requirements for banks, the proliferation of structured investment vehicles, long-term low interest rates, and the unreal buildup of all kinds of debts, including NINJA ones. But the fact of the matter—which I came to terms with after the non-crash of October 2019 (more about that in a moment)—is that the markets did not collapse because so much funny money hit the sobering wall of economic reality. (For example, poor homeowners could no longer meet their obligations when "teaser rates" on adjustable home loans suddenly became "monster-sized rates.") No. That's not what happened in 2008.
Turn down all of the moral noises about bad subprime poor people, or greedy Wall Street, and turn up the government's September 2008 decision not to bailout cash-strapped Lehman Brothers. This was one of the most amazing moments in the history of high finance. Those in power (those on the Wall Street/Washington merry-go-round) really believed that markets self-correct and are efficient and should be left alone. They ate up economics as a science and not a metaphysics. They decided the liquidation of Lehman Brothers was the right thing to do. The rest, as they say, was history—a very painful history.
With hindsight, we now know the decision not to rescue Lehman resulted in the calamity of 2008 financial meltdown and a prolonged recession which affected millions of lives in the US and around the world.
Even Ben Bernanke, then Chairman of the Fed, agreed in his latest research that the collapse of the financial system was the primary reason the recession has such lingering effect.
Then, again, why didn’t the Fed rescue Lehman Brothers?
That kind of wishful thinking (the nobility and truth of market prices) will never happen again on the merry-go-round. And such was the case in October of 2019, when the repo market ran out of cash and stock markets were on the verge of crashing. (Indeed, I was certain they would.) But they didn't. Why? Because Trump revived quantitative easing, a policy that he was critical of when running against Hillary Clinton but he embraced when the possibility of entering an election year with a crash on his hands was staring him in the face.
My point is that market crashes are over. This has been hard for me to accept, but there is no denying the evidence, which is found primarily in the pandemic's first of (so far) three surges (between May and September). The stock market rebounded then, but the conventional economy (often misleadingly called the "real economy") did not.
This gamestop thing has really emphasized something I've felt for years: the stock market has barely any connection to the real economy and it's all made up.
This is on top of years of seeing the poor struggle more and more "But the economy is great, look at the dow!"
— Urthdigger Quickclaw (@Urthdigger) January 27, 2021
The thing my comrades on the left must grasp at this point is that we have entered the Age of Infinite Money. The door to that infinity actually opened long ago, back when the Bank of England, established in 1694, employed Dutch banking innovations to transform government debts (accrued from military adventures) into safe paper for the rich (consoles). Between then and now, there has been a long and sad history of fiscal metaphysics and moralism: money is a real thing, the "real economy" is real, unchecked government spending has real consequences, monetary resources are scarce, and so on and so on. Much of the left does not deny this economic reasoning, but argues that it can reason better—like the USSR was convinced it could do the USA better. Indeed, it's not hard to find a leftist economist who very much believes in the real economy, who sees it as the truth that stands against the fiction of financial manipulation. But an SUV (to take one of many examples) is a part of the "real" economy, and yet it has a logic and justification that contains almost no reality.
But after 2008, after Lehman Brothers' collapse, the markets ended all of the moral claptrap and accepted the infinity of money. So should the left. This should be our new point of departure. This zone that's beyond the one described in 1990 by the under-appreciated French philosopher, Jean Baudrillard, as "Transeconomics." This is when money has become "the only genuine artificial satellite" that "enjoys a truly astral mobility." And this orbiting money "rises and sets like some artificial sun." With infinite money, we must imagine dark energy. This force that's increasingly, wondrously, mysteriously, inflating the universe for what looks like will be forever.