Questions about the crisis

[Delenda Carthago]

What caused the crisis?
What kind of crisis is this?
What does the marxist tradition say about the crisis of capitalism?

[Sinister Cultural Marxist]

What caused the crisis?


There are a bunch of factors which seem to have coalesced:

"Overproduction" in certain key sectors which were economic keystones of the global economy such as the US housing market. Homes in the US were massively overvalued, and when that overvaluation "corrected" itself the bottom fell out from under the economy.

Excessive government and private debt which was used to bolster that overburdened housing market.

Regulators who had become inept and corrupted by an almost fanatic belief in the efficacy of the market at valuing goods, without really looking at what the banks were up to.


What kind of crisis is this?A crisis of capitalism! More specifically, from my understanding it is an example of Marx's notion of overproduction, mixed with the just mentioned factors of poor financial regulation.



What does the marxist tradition say about the crisis of capitalism?Well, that it is caused by overproduction in a particular sector. Basically, if a field provides sufficient surplus value for investors, then after a while more and more investors will pile in to this otherwise lucrative industry. To finance the growth, banks give loans cheaply since they think that the sector is a winning bet. Over time, however, too many businesses will enter that sector. Together these businesses will produce simply too many goods for them to sell at a price which allows them to pay the costs of production and the interest on any loans they have. So they need to delay sale of the goods or reduce prices below where they make a profit. Either way, the banks don't end up getting their loans repaid, the producers are not able to buy new supplies, and commodities go unsold. The whole economy comes to a screeching halt as businesses file for bankruptcy and banks search desperately for a more reliable source of income.

As an example, take internet companies, as the 90s tech boom is a great example. Surplus value from software development might reach 50% one year because supply is too small to meet demand, making it much more lucrative for banks to loan to coffee producers. This motivates all the banks to loan to the software industry. If they do not loan to this booming industry, they run the risk of not making as much profit as their competitors. This drives all banks to loan, meaning there were more software companies than ever before. As such, you might have 26 websites all selling books. Now, when you have a huge influx of commodities onto the market, the supply is going to swamp all possible demand, meaning that these 26 firms will all need to reduce prices well below what they thought necessary to make a profit, or what they would be able to reasonably achieve. A few more competitive companies like Amazon.com will drive out the other web firms, causing them to collapse while it barely survives making a profit. When the competitors collapse, both (1) the banks who loaned to those competitors and (2) the suppliers who sold them their computers etc all take a huge hit.

I would recommend reading Marx's Capital (I cant remember which volume he talks about his theory of overproduction in specific though)

[Rakhmetov]

But why do people go into debt???? --- Because workers are not paid enough to buy all the goods and services they create. Governments know this (because they are a private agency of the bourgeoisie in their theft of the working class) and so in order to get round this major dilemma they allow the banks to extend credit so that people have more money to spend. But the problem is that debts have to be paid back with interest (sometimes as high as 25%).

http://www.youtube.com/watch?v=wBMnDLQr7-M

[Threetune]

What caused the crisis?
What kind of crisis is this?
What does the marxist tradition say about the crisis of capitalism?

The answer to all three questions is that it is the crisis of overproduction of Capital itself, of which, the surplus Capital will have to be destroyed in WAR in order for the system to return to greater profitability, if it survives the impoverished international revolutionary working class which it created, that is.

[Psy]

The answer to all three questions is that it is the crisis of overproduction of Capital itself, of which, the surplus Capital will have to be destroyed in WAR in order for the system to return to greater profitability, if it survives the impoverished international revolutionary working class which it created, that is.


It is more then just a crisis of overproduction of capital, the US state produced more capital to solve the stagnation of the 1970s where the rate of return on investments were falling (in other words the rate of profit).

Also war can't solve this crisis as the US already had a war time defense budget before Iraq and Afghanistan, thus a war can't generate enough demand to mop up surplus productive capacity.

See in capitalism the production of more means of production mops up the supply/demand gap yet the whole world economy is faced with too much capacity, thus no demand for new means of production thus you are stuck with a supply/demand gap.

[Aurora]

Engels describes it better than i could, any of this sound familiar?


As a matter of fact, since 1825, when the first general crisis broke out, the whole industrial and commercial world, production and exchange among all civilized peoples and their more or less barbaric hangers-on, are thrown out of joint about once every 10 years. Commerce is at a stand-still, the markets are glutted, products accumulate, as multitudinous as they are unsaleable, hard cash disappears, credit vanishes, factories are closed, the mass of the workers are in want of the means of subsistence, because they have produced too much of the means of subsistence; bankruptcy follows upon bankruptcy, execution upon execution. The stagnation lasts for years; productive forces and products are wasted and destroyed wholesale, until the accumulated mass of commodities finally filter off, more or less depreciated in value, until production and exchange gradually begin to move again. Little by little, the pace quickens. It becomes a trot. The industrial trot breaks into a canter, the canter in turn grows into the headlong gallop of a perfect steeplechase of industry, commercial credit, and speculation, which finally, after breakneck leaps, ends where it began — in the ditch of a crisis. And so over and over again. We have now, since the year 1825, gone through this five times, and at the present moment (1877), we are going through it for the sixth time. And the character of these crises is so clearly defined that Fourier hit all of them off when he described the first "crise plethorique", a crisis from plethora.

[xub3rn00dlex]

AFAIK the crisis is supposedly heading into a "double dip recession." Anybody here think that the more dips this recession takes the more proles will become class conscious? Or am I just silly and hopeful? Anyone care to explain double dip recessions, and why the bourgeoisie either a )haven't been able to avoid it or b ) are continuing with the process of causing more recessions?

[Os Cangaceiros]

The recent economic downturn was driven, in large measure, by the sharp falloff in the demand for capital goods that occurred when firms suddenly realized that stocks of such goods--both those already in place as well as those in inventory--were excessive.

.

[jke]

AFAIK the crisis is supposedly heading into a "double dip recession." Anybody here think that the more dips this recession takes the more proles will become class conscious? Or am I just silly and hopeful?If the world economy slips back into recession the ruling class will attack the working class more, I think that's for sure. Whether the working class responds to those attacks is another question. By and large, the crisis so far seems to have been a one-sided class war.

[Threetune]

It is more then just a crisis of overproduction of capital, the US state produced more capital to solve the stagnation of the 1970s where the rate of return on investments were falling (in other words the rate of profit).

Also war can't solve this crisis as the US already had a war time defense budget before Iraq and Afghanistan, thus a war can't generate enough demand to mop up surplus productive capacity.

See in capitalism the production of more means of production mops up the supply/demand gap yet the whole world economy is faced with too much capacity, thus no demand for new means of production thus you are stuck with a supply/demand gap.

OK agreed. And WAR is the system’s way of destroying the "too much capacity" of other rival capitalist 'surpluse’ capital, 'surplus' commodities 'surplus' labour.
For capitalism the destruction of "too much capacity", in WAR is an economic ‘solution’ rather than it being for some other plundering advantage like “oil” etc.

[Rakhmetov]

This crisis may last a decade or more just look at the two other Great Depressions in American history!

http://www.nytimes.com/2010/06/28/opinion/28krugman.html?ref=paulkrugman

[Psy]

OK agreed. And WAR is the system’s way of destroying the "too much capacity" of other rival capitalist 'surpluse’ capital, 'surplus' commodities 'surplus' labour.
For capitalism the destruction of "too much capacity", in WAR is an economic ‘solution’ rather than it being for some other plundering advantage like “oil” etc.

What major industrial power can the US realistically go to war with? The problem the US state is every major industrial power has a armed forces that can fight back and a number has the ability to strike right at the US ruling class with nukes.

[Delenda Carthago]

What major industrial power can the US realistically go to war with? The problem the US state is every major industrial power has a armed forces that can fight back and a number has the ability to strike right at the US ruling class with nukes.

Every state in the world, USA can fuck with in a military level. You dont fuck with the States, seriously. If they feel that there is an interest to invest more on a war, they can demolish any country within a month. Dont get it twisted by the Afganistan and Iraq. Its not that US cannot turn these countries into giant holes. Its the value/ price ratio that its not worth it.


But lets not turn the converstation about military stuff. Its about economy.


You know, the thing with the crisis, is debt. Why is everyone talking about debt?

[Psy]

Every state in the world, USA can fuck with in a military level. You dont fuck with the States, seriously. If they feel that there is an interest to invest more on a war, they can demolish any country within a month. Dont get it twisted by the Afganistan and Iraq. Its not that US cannot turn these countries into giant holes. Its the value/ price ratio that its not worth it.

No the USA can't which is why the US backed down when Russia called NATO's bluff in Georgia NATO caved in quickly. This is why the USA doesn't bully major industrial power militarily.



But lets not turn the converstation about military stuff. Its about economy.

Right world conquest didn't solve Germany's and Japan's economic crisis in World War 2.



You know, the thing with the crisis, is debt. Why is everyone talking about debt?
Because debt was how the bourgeoisie solved the crisis of the 1970's they simply cheapened credit in order to stimulate demand.

[Delenda Carthago]

The war in Georgia, was Georgia with a backing from the States vs Russia. If the States would analyse that its in their best interest to invest more in a war with Russia over Georgia, they would demolish them in a minute.War is politics with different ways.

And I dont care how Germany tryed to solve the problem. This is a converstation about the strictly economy analysis.

Debt was the way they solved it in the 70s(true indeed) but why the bourgeois bring it up so much now? And why even some leftists bring it up?

[Threetune]

What major industrial power can the US realistically go to war with? The problem the US state is every major industrial power has a armed forces that can fight back and a number has the ability to strike right at the US ruling class with nukes.

Exactly which other states the US might go to war with right at this moment is less of a consideration I think than the question of WAR in general. Although it is undeniable that imperialisms propensity for going to war, and intervening in others civil wars, seems to be increasing with every turn of the economic crisis screw - Yugoslavia, Afghanistan, Iraq, Libya and next Iraq, Surya,it is worth considering that the reasons for the wars are, not as many suggest, about oil or some other plunder, but about the need for war itself as a conscious policy for ‘solving’ the economic over production crisis.

While the US can out-gun its next biggest military competitors by a long way, that does not mean that those competiors will simply give up their fight for survival and roll-over. Whether they are NATO ‘partners’ or axis-of-evil ‘enemies’ the inter-imperialist economic rivalry is what will determine who fights who, not just who is best armed.

AttackGR, “But lets not turn the converstation about military stuff. Its about economy”

It’s your discussion mate, and if you want to keep it to economics fine, but if it should run out of steam at any point, you might find that the “conversation about military stuff" is really useful.

[Delenda Carthago]

We have a long way before we run out of topics. Like, nobody until now said anything for the parameter of China and its labor value, or the fact that they are trying to secure their economy in order to avoid the consequences of the crisis. Or the parameter of BRICKS and their role. Or the parameter of Africa and chinese imperialism etc. So dont sweat it. The "boom boom" can wait.

[Psy]

Debt was the way they solved it in the 70s(true indeed) but why the bourgeois bring it up so much now? And why even some leftists bring it up?
All credit does is transfer exchange value from the future to the present, if that exchange value doesn't materialize in the future then the value of capital itself devalues.

[RebelDog]

The 'crisis' underlined the reality of the society we live in: socialism is for the rich and free markets are for the poor.

[Glenn Beckunin]

Going back to what Engels said, this crisis indeed fits into the pattern of boom and bust. What makes this recession different, however, is this is the first major global economic downturn since the ascendancy of the internet. How much influence this has in raising class consciousness is anyone's guess, but it can certainly be said that the ideas are out there more, though still not enough.

[RedTrackWorker]

I think careful analysis would show it's beyond boom-and-bust and reflects something much deeper than that.

I'll shill for my organization's analysis by quoting anarchist writer Wayne Price:
"In my opinion, the best current published discussion of these matters is provided by a Trotskyist group which started with the theory first worked out by Ron Tabor in the organization I was once part of (the RSL) and has further developed it (Daum, 1990 (http://www.lrp-cofi.org/book/index.html); Daum & Richardson, 2010 (http://www.lrp-cofi.org/pdf/bankruptsystem.pdf); but see Tabor’s recent statement; 2009 (http://www.utopianmag.com/updates/1000000064))".

The main article is called Marxist Analysis of the Capitalist Crisis: Bankrupt System Drives Toward Depression (http://www.lrp-cofi.org/pdf/bankruptsystem.pdf).

Walter Daum also gave a talk on this at a forum in NYC called "The Economic Crisis and Left Responses" which is online here (http://www.lrp-cofi.org/statements/econconfreport110610.html#daum).

See also the later 2010 follow-up to the first crisis article (http://www.lrp-cofi.org/PR/europe83.html) and to quote its summary of the main article above:

1. Global capitalism has been undergoing a long-term decline in its rate of profit, a tendency first foreseen by Karl Marx in the 19th century. This is despite its apparent triumphs in recent decades: the opening up of China and other countries to unfettered super-exploitation and the expansion of information technology based on computers and the internet – both of which contributed to the slashing of workers’ real wages while at the same time advancing productivity.

2. For almost two hundred years, capitalism was able to periodically revive its profits through the system’s cyclical crises. Crises would not only weaken workers’ resistance but would also force the least efficient enterprises out of business, so that their capital could be acquired cheaply by the capitalists who survived. But in the past century the rise of monopolies and imperialism means that such crises threaten to spread beyond the least efficient capitalist enterprises and bring huge sections of the capitalist class crashing down. So monopoly capitalists and interventionist governments have cooperated to dampen the effects of periodic crises – but this undermines the crises’ “cleansing” of the system and sets the stage for deeper and long-lasting crises whose depression conditions are features of capitalism’s epoch of decay.

3. In the absence of a major depression since the 1930’s, large inefficient capitals survived and retained a highly fictitious evaluation. At the same time, financial capitalists came to play an ever-increasing role. Unlike industrialists who are heavily invested in existing factories, equipment and trained workers, financiers are more flexible and able to shift capital around. To do so on a large scale required planning and decisiveness. Thus leadership of the capitalist class was increasingly exercised by financial capitalists. And in the absence of sufficient outlets for profitable investment, the financiers led the way in creating bubbles of fictitious capital – the “dot-com” stock market surge in the 1990’s and the skyrocketing housing, fuel and food prices of the 2000’s.

[Delenda Carthago]

1. Global capitalism has been undergoing a long-term decline in its rate of profit, a tendency first foreseen by Karl Marx in the 19th century. This is despite its apparent triumphs in recent decades: the opening up of China and other countries to unfettered super-exploitation and the expansion of information technology based on computers and the internet – both of which contributed to the slashing of workers’ real wages while at the same time advancing productivity.

True. But is it only internet or something bigger than that? Is production more and more automated? Does the working hands are less and less needed? And has the form of working class changed because of this technology?



2. For almost two hundred years, capitalism was able to periodically revive its profits through the system’s cyclical crises. Crises would not only weaken workers’ resistance but would also force the least efficient enterprises out of business, so that their capital could be acquired cheaply by the capitalists who survived. But in the past century the rise of monopolies and imperialism means that such crises threaten to spread beyond the least efficient capitalist enterprises and bring huge sections of the capitalist class crashing down. So monopoly capitalists and interventionist governments have cooperated to dampen the effects of periodic crises – but this undermines the crises’ “cleansing” of the system and sets the stage for deeper and long-lasting crises whose depression conditions are features of capitalism’s epoch of decay

True,again. But what about something more specific?




3. In the absence of a major depression since the 1930’s, large inefficient capitals survived and retained a highly fictitious evaluation. At the same time, financial capitalists came to play an ever-increasing role. Unlike industrialists who are heavily invested in existing factories, equipment and trained workers, financiers are more flexible and able to shift capital around. To do so on a large scale required planning and decisiveness. Thus leadership of the capitalist class was increasingly exercised by financial capitalists. And in the absence of sufficient outlets for profitable investment, the financiers led the way in creating bubbles of fictitious capital – the “dot-com” stock market surge in the 1990’s and the skyrocketing housing, fuel and food prices of the 2000’s.

But this capital dont really excist. Its not being translated to materials. So, how can they be in charge if they cannot have something that actually exists? How they can stop their capital from being destroyed in a crisis like that?

[Delenda Carthago]

Our Party underlined right from the start that the economic crisis which was initially presented as a financial crisis that spread in several production branches, is a crisis caused by the capitalist way of production.



The supporters of the capitalist system, the reformists and opportunists, blame the choices of the neo-liberal and social-democrat parties. Thus, they intend to “whitewash” the capitalist system and present the crisis as a result of the policy of each bourgeois party or as a result of deviation from the allegedly healthy capitalist system. For that reason there has been an excessive use of the terms “casino capitalism”, “extreme free market policy” etc. They aim to conceal the fact that the crises are inevitable because the anarchic and uneven development, the erosion of workers’ purchasing power, the drive for competitiveness are inherent to the nature of the capitalist system. This issue is not merely a theoretical issue. Through the falsification of the crisis nature they intend to make the people accept the management measures. In addition, they intend to ensure the support of the middle strata.



The crisis has shown the limits of the capitalist system. It has demystified the bourgeois propaganda about competitiveness, entrepreneurship, the dynamics of the globalization and the regional unions as well as several contrived notions arguing that all countries together can confront the common dangers. Likewise the propaganda that the process of globalization ensures the global security and collaboration and therefore the people should to support it and not even think to deviate from its choices.



The new Keynesian “recipes” promote the increase of direct State participation in several banks or productive enterprises with a time frame of two or three years -until the recession is over- without the reintroduction of the employment forms applying before the privatisation.



http://inter.kke.gr/News/2009news/2009-18ocongressreport1

[piet11111]

Because debt was how the bourgeoisie solved the crisis of the 1970's they simply cheapened credit in order to stimulate demand.

Cheap credit to the working people allowed them to consume more then they could pay for and now all of a sudden the lenders want their money back.

However many cant pay so the banks take huge financial losses that the government covers using our tax money.
This money also needs to be squeezed out of the working class through austerity measures.
But capitalists being short sighted fucks do not understand that the squeezing of the working class ruins their ability to buy stuff so the economy stagnates and is quickly followed by further calls for austerity.

The economy is stuck in a downward spiral.

[PhoenixAsh]

I'd like to add to that that cheap credit will not only endebt the working class more to the monetary system and capitalism it will also create a false sense of economic growth. Growth which is not real and is not based on actual increase in spending power but on the fallicious notion of increased spending power.

It is based on future expected (or better hoped) increase in earnings or sustained income levels. So its taking a lease on future income and therefore future spending power. In other words...you increase your spending power now for a temporary period of time...and it will decrease the spending power in the future.

The money has to be paid back often with interest. Because more money needs to be paid than was actually spend it will cut into spending power.

In fact...the cheap credit trick will make matters worse and worse.


Here is a quick example...

If economic spending power is low when 10 people earn 100 credits (1000 credits total) lets say there is a gap of 10 credits per person....a total of 100 credits spending gap.

And you give them cheap credits...and they all borrow another 100 credits at 5% interest...which means they have to pay back 105 credits. The future spending power gap is in fact increased by 50 credits. Making the spending gap per person 15 credits.

Now this is a huge simplification and it isn't so clear cut at all in real life. But the mechanism is the same.

Now...this is not the only problem. Because a temporary increase in spending...will increase the demand. If demand increases so does the price. In effect the money borrowed and earned becomes worth less.

So the group of people that didn't borrow money will see their 100 credits actually have a spending worth of 100- (the price increase on products).

Now the theory is that the temporary spending increase will create more demand, more profit, more jobs and will sometimes give leeway to increased income. This is all nice and well.

But eventually the credit is going to run out. And people are faced with an actual spending decrease again. Demands will go down. Profit will go down...people will get fired and...spending power will go down again. Only this time...the spending power is adversely affected by the fact that interest is still owed on the earlier loans.

Now...its a huge simplification and only part of the economic system. It is not so cut and dry at all. But...again...the general principle is the same.

[Psy]

There is a bigger looming problem, China had propped up the US economy through cheaper commodities and buying US debt yet China now finds it self in a huge economic crisis far larger then the rest of the world. China has a much larger property bubble with whole cities having 3/4 vacancy rate and the Chinese ruling class doesn't want to stop building as it scared of revolution, so it knows there is a huge glut of development but can't stop building even more because it fears worker uprisings yet it can't continue building buildings that will never be sold. Thus the Chinese ruling class is looking into the abyss and don't know what their next move should be, and this contradiction will effect global capitalism. In short China probably will drag the global economy down into another market crash.

[piet11111]

There is a bigger looming problem, China had propped up the US economy through cheaper commodities and buying US debt yet China now finds it self in a huge economic crisis far larger then the rest of the world. China has a much larger property bubble with whole cities having 3/4 vacancy rate and the Chinese ruling class doesn't want to stop building as it scared of revolution, so it knows there is a huge glut of development but can't stop building even more because it fears worker uprisings yet it can't continue building buildings that will never be sold. Thus the Chinese ruling class is looking into the abyss and don't know what their next move should be, and this contradiction will effect global capitalism. In short China probably will drag the global economy down into another market crash.

They are also building new factory's only to mothball them right away as actually using them would cause the market to be flooded.

[punisa]

They are also building new factory's only to mothball them right away as actually using them would cause the market to be flooded.

Could you explain this a bit? Thanks

[piet11111]

China produces the largest amount of steel used today but in the current crisis they close steelmills to keep the prices up but they also keep building those factory's that where already under construction.