the current economic crisis

[communard resolution]

Could someone explain to me what the reasons for the current economic depression are (rapid stock market decline etc)?

Ideally, please be as specific as possible about the current situation instead of just saying "because capitalism doesn't work" etc.

Thank you.

[Psy]

Could someone explain to me what the reasons for the current economic depression are (rapid stock market decline etc)?

Ideally, please be as specific as possible about the current situation instead of just saying "because capitalism doesn't work" etc.

Thank you.

The cycle of Money->Commodities->More Money it freezing up as money and commodities get stuck in various parts of the cycle. Now this is happening because capitalists are under consuming as they don't invest their money as they don't see where they can invest their money to get more money so capitalists are mostly just sitting on their capital to try and weather the crisis. This lack of confidence amoung capitalists has been caused by a economy that has been based on illusions has collapsed and mounds of fictitious capital (http://en.wikipedia.org/wiki/Fictitious_capital) turns out to worthless, meaning capitalists have just learned all the gains they made in the past was all just an illusion, so capitalists that are still invested are scrambling to realize their fictitious capital into real capital that is freezing up the capitalist mode of production rapidly.

[spice756]

The cycle of Money->Commodities->More Money it freezing up as money and commodities get stuck in various parts of the cycle. Now this is happening because capitalists are under consuming as they don't invest their money as they don't see where they can invest their money to get more money so capitalists are mostly just sitting on their capital to try and weather the crisis.

The capitalists are not investing money and no one is investing money.Why would you invest money when the economy is not good.

But the problem is if people do not invest money that is really bad for the economy and makes it worse.




This lack of confidence amoung capitalists has been caused by a economy that has been based on illusions has collapsed and mounds of fictitious capital (http://www.anonym.to/?http://en.wikipedia.org/wiki/Fictitious_capital) turns out to worthless, meaning capitalists have just learned all the gains they made in the past was all just an illusion,


I thought the problem was banks not doing well and too much loans?And capitalists cannot get loans.

And people not buying stuff.



so capitalists that are still invested are scrambling to realize their fictitious capital into real capital that is freezing up the capitalist mode of production rapidly.


But there still is major debt problem and the US is going to have to deal with it now or in 5 years from now ,10 years from now or 15 years from now ?

[Psy]

The capitalists are not investing money and no one is investing money.Why would you invest money when the economy is not good.

You can say it that way.



But the problem is if people do not invest money that is really bad for the economy and makes it worse.

Yup, during the Great Depression capitalist had Germany, Japan (and to a lesser extent Italy) to invest in so capital shifted to them (thus where Japan and Germany got the capital to fund their war effort). Now they don't have anywhere to move their capital to.



I thought the problem was banks not doing well and too much loans?And capitalists cannot get loans.

And people not buying stuff.

That is a factor yes. But if you look up fictional capital in Marx's Capital you will get a better understanding of what is going on. The capitalists focused so much fictional capital they ignored the real economy for about three decades.



But there still is major debt problem and the US is going to have to deal with it now or in 5 years from now ,10 years from now or 15 years from now ?

The debt is the least of our worries right now. General Motors recently announced they are facing over production as people are not buying cars/trucks, it doesn't much annalist to understand GM is right now thinking of closing down a large chunk of their factories.

[Lynx]

The technical reasons are secondary to psychological ones. If people believe the system works, then it works. This, in spite of the underlying absurdities that only a few understand. Wikipedia describes this phenomena as the Tinkerbell effect.

[Q]

The technical reasons are secondary to psychological ones. If people believe the system works, then it works. This in spite of the underlying absurdities that only a few understand. Wikipedia describes this phenomena as the Tinkerbell effect.

This is how the capitalists explain their economy. They use terms as "trust" and emotional terms to describe what happens. It is in fact a failure to understand how the economy really works and Marxists should be able to go through that facade.

It has nothing to do with "trust". The capitalist crisis of overproduction, which is inherent to the system, has been put off for years by rerouting the profits back to the working class as cheap credits to prolong consumption. Credit is in fact "future wage" for working people as you pay it back with wage you still have to earn. This credit bubble has now bursted and only made the crisis of overproduction worse. This is what we've seen the last years and has been accelerating in the last few weeks.

[Lynx]

Credit (with perceived risk) is based on trust.

Marxists and economists can see through the facade, but the facade remains and is essential to the continuing functioning of the system. If trust and confidence can be restored, capitalism will arise from the flames like the Phoenix.

[Oswy]

Part of the problem is the way capital appears to have become detached and abstract in its relationship to actual productive forces. Not only is capital organised in ever more complex instruments of trade itself but the electronic age is allowing it to move around the globe, and between capitalists, at an ever increasing rate. Those who work within the financial sector, the 'experts', seem, as a consequence, to have lost their expertise; capital's logic has become difficult to pin down for their purposes, they lose their confidence and act with caution which itself freezes up activity.

This isn't the whole story I'm sure, but I think it's in the mix.

[BobKKKindle$]

The central problem is, as stated above, overproduction. The persistent decline in real wages has meant that the only way governments could sustain high levels of demand for goods and to safeguard against the threat of economic depression is to encourage banks to lend money to consumers. The problem with this strategy is that very few people were actually able to pay the loans back once the money was spent and many people were only able to gain access to credit by using the value of their houses as collateral, which means they agree to give their house to the bank if they go bankrupt. When the value of houses began to fall after a prolonged increase and banks realized that they had make a series of risky investments, they have begun to recall their loans only to discover that they won't be able to get much of their money back, which has resulted in banks refusing to lend any more money and also refusing to trade with other banks, causing the failure of banks which rely heavily on short-term transactions with other financial institutions, including Northern Rock in the UK. The loans (where are now being described as "toxic loans" or "bad debts") were also turned into assets and sold onto other banks, which is why the crisis has not been limited to the banks which did the most lending but has actually spread to encompass the whole of the banking sector, even those banks which specialize in other areas of finance such as investment.

[communard resolution]

Am I right in understanding that the plans for the nationalisation of banks to overcome the crisis would bring us one step closer to what is known as state capitalism (as happened in several European countries in the 20s and 30s)? Or is this comparison totally incorrect?

[Psy]

Credit (with perceived risk) is based on trust.

Marxists and economists can see through the facade, but the facade remains and is essential to the continuing functioning of the system. If trust and confidence can be restored, capitalism will arise from the flames like the Phoenix.
Capitalists are not stupid, they can see there is nowhere to invest their money where they can more money back, thus why capital is being sucked out of the system. People say it is a problem of liquidity without asking were the liquidity is going, the fed is flooding the market with liquidity, stocks are being sold off for liquidity yet that liquid capital doesn't go anywhere as the capitalists investors mostly sit on their capital.

[Psy]

Am I right in understanding that the plans for the nationalisation of banks to overcome the crisis would bring us one step closer to what is known as state capitalism (as happened in several European countries in the 20s and 30s)? Or is this comparison totally incorrect?

State capitalism is where the state is the major capitalists. The plans for the internationalism of banks won't do that, the state would just be a investor as the plans for nationalization are really plans for partial nationalization.

[Djehuti]

Why is there so little discussion on the crisis here on Revleft? This is by far the biggest political issue right now and the most important for us socialists to understand. It could provide the opening that the socialist left have so long searched for...


You should all read these texts:


Anwar Shaikh - An Introduction to the history of crisis theories http://homepage.newschool.edu/~AShaikh/crisis_theories.pdf (http://homepage.newschool.edu/%7EAShaikh/crisis_theories.pdf)

Andrew Kliman - Trying to save capitalism from itself
http://socialist-blogs-news.blogspot.com/2008/04/trying-to-save-capitalism-from-itself.html


I would also recomend you to buy David Harvey's "Limits to Capital":
http://www.amazon.com/Limits-Capital-New-David-Harvey/dp/1844670953/ref=sr_1_1?ie=UTF8&s=books&qid=1223770341&sr=8-1

[Lynx]

Capitalists are not stupid, they can see there is nowhere to invest their money where they can more money back, thus why capital is being sucked out of the system. People say it is a problem of liquidity without asking were the liquidity is going, the fed is flooding the market with liquidity, stocks are being sold off for liquidity yet that liquid capital doesn't go anywhere as the capitalists investors mostly sit on their capital.
And the bankers are sitting on their reserves, choking off credit including short-term credit and lines of credit. This is irrational.

[Psy]

And the bankers are sitting on their reserves, choking off credit including short-term credit and lines of credit. This is irrational.
Their logic is investing money into commodities in order to get back more money then they started with. The capitalist logic of short term greed is causing long range problems and this is not new, this is exactly that same thing they did in 1929 just back then they had Germany and Japan to invest in.

[redwinter]

I think Raymond Lotta's article, Wall Street Panics, Ruling Class Scrambles--Deepening Financial Crisis and Desperate Emergency Measures (http://www.revcom.us/a/143online/wall_street-en.html), provides a very deep overview of the background to and the ramifications of the ongoing financial crisis we are witnessing right now.

Here's some of the background provided from the aforementioned article:



Through deceit and aggressive marketing, banks pushed mortgages on people. The Federal Reserve Bank had pumped low-cost funds into the banking system to prop up mortgage loans. These loans were then combined into larger groups of loans by investment banks (like Lehman Brothers) and turned into financial products that were sold on financial markets. All kinds of lending took place with these original loans as collateral. But when housing prices fell, and mortgages could not be paid, much of this collateral became worthless.

AIG was insuring much of this lending against the risk of loss. But as the losses mounted astronomically, AIG could neither cover the costs of backing this debt nor borrow funds on the financial markets to keep itself afloat.

The financial markets had basically lost confidence, and AIG’s assets tumbled in value. AIG was in danger of collapse. But if AIG went under, the probability was great that it would have taken down other financial institutions with it. This forced the government’s hand.

As the week progressed, the U.S. ruling class was faced with a two-fold danger: additional and cascading losses and bankruptcies in the financial sector; and the possible choking up of lending channels, which could send the economy as a whole into a rapid downward spiral.

By the end of the week, the U.S. government announced what will likely turn out to be the largest bailout operation in U.S. history. The initial cost of that bailout plan is $700 billion. This comes on top of $85 billion to rescue AIG and the plan to spend $200 billion to shore up Fannie Mae and Freddie Mac.


Beyond that, this crisis and the necessity being faced by the US bourgeoisie has far-reaching consequences internationally and in particular on the need to defend and expand the US empire, as analyzed in the article.

[ontheleftneil]

Those're some pretty good explanations --- thanks for this post.

[ckaihatsu]

Credit (with perceived risk) is based on trust.

Marxists and economists can see through the facade, but the facade remains and is essential to the continuing functioning of the system. If trust and confidence can be restored, capitalism will arise from the flames like the Phoenix.


Lynx,

With a statement like that you really shouldn't have the label of 'revolutionary' next to your name.


Chris

[A New Era]

rapid stock market declineWall Street is short term oriented, and the stock market is primarily governed by either greed or fear. The recession has a beginning and an end, but if the end is longer than say 6 months ahead, stocks are going to get slammed.


reasons for the current economic depressionAFAIC remember and understand...

Low interest rates meant ordinary people started speculating on home ownership and bought homes they couldnt afford. The low interest rates was a heritage from previous recessions. With low interest rates a housing bubble occured, and as with every bubble, there is a pin. The bubble burst, speculators, often ordinary people, got hurt, and so did most of the homebuilders. Homebuilders got hurt and their stocks did too, and also those related to homebuilding.

Bad loans were mixed into complex packages and CEOs speculated with shareowners money. Thus the stocks of the financial sector went down when homeowners couldnt pay back on their loans.

CEOs were betting on complex economic packages that no one really understands. Some of those packages contain documents consisting of 10000 to 30000 pages. Its really impressive how stupid some of them got.


they can see there is nowhere to invest their money where they can more money back, thus why capital is being sucked out of the system.Value investors, the businessmen of the stock market, see plenty of opportunities in this market, since stocks everywhere, and thus companies literally worldwide, are cheap.

It is speculators who are afraid of the stock market at the moment. The speculators are, however, the vast majority of the stock market.



and no one is investing money.Thats false.

The stock market contains a number of stocks. Say there is a company called Industrial Materials Inc. It has a market capitalization (total price) of 2.16 billion. 205 890 000 stocks and a share price of 10.47. If you add upp all the shares you will have a total price of approximately 2.16 billion. In essence, the number of shares will always be there.

Since shares are traded from person to person, a group of people has to always own all those 205 million shares, right? So there are always investors. But the thing in this market is that more people want to sell than buy, so the share price is dragged down. The stock market is almost like a big auction.

So it is not like the stock market is deserted. When you sell a stock, someone else is buying. There are always people buying shares and thus always people who either invest or speculate.


For those who think that this may be the end of the world as the media likes us to believe some times... The world economy will lick its wounds and it will be fine again, but while things seems bleak, this is a time for the (real) left to grow its base.

[Psy]

The stock market contains a number of stocks. Say there is a company called Industrial Materials Inc. It has a market capitalization (total price) of 2.16 billion. 205 890 000 stocks and a share price of 10.47. If you add upp all the shares you will have a total price of approximately 2.16 billion. In essence, the number of shares will always be there.

Since shares are traded from person to person, a group of people has to always own all those 205 million shares, right? So there are always investors. But the thing in this market is that more people want to sell than buy, so the share price is dragged down. The stock market is almost like a big auction.

So it is not like the stock market is deserted. When you sell a stock, someone else is buying. There are always people buying shares and thus always people who either invest or speculate.


For those who think that this may be the end of the world as the media likes us to believe some times... The world economy will lick its wounds and it will be fine again, but while things seems bleak, this is a time for the (real) left to grow its base.
The stock market is a side show that shows the confidence of the capitalists, the large capitalists are not only dumping their stock but productive capitalists are already making plans to liquidated their means of production, over-production is running rampant throughout the system as consumption is dropping like a rock.

There is now way the world economy can lick its wounds because it is a global crash and the rate of profits is plummeting like a rock.

[communard resolution]

Thanks to everybody who contributed to this thread so far.

[al8]

Andrew Kliman - Trying to save capitalism from itself
http://socialist-blogs-news.blogspot.com/2008/04/trying-to-save-capitalism-from-itself.html

Just read the article. I find this an especially valid point;


AN ALTERNATIVE NEEDED

But revolutionaries cannot sit back and let the flow of events do our work for us. It is one thing to disclose the instability of capitalism, but another to show that an alternative to it is possible. Writing in the Financial Times on March 24, Michael Skapinker argued that the recent financial crisis and government interventions have put an end to the Reagan-Thatcher era, but "leftwing and far-left websites . . . clearly have not got a clue" about what might replace it. Encountering answers such as a "world . . . in which the needs of the many come before the greed of the few," he responded: "Like what, exactly?" So platitudes and evasions do no good, nor does bluster about "denounc[ing] with merciless contempt those theorists who demand in advance guaranteed and insured perspectives and particulars about . . . the socialist society."(2) All of this will be exposed for what it is.

Moreover, it actually harms the struggle for a new society, since it shows that one has "not got a clue" about the supposed alternative one is espousing. It is time to recognize that "Like what, exactly?" is an honest and profound question that demands a straight and worked-out answer. And it is time for revolutionary thinkers and activists to start working out that answer.

We need to be able to churn out blue-prints on the spot flowing from the general principles that we espouse. Just as it is erstwhile done in any endevour one sets forth. Deliberately being unimaginative is self-defeating. Try being unspesiffic on principle about something else and see what happens. Nothing, unless you have an imagination to explore the spesifics.

[Oneironaut]

Could anyone provide me a reference to a detailed socialist alternative for the economic crisis? I keep reading and hearing in interviews that getting this alternative out in the public is key to the struggle, but I keep coming up empty handed when I search for some of these alternatives.

[redwinter]

Could anyone provide me a reference to a detailed socialist alternative for the economic crisis? I keep reading and hearing in interviews that getting this alternative out in the public is key to the struggle, but I keep coming up empty handed when I search for some of these alternatives.

The revolutionary communists have raised an alternative pole.

As Raymond Lotta concludes his article, "Financial Hurricane Batters World Capitalism: System Failure and the Need for Revolution (http://www.revcom.us/a/145/financial_crisis-en.html)":



All of what has been described in this article is the result of the relations and domination of capital, the result of the workings of a system driven by vicious competition and the blind accumulation of profit based on exploitation—and backed by massive military force.

In the heartland of capitalism, there is financial meltdown. In the Third World, millions are already suffering the ravages of a global food crisis. This system is a horror and a failure. Is it necessary for humanity to live this way?

The October 10 edition of The Washington Post carried an article with the title and question “The End to American Capitalism?” In forums and in the media, leading bourgeois policymakers and analysts have discussed whether this crisis, careening beyond control and threatening greater economic calamity, suggests that there is something fundamentally amiss about capitalism. And the emphatic answer given is the same: “the system may not be working optimally, but there is no alternative, only gradations and variations of capitalism.”

But there is another way. It is possible to take hold of the productive resources of society and to develop and deploy them in a rational, planned, and society-wide way to meet human need and to safeguard the planet. It is possible to establish a radically different kind of state power and to create a society and institutions that unleash people’s creativity and that promote initiative and diversity in an atmosphere that brings out human community.

The question of socialism, of communism, of revolution could not be more relevant…and more urgent.

To be clear, revolution is not a catchword for lots of new things or lots of change. Revolution has very specific meaning: the people getting rid of the system; depriving the old ruling class of their political-economic-military power; and creating a new power with new aims and objectives and the means to enforce those aims and objectives.

As serious as this crisis is, with all the havoc it is wreaking, the system will not automatically collapse of its own weight and disorder. Absent revolution, capitalism will put itself back together—in its own image and at unimaginable social cost.

And for all the agony that crisis inflicts, this will not automatically and spontaneously translate into progressive, radical, and revolutionary sentiment and consciousness. Other forces are in the field doing ideological and political work: reactionary populists like Lou Dobbs (“blame the foreigners and illegal immigrants”) and Sarah Palin whipping up a social base for religio-fascism. The Obama candidacy is channeling disenchantment and the thirst for change right back into the political system’s suffocating embrace (“change we can believe in” is nothing other than change acceptable to the powers that be).

This is a highly fraught situation. Things can change very quickly. The system is revealing much about its basic nature. Bigger jolts may come and outrage may suddenly grow and give rise to resistance from all kinds of quarters. We have to grasp the potential of the situation. We have to be out there bringing forward understanding and bringing forward a vision of a liberatory world. We have to rise to new political and ideological challenges in the belly of the beast.

(Source: http://www.revcom.us/a/145/financial_crisis-en.html)

[ckaihatsu]

We need to be able to churn out blue-prints on the spot flowing from the general principles that we espouse. Just as it is erstwhile done in any endevour one sets forth. Deliberately being unimaginative is self-defeating. Try being unspesiffic on principle about something else and see what happens. Nothing, unless you have an imagination to explore the spesifics.


As society currently stands, there are only two main sectors in the economy: public and private. We can use a process of elimination to find a general solution, and then work our way down to particulars:

- Since the private sector has now come running to raid the public coffers in order to sustain their revenue and profits -- not true economic growth -- we should deny it to them and instead beef up our support for use of the public sector to fulfill actual human needs. We're seeing the First World deflating down into the realm of Third World politics, with rampant corruption, tinpot dictators, slow growth, and popular demands.

- If the public sector will yield to popular demands, then we should direct it to push past *all* private-capital concerns in favor of facilitating the flow of goods and services that people rely on for their lives and livelihoods. This could be a limited command economy to take over where the system of credits has broken down. I suggest deploying the National Guard to do this, as the Louisiana National Guard did recently in preparing the public for the onslaught of Hurricane Gustav.

- If the public sector won't yield to popular demands then we should argue to "re-boot" the economy and start over with an immediate reorganization of labor at the local level, with transparent meetings to decide the fate of existing assets, infrastructure, labor, and resources -- regardless of claims made by private interests or governmental ones. I also suggest using this workflow instrument, with the records published openly on the Internet:

Affinity Group Workflow Tracker
http://tinyurl.com/yvn2xq


Chris





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[Oneironaut]

The revolutionary communists have raised an alternative pole.

As Raymond Lotta concludes his article, "Financial Hurricane Batters World Capitalism: System Failure and the Need for Revolution (http://www.revcom.us/a/145/financial_crisis-en.html)":

I have read the article. The article seems to be primarily political rhetoric without much in regards to a practical alternative. I am looking for a detailed alternative but it may be the case that one hasn't been formulated yet.

[Lynx]

I have read the article. The article seems to be primarily political rhetoric without much in regards to a practical alternative. I am looking for a detailed alternative but it may be the case that one hasn't been formulated yet.
There is Towards A New Socialism by Paul Cockshott and Allin Cottrell.
http://www.ecn.wfu.edu/~cottrell/socialism_book/

[al8]

I have read the article. The article seems to be primarily political rhetoric without much in regards to a practical alternative. I am looking for a detailed alternative but it may be the case that one hasn't been formulated yet.

If you like to inform yourself of a possible technical economic alternative I suggest you check out technocracy (http://www.youtube.com/watch?v=I9ps5vJrIxM).

[Plagueround]

Lynx,

With a statement like that you really shouldn't have the label of 'revolutionary' next to your name.


Chris

I saw it as a statement and not an endorsement. What he said is true. If the bourgeois are able to to get the people to regain their confidence in capitalism, capitalism will come back and it may even be strong for a while until the next crisis (this is exactly what happened during the 1st great depression). That is why it is important to start talking with people about this and start organizing, so we can help break that cycle.

[Oneironaut]

There is Towards A New Socialism by Paul Cockshott and Allin Cottrell.
http://www.ecn.wfu.edu/~cottrell/socialism_book/ (http://www.ecn.wfu.edu/%7Ecottrell/socialism_book/)

Thank you very much for this! I am excited to get into it...

[Oneironaut]

If you like to inform yourself of a possible technical economic alternative I suggest you check out technocracy (http://www.youtube.com/watch?v=I9ps5vJrIxM).

I have become more and more interested in technocracy. The link you provided me is very useful. Thanks.

[al8]

People may also find useful the recent talk (2.okt '08) given by comrade Hannah Sell on the current capitalist crisis at a London Socialist Party public meeting;

http://www.youtube.com/watch?v=yLVi96eWzyA&NR=1

[Charles Xavier]

Start leafleting in your downtown core.