What "Reclining Nude" Tells Us About the Phoney Baloney Economy

11/11/20153 Comments

recliningnudeby James Corbett
November 10, 2015

Do you think Modigliani's Nu Couché is beautiful? Would you shell out $170.4 million for it? Well, someone just did. Specifically, that "someone" is Liu Yiqiang, an eccentric taxi driver-turned-billionaire stock trader who outraged the art world last year after buying a Ming dynasty porcelain cup for $36.3 million (a record for a Chinese artwork sold at an international auction) and then being photographed drinking tea from it. His latest purchase marks not only the highest price ever paid for a Modigliani by a fair margin but also the second-highest ever paid for a painting at auction after Picasso's Les Femmes d'Alger ("Version O") ($179.4 million).

While this kind of eye-popping, record-setting art sale isn't particularly important in isolation, the overall trend in the art market is a reflection of much bigger forces at work in the economy. And this sale is undeniably part of a trend. Both the record-setting Picasso purchase and the close-second Modigliani purchase took place this year. In fact, five of the top ten art purchases of all time have taken place in the last 15 months, and that is in inflation-adjusted dollars. What's more, Christie's set a record earlier this year by selling over $1 billion of art in a single week. And in the ultimate sign that the apocalypse is nigh, art investment funds that offer partial "ownership" of masterpieces are becoming the hip way for jet-setting globalist multi-millionaires to diversify their portfolio (for a cool million-dollar minimum investment, of course).

artbubbleUnderstanding what is happening here is not particularly difficult. It happened in the early '80s during the stock market run up and hit a brick wall in the crash of 1987. It re-surged in the late '80s when the Japanese central bank created a credit bubble that fueled a real estate bubble that led to a stock market bubble and hit a brick wall when the bottom fell out of the Nikkei in 1990. And it's happening now, with the S&P and Dow at near-record valuations after years of Fed-supplied funny-money liquidity. It's an art bubble, and it's just one of the signs of how far investors have detached from the actual productive economy in search of returns in a world of ZIRP and NIRP.

Although it may seem like a trivial point, it actually demonstrates a few things about our current economic situation. Firstly, and most obviously, it reminds us of the swelling ranks of billionaires around the globe who are causing a boom in the luxury economy even as those at the bottom of the economic ladder continue to stagnate. Secondly, it reminds us that central bank manipulations (in this case the quantitative easing programs of the Fed and years of near-zero interest rates) always lead to malinvestment (i.e. bubbles) that further distort economic reality. And thirdly, it reminds us how spates of art sale records have presaged sharp crashes in the past.

Well, what else are you going to do with a $38 million cup?

Well, what else are you going to do with a $36 million cup?

If anything is different this time it is that the collectors who are shelling out the big bucks are now no longer American (or even Japanese) but Chinese, Qataris, Russians and other international investors. This is no more than a reflection of the globalization and development of previously disconnected investment markets. Spending unimaginable amounts of money on paintings is now no longer the purview of rich Western elites.

At the end of the day, there are bigger fish to fry than out-of-control art prices, but they do give us a window into the distortions that the Fed and their central banker cronies have been introducing into the markets for the past decade. And they also give us an insight into the brick wall that may be just ahead.

But don't worry, the bottom won't truly fall out of the market until people start saying that "this time it's different" and "this bubble isn't going to burst."

Oh wait...

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  1. VoltaicDude says:

    Hi James – you’re right on target in this article about the absurd “insider”, “exclusive” and sometimes arbitrary standards of the globalist capitalist art market.

    A pretty long time ago now you released a podcast talking about how so much modern art is a sham (please correct me if I am wrong – I haven’t taken the time to search it out again).

    Maybe we could agree about some examples (although I tend to be either “neutral” or “like” specific art works), but that would just be an expression of our personal tastes, not very objective (which is also not “necessarily” bad – then again look up Mayor Giuliani on this topic).

    For instance, for a long time I was puzzled and meditated on the work of Ad Reinhardt, 1913–1967:

    One day I had an epiphany and quite frankly I now feel I both understand and love Reinhardt’s work, especially his late work – the color field paintings – very important to me.

    Are they worth millions of dollars? Is any painting? Yet I would argue that these works are among many absolutely critical cultural objects, representing transcendent understandings of human culture – in short, they are “invaluable” – funny word.

    In my view, your points above are totally accurate, and I appreciate the fact that you stuck to an attack of the foundational “market” structures that define this problem. But it’s also still a bit of a dilemma as I experience it.

    I’d like to open up the considerations here a bit to help us look at this in a “multidimensional” way (no intended allusion to cubism).

    What do you think of the 1st edition Ulysses by James Joyce that sold for £275,000?


    Is the physical copy of any book worth that much?

    I love books, have amassed a personal library over the years of reading copies, but no collector’s copies per say (could never afford them I suppose).

    But let’s suppose someone gifted that Ulysses copy to you! Would you feel any personal responsibilities towards the artifact?

  2. setatliberty says:

    This isn’t a bubble. It’s a rock. This story is just more evidence that the global economies are stronger than ever. It’s different this time…

    Now we wait… 0_o

  3. dodo says:

    Sorry – but it is easy to play around with STOLEN money!!!!

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