You can't reform oligarchs – we have to walk away

I retain the strong view that almost everyone is still greatly underestimating the power and control the US oligarchs have over our lives. Win or lose, it looks like they will destroy our standard of living so we should opt out of their rigged game right now.

Speculative investment plus rising stock market = enormous profits. Speculative investment plus falling stock market = contagion, liquidation of assets, liquidity crisis, solvency crisis and deleveraging. Both will do us great harm and we can't stop them, but we could avoid them. And now I'm going to have to explain all of that...

This is just more of my deep, deep concern that we're not taking the threat of oligarchs seriously enough yet. I am convinced that you're all seeing 'trillionaire Elon' as mainly a sign of moral decay and greed and not as an existential threat to western civilisation. He's the latter.

To understand all this you need to get to grips with the difference between productive investment and speculative investment and how we shifted from one to the other. Productive investment generally increases fixed capital, which just means that you spend it on real things which create other real things. To make money you improved the machines in your factory so they could make things better or faster.

The financial revolution of the 1980s undermined this and the globalisation of the 1990s ripped it apart. Now you got someone else to own all that pesky fixed capital (basically China) because it was a cost-heavy burden. What you did was gamble on the value of the logo that you got them to put on the thing they make.

That just means you are speculating that a certain business will increase in value. Let's be clear here; not in profit, not in real asset value, not even necessarily in intellectual property value, only in market capitalisation (share value). Elon Musk is a trillionaire without really making any profit at all because he can attract speculative capital because he has a mad fan base.

This all went ballistic in 2007. The rich had been speculating on dafter and dafter things, including 'financial instruments' that turned out to be junk, made up of portfolios of subprime mortgages. It all went wrong and they tanked the economy. They couldn't make profit because they had created a recession, so they robbed us instead.

We printed money, they used it to buy their own assets, those assets then rose in value by more than they paid for them and they got stratospherically rich – and then having learned this new trick they kept inflating the assets so their wealth kept rising. Meanwhile someone had to pay for all this or the economy would overheat – so the rest of us did.

(It is the great scandal of modern politics that most people don't understand that when the rich crashed the economy, every single one of the rest of us was forced to compensate them and more, all out of our own pockets.)

Now this is the thing; in this new (corrupt) system, as long as the market keeps going up, speculative investment keeps working. And in the US that's all there is now – they literally believe a rich person who owns productive fixed capital or spends on research and development is a fool. So every rich person in the US needs the stock market to keep rising and rising.

And since policy-makers make policy for the rich, the whole of the US economic strategy for 30 years now has been to forget profits and forget productivity and forget innovation, and run from manufacturing, just keep that stock market rising. The latest wheeze is data centres. They may look like a pivot back to fixed capital but if you look at the financing you’ll see they’re just a gamble, but as long as everyone keeps putting their money on the table, the gamble keeps working.

But what happens if the stock market doesn't rise? Then you get the five horsemen of the economic apocalypse. First comes contagion – everything is so financially interconnected that when one thing goes down it brings the other things down too. A collapse in say AI or an implosion in the shadow banking market spreads very quickly across the economy.

Then you get liquidation of assets. If all your wealth is in assets and they're cratering, you need to get out earlier rather than later. This is now a doom loop. But that creates a new problem – everything is propped up on these share values and that is where the wealth is held, but there are still liabilities. You still owe people money.

Except now more money is owed than there is free cash to pay it (i.e. a liquidity crisis). Lots of entities therefore go insolvent, either because they can't pay debts or can't get paid by creditors, increasing the doom loop. And then everything deleverages – basically no-one wants to lend any more and so the thing which drives western economies (borrowing) also dries up.

And we're well and truly stuck.

Now I want to take some care here. That's what would happen if a crash comes. The question is how stable is this system really? Without going into this too much, it's not a simple picture. There is much less debt in financial America than there was in 2007 so the insolvency effects will be lessened.

On the other, the economy is much, much less diversified – wholly a third of the US economy (by market capitalisation) is directly tied up in AI-dependent corporations. If that goes, there is less elsewhere to prop it up. And – very especially – the usual source of 'propping up' has been killed in pursuit of the golden egg.

Because usually you hope consumers are going to kickstart a recovery, but only rich people shop in the US these days because they took all the money. Then again, a lot of the statistics are misleading right now. The UK has just seen lower than expected inflation. Good news, right? Not really. It seems a large part of it is businesses just can't pass on costs because most people just can't afford another penny. So losses are being hidden. For now.

“Don’t let them tell you this is all OK. We’re in trouble and we should act”

So as I argued a couple of weeks ago, I'm definitely not predicting a crash, but almost everyone is predicting some kind of 'market correction' at some point. And in any case, what I'm trying to persuade you here is that both versions of this are an absolute nightmare for most of us.

Basically either this lot pull it off, the AI investment works and they take all our jobs and wealth and take complete control of us, or it doesn't, and they crash the economy destroying our jobs and wealth. In the former we are vassals, in the latter we are destitute. In no scenario are we in any way in charge.

But this system has got so far out of control that it has not only got rid of the regulations it ought to face, it has found ways to make it impossible to regulate it. This is either through coercion or by creating supra-national rules to supercede domestic regulation, or through extremely powerful lobbying or (increasingly and particularly) they have just made economies totally reliant on them.

The US could sort this but won't. The EU could ameliorate a lot of this but are doing something a bit closer to what I'm suggesting here. Britain could take a shot, but we'd be seriously bullied and would bottle it. And Scotland? Independent or not we are not powerful enough to regulate them. Full stop.

But we can replace them. This is where I'm at now. We can't tame their stupid game, but we can walk off the pitch and play a different game. I'm begging you to take this seriously because our politicians aren't. And if you want to know what seriously looks like, look at why the Iran War didn't crash the economy.

Why? Because we instituted global state socialism in oil. After the 1972 oil crisis we decided we could no longer rely on free markets. Governments spent vast sums building enormous oil storage capacity and created a global agency (the IEA) to manage the system outside the free market to make sure a crash didn't happen.

We have comparative price stability and avoided a great depression because state planning created an economy-saving buffer. Which is to say it opted out of a free market-only approach. And that is what we have to learn. We need to opt out of money as we see it now. We need to opt out of consumption as it is happening.

We need to opt out of energy as they have built it. We need to opt out of the food system we have. We need to opt out of foreign-owned IT systems. And we need to opt right out of equity caplitalism.

What am I talking about? I'm talking about Common Weal policy. I will return to all this again and again because all of this is genuinely keeping me up at night. We can't use their money system. It is broken. We need a domestic mutual bank, a replacement for foreign equity (a proper national investment bank) and we need a system that directs pension money into supporting productive domestic industry.

We need to finance government without bond markets by creating a different relationship with the central bank. We desperately need to create an open source system of software and a 'public AI' model. We need to have the server infrastructure to replace our total reliance on Amazon.

Then we need to tell Amazon they have to unoinise. So they'll leave. And then we should just take their infrastructure and build a public product distribution system. We should nationalise supermarkets and build up serious long-term food buffers in the same way we did with oil (China maintains enormous state-managed frozen pork reserves for exactly this reason). It not only prevents shortages but stabilises prices.

We should build a leasing model to replace consumption and we should then build large-scale manufacturing to build the things we lease here. There is no economic reason to prevent that so long as it is a leasing model where costs are spread across the lifetime of a product.

We need to look at core computer manufacturing and see where we can be less reliant. I really think we should look into sovereign chip capacity too. We need rapid energy transition and a zero-petrochemicals strategy. I'd start by buying 20,000 electric cars from China on a cut-price bulk order and create a cheap public car leasing service to accelerate electrification.

We need to replace gas heating with mass district heating. I'd get our land workign for us, making us as close as possible to self-sufficient in construction materials, fabrics, bioplastics. You probably know that I want avacado orchards and coffee plantations in Scotland grown in warehouses under light.

I would literally walk away from the shitshow wherever I could. I am no fantacist. I know we can't become a full autarky. But that doesn't mean there is no alternative to globalised free trade to sort everything. Just in the way we decided to do with oil.

I've thought a lot of this stuff for a while now. The red lights have been flashing for years. But saying the above out loud would have sounded made ten years ago, and probably even five. Yet much of this is already happening in more enlightened countries.

Seriously bad shit is happening. We do something or we sink. Those are the real options. Crossing our fingers is reckless. Don't let them tell you this is all OK. We're in trouble and we should act. This is what I'd do. If you've got a better idea, email me...