The effects of the pandemic on the already existing trend of decline in the world economy are already causing several speculative bubbles to deflate and for other bubbles to threaten to burst.

By Alejandro Iturbe.

Speculative bubbles are the result of the inflow of surplus capital from production that does not achieve a satisfactory rate of return for reinvestment and seeks another destination and, at the same time, another source of profit.

This influx into a given market (stocks, real estate, raw materials, etc.) increases the price of what is quoted on it above its real value, and those who invested in them make quick profits. It is a speculative action because it does not create new value, but rather appropriates part of what was generated in production.

This price increase is expressed as a “magic” appearance of profits and generates a fictitious capital that is not only speculative but does not even come from new value generated in production but is already the result of the speculative activity itself.

In other cases, the capital injection is not intended to increase prices but to prevent a bubble from deflating permanently. This is what happened after the “burst” of the bubble in the US real estate market and its chain effect: the threat of bankruptcy of the global financial-banking system, which had, moreover, a dynamic of global depression equal to, or worse, than that of 1929.

The governments and central banks of the imperialist countries and others “injected” billions of dollars into the “markets” that were used by the banks to “recapitalize” themselves. In this way, they managed to prevent the bankruptcy of the banking system and to stop the “tilting” of the dynamics of the economy as a whole. At the same time, however, they spent a great deal of “ammunition” and kept the foundations that had generated the previous crisis almost intact. [1]

The global debt bubble

They even aggravated them [the foundations], as in the case of the “sovereign debts” of States, generated by their indebtedness to help the banks. They are part of a bubble, possibly the largest of all called the “debt bubble”.

According to the report “Global Waves of Debt”, global debt (States + companies + individuals) has been growing at an accelerated annual rate “in both the public and private sectors and in virtually all regions of the world”. [2]

By mid-2019, global debt amounted to 320% of world GDP. Although the US and China accounted for 60% of the increase in the volume of debt, it was the emerging economies that grew fastest (7% per year). [3]

This situation causes acute payment crises which, in the case of Argentina, liquefied its currency and, in 2018 alone, lost half of its value and faced, even before the coronavirus effect, a very serious economic crisis with the closure or reduction of numerous companies, and thousands of layoffs. [4] The impact of the measures against the pandemic has only aggravated the picture, in the framework of the largely impotent policy of the new Kirchnerista government of Alberto Fernández. Similar situations, but more mitigated, were experienced by Turkey and South Africa. [5]

The global debt bubble is not shrinking: as we saw, it is expanding. It will even expand further with the money that will go into fighting the pandemic and its effects, and into trying to reactivate the economy, essentially by helping businesses. It does so to be self-sustaining because if it deflates it will drag the entire world economy into a catastrophic decline, worse than those of 1929 and 2007/2008.

Stock exchanges and shares

One area particularly favorable to the development of bubbles is the stock market (the stock exchanges). On these, a relatively small fraction of the total capital of companies and the papers they list can generate a considerable rise in price. It is a market with daily inflows and outflows of money and therefore very sensitive and subject to large fluctuations. The crisis of 1929 began precisely with the bursting of the bubble on the New York Stock Exchange (Wall Street). [6]

Within this framework, let’s analyze the dynamics of the New York Stock Exchange, the world’s leading stock exchange and which, to a large extent, marks the dynamics of the others. With the different oscillations to which I have referred, since March 2009, the general indices that mark its dynamics (Dow Jones, S&P-500, NASDAQ, FANG [7]) were in an upward process.

The fact that this dynamic occurs amid the influence of the negative impact of the 2007-2008 crisis has a primary explanation. The policy of the US Federal Reserve (Fed – Central Bank) has been to lend money at low rates. In this context, the stock market was a more attractive destination for the surplus capital that formed this bubble. Within this general rise, the NASDAQ grew at a higher rate than the Dow Jones and the S&P 500, and the FAANG grew even more (seven times). [8]

At different rates, since the beginning of March, all rates have started to fall. The most affected has been the Dow Jones. “The recent fall of the New York Stock Exchange was much faster. It took the coronavirus only 18 days to destroy 35% of the Dow Jones index value whereas in 2008 it took 122 days…”. [9] The article adds that the current speed of information circulation and processing (the Big Data) makes “markets” adjust their decisions faster. But even FAANG is beginning to be affected: on March 9, it fell 3%. [10]

The overall trend on Wall Street is downward, reflecting the general trend of the US economy. But, at that point, two contradictory factors begin to play out. On the one hand, Trump’s business aid package may temper the picture a bit.

A technology bubble?

On the other hand, the FAANGs have so far proved to be the most resilient and dynamic of the listed companies, which acted as the locomotive for all the others. This role has an objective basis: the growing weight of technology and its products in people’s daily lives (generating a great change in consumption habits) and, within this framework, the accelerated growth of these companies and the value of their capital in the market. During processes of crisis and decline of other traditional economic branches, these companies appear as the “jewels of the market” and the bet on the future. It is enough to see, for example, the global battle for control of 5G technology.

But the question many analysts are asking is whether this can be sustained over time and whether, mounted on a real basis, a “technology bubble” is not being created. As we saw, since 2013, the FAANG index grew by 700%. The total value of its equity capital is 4.723 trillion dollars. [11]

In that framework, there is a debate among analysts. Some, such as Peter Oppenheimer and Guillaume Jaisson of Goldman Sachs, state in a report that “unlike the technological mania of the 1990s, most of today’s success can be explained by solid fundamentals, revenues and profits rather than speculation about the future”. [12]

While others, such as Professor John Colley, Warwick Business School, claim that “the situation is very similar to the one experienced almost two decades ago”. [13] In 2000, ENRON and other technology companies in the telecommunications sector that had grown exponentially in recent years fell. In that fall, they dragged down the stock price of companies such as Google and Cisco, which also had great initial dynamics. [14]

It was the so-called “ crisis” that hit the NASDAQ index hard (the FAANG did not yet exist). It was also the end of the so-called New Economy. This delirious theory stated that, in addition to the economy destined to the production of physical goods, (subject to the law of value and with limits and objective rates of growth), there now existed a “new economy” producing knowledge and information and that, because they were “immaterial products”, they were not subject to the same laws, nor did they have objective limits on the accumulation of new value. [15] The crisis of 2000 quickly demolished this theory.

Subsequently, companies such as Google, Cisco and others recovered their lost share price and, accompanying their expansion as companies, began a two-decade upward trend.

This reopens the question of whether there is a technology bubble or not. In my view, the analysts at Goldman Sachs are right to consider a real and growing trend in the use of technology and its application in everyday life and in changing consumer habits. From that point of view, the situation of these companies is much more solid than that generated by the “creative accounting” of ENRON and other companies (capitalizing on non-existent value).

At the same time, however, this strength is being achieved in the context of a global economy that was already slowing down and is now suffering from the impact of the coronavirus pandemic, with all other economic branches in a clear decline. So it is inevitable that a bubble is forming there (“in the safest harbor”). Which of the two factors will predominate? Reality will provide the answer.

The “corporate debt” bubble

In the United States, companies owed about $10 trillion in 2018, a figure that represented 47% of the country’s GDP. This debt grew until 2010, fell until 2013, and then rose again to reach its highest historical value in 2018.

It is important to note that this growth is linked to the “stock market bubble”, as most of this debt is intended to repurchase its own shares to avoid a fall in their price. Another part is destined to the repurchase of the “junk bonds” in which many companies had invested before 2007, and whose price must be sustained so that this “rotten capital” does not collapse. [16]

The “Chinese bubble”

The situation of the Chinese economy is also a permanent concern of the imperialist entities and analysts. They note in particular its very high level of global debt (sum of public and private debt) which, in 2017, exceeded 300% of the GDP. [17]

It indeed has large monetary reserves in foreign currency (one of the world’s best ratios of reserves to currency in circulation). But these reserves, which are very important in the current situation, might be very low in the event of an accelerated “deflation” of the bubble and a monetary run on the yuan.

According to official statistics, in 2017 China’s total public debt (central and local governments) was close to 40% of the country’s GDP (in 2016 it represented 36.7%). The Minister of Finance considered that “the risks of China’s government debt are generally under control” and that this level of public debt is “relatively low compared to other countries”. [18] In other words, for the time being, there seems to be no risk that the Chinese State will be unable to pay its debts, given its high level of reserves.

The situation of private debt (84% of total debt) is totally different and much more explosive. The risk of “non-payment” is always latent and also its possible “domino effect”. In 2015, the “deflation” of the housing market bubble (based on artificial credit-driven growth since 2008) and its impact on the stock markets may have shown us a foretaste of a possible scenario. This is where the “coronavirus factor” comes in, with its impact on the whole of the Chinese economy, which we have analyzed in a recent article. [19]

I’m not saying that this situation is going to happen right away. What I am saying is that it is an ever-present threat and that, therefore, the Chinese economy does not rest on solid foundations but on this unstable bubble. Therefore, it fits the general law of the current speculative and parasitic capitalist economy.

Other bubbles

I will also refer to two other potential bubbles in the United States. The first is that of student loans, those that families or students themselves take out to pay for their university studies and which they are going to pay off during the first years of their professional lives. More than 50% of students go into debt and 14% of adults must pay back a student loan. In 2019, they accumulated $1.41 trillion: a growth rate of 6% over the previous year and 33% over 2014. In 2018, loans averaged $35,000 each and the default rate was 10.8%. Another case is car loans, which this year totaled US$1.2 billion and have grown 50% since 2010. [20]

In 2019, the total debt of the US population reached $4 trillion, the highest level in the country’s history. [21] We have already seen the impact on this total of debts from student loans and car purchases. Also, each adult accumulates an average of $4,000 in credit card debt, which many used to maintain a minimum level of consumption, and others used directly to survive on an income that did not cover their needs.

As debt payments are not paid in full, interest accrues, the debt increases in a truly vicious circle in which many cannot even cover the minimum payment. The default rate was already 25%. [22]

What will happen now, that according to the Department of Labor, there were ten million layoffs last March? [23] In one month, the “coronavirus effect” devoured the same number of jobs that Trump had boasted of creating since he took office in 2017. It is evident that this framework will have a negative impact on the payment of personal debts by increasing the rate of arrears and bad debts.

The mysterious world of crypto-currencies 

I approach, at last, another bubble (possibly already existing) in a new and sophisticated field. Crypto-currencies are a virtual currency used as a means of exchange through internet transactions. Its creation and those transactions are based and protected in very complex cryptographic codes.

The first of these was bitcoin, in 2009, although many others followed, with similar criteria. Unlike the centralized banking system, crypto-currencies operate in a decentralized way through point-to-point networks of thousands of computers around the world. In 2017, a protocol based on the so-called “Ethereum Platform” (2015) was established to determine some common criteria. [24]

Crypto-currencies have created a sort of parallel monetary system in which computer geniuses, speculative adventurers, sectors which want to leave their money and their transactions outside the official controls, etc., coexist.

In 2017, total virtual currencies were estimated to move about $100 billion, just over 10,000th of the total monetary transactions in those years, but equivalent to or greater than the GDP of many small countries. Bitcoin accounted for 50% of this movement. [25]

The price of bitcoin has had very large fluctuations, some of them also sharp. When it was launched in 2009, it was just under US$1 apiece; in 2017, it reached almost US$20,000; in 2018, it plummeted to US$3,200; in 2019, it rose to US$13,800, and in early 2020 it was close to US$9,000. [26]

What will be its dynamics in 2020 during the “coronavirus effect”? Some, like Javier Pastor, commercial director of Bit2Me, a company dedicated to buying and selling crypto-coins, maintain that it will have a clear upward dynamic because “it’s a better refuge than gold. [27]

For others, such as Peter Schiff, head of the global strategy at the financial advisory firm Euro Pacific Capital, “digital money is a classic bubble with no intrinsic value.” [28] For economist Nouriel Roubini, bitcoin is “the mother of all bubbles” in the hands of “charlatans and swindlers“, while for Nobel Prize winner Joseph Stiglitz “it should be outlawed“. [29]


Translation: Sofia Ballack.


[1] For a better understanding of the whole process and its impact on the world economy, we recommend reading Alejandro Iturbe’s book “O sistema financeiro e a crise da economia mundial” [The Financial System and the global economic crisis] – São Paulo: Editora Sundermann, 2009.





[6] See Note [1].

7] The Dow Jones is the general index of listed industrial companies; the S&P-500 works with a selection of the largest companies; the NASDAQ works automatically through electronic transactions and considers technology, telecommunications and biotechnology companies; the FAANG is the acronym that brings together Facebook, Amazon, Apple, Netflix and Alphabet-Google. Later, the companies Alibaba, Baidu, NVidia, Tesla and Twitter joined in.






[13] Ibidem.



[16] See note [11].




[20] See note [11].


[22] Ibidem.





[27] Ibidem.

[28] Ibidem.

[29] Ibidem.