In the fall of 2010, obsessive expectations of economic salvation are booming, especially in Germany. Although not a single one of the global causes of the crisis has been overcome, the media are already painting the prosperous landscapes of a new economic miracle. The belief in faith as the self-sustaining force of the upswing sets the standards for dealing with reality. Whoever falls behind in the race for optimism has already lost. That’s why exaggerated reports of success are always necessary. The worldwide state-financed growth, which is still below the pre-crisis level, is not sufficient for the flights of fancy of the current monetary hope-mongering. But if the state administration allows itself to falsify the unemployment figures with ever new tricks, and the banks are allowed to outsource their bad loans to special-purpose vehicles – why should the industrial groups take a back seat in “creative accounting”? A whitewashing “accounting policy” has always been commonplace. But what the corporations have allowed themselves to do in this respect since the supposed end of the crisis is record-breaking.
This is made possible by the International Financial Reporting Standards (IFRS), which have now been adopted by all major public companies. There is not a trace of increased control in it, on the contrary. The new accounting guidelines give the CFOs a free hand for almost adventurous accounting acrobatics. This applies to both the past and the future. The basis for this is the lax definition of depreciation and so-called special expenses. This means that charges can be removed from the balance sheet almost at will. Siemens, for example, make the liabilities of its finance division disappear; airlines conjure away their leasing costs. And despite high future valuation risks, the overpriced costs of company acquisitions are not written off to a realistic extent. The result is what U.S. financier Warren Buffett derisively calls “bullshit-earnings,” because a growing proportion of up-front or follow-on costs no longer appear on the official balance sheet. In reality, profits are nowhere near as abundant as quarterly reports might suggest.
The lively balance sheet policy only makes sense in relation to the financial markets. The Fed’s desperate dollar glut drives neither consumption nor investment, but only global stock market prices. The stock markets are now less a barometer of real economic development than of profit expectations based on legalized lazy balance sheet tricks. Behind closed doors, there is already talk of a “valuation bubble” among large international corporations. When they buy back their own shares, they reap differential profits quite independently of the real business, for which they themselves have created the wrong conditions in purely mathematical terms. This does not change anything about the dependence of the economy on public finances, because the new valuation bubble can no longer feed a “consumption miracle” as the real estate bubble did recently. It is merely the economic downside of an equally adventurous monetary policy that threatens to lead to a trade and currency war. Then, however, the air will very quickly escape from the valuation bubbles in corporate balance sheets.
Originally published in Neues Deutschland on 11/15/2010
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