Understanding the economic crisis

[Djehuti]

The economic crisis is by far the major political issue of today, and it is the question that we socialists must focus on right now.


So I would like to see a more in depth discussion on the crisis and how we should act as socialists. As far as I know there is no such thread on Revleft wich I find very strange.

First I would like to recommend a few texts on the subject:


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 recommend 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

[More Fire for the People]

Do you have any articles on the immediate crisis at hand?

[Lynx]

Alternatives to capitalism have been discussed, but it doesn't make the news. There is no discussion of alternatives in either the media, academia or workers. How do we break through the orthodoxy?

[Djehuti]

Seen this site?

Very good resource:
http://sites.google.com/site/radicalperspectivesonthecrisis/

[Djehuti]

Watch this!

http://video.google.com/videoplay?docid=7382297202053077236&ei=jVL6SOPjMYewiALElbzOAg&q=Richard+Wolff

Richard Wolff a professor of economics at UMass Amherst talks on the current "financial" crisis and capitialism in general. A form of socialism is presented as a possible alternative. This talk was presented by the Asociation for Economic and Social Analysis and the journal Rethinking Marxism

================================================== ==

During the past 20 years the capitalists have successfully - with support from the displacement of power to their favor that was achieved during the Reagan-era - taken hold of a bigger part of the production. Real wages have dropped while the profits have grown. The traditional problem for the capitalists when such a strategy have grown to successful, is that when the workers' wages drop so does their ability to consume. And who should the capitalist then sell their commodities to? The solution to that question have been cheap loans. No working class in history has been so beloaned as the american, Wolff states. And it has been an immensely profitable solution for capital, instead of raising the wages:

"Profitearners lend the money to the workers, to enable the workers to consume more, not by paying them rising wages, like the previous hundred and fifty years, but by lending to them. Try to think of this [from the perspective of] an employer: Instead of paying your worker a better wage, you lend him or her the money so that they will have to pay it back to you with interest."


On this road have the american working class, often dubble- and tripple working to get their economy together, collapsed under increasing debts that on growing credit has financed the entire systems continuing expansion. Until it can't be kept together any longer...

[Psy]

Market Meltdown 1/3 (http://video.google.com/videoplay?docid=8874107582515054726)

Market Meltdown 2/3 (http://video.google.com/videoplay?docid=-7154526849333176528)

Market Meltdown 3/3 (http://video.google.com/videoplay?docid=-6370694780294310911)

[Die Neue Zeit]

I found this remark by Kautsky to be most interesting and most telling of today's world (since, ironically, this was confirmed by Lenin's own theory of imperialism):

http://www.marxists.org/archive/kautsky/1902/socrev/pt1-2.htm#s5


A third force working in the same direction is the increasing amalgamation of industrial capital with money capital, or “high finance.” The industrial capitalist is a manager that possesses an industry in the sphere of production, taking this word in its widest sense (including transportation) in which he exploits salaried wage-workers and draws a profit from them. The money capitalist, on the contrary, is the modernized form of the ancient usurer. He draws his income from interest on the money which he loans, not only, as formerly, to indigent private individuals, but also to capitalist managers, institutions, States, etc.

Between the industrial capitalist and the money capitalist a great antagonism exists, similar to that between the first and the land owners. Interest on borrowed capital like ground rent constitutes a reduction from industrial profits. The interests of both forms of capital are here contradictory. Politically also they are in opposition.

[...]

The kings of finance need not fear a strong governmental power, independent of people and Parliament, because they can rule such a power either directly as bondholders, or else through personal and social influences. In militarism, war and public debts they have a direct interest, not only as creditors, but also as government contractors, since the sphere of their influence, their exploitation, their power and their wealth is thereby increased.

It is wholly different with industrial capital. Militarism, war and public debts signify high taxes which the wealthy must assist in bearing, or else the cost of production is increased. War signifies besides this a stagnation in the production of commodities, a break in trade, economic difficulties and frequently ruin. Where the financier is rash, extravagant and violent the industrial manager is frugal, timid and peace-loving [...] Where the proletariat has not yet entered the field of independent politics the industrial capitalist willingly serves it as bellwether in order to increase his own political power. To the little bourgeois Socialist the opposition between industrial capital and the proletariat appears less than that between profit upon the one side and ground rent and interest upon the other. For him the solution of the social question consists in the abolition of interest and ground rent.

[Bilan]

Kautsky...possibly not relevant.

[Bilan]

Market Meltdown - Capitalists in Crisis (http://www.socialistpartyaustralia.org/archives/1523)

[Die Neue Zeit]

Kautsky...possibly not relevant.

How so? Well, maybe in the case of the derivatives market he isn't, but...

[Bilan]

Curtousy of Alf and the ICC

1929-2008 - Capitalism is a bankrupt system, but another world is possible: communism! (http://en.internationalism.org/icconline/2008/10/crisis_leaflet)

[Devrim]

From the last issue of World Revolution (ICC monthly in the UK):

Are we reliving a crash like 1929?
http://en.internationalism.org/wr/318/lead

In Britain, as elsewhere, capitalism wants the working class to bail it out
http://en.internationalism.org/wr/318/brit-attacks

The Sinking Ship of American Capitalism
http://en.internationalism.org/inter/148/us-sinking-ship

The left applauds as the state tries to shore up capitalism
http://en.internationalism.org/wr/318/left-applauds

Bleak prospects for the world economy
http://en.internationalism.org/wr/318/bleakprospects

Economic crisis opens the door to massive struggle
http://en.internationalism.org/wr/318/doortostruggles


For texts in 18 other languages see: http://en.internationalism.org/

Devrim

[Djehuti]

Fictitious Capital and Today's Global Crisis a talk by Loren Goldner Part I
http://blip.tv/file/667781/

[not_of_this_world]

Even in this so called downturn, recession whatever you want to call it, Americans are still better off than 99 percent of the rest of the world. We can still wage wars on three fronts, folks are still driving those SUV's and Hummers. Food has made most of us fatter than pigs and a revolution is the furthest thing from Joe the Plumber's pea sized brain. We need to be a third world nation before we can just talk about revolution. Look to Venezuela for a perfect climate for revolution, lots of poverty, and a leader who understands the problem. Hugo Chavez. His revolution may go haywire if he listens to all his detractors but he is on a roll now. He has good advice from Alan Woods too and that helps immeasureably. If you have not read his book, Reformism or Revolution you must and it will help you understand the action there. Lots of it right now. Very important what happens too, if it is co-opted the movement will die. America is just a sad mess. Even more so with this jerk they just elected, he can't even talk straight, notice all the pauses? That man is unsure but he is bought and that is a real dangerous combination!

[piet11111]

sure western workers make more money then 99% of the worlds population.
but their living expenses (fixed expenses like rent taxes water+gas+electricity food etc.) are also much higher leaving them with little and likely to throw themselves into debt to keep paying the bills.

just because living conditions are not absolutely miserable doesn't mean that the western workers are not exploited.
and more and more people are unable to pay for even the most basic necessity's like rent and bills.
sure right now people are not going to wave the red flag but the conditions are emerging for massive social unrest that has the potential to actually finish capitalism once and for all.
just consider the condition of france 1968 and compared to today we are much stronger and the Bourgeois are weaker and more divided then they have been in many decades.

europe and america have a long tradition of class strugle and an industrial edge over the rest of the world meaning we still have the best chances of achieving communism as opposed to the social reformism of the likes of Chavez whose weakness continues to allow the reactonary elements to regroup and strenghten themselves.

[KurtFF8]

Here's a short speech by David Harvey called " A Financial Katrina - Remarks on the Crisis" Link (http://davidharvey.org/2008/12/a-financial-katrina-remarks-on-the-crisis)

[Bilan]

Even in this so called downturn, recession whatever you want to call it, Americans are still better off than 99 percent of the rest of the world. We can still wage wars on three fronts, folks are still driving those SUV's and Hummers. Food has made most of us fatter than pigs and a revolution is the furthest thing from Joe the Plumber's pea sized brain. We need to be a third world nation before we can just talk about revolution.

What, you think that that is going to continue for much longer?
Are you crazy?

[Niemand]

What's brought about this crisis, which will be hereafter referred to as the New Depression, were a culmination of factors that created the perfect storm. The first of these factors being that of the weakened state of the American consumer via rampant inflation and stagnant wages. While this highly benefited Wall Street, to a point, by optimising profits, but ultimately led to the paralysis of the American consumer.

The second factor would be that of the practise of predatory lending. Basically, the scheme that banks and retailers with their credit accounts wasn't much different than the art which Bernie Madoff was master of. The way these creditors made money was by way of drowning their debtors in debt and driving them into bankruptcy. This is the reason credit was so easy to come by, but, much like a Ponzi scheme, it is inevitably damned to collapse. We should also remember that it was Bill Clinton who signed the Community Re-Investment Act which legalised predatory lending while portraying it as a programme in the interests of the poor.

A third factor would be the rampant de-regulatory policies that have plagued Washington since the Reagan Revolution which have now been killed by reality. To be sure, prosperity had lulled our entire nation into a lazy complacency which allowed us to repeal Great Depression-era laws that would have helped prevent anything like this New Depression from coming about. Due to the efforts of men like Ronald Reagan and Phil Gram, our economy is now desolate. Deflation is in effect and will not cease until it destroys our service and asset based economy. This is the driving force that will invariably mold us into a manufacturing nation once more.

See, the desolation that we are no doubt in store for, lest the ambitious Keynesian policies of President-elect Barack Obama prove to be a success, is guaranteed by how fragile our economy has been set up to be. Deflation is already in effect, you can see this by all the drastic price cuts and huge sales that abound this nation. The dominoes have already been set in motion, for when the manufacturing branch of our economy falls, and the financial sector implodes, we see retail stores cut prices, wages, and employees while restuarants shut their doors and retailers are forced to do the same shortly thereafter. The unemployment fuels the deflation which in turn feeds the constant, and growing, millions who are laid off and fired every 2 weeks. It's a vicious cycle that will only conclude after one of two things: Obama's presidency proves to be miraculous in its abilities and actually ends the New Depression in 2009, or the greatest wealth transfer in history occurs and prices start to normalise.

[gilhyle]

personally am in the odd position of having argued in the past that a globalised crisis in the credit system was increasingly possible and having argued in 2006 that a crisis in the bond sector was coming. But I never linked the two, because the intermediate steps were unclear to me. Consequently I took the view that what was happening was essentially an asset price bubble in the bond market that would come and go - a view I expressed on this site as this crisis began to unfold.

What is happening now is that the underlying causes linkages and depth of the crisis are becoming clearer and the question is clearly posed as to the extent to which this is a global structural moment of change in the credit system. I can see that I was quite wrong in my previous analysis of the nature of the crisis because I did not take into account the key fact that the NY Investment Banking industry could not survive the freezing up of the markets from which they earned their income - notwithstanding the fact that they had formally laid off the risk. What I also did not see before was that the destabilisation of the investment banking industry would impact so strongly on the retail banking sector - or the significance of the fact that the retail banking sector was acting as the conduit for these surplus emerging economy funds to be used fund US consumer spending, at the same time as the weakness of the trade union movement meant that the incomes underlying that consumer borrowing were depressed. Underlying that was a more substantial truth - that the banking industry was and is fundamentally undercapitalised from the amount of leverage there is in the international financial system due to the intermediation of the placing of the surplus funds of 'emerging' imperialised countries in the financial markets of the imperialist powers.

In this regard the first and third talks of the meltdown series posted above seem to me to be excellant. Albo and McNally are very good. THey bring out the relevance of Marx's insistence that the price of financial products is determined by supply and demand and not by labour time. It is thus anarchic and the anarchy was criticaly intensified when the US Dollar came off the Gold standard and has been further intensified by the commodification of risk. The combination of these two mean that the regulatory system put in place early in the century has been outflanked by the anarchy of the market.

The underlying capitalist logic of this is a bet on the ability of capitalism to expand in the imperialised countries. THis is the key point. The logic of the vast expance in financial assets over recent years is a bet on the fact that the total wealth of the world will expand massively - that is what financial assets are. A writer like Mohammed El Ehrian (When Markets Collide) predicts that the emerging economies will move on in the near future to reinvest their surpluses in domestic wealth creation. If that is true, those bets can - in principle - win out.

The reality is of course far more complex. The bets have to last long enough. A key part of gambling is to stay in the game. In this case, the problem is that banks need to deleverage, to unwind those bets to remain sound - which will push the imperialist powers increasingly out of parts of the game.

McNally in Meltdown 3 talks about the inevitability of a shifting of global power away from the US. If that is so it implies a need to completely revise our understanding of imperialism as a period in history. It there are emerging economies which can become imperialist powers, the whole basis for the Leninist and Trotskyist approach to program is definitively wrong at this point and needs to be reexamined.

A starting point needs to be the reconceptualisation of inter-imperialist rivalry, a key point of the Marxist analysis until WW2, but little emphasised since then in the context of the Cold War, the UN and NATO. But inter imperialist rivalry is clearly posed again in the context of the various financially aggressive packages by which EU and US try to stabilise their financial positions and prevent the unwinding of leveraged positions - the unwinding of which would open up the prospect of a significant shift of power to the productive regions of the globalised economy. What is most striking in this regard is the complete inadequacy of the position of the emerging economies to take up this opportunity. Power will probably stay for the moment with the US and the EU. The price of that in terms of overvalued financial assets is unclear at this time.

[Lord Testicles]

The biggest "october suprise" of all: A world capitalist crash (http://home.earthlink.net/%7Elrgoldner/october.html)


Loren Goldner
October 2008

“There will be periods of 30 years which will pass with the seeming importance of a single day, and single days with the importance of 30 years.” (old Marxist maxim)

(Note: To avoid reinventing the wheel, and under the pressure of recent epochal events, I have used fragments of other texts I have written in the past few years, making up no more than 15-20% of the following article. I ask the reader’s forbearance for any annoyance.)

Given the fascination of the events of the past 14 months of “credit crunch”, many people (myself included) have sometimes tended to neglect the “deeper” sources of this crisis in production and reproduction. Analysis of a credit crisis has now become almost banal in the mainstream media. But as Marxists we know that there is rarely, if ever, a “pure” credit crisis without a deeper dimension in the material reproduction process (1).

We recall Hegel’s three stages of the introduction of a new idea: 1) total silence and indifference 2) great hostility and denunciation 3) “that’s what we’ve always believed”

It’s amazing to see how the media have gone in a year and a half from 1) to 3), barely stopping at 2), a marginal pastime over the last 30 years when dealing with “skeptics”. Suddenly the word “capitalism” has reappeared in popular discussion after decades of euphemisms such as “free-market economies” and Barack Obama’s support for massive government bailouts of Wall Street is attacked as “socialist” when in fact it is nothing but the old capitalist refrain of “privatization of profit, socialization of costs”.

Increasing media attention is being given to the difficulties of “non-financial corporations” in getting loans as credit tightens and dries up. One wonders exactly what this can mean, however, given that such “non-financial” corporations at GM, Ford and General Electric have increasingly been making ever-greater profits in financial endeavors.

Given the ever-growing prominence of finance and financial markets in capitalism since the 1970’s, and the deep ideological falsification by official capitalist statistics at all levels, serious information on the “real” economy is harder to come by, since (as exemplified by the financial turn of these former pillars of US production) a fictitious dimension is present pretty much everywhere.

[Bolshevik-Leninist]

Bankrupt Capitalism Threatens Depression: Revolutionary View of the Election and Economic Crisis
Statement of the League for the Revolutionary Party


Across the United States and the world, the election of Barack Obama has been celebrated as a momentous event that promises welcome change in the conduct of American government. In one sense it certainly is momentous – in this nation built on slavery, in which racism continues to oppress Blacks, Latinos and immigrants, the election of a Black man as President is truly an historic event. It is surely evidence of improved racial attitudes among white people. However, Obama’s victory had far more to do with the widespread sense of crisis in America and the Democratic candidate’s promise of “change.”

The outbreak of economic crisis on Wall Street in October added an exclamation point to the end of the eight disastrous years of George W. Bush’s presidency. The U.S. occupation of Iraq proved a bloody quagmire, signaling a sharp decline in the U.S.’s global power and reputation. Meanwhile at home, the government’s failure to respond to Hurricane Katrina revealed a shocking level of racism, disregard for human suffering and incompetence.

The celebrations in the streets over Obama’s victory expressed joy in striking a blow against racism and in getting rid of Bush. The euphoria also demonstrates the broad expectation that the Democratic Party, with Obama at the helm, will change America into a more just society, make major strides against racism and poverty and bring an end to years of warmongering.

But the truth is that Obama and the Democrats will sorely disappoint their supporters, especially among the working class and poor. At home, the massive problems of unemployment, falling wages, evictions and woeful social services are not going to go away. The capitalists are caught in a crisis that they can escape only by drastically intensifying their exploitation of the working class. Obama & Co. are dedicated servants of America’s ruling capitalist class, no less than their Republican rivals are. They will oversee escalating attacks by the capitalists on working-class standards of living, which will inevitably hit Blacks, Latinos and immigrants hardest.

Obama’s Mission

Indeed, everything from big campaign donations to newspaper endorsements showed that the ruling class overwhelmingly favored Obama’s election. The capitalists knew that after the last eight years their government desperately needed a liberal facelift. With the economy on the edge of collapse, the capitalists hope Obama can contain working-class anger at the inevitable attacks on jobs, wages and social services. And they hope Obama’s presidency will calm the oppressed masses of the Middle East, Latin America, Africa and Asia, who have suffered so much in a U.S.-dominated world and whose hatred of U.S. imperialism threatens to explode in massive struggles. Thus Obama’s mission is not to “change” the system, but to save it.

In fact, even before he has taken office, Obama’s actions confirm that he will play such a role. While he spoke against the invasion of Iraq as a “dumb” idea, since his election to the Senate Obama has repeatedly voted to maintain funding of the occupation. Indeed, while he talks about withdrawing U.S. troops from Iraq he at the same time plans on maintaining a large military force in the region to defend American interests. Further, he has made clear that he supports what he considers to be “smart” wars like the first Gulf War, and the occupation of Afghanistan, where he promises to send more troops. Obama slipped calls for “shared sacrifice” into his campaign speeches, but he won’t tell us how much sacrifice (read: misery) he thinks we will be expected to endure. However his top economic advisors, like former Federal Reserve Chair Paul Volcker and former Treasury Secretary Robert Rubin, are already doing the calculations – after all, they designed historic economic attacks on the working class when they previously served in the White House.

Obama and the Wall Street Bailout

The clearest proof so far of Obama’s loyalty to capitalist interests, however, is his role in rallying support for the Wall Street bailout.

For decades the Republican and Democratic parties alike have told us that there was no money to improve health care or education. Instead, they slashed social services and approved wave after wave of attacks on our jobs and wages. As working-class incomes fell further behind the rising cost of living, no help came from the government. But as soon as the vampires on Wall Street faced bankruptcy, the Republicans and Democrats rallied together to give them hundreds of billions. As long as profits lined the bosses’ pockets, free-market ideology ruled. But as soon as they made big losses, the government intervened – at the public’s expense. Meanwhile, as workers lose their houses, jobs and pensions, only the most meager and temporary assistance is proposed for us.

While Obama campaigned as the anti-Bush, it is a fact that the recent bailout that Obama supported, a gift of nearly $1.5 trillion given to Wall Street on our backs, was the Bush Administration’s plan. Its aim: to buy the ruling class time – by calming the herd of panicky investors and getting the capitalists to loan each other money – to launch the sorts of economic attacks on the working class that could help Wall Street regain its profitability. Obama and most Democrats in Congress did support adding to the bailout package a little temporary help to homeowners facing eviction and to workers facing unemployment. But those additions were just that: temporary and limited afterthoughts aimed at blunting opposition to passage of the bailout legislation.

The bailout has been greeted with widespread outrage. Most workers correctly sense that they will be footing the bill. But they do not yet see an alternative and are far less conscious of their potential power than the bosses are. The capitalists and their politicians know of past working-class rebellions here and around the globe. It is an iron law of capitalist rule that the working class and oppressed eventually fight back against what the system does to us. So the rulers fear the future probability of mass strikes, protests and riots. They especially fear mass action growing into a political movement that would threaten their grip on power right here in the U.S. Obama’s ability to channel popular discontent into the voting booth with vague talk of reform makes him a valuable asset for the ruling class.

Why Capitalism is in Crisis

The current crisis has been centered on financial institutions, and has featured sorry tales of greed and corruption. But the reasons for the crisis go far deeper than that. It is the predictable and inevitable result of the normal operation of a capitalist system that has long outlived its time and can only survive by plunging humanity into ever worse economic disasters and wars.

Capitalist ideologues encourage the idea that the whims of the market are like “acts of God” – beyond the understanding or argument of mere mortals. On the contrary, the workings of capitalism can be scientifically understood and the system’s crisis predicted. The theorist who first explained this was the founder of modern revolutionary socialism, Karl Marx. Marx explained that different forms of society rise as they further the development of productive economic power of society and fall after they have become barriers to further development. Like preceding societies, capitalism would inevitably reach a point where it was no longer a progressive way of organizing economic production. Marx’s prediction of the inevitable economic decay of capitalism is a fundamental guide for revolutionaries today.

Capitalism was always a cruel, unjust, exploitative system. But in the 19th century it succeeded like no previous form of society in developing the productive forces of the economy, from modern industry to the working class itself. Innovation in the productive process was the key to this development; those capitalists that introduced more efficient organization and techniques of production were rewarded by greater profits and power. By the turn of the 20th century, capitalism in the most advanced countries had created an industrial economy and world market. This meant that for the first time there was the possibility of overcoming the scarcity of human necessities that had previously made the division of society into classes of exploiters and exploited unavoidable. Now, an abundance of food, shelter and every other requirement of life could be produced. Capitalism had now also created the class capable of overthrowing it: drawn from across the globe into cooperative labor, the modern working class was turning its collective organization at work and its need to resist its own exploitation into the basis for powerful struggles that, under the right conditions, could grow into a revolutionary uprising. Its position and role in the productive process made the working class not only the gravedigger of capitalism, but the force for organizing production on a collective and non-exploitive basis in the future.

But at the same time, the system of private profit and national competition was turning into a fundamental barrier to the further advance of the productive forces. On the one hand, while the capitalists depended on nation states to protect their interests, their production expanded beyond national boundaries. On the other, the ownership of production in private hands clashed with the collective nature of production it had introduced. The system’s drive to introduce new productive methods and technology became suppressed: giant monopoly firms had come into being and began using their sheer size and domination of the market, rather than efficient production, to maintain their positions. They discouraged, though not entirely abandoned, productive innovation, as it would cheapen their large existing investments.

Capitalism’s Epoch of Decay

The growth of monopolies had a profound impact on the cycles of boom and bust that characterized capitalism. The slump, or depression, is the system’s bitter medicine required for periodic recovery and revival. In earlier times, this role was carried out more efficiently; weaker firms fell by the wayside and the surviving, more productive capitalists were able to pick up the losers’ assets at bargain basement prices. Depressions also served to intensify profit-making exploitation, with rising unemployment intensifying competition among workers for available jobs, allowing the bosses to cut wages. The basis for a new round of capitalist expansion was thus set. But with the development and dominance of monopolies, and the connivance of capitalist states eager to prop up the vast outlays in labor and capital, the conditions of the slump may be tamped down for a period. However when they did occur, depressions became more catastrophic, wiping out greater sections of the economy and taking much longer to recover from. And the surviving capitalist enterprises were less likely to be the most productive, but simply the biggest. The overall profit rate started to go into decline.

Capitalism thus entered into its epoch of decay. It had reached the point where it could only expand the productive forces in some sectors or regions by destroying them in others, at best. This epoch we live in is one of war, revolution and counter-revolution, in which a handful of imperialist powers dominate, loot and super-exploit the rest of the world. Imperialism also buys off a key section of the working class, the labor aristocracy, by giving it higher wages and other privileges, and thus a partial stake in the system. Racism and national chauvinism are key tools perpetuated by the system to fool better-off workers and then use them to keep the rest of the working class down.

Unable to qualitatively expand the international economy, the competing great capitalist powers inevitably went to war to re-divide control of the world’s wealth. The carnage of the First World War signaled the historical dead-end capitalism had reached. In response, the workers’ revolution in Russia in 1917 showed the exploited and oppressed of the world the way out. Led by the Bolshevik (Communist) party, the Russian workers’ state made huge efforts toward building a just and prosperous society. Tragically, revolutionary upheavals in the rest of Europe were betrayed and by the late 30’s counterrevolution destroyed the Russian workers’ state (see our book The Life and Death of Stalinism for the subsequent history and overturn in the late 1930’s of the first workers’ state.)

In the West in the 1930’s, the Great Depression was long and deep, but by itself was not enough to put the system back on its feet. It also took the crushing of revolutionary working-class struggles by Stalinism and fascism and then the massive destruction of World War Two, to establish the basis for important sections of the international capitalist economy, dominated by the U.S., to start expanding again.

The Crisis This Time

This boom that followed World War Two was real and serious, but it could not reverse the underlying decay of the system; it could not last. In the U.S., it ended in the early 1970s. Facing declining profit rates, the capitalists were driven to start taking back many of the gains the working class had previously won – an offensive that continues and promises to worsen. They also stepped up investments in speculative financial assets that promised quick profits rather than in long-term investments in the production of real values. This meant a build-up of what Marx had called “fictitious capital” – paper entitlements to expected profits in the future that would never materialize. This led to financial bubbles in previous years and, with the bursting of those bubbles, the shifting of financial capital into the housing and consumer credit market.

This is the set-up for the current raging crisis. The rapid rise in housing prices of recent years was coupled to devices of subprime mortgages and unsecured credit for people without adequate or reliable incomes. Millions of working-class and even middle-class owners could not afford their rising credit bills, particularly with stagnating or declining wages, resulting in a rapid rise in defaults on mortgages. This spiraled into the financial mess at present that has yet to run its course.

After the collapse of the fake-socialist Stalinist economies of Russia and Eastern Europe almost twenty years ago, capitalist commentators hailed the free market’s supposed triumph over “communism.” The working-class revolutionaries of the League for the Revolutionary Party disagreed. We argued that the so-called communist states of the Stalinist East were in fact state-run capitalist economies and that their collapse confirmed the economic theories of Karl Marx.

The Stalinist economies had built up mountains of fictitious capital in the form of obsolete industry that could not compete on the world market. Those mountains inevitably collapsed. Today, world capitalism has inflated enormous bubbles of fictitious capital through property and stock market speculation and growing debts that overwhelm genuine production and services. Everyone can see that these bubbles have begun to implode and we have by no means seen the end of it.

The Revolutionary Socialist Answer

As Marx pointed out long ago, the answer to capitalist crisis is socialist revolution. Working-class socialist revolution would replace the capitalist state with a workers’ state, the capitalist government with a workers’ government. The goal would be to get rid of capitalism and over time, with the aid of similar revolutions in other countries, to create a socialist society of abundance and freedom.

We know that most workers and working-class youth are not now convinced that such a dramatic and profound change is either possible or necessary. We can’t convince everybody at once. The first step is to organize a vanguard group composed of revolutionary-minded workers and youth who do see the need to build a revolutionary party right now. Such a revolutionary group can prepare its supporters to be the political leaders of future mass struggles when more and more people can be convinced of the revolutionary perspective. Of course, the bigger the group, the more effectively we can do all kinds of revolutionary work, including fighting in various arenas for the kinds of struggles and actions that would really help advance our class’s interests. A very central part of our work today is also producing literature, like this statement, which argues against illusions in any pro-capitalist party or politicians and for revolution, in a straightforward manner. Of course it is also necessary for revolutionaries to demonstrate that we have practical answers to the burning questions of the day. In fact, only revolutionaries have the answers.

For example, workers rightly fear that the mounting crisis will wipe out their already precarious livelihoods. In recent years increasing numbers of workers have supplemented their falling wages with credit card spending to maintain their living standards. Families have turned to risky “subprime” mortgages to buy their first homes or to use homes they’ve already paid for to raise funds for education or healthcare expenses. Now, several million families in the U.S. – including about one-third of all Black and Latino homeowners – are losing their homes through foreclosures, and hundreds of thousands more are being laid off. Across the world, hundreds of millions of people face outright famine because of escalating food and fuel prices.

So consider for a moment how a society controlled by the working class would handle the economic problems that overwhelm life under capitalism.

A credit crunch? The private banks are afraid to lend money because the risk of not getting repaid is high. They have proven their incompetence and corruption for all to see. A workers’ state would expropriate the banks – with no compensation to bank owners, while protecting the savings of working- class and middle-class depositors.
Mortgages and other debts? A workers’ state has no need to keep the majority of the population in bondage to banks and financiers. So it would cancel the mortgage and credit card debts and ensure quality, affordable housing for all. Wages would be set at what working-class families need, so they wouldn’t have to live off credit cards. And essential services like quality education and healthcare would be made free to all.
Joblessness? Everyone knows there is a great deal of work that needs to be done – building decent houses, schools, hospitals; reconstructing bridges, railroads and urban mass transit; creating a new electrical grid and new energy sources to save the environment. What is needed is an immense program of public works to provide jobs and accomplish these tasks. Because the task is huge, it has to be organized by the national government. Capitalists are against such a program because paying for it would cut into profits. So this too requires a workers’ government and a workers’ state that bases investment decisions on people’s needs, not the capitalists’ concern for private profit.
Inflation? The Wall Street bailout will inject tons more cash into a shrinking economy and drive up prices. A workers’ state would set prices at a level that working people could afford. But under capitalism, workers have to fight to keep what they have and keep up with inflation.
These are some of the measures that a workers’ state could take to bring about decent living standards and justice and lead the way to toward a socialist society of abundance and freedom.

What is to be Done?

Faced with ominous economic conditions like the present, an understandable working-class reaction is often to become cautious and conservative and, to avoid the risk of fighting back against the bosses’ and politicians’ attacks for fear of the consequences. But meanwhile, the capitalists’ economic attacks will advance their political attacks as well. In particular, rising unemployment, falling wages and deteriorating social services will all spur increased competition among working-class and poor people. These are the ideal conditions for pro-capitalist demagogues to encourage racism and the vilification of immigrant workers.

The capitalists’ divide-and conquer tactics do not only set working-class people against each other in the U.S. National chauvinism, the idea that America and Americans are better than others, is being revved up in order to divide American workers, including Black and Latino workers and youth, against workers and oppressed across the globe. It is no accident that neither McCain nor Obama spoke out in favor of the plight of immigrant workers in the United States and that both pointed the finger at dangerous foreign enemies over and over again during their campaigns. The fact is that the bloodiest world terrorist and mass murderer is still the United States government. The election of Obama hardly erases the deep institutionalized racism of American society, practiced at home and around the world. American-born workers need to link up in struggle with immigrant workers here in the United States, and our fellow workers and oppressed around the world. Such internationalist unity is essential if our struggles against our own ruling class are to succeed.

Revolutionary workers know that the only real alternative is socialist revolution. Even though the majority of workers see no such solution yet, and mass resistance here may not get going for some time, there will inevitably be upheavals against the looming austerity programs.

In spreading our revolutionary socialist analysis and policies and in building the revolutionary vanguard party, we must always point to the power of the working class, in alliance with all oppressed people, to halt profit-making and compel real change. One recent example was the 2005 strike of Local 100 subway and bus workers in New York City, which brought the capital of world finance to a crawl. It won the warm solidarity of most city workers, as well as workers elsewhere. Another big example was the enormous May Day rallies of immigrant workers in Los Angeles, Chicago and other cities a few years back, that raised the possibility of general strikes that would unite the entire working class in struggle.

These struggles, which had an electrifying effect on broad numbers of workers, were quickly betrayed by pro-capitalist union and political leaders who diverted the energy into electoralism, squandering the workers’ potential power into the futile hope that pro-capitalist Democratic Party politicians would favor unions, immigrant rights, and the like.

To build a defense, the working class must organize itself independently of pro-capitalist leaders, politicians and parties. Mass actions such as general strikes will prove key to beating back the attacks. When the working class recognizes its own independent power and recognizes who its true friends and enemies are at home and abroad, it will be on the road to solving capitalism’s crises once and for all.

One of the most famous socialist writers and fighters was the German revolutionary Rosa Luxemburg. In 1915 she went to prison for opposing the first inter-imperialist world war. Luxemburg argued then that the choice facing humanity was one of either “socialism or barbarism.”

These words ring even more true today. While the timing cannot be predicted exactly, it is clear that another Great Depression is inevitable. Without socialist revolution, young people today, and the next generation to come, will truly find themselves living in a barbaric, catastrophic and brutal world, with the inevitability of a new resurgence of fascism and nuclear war. In the great tradition of Marx, Engels, Lenin, Luxemburg, Trotsky and all the historic struggles of the peoples of the world before us, we fight for socialist revolution as the only solution.


No Foreclosures or Evictions!
Cancel Mortgage and Credit Card Debts!
No Cutbacks in Public Services!
Nationalize Without Compensation the Banks
and Failing Corporations!
For a Massive Program of Public Works! Jobs for All!

Stop the Capitalist Attacks!
Workers Need a General Strike!
U.S. Out of Iraq and Afghanistan!
Workers and Oppressed Peoples of the World -- Unite!

Workers’ Socialist Revolution Is the Only Solution!
Build the Revolutionary Party of the Working Class!
Re-Create the Fourth International --
World Party of Socialist Revolution!
continued at http://www.lrp-cofi.org/statements/econcrisis08.html

[gilhyle]

Does it say a lot about the state of the socialist movement today that this thread has so few entries and indeed such a small ratio between views and replies. This is exactly the kind of issue that I come to this board to learn from others about....and besides one set of very good links above, there is apparently little to say. Am I misjudging/missing something ?

[Lord Testicles]

Does it say a lot about the state of the socialist movement today that this thread has so few entries and indeed such a small ratio between views and replies. This is exactly the kind of issue that I come to this board to learn from others about....and besides one set of very good links above, there is apparently little to say. Am I misjudging/missing something ?

I don't think you can really judge the state of the socialist movement today by the lack of interest in this thread/topic. However I think it says a lot about the membership of this board, when they are more interested in discussing the actions of dead men (Stalin, Hoxha, Kropotkin) than a crisis that could potentially have a massive effect on the living conditions of the working class. Who the fuck cares what these men did, they are dead, this is happening now. We don't want a defense of a dead russian we want a solution to this problem.

[piet11111]

why ?

its not like we have a lot of stuff to add to what is already known about how capitalism got into this mess and how this was too be expected from marxist economics.

and since new developments get their own threads its clear why this thread is not getting any love.

[Lynx]

First in a series
http://www.dollarsandsense.org/archives/2008/1208bichlernitzan.html

[gilhyle]

its not like we have a lot of stuff to add to what is already known about how capitalism got into this mess and how this was too be expected from marxist economics.


I thnk the answer to this question is suggested in the link which Lynx provided, which concludes the following:


In other words, underneath the seemingly repetitive long-term patterns of the market lies an open-ended and inherently unpredictable reordering of the entire political economy. Although past bear markets have always given way to long bull runs, these transitions were never automatic. Each and every one of them reflected a profound transformation of the underlying social structure. And in our view, this correspondence still holds. In order for the current crisis to end and a new upswing to begin, something very big has to happen: the social structure must change.

While analysing what is happening as primarily a bear market is clearly very limited, analysing it as more than that is only going to reinforce the conclusion of these authors.

It is not reasonable to conclude, glibly, that that social transformation will be the replacement of capitalism. That is clearly unlikely at this point. Rather the point is that capitalism itself will generate significant internal social transformation in the light of these events, in the absence of a socialist answer. In that context, the character of class struggle will change - again.

And it is a striking feature of the revolutionary groups that are out there that their capacity to analsyse these developments contemporary with the process is virtually nil. How can we respond if we cannot analyse, if we continue to take our political economic analysis passively from the dominant class' analysis or even from the well meaning analysis of vaguely left wing academics ?.......We cannot.

[KurtFF8]

What revolutionary groups are not attempting to analyze the situation? Every revolutionary group I've seen has some sort of analysis of the crisis and an answer to it. (Hell even the CPUSA does)

[peaccenicked]

The first thing to note about the economic crisis that it is unprecedented. The 1929 depression was about shifts in power from the British empire to the US. To day the era of empire is finishing.


The events leading to the Great Depression are all related to British economic warfare against the rest of the world, which mainly took the form of the attempt to restore a London- centered world monetary system incorporating the gold standard. The efforts of the British oligarchy in this regard were carried out by a clique of international central bankers dominated by Lord Montagu Norman of the Bank of England, assisted by his tools Benjamin Strong of the New York Federal Reserve Bank and Hjalmar Schacht of the German Reichsbank. This British-controlled gold standard proved to be a straightjacket for world economic development, somewhat along the lines of the deflationary Maastricht "convergence criteria" of the late 1990's.
1 (http://www.theforbiddenknowledge.com/hardtruth/great_depression.htm)
This bumpy ride for the global economy had this effect.

During the stock market crash of 1929, 4000 banks failed because depositors fought to reach teller windows before the money ran out and their savings disappeared forever.

Four years later, Congress passed the Glass-Steagall Act which banned any connection between commercial banks and investment banking, to ensure that such a tragedy would never be repeated in the belief that the banks’ collapse was due to their stock market speculation. 2 (http://www.stockbreakthroughs.com/articles/1929-stock-market-crash.htm)

This act was repealed in 1990.
This in turn created this situation.

Margin calls played a role in the Great Depression. Speculators used leverage to play the market. They borrowed money, bought stocks, and put the stocks up as collateral. This only works when the stocks do not lose in value, so their price should better go up. If it goes down, the value of the collateral will eventually fall below that of the loan. This is when the bank gets worried and sends you a margin call so that you close the gap.

However, in today’s financial crisis it wasn’t human investors who got margin calls from their banks, but hedge funds and other financial institutions. Reuters reported:

Wall Street banks are facing a “systemic margin call” that may deplete banks of $325 billion of capital due to deteriorating subprime U.S. mortgages, JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), said in a report late on Friday.

JPMorgan, which sent a default notice to Thornburg Mortgage Inc. (TMA.N: Quote, Profile, Research) after the lender missed a $28 million margin call, said more default notices and margin calls were likely. The Carlyle Group’s mortgage fund also failed to meet $37 million in margin calls this week.

The big difference is that today’s Fed has aggressively pursued a policy of ensuring liquidity while in 1929 the Fed did not react to the market turmoils. Margin calls are a tool of potential negative feedback loops, and in 1929 they worked to drive stock market prices down very quickly.
3 (http://econoblog101.wordpress.com/2008/04/21/margin-calls-in-1929/)

Margin calls are basically equivalent to to-day's derivatives. Hedge funds (http://en.wikipedia.org/wiki/Hedge_fund) are thought to have started in 1946. Yet big corporations like Ford and General motors got in on the act . Insurance companies etc the list goes on.
This is the shocker.

The Invisible One Quadrillion Dollar Equation -- Asymmetric Leverage and Systemic Risk
According to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland -- the central bankers' bank -- the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion. The main categories of the USD 1.144 Quadrillion derivatives market were the following:
1. Listed credit derivatives stood at USD 548 trillion;
2. The Over-The-Counter (OTC) derivatives stood in notional or face value at USD 596 trillion and included:
a. Interest Rate Derivatives at about USD 393+ trillion;
b. Credit Default Swaps at about USD 58+ trillion;
c. Foreign Exchange Derivatives at about USD 56+ trillion;
d. Commodity Derivatives at about USD 9 trillion;
e. Equity Linked Derivatives at about USD 8.5 trillion; and
f. Unallocated Derivatives at about USD 71+ trillion.
Quadrillion? That is a number only super computing engineers and astronomers used to use, not economists and bankers! For example, the North star is "just" a couple of quadrillion miles away, ie, a few thousand trillion miles. The new "Roadrunner" supercomputer built by IBM for the US Department of Energy's Los Alamos National Laboratory has achieved a peak performance of 1.026 Peta Flop per second -- becoming the first supercomputer ever to reach this milestone. One Quadrillion Floating Point Operations (Flops) per second is 1 Peta Flop/s, ie, 1,000 Trillion Flops per second. It is estimated that all the data found on all the websites and stored on computers across the world totals more than One Exa byte of memory, ie, 1,000 Quadrillion bytes of data.
Whilst outstanding derivatives are notional amounts until they are crystallised, actual exposure is measured by the net credit equivalent. This is normally a lower figure unless many variables plot a locus in the wrong direction simultaneously. This could be because of catastrophic unpredictable events, ie, "Black Swans", such as cascades of bankruptcies and nationalisations, when the net exposure can balloon and become considerably larger or indeed because some extremely dislocating geo-political or geo-physical events take place simultaneously. Also, the notional value becomes real value when either counterparty to the OTC derivative goes bankrupt. This means that no large OTC derivative house can be allowed to go broke without falling into the arms of another. Whatever funds within reason are required to rescue failing international investment banks, deposit banks and financial entities ought to be provided on a case by case basis. This is the asymmetric nature of derivatives and here lies the potential for systemic risk to the global economic system and financial markets if nothing is done. 4 (http://www.siliconvalleywatcher.com/mt/archives/2008/10/the_size_of_der.php)

This Great Unwinding is at the root of the banks inability to lend.



Meanwhile, big banks face another wave of losses, which may only further erode their capital. Companies have already taken huge hits from subprime mortgages and other risky debt. But other problems loom in credit cards, commercial real estate, and traditional home mortgages. In an interview with Maria Bartiromo, economics professor Nouriel Roubini of New York University's Stern School of Business said that credit losses will top $2 trillion, up from around $1 trillion today.

Even if the government forks over the remaining $350 billion of its Troubled Asset Relief Program to banks, the capital will still be a drop in the bucket compared with the industry's total losses. Given that, Roubini and others figure it's only a matter of time before the government creates another bailout fund. "Banks don't have enough money to bear the risk," says Anil Kashyap, a University of Chicago Booth School of Business professor. "We're going to need Tarp II and Tarp III."

5 (http://www.businessweek.com/magazine/content/09_03/b4116020094458_page_2.htm)

On top of this the US is suffering the same troubles as ancient Rome.

Despite the considerable contraction of the population and resources this was not accompanied by a corresponding reduction in the price of imperial administration. The maintenance costs of the empire were huge and continued to expand all the time. Taxes had to be collected, frontiers defended; the empire had to be policed and the imperial post had to maintained. The upholding of the Roman standard of culture meant huge amounts had to be spent to provide an adequate supply of the amenities that were considered essential to the full life or a Roman citizen. There was the cost of building, repairing and maintaining the numerous temples, public baths, municipal buildings, gymnasia, town halls, wrestling schools, market places, triumphal columns and amphitheatres (the list goes on). Civic sacrifices, religious processions, feasts and the games also drained huge amounts from the financial reserves of the empire. The cost of the dole weakened the empire’s finances. Originally this was passed out once a month but under Marcus Aurelius there was a daily distribution of pork, oil and bread to the proletariat. The alimenta (farming subsidies), put in place by Nerva also cost the empire dearly. The adverse balance of trade which grew at this time proved to be very costly. In the time of Nero, Seneca estimated that it cost Rome five million dollars a year to import its luxuries from the east. Another area in which Rome spent huge amounts of money was the army. An important implication of the Roman peace was that the army changed its economic role. Whereas previously it had been an important source of plunder it was now mainly used as a peaceful garrison force. The army became an economic liability, as there were more than 400,000 mouths to feed and nothing for them to do. Of course, even in peace the army was essential to the security of the empire but the cost of it more than doubled between 96 and 180 AD. The empire was over-spending by epic proportions yet the economic structure meant that nothing could be done to counter-act this.
6 (http://www.roman-empire.net/articles/article-018.html)


This is in totem is leading to economic disintegration.

If you do not believe the claim of economic disintegration, you have not been paying attention to the many USEconomic signals. The housing prices continue down in an accelerated speed. The Case Shiller September decline for 20 cities was 17.4%, still rising monthly. The home foreclosures continue to grow at a monstrous pace, with no letup. The various regional Fed reports such as the Empire State, the Philly Fed, the Richmond Fed, along with the ISM manufacturing and ISM service indexes are not indicating recession. They are indicating collapse, falling far lower than even keeled 50 levels. My preference is to label it as DISINTEGRATION. When the credit lines are interrupted, when the USFed is acting as the main bank to fund non-lending hamstrung banks, those credit lines are not just broken, but favored toward the insiders, the system is dysfunctional. When short-term credit is hampered, distribution channels are interrupted for necessities that keep an economy running. Letters of credit for shippers are routinely refused when US banks are involved. Consumers finally have fallen down, the indefatigable US consumer, the engine of the world economy. Give me a break! They never were the engine of global growth. They were the lopsided lamb which spent household equity, burning the furniture figuratively, to fund Asian industrial expansion, not to mention the Asian foreign reserve funds. A bonfire to burn home equity is far from an engine, the only thing in common being combustion.

The Asian sovereign wealth funds grew in lockstep with the insanity of manifested US consumer mentality. In the same manner, the Persian Gulf sovereign wealth funds (and private sheik accounts) grew from oil revenues. Never have consumer sentiment measures been so low. To heck with claims of economic depression risk. The palpable risk is for disintegration. The USFed, with its drainage of private sector bank capital to fund Wall Street bond swaps, almost guarantees the slide into disintegration. AS THE SYSTEM DEGRADES FURTHER IN ITS STRUCTURAL INTEGRITY, A PANICKY RESPONSE IS ALMOST ASSURED TO PRODUCE INFLATION FAST 7 (http://www.321gold.com/editorials/willie/willie120508.html)


We are not merely witnessing a depression but the economic disintegration of the empire.

[gilhyle]

Peacenicked, you posted the following link on the Peter Schiff thread, but couldnt it be posted here also:

http://www.marketoracle.co.uk/Article8030.html

[peaccenicked]

Thanks Gihyle.
here is the latest from jim willie
http://www.321gold.com/editorials/willie/willie012009.html

He is not a doctrinaire leftist but he makes some very interesting points.

[Niemand]

Jim Willie's a hack. His predictions are based solely on his imagination and should no way be taken seriously.

[peaccenicked]

Jim Willie's a hack. His predictions are based solely on his imagination and should no way be taken seriously.


"Soley in his imagination". That is an easy put down, but he is not alone, in his point of views on hyperinflation. (http://www.google.com/search?hl=en&client=safari&rls=en-us&q=hyperinflation++coming&btnG=Search).

All of these "hacks" are very imagnitive and have imagination enough to treat the topic seriously, and not with the mindless poverty of silly snipes.

[Lynx]

Thanks Gihyle.
here is the latest from jim willie
http://www.321gold.com/editorials/willie/willie012009.html

He is not a doctrinaire leftist but he makes some very interesting points.
This particular article is filled with rhetoric, and this tends to make me increasingly skeptical.
The fact of the matter is too few readers have the technical expertise to decide whether his claims have a sound basis - or not. This is an unacceptable situation that leaves us with little else to do but speculate.

My understanding is that the US Dollar is the de facto world reserve currency, having replaced precious metals. As long as interest payments are made, the US can theoretically borrow as much as they want.
Abandoning the US Dollar as a reserve currency would be a ruinous 'solution'.

[peaccenicked]

The fact of the matter is too few readers have the technical expertise to decide whether his claims have a sound basis - or not. This is an unacceptable situation that leaves us with little else to do but speculate.

Lynx, This is a fair point. The process of self education is full of holes, that we can fall down.
When we are dealing with an unfamiliar subject, we tend to use our instincts than go deeper. It takes some courage to depart from previous gained assumptions.

The point you raise over the reserve currency needs some expanding.
Willie is not anywhere particularly advocating that America should be abandoned as the reserve currency. He is saying that it is likely that it will be abandoned.
France, China, Russia, have all made noises in this direction.
It is not a solution but a direction that will be ever more likely as the dollar collapses.
Willie more than any other analyst puts into the melting pot the factors that are sinking the dollar.
He is not alone when it comes to the dollar. Confidence in the US economy is on the wane. Some economists have even mentioned debt default.

But all of this is an aside to the point of wither the US dollar can maintain itself as the reserve currency. The global downturn is in itself "ruinous". The capitalist governments of all countries are looking for options . They are business orientated not people orientated. They cannot afford to continually bailout Uncle Sam's attempts to reflate a bubble that is well and truly burst.
The US fed is bringing the dollar down, the volume of money being printed is increasing
while production is shrinking.
This is making a mockery of the law of value. Exchange value not rooted in commodities is the road to inflation.
Willie says


The death of the AngloSphere is unstoppable and on course. The two nations suffer from imperial over-reach, from corrupted paper markets in everything conceivable (stocks, bonds, housing, commodities). They both suffer from a devastating backlash related to nationwide dependence upon a housing bubble as an economic foundation. What a very sick concept!

I have been saying for years, all most everybody I know outside the internet on the left I has been saying for years that the housing market cannot carry capitalism forever.
With so much production moving west to east, or chances for economic recovery are being reduced severely.
The left press is timid. They hardly saying anything on these macroeconomic discrepancies.
Everyone I meet is saying the same thing.

[cyu]

From http://www.reddit.com/r/Economics/comments/7rogh/money_itself_is_just_a_collective_agreement_that/c077j35

gold is a fiat metal. What the hell exactly makes gold so valuable that I want to be able to exchange money for it at any time?

If you want pieces of paper backed by something other than government, attach the value of money to a basket of natural resources, such as lumber, commodity metals (copper, silver, aluminum), fresh water, natural gas, oil, biodiversity, etc. The value of money should depend on the scarcity of the resources actually used to make most of the goods and services we use today, not on some arbitrarily chosen rare metal.

The only reason gold is being stockpiled by governments is because some 5000 years ago a humanoid ape went "oooh SHINEY!"

No currency should be a "reserve currency" and they should all be abandoned. If you want your country to be rich, instead of collecting foreign currrency, improve the productive ability of your nation instead.

From http://www.infoshop.org/rants/yu1.html

Wealth is not to be found in currency, in the so-called "precious" metals, in paintings by long-dead painters. None of those are needed to survive. Wealth is found in food, in warmth, in health care, and in the things necessary to produce them. All the land is still yours. All the labor is still yours. Even factory equipment remains, despite the flight of "capital" - that is, the loss of things that represent wealth, but are not wealth themselves. In fact, very little has been lost and virtually all of the productive capacity of your nation remains. All that has changed is the accounting.

Your nation may still have in its treasury the remnants of the capitalist financial structure - gold, other precious metals, paper money from nations around the world. Spend it - as soon as possible. Buy commodities - those things you need to survive and buy any equipment you need to produce the goods you need. That is the real wealth to people who actually have to do the work.

What happens in the rest of the world as the people of your nation are suddenly flooding it with various currencies and "precious" metals, while snapping up real goods? The supply of those currencies and "precious" metals go up, while the supply of real goods go down. These goods become more and more expensive, while "money" becomes more and more worthless. Thus, there is all the more reason to exchange your money as soon as possible for real goods you will need.

When all the old money has been spent, you are free to live, work, and produce the things you need. Self-reliance is the only secure form of wealth. Trade with other nations can still be conducted, but do not hold on to their money - money is mere promise of future wealth, promises that can be broken whether from malice or from inability to fulfill them. Exchange any money for real wealth as soon as you can.

Money within your own economy should be based on real wealth. When farmers produce a bushel of grain, let them issue a paper note representing that bushel of grain. Since that paper note can be redeemed for precisely that amount of grain, there is no inflation between the notes and the grain. These paper notes can be collected by larger farmer organizations that then reissue new notes based on a diversified index of what they produce. While the value of money issued in this way may fluctuate with respect to goods not on the index, it will not change with respect to the goods that back these paper notes. This is the first step to currency stability.

However, be warned that these notes are still only as good as the institutions that issue them. Either you trust that they can always be redeemed, or you redeem them as soon as it is convenient. This is especially true of money you receive from other nations that is supposedly backed in the same way. Distance makes people bolder and less hesitant to break promises. Ultimately, however, convenience would probably mean you will place your trust in an organization of like minded people who will help each other ensure that what you have is really what you have - although you should make sure there are alternatives should you decide to change your mind.

People can probably be trusted when times are easy and when prosperity reigns, but when times are tough, promises are much easier to break than the laws of survival. This is what makes self-reliance of an economy important. This is why local industry and agriculture should be protected. Productively ability is the real source of wealth of the nation.

However, natural disasters also occur. While the world as a whole may be fairly stable, the area around you is much more prone to random fluctuations of climate and geology. Thus self-reliance is not the entirety of a secure economy, but merely the supporting structure. The secondary source of security is prosperity in other geographical locations. The more prosperous others are, the more likely they will come to your aid in times of trouble. The more they have to thank you for their prosperity, the more likely they will come to your aid. Again, merely being creditors to their debt is not enough. Nations are sovereign, whether anarchist or authoritarian. They can break their promises - they can ignore any legalistic claims to debt. It is the general goodwill that can be fostered between two nations or people that will be your salvation in case your own self-reliance fails.

In the end, captial flight isn't really capital flight. Real capital - the people, natural resources, and equipment needed to produce real goods - cannot be packed up in a bag when the capitalist skips town. They will require a lot of labor if they truly want to escape with real capital. What remains when the capitalists are gone are merely the people who are doing the work, and the means to do it.

[Psy]

Lynx, This is a fair point. The process of self education is full of holes, that we can fall down.
When we are dealing with an unfamiliar subject, we tend to use our instincts than go deeper. It takes some courage to depart from previous gained assumptions.

The point you raise over the reserve currency needs some expanding.
Willie is not anywhere particularly advocating that America should be abandoned as the reserve currency. He is saying that it is likely that it will be abandoned.
France, China, Russia, have all made noises in this direction.
It is not a solution but a direction that will be ever more likely as the dollar collapses.
Willie more than any other analyst puts into the melting pot the factors that are sinking the dollar.
He is not alone when it comes to the dollar. Confidence in the US economy is on the wane. Some economists have even mentioned debt default.

But all of this is an aside to the point of wither the US dollar can maintain itself as the reserve currency. The global downturn is in itself "ruinous". The capitalist governments of all countries are looking for options . They are business orientated not people orientated. They cannot afford to continually bailout Uncle Sam's attempts to reflate a bubble that is well and truly burst.
The US fed is bringing the dollar down, the volume of money being printed is increasing
while production is shrinking.
This is making a mockery of the law of value. Exchange value not rooted in commodities is the road to inflation.
Willie says


I have been saying for years, all most everybody I know outside the internet on the left I has been saying for years that the housing market cannot carry capitalism forever.
With so much production moving west to east, or chances for economic recovery are being reduced severely.
The left press is timid. They hardly saying anything on these macroeconomic discrepancies.
Everyone I meet is saying the same thing.


The problem is that there is no economy external to the USA that could pull global capitalism out its crisis, production world wide is in free fall, most transports freighters are now anchored with no crew as trade is drying up across the world, this is a crisis of global capitalism not of US markets and this crash is going devalue all centres capital

[peaccenicked]

While it is true that the contagion from the subprime crisis is international.
The banking crisis is predominant in the anglosphere. Neoliberalism is not a universal either.
No one single country can contain the crisis but G8, expanded to G20 and there is talk of a widening of that. Only Japan gave anything substantial to the IMF, and that was a loan.

Both uneven and combined development characterise both the economy of individual countries in which bourgeois relations are developing, and the world economy as a whole. 1 (http://www.marxists.org/glossary/terms/l/a.htm)

The uneven development is takes the form of creditor and debtor nations.
The nations that has outsourced most of their production are the debtor nations.
Although China may not be the world no 1 economy, that may come sooner (http://www.istockanalyst.com/article/viewarticle/articleid/2983634) than expected. China will not take over as world leader.
There US is losing dollar hegemony. South American countries have stopped trading in dollars. The shipping crisis is being caused by the credit freeze which is largely happening in countries that have followed the neoliberal model of capitalism, and relied on the housing bubble and derivative based creative accountancy.

I put it like this in November in a letter to the weekly worker,


Many on the left argue that things have not changed. Chomsky, Zinn, Petras and Ticktin have all claimed that the US is in firm control and see the rising multipolar alternative as merely an historical aside of some sort.

Nor do they provide any perspective of US imperialist decline, in favour of the somewhat distant, quasi-religious, revolutionary potential of the proletariat. They see nothing progressive in the shifting ground of world power relations and a replacement as merely ‘old boss bad, new boss bad’. Yet this is entirely a misreading of what has been happening since the end of the cold war, and the rise and fall of US triumphalism.

The financial crisis, which had been fermenting for some time, had its roots in the thrashing of western industry. Yet the real significance of this weakening of imperialism is that US ability to maintain itself as a military force has been undermined, not only in two wasteful wars in Afghanistan and Iraq, but through losing all credibility as a world leader. This on a political level has brought powers that previously tiptoed around the United States onto the world stage. The playground bully has been stood up to, with Russia over Georgia and the missile shield, China giving interest-free loans to African countries, and even Zimbabwe managing to resist western ploys for regime change.

Far more a threat to US power than the nascent forces of world revolution is the drift away from neoliberalism that has seen Russia and China discuss ways to decouple from the US dollar. France and Germany have stalled the bailout process, with Sarkozy pushing towards direct regulation of the banks.

The multipolar power that is emerging is a post-imperialist bloc. This historical turn is reminiscent of Lenin’s vision of a union of ‘free and equal’ nations within the world. If not socialist, at least free from imperialism.

The nightmare of the 20th century - the cold war between two historical anomalies, asymmetric ‘socialism’ and unipolar imperialism - has a resolution in bringing human evolution itself onto a path more in tune with the course of the renaissance, the enlightenment and all that emerged out of the dark ages to embolden man with hope. Not just from old Europe that swallowed up the world’s cultures, but a new path towards free, indigenous development, so as to make real steps towards a world revolution, unafraid of the might of the US and the dollar.

[Psy]

While it is true that the contagion from the subprime crisis is international.
The banking crisis is predominant in the anglosphere. Neoliberalism is not a universal either.
No one single country can contain the crisis but G8, expanded to G20 and there is talk of a widening of that. Only Japan gave anything substantial to the IMF, and that was a loan.

First it is not a subprime crisis, the subprime mess was a result of capitalists trying to fix the stagnation of the rate of profit that has existed globally for decades. Meaning once they mop up the subprime mess they still have stagnation to deal with again.




The uneven development is takes the form of creditor and debtor nations.
The nations that has outsourced most of their production are the debtor nations.
Although China may not be the world no 1 economy, that may come sooner (http://www.istockanalyst.com/article/viewarticle/articleid/2983634) than expected. China will not take over as world leader.
There US is losing dollar hegemony. South American countries have stopped trading in dollars. The shipping crisis is being caused by the credit freeze which is largely happening in countries that have followed the neoliberal model of capitalism, and relied on the housing bubble and derivative based creative accountancy.

I put it like this in November in a letter to the weekly worker,
The crisis is system wide, even China and Japan is melting down not due to the subprime mess but because the rate of profit world wide has crashed and the global capitalist system is in complete shock to the sudden devaluation of capital across the globe.

[peaccenicked]

I have said there is combined development, the subprime crisis is part of the falling rate of profit, and a significant land mark that burst the bubble of superinflated housing market, that held back the depression for years.
As I have said the crisis is international. The us economy is a large part of the world market and its closest trading partners (http://www.businessweek.com/globalbiz/content/jan2009/gb20090122_829664_page_2.htm) are going to suffer.
The US is in a worse position because its fundamentals are worse. The GDP measurement is skewed measurement as it includes consumption (http://www.quickmba.com/econ/macro/gdp/).

The fact that china and japan are owed over 5 trillion us dollars indicates some of the difference. This will effect the level of shock.
The falling rate of profit is not the death knell of capitalism, in itself, more important is the impact of higher rates of exploitation and the level of resistance to them.

[Psy]

The fact that china and japan are owed over 5 trillion us dollars indicates some of the difference. This will effect the level of shock.

Owning debt that is going to be devalued is not a huge advantage (debt gets devalued as capital gets devalued).



The falling rate of profit is not the death knell of capitalism, in itself, more important is the impact of higher rates of exploitation and the level of resistance to them.
Actually it could, if the rate of profit drops too low there is a chance capitalist would overthrow capitalism for another mode of production out of their own interest, one were class is far more static (the rich stay rich and the poor stay poor without the drama of fluxationing markets) and with far less competition amoung the property owning class (so the can focus their energy on maintaining class dominance over the rest of society).

[cyu]

this is a crisis of global capitalism not of US markets and this crash is going devalue all centres capital

I hope so, I really do. What's important is that instead of just letting it crash and then go hide in our bunkers, we should have something ready to replace it.



The problem is that there is no economy external to the USA that could pull global capitalism out its crisis, production world wide is in free fall


I wouldn't say that. Even though production may be in free fall, it doesn't have to be. Say you were the world's leading producer of heroin (I'm just using a silly example here, but bear with me). For each kilo of heroin you produce, you issue a note backed by that heroin, which you then use to buy stuff from your neighbors. Your neighbors can then use that note to buy whatever they want. Eventually, someone comes back to you with that note and demands their kilo of heroin. So you give him the heroin, and destroy the note.

In this way, you can produce as much heroin as you like and issue as much money as you like (limited by the amount of heroin you produce of course). Everytime you spend the money to buy something, you are helping to increase production in the industry you are spending that money on. Thus you can jump-start general production of goods in your economy again.

Of course, backing a currency with heroin is pretty silly - but you could easily replace it with just about any product that people use. It may be grain, it may be oil, it may be natural gas, car tires, transistors, solar cells, whatever.

If you wanted to get fancy, you don't have to back your currency with just a single product. You might back it with an index of products. If you backed it with everything you used to calculate the consumer price index, then your currency would by definition neither inflate nor deflate.

[Psy]

I hope so, I really do. What's important is that instead of just letting it crash and then go hide in our bunkers, we should have something ready to replace it.

Devaluing of capital in capitalism means a period of high unemployment till capital is consolidated enough that the rate of profit is restored enough for capitalist growth to continue. For example while Factory A and Factory B might both have a low rate of return, yet if Factory A absorbs Factory B then this new organization of capital probably have a higher rate of return. This is why the US goverment is actually encouraging finical companies to merge with each other.



I wouldn't say that. Even though production may be in free fall, it doesn't have to be. Say you were the world's leading producer of heroin (I'm just using a silly example here, but bear with me). For each kilo of heroin you produce, you issue a note backed by that heroin, which you then use to buy stuff from your neighbors. Your neighbors can then use that note to buy whatever they want. Eventually, someone comes back to you with that note and demands their kilo of heroin. So you give him the heroin, and destroy the note.

In this way, you can produce as much heroin as you like and issue as much money as you like (limited by the amount of heroin you produce of course). Everytime you spend the money to buy something, you are helping to increase production in the industry you are spending that money on. Thus you can jump-start general production of goods in your economy again.

Of course, backing a currency with heroin is pretty silly - but you could easily replace it with just about any product that people use. It may be grain, it may be oil, it may be natural gas, car tires, transistors, solar cells, whatever.

If you wanted to get fancy, you don't have to back your currency with just a single product. You might back it with an index of products. If you backed it with everything you used to calculate the consumer price index, then your currency would by definition neither inflate nor deflate.
True but for now capitalists are treading this crash like all previous crashes where the larger capitalists capitalized on the devaluation of capital by buying up capital cheap in the idea that in the future the value of capital would rebound.

[cyu]

for now capitalists are treading this crash like all previous crashes where the larger capitalists capitalized on the devaluation of capital by buying up capital cheap in the idea that in the future the value of capital would rebound.
Sure it's important to keep an eye on what capitalists are doing, but leftists should also keep an eye on what anti-capitalists are doing (or should do).

From http://everything2.com/index.pl?node_id=1940667

A market economy can work pretty well to determine what needs to be produced, provided there's one condition: that everyone has relatively equal amounts of spending power. Consider the concept of supply and demand: in theory, the more demand there is for some product or service, a market economy will be encouraged to increase the supply for that product or service.

However, there is a flaw in the theory above that many pro-capitalists overlook: demand (in a capitalist economy) is not measured in units of people, it is measured in units of money. Thus you can have 99% of the people "demanding" basic necessities of life, but it won't matter a bucket of spit compared to a rich man with millions of times more money, who is demanding luxury goods. As the gap between rich and poor increases, the market economy will be focused more and more on producing luxury goods.

In order to have a market economy that serves everyone, rather than the wealthy few, spending power must be relatively equal. But can that be achieved through non-violence?

If wealth is concentrated in stocks, then employees should assume democratic control over their companies, thus rendering stocks worthless.

If wealth is concentrated in the hoarding of commodities, then people who will actually use those commodities should just take them from the storage areas where they are just being held for speculation.

If wealth is concentrated in paper money or gold, then people should just stop accepting that paper money or gold as legal tender, and start using something else as legal tender.

All these acts are non-violent. However, you may be attacked while carrying out these activities, in which case fighting back would only be self-defense.

[Lynx]

I hope so, I really do. What's important is that instead of just letting it crash and then go hide in our bunkers, we should have something ready to replace it.
If there were a crash, the US debt might be wiped clean, followed by the issuance of a new currency. Even Jim Willie cannot predict what steps might be taken in light of such an apocalypse. But, as we know from material analysis, it isn't really an apocalypse unless you believe it is - and believe in the sanctity of previous contracts.

Of course, backing a currency with heroin is pretty silly - but you could easily replace it with just about any product that people use. It may be grain, it may be oil, it may be natural gas, car tires, transistors, solar cells, whatever.
Oil is usually sold for US dollars, and black markets around the world also insist upon it. In addition, the Debt-to-GDP ratio in the US is not as high as it has been historically. I remain unconvinced of an imminent dollar collapse.

[peaccenicked]

this is a crisis of global capitalism not of US markets and this crash is going devalue all centres capital

This is true but does not mean very much. The US/UK markets are disintegrating and this has sparked of a world depression. The US is the worlds no 1 economy.
This idea is banal. China has had 1 million unemployed since the credit crunch.
The US and the UK has lost 2 million each.

Whyis this?
TO answer you need a geopolitical perspective, of some sort., not just a crude analysis of the global economy

[ckaihatsu]

What's important is that instead of just letting it crash and then go hide in our bunkers, we should have something ready to replace it.



If you wanted to get fancy, you don't have to back your currency with just a single product. You might back it with an index of products. If you backed it with everything you used to calculate the consumer price index, then your currency would by definition neither inflate nor deflate.


I've been advocating a move to a global syndicalist currency. Here's a one-page diagram, and a description follows.


Syndicalism - Socialism - Communism Transition Diagram

http://tinyurl.com/bgqgjw





If the workers of the world could set up their own global currency and get away with using it and supplying to it from capital-based production, I'd be impressed! It would be a massive syndicalist network -- the revolution's got to start * somewhere *, right?





This is basically advocating a global syndicalist currency that would be worker-controlled, cut across national boundaries, retain full labor value, and provide a broad range of trans-national goods and services through regular distribution channels.

All labor provided towards supplying the currency would necessarily be revolutionary acts, and could take place on a variety of scales, in a mixture of patterns of participation, gradually growing in size as cities once did. Transparency of accounting and operations would provide ongoing credibility, with worker-controlled decision-making -- call it stochastic soviets, if you like...!


Also, please see:


Supply prioritization in a socialist transitional economy

http://tinyurl.com/5mjhhh


communist economy diagram

http://tinyurl.com/bom9ca


Chris





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-- Of all the Marxists in a roomful of people, I'm the Wilde-ist. --

[piet11111]

i expect china to be hit hardest of all eventually because they rely entirely on exports to the west for their economic growth.
and its the type of goods they make that gets hit hardest by the lack of consumer spending.

[ckaihatsu]

i expect china to be hit hardest of all eventually because they rely entirely on exports to the west for their economic growth.
and its the type of goods they make that gets hit hardest by the lack of consumer spending.


---



However, by the yardstick of capitalist accumulation -- which we as members of the proletariat have no personal interest in -- the U.S. and China are now joined at the hip because China depends on consumer purchases from the U.S. market, backed by ballooning U.S. debt, while the U.S. depends on cheap, hyper-exploited labor in China to make those consumer products.

In the press these two act like petulant children -- I'm reminded of the movie Stepbrothers which illustrates the relationship perfectly (and is a very funny comedy if you like stupid-style humor).

Forget the superpowers of the 20th century -- we need a new term, like megapower, to describe the symbiotic double-power that comprises the U.S.-China economy.

[piet11111]

true but china was already having social unrest prior to the crisis and seeing how poor the population is and the massive numbers china is going to be thrown into a very explosive situation.

also i have a link to the OCC’s Quarterly Report on Bank Trading and Derivatives Activities and i would like to share it.

http://www.occ.treas.gov/ftp/release/2008-152a.pdf

if someone could give me a summary of what this is actually saying i would appreciate it as not having english as my primary language and lacking an understanding of econo-speak i doubt i get all the info from this piece.

[peaccenicked]

http://www.contraryinvestorscafe.com/zg_01222009maincic.mp3
Here will claims that he has been threatened by the US authorities and now lives in Costa Rica. The discussion oil is quite staggering in terms of alleged corruption.

Piet11111.
The main substantial point is that

U.S. commercial banks reported $6.0 billion of trading revenues in cash and derivative instruments in
the third quarter of 2008, compared to $1.6 billion in the second quarter of 2008 and a $2.2 billion
average over the past eight quarters.


This main form of these derivatives is interest swaps. (http://en.wikipedia.org/wiki/Interest_rate_swap)

These are basically bets on the performance of interests rates that are sold to multi parties, corporations and banks to spread the risk.
Thus they are form of creative accountancy.
Bloomberg reported Dec 26
“Six years after embarking on an effort to lower borrowing costs using derivatives, New York is watching those savings evaporate. The state says it paid bankrupt Lehman… and other Wall Street banks at least $75.9 million since March to end interest-rate swap contracts that were supposed to lock in below-market rates. That money and the costs of issuing new debt to replace bonds linked to swaps gone awry are eroding the $207 million in savings New York budget officials say the derivatives produced since 2002. New York isn’t alone.”

In other words it is open to fraud.
Here are some of the elements.

The shell game in simple analogy that has been played out by government per the CAFR vs. The Budget is as follows: If you have a basket of 40 apples and a basket of 200 oranges, if you audit the basket of apples you will find 40 apples and then government implies "an audit of the fruit basket shows 40 apples, look no oranges!"

The annual "Budget" is what government calls "The general purpose operating funds" (the apples) The CAFR (Comprehensive Annual Financial Report) shows all investments that have built up over decades, tax income, and enterprise income (The oranges and the apples) To refer to accounting from the general purpose operating funds exclusively which "is" a showing almost exclusively of the primary tax income with the exclusion of all the rest is perpetuating the gross misrepresentation game government has been playing now for over 65 years.. In doing so over the last 65 years composite government now "owns it all" by investment and with said ownership controls the markets and by being the primary owner of the market, drives the markets significantly up or down through their coordinated buying and selling.

Additionally, with the use of derivatives such as Commodity Futures, Currency Indexes, advance forward interest rate swaps, and Stock options (now a 600 trillion dollar "created on paper" market place developed by government) coordinated government market plays can take the wealth of others as the market collapses or spikes into higher ground with all of those "others" being on the wrong side of the move. This happened from 911, the crude oil rise to $154 and then collapse to $32, and the recent mortgage interest rate implosion. Those not included in these market plays were left on the curb side bleeding profusely and those included fared quite well. The slap happy take though created instability in the market place where under the terms of this massive shell game, government then took over a trillion dollars of "tax payer funds" to shore up their own playing field so that the several trillion dollars in diversified government investment not protected by derivatives would not be further adversely effected.

I note that in the 80's government fund management created several "OFF SHORE" investment groups whereby government funds could be held, managed, and invested internationally in any country or currency whereby the totals held and profits obtained virtually would become invisible to public scrutiny and SEC / CFTC reporting being off-shore. A complete AUDIT of international holdings and trading activity is URGENTLY needed to see the "NET" results of the market manipulations that took place since September 2001 to present...... Will this happen? Not as long as the foxes maintain regulation over the hen house! Independent audits by public edict are required.. TaxRetirement.com was launched on November 2nd 2008 of which upon application will be the crowbar to start the process of unbiased and accurate independent audits.


London and New york are the two biggest financial centres.
The financial crisis is about the unwinding of a false over valued economy.
This of course will effect China and the rest of the world
In China’s case, the financial economy is not integrated into the global economy (you can’t move large sums in to invest or repatriate or invest-out large sums without bureaucratic approval and good reasons), which is one reason people say Western financial conditions have limited impact on China.

[RebelDog]

I, at least, hope that the current situation will help workers to realise that the fact the free-market is a fantasy where the bourgeois are concerned but a reality forced everyone else. The current system is but legitimate gangsters stealing as much wealth as they can by whatever means. It is a joke to call it capitalism and it is even worse to intimate that the corporations operate in free-markets.

[cyu]

I remain unconvinced of an imminent dollar collapse.

The problem I have with many economists is that they are obsessed with predicting what will happen next. We're revolutionaries, aren't we? Instead of trying to predict things, we should be advocating (or investigating) actions that will bring about what we want.

To me, the more important question is not whether the dollar will collapse, but should the dollar collapse? Would it benefit the poor? If so, what can be done to bring it about? If it will only benefit the poor in some circumstances, but not others, how can we ensure that the dollar will collapse on our terms?

What is a currency strike?

When the population has been divided into one group that has a lot of currency (or gold) and another group that actually has to work for a living, a currency strike is when the second group stops accepting the existing currency (or gold) as legal tender.

In effect, this renders the first group broke. The result? The second group has more to share among themselves because the first group is no longer living off them. How does the second group decide who gets what? That depends on their policies - maybe they barter, maybe they share equally, maybe they just establish a new currency to use.

Although this scenario describes inflation with respect to the existing currency (or gold), it does not affect any new currencies the second group decides to establish.

If the second group is not particularly leftist, then in the future, there may emerge yet another group with vast amounts of the new currency, while everyone else does the real work... nothing another currency strike can't cure - it could conceivably keep going in cycles until the selfish give up on the notion that they should keep trying to accumulate more stuff.

[Lynx]

The problem I have with many economists is that they are obsessed with predicting what will happen next. We're revolutionaries, aren't we? Instead of trying to predict things, we should be advocating (or investigating) actions that will bring about what we want.
We can limit ourselves to analysis of recent events and continue to advocate revolutionary ideas. (Note that some of these predictions are for the benefit of the websites' paying subscribers)

To me, the more important question is not whether the dollar will collapse, but should the dollar collapse? Would it benefit the poor? If so, what can be done to bring it about? If it will only benefit the poor in some circumstances, but not others, how can we ensure that the dollar will collapse on our terms?
A dollar collapse does not affect infrastructure, resources, the workforce or technical know-how. It is an event that could be handled ineptly (causing great suffering) or with as little impact as possible. Capitalism is renowned for its boom and bust cycles.


What is a currency strike?

When the population has been divided into one group that has a lot of currency (or gold) and another group that actually has to work for a living, a currency strike is when the second group stops accepting the existing currency (or gold) as legal tender.

In effect, this renders the first group broke. The result? The second group has more to share among themselves because the first group is no longer living off them. How does the second group decide who gets what? That depends on their policies - maybe they barter, maybe they share equally, maybe they just establish a new currency to use.

Although this scenario describes inflation with respect to the existing currency (or gold), it does not affect any new currencies the second group decides to establish.

If the second group is not particularly leftist, then in the future, there may emerge yet another group with vast amounts of the new currency, while everyone else does the real work... nothing another currency strike can't cure - it could conceivably keep going in cycles until the selfish give up on the notion that they should keep trying to accumulate more stuff.
When credibility is lost, the above mechanism can serve to reestablish trust. Eventually the circle of trust expands to include everyone, and another vicious cycle begins.

To attack the mechanisms of capital accumulation, structural changes to money and property ownership are required.

[peaccenicked]

Lynx, I found you post really interesting. I have not considered the matter in such abstract terms.

The problem I have with many economists is that they are obsessed with predicting what will happen next. We're revolutionaries, aren't we? Instead of trying to predict things, we should be advocating (or investigating) actions that will bring about what we want.

I sort of see things a bit more concretely the US central bank is printing money., production is down. The rate of printing money is going up. The rate of production decrease is going up. The dollar, if it were not the reserve currency would sink like a stone. There has been massive deleveraging, ie compnies paying of their debts so as not put these debts into default.
companies who were in other currencies paid back their loans in dollars. This is basically the carry trade (http://www.investopedia.com/terms/c/currencycarrytrade.asp)
Other things that keep the dollar from sinking, are habit of use, and the hubris of automatic superiority.
From the left we have to note that the dollar is the currency of the no 1 imperialist power. It is used as a weapon to bully poor countries. If the dollar collapse which is not a matter of direct political will, it will hit the poor but mainly those in the USA.

The collapse of the dollar is not a socialist solution. It is a likely result of the Feds policy which is to throw money at the crisis without any real accountancy.
It is only important that we acknowledge that inflationary measures and and a productive slump cause currency devaluation and hyperinflation.
So, if and when it happens we as socialists are more prepared for it than taken by surprise.

[Lynx]

Are socialists prepared for what is happening in Zimbabwe?
In this case we have hyperinflation and a collapsed economy - what kinds of economic actions (eg. currency strike) are possible for Zimbabwean workers?

[ckaihatsu]

It is only important that we acknowledge that inflationary measures and and a productive slump cause currency devaluation and hyperinflation.
So, if and when it happens we as socialists are more prepared for it than taken by surprise.


This is >>> utter bullshit <<<. The U.S.'s national debt and current accounts deficit have been, and are, so huge that if they would have any direct bearing on the U.S. dollar we would have seen currency devaluation and hyperinflation long ago.

Since the dollar is a major currency, representing a major economy, it enjoys far more backing and confidence in its markets than it should, by the numbers alone. And since it floats against all other currencies its strength is ultimately measured in relative terms, as against the Euro, or whatever. This detaches it rather neatly from representing just one national economy, the U.S.'s, which is what 1971 was all about, when the U.S. went off of the Bretton Woods dollar-gold convertability standard. In that one moment the entire definition of the currency changed, and with it the national identity, the national culture, and the country's relationship to other countries.

We should *not* be rushing to hold hands in a circle *or* hoarding gold *or* preparing for the U.S. to turn into a Third World country overnight. While the *national* economy has obviously been slowing down and shrinking in size, this does *not* mean that living standards would necessarily slip dramatically -- I refer to the massive underwriting of U.S. debt from China, and to the massive production of cheap consumer goods by hyper-exploited Chinese workers.

If we get flustered so easily by *only* looking at the economic news from mainstream sources we're just playing right into the hands of the ruling class -- we *must* look at the overarching political relationships among the factions of the ruling class to see how they're managing the global infrastructure among themselves. This tells us far more than a linear approach to the balance sheets can.

[peaccenicked]

http://abriefhistory.org/wp-content/uploads/2009/01/ambns_max_630_378.png

gold is no solution. I have merely looked at the analysis of goldbugs for clues
to what is going on.


we *must* look at the overarching political relationships among the factions of the ruling class to see how they're managing the global infrastructure among themselves.

Where are you doing that?
Here.






The most immediate trigger for the sell-off in the dollar, traders said, was a jarring signal that suggested China might shift some of its enormous hoard of dollars and dollar-denominated assets — more than $1.4 trillion — into other currencies to get a better return on its money.
“We will favor stronger currencies over weaker ones, and will readjust accordingly,” Cheng Siwei, vice chairman of the Standing Committee of the National People’s Congress told a conference in Beijing on Wednesday. A Chinese central bank vice director, Xu Jian, said the dollar was “losing its status as the world currency,” according to Bloomberg News.



LAHORE: Russian Prime Minister Vladimir Putin has called for multiple reserve currencies arguing that US dollar’s monopoly is a threat to the global economy. Speaking at the World Economic Forum at Davos, Switzerland, on his debut appearance, the Russian leader said: “The one reserve currency has become a danger to the world economy: that is now obvious to everybody.” Mr Putin suggested that the US dollar was no longer the ‘reliable’ store of value a reserve currency ought to be. “The pride of Wall Street investment banks don’t exist any more,” he pointed out. He urged the leading powers to move “irreversibly” towards a system of multiple reserve currencies.


Brazil and Argentina have launched a new payment system in their bilateral trade, doing away with the US dollar as a medium of exchange.

The two Latin American nations started the Payment System on Local Currency (SML) on Monday following a last month agreement inked by their presidents to use local currencies in a bid to end transaction in dollars.


Since the dollar is a major currency, representing a major economy, it enjoys far more backing and confidence in its markets than it should,

Perhaps you should quantify this.





PARIS: French President Nicolas Sarkozy says the U.S. dollar should no longer be seen as "the only global currency" that it has been since World War II.

There is a slump, that shows no promise of recovery. How long will it last? Years to a decade are among estimates.
The money supply v production is being watched by all the market players.

So let us look at your data.

[ckaihatsu]

Here's some information, below. I maintain that not much will be changing from one currency to the next, as with the renminbi to the dollar, because the overall economic / political relationship will not be changing anytime soon.

Yes, growth rates have fallen off everywhere, but I think we've been in more of an Orwellian type of situation in terms of major currencies -- there are now just a handful of major world currencies that are "at war" with each other, but they really aren't. If any one currency, particularly the renminbi, were allowed to rise / fall to its actual value on the world markets it would rock the boat and throw the entire world financial system into disequilibrium.

The source here is _wrong_ on its inflation prediction for this very reason, but the information itself is useful. It shows every indication that the PBOC is the new Fort Knox, and that at worst, China would just switch to developing more of its domestic markets for demand, if it got tired of giving its money to the U.S. to buy its goods.

The disclaimer here is that I'm just putting two and two together here -- I do *not* have any formal background in this area, so please do not schedule *your* socialist revolution according to *my* market predictions...! = )





Economics / HyperInflation Jan 19, 2009 - 03:31 AM

By: Eric_deCarbonnel

[...]

So far China been able to contain inflation, but…

In recent years, China has been able to contain the inflationary effects of its trade surplus by soaking up or "sterilizing" all the extra liquidity (printed yuan). These sterilization efforts mostly involved:

A) Raising the reserve requirements of commercial banks. In essence, the PBOC (People's Bank of China) prints money to fund its trade surplus and then increases the amount of yuan banks have to keep as reserves at the Central bank, preventing the printed cash from reaching the economy. As of May of last year, commercial banks' reserve requirements were at 16.5 percent

B) Selling RMB -denominated sterilization bills. The state owned and controlled banking system has been forced to absorb the majority of these bills. As of May of last year, the value of sterilization bills reached 10 percent of bank deposits.

Taken together, these two steps have immobilized roughly 26.5 percent of Chinese commercial banks' deposits. This shows the magnitude China has had to intervene so far, as the value of sterilization instruments outstanding has been increasing at roughly the same rate as its foreign reserves.

PBC Foreign Reserves and Sterilization Instruments (US$ Billions)

[...]

http://www.marketoracle.co.uk/Article8320.html

[peaccenicked]

I suppose to make things clearer.
There are things that are not easy to uncover.
In the arena of predictive economics there is a raging debate (http://seekingalpha.com/article/115456-will-the-deflationist-vs-inflationist-debate-end-soon) between the deflationists and the inflationists.

The star of the show has been Peter Schiff (http://www.marketoracle.co.uk/Article8564.html).

One of the various "Dr Dooms (http://www.infiniteunknown.net/2009/01/24/recession-could-be-the-worst-since-1930s-warning-as-brown-admits-i-never-saw-it-coming/)" who foresaw the crash. Goldbug Max Keiser claims he was earlier.

It is the very same people on a whole that saw the crash are predicting the dollar and pound will collapse and fear hyperinflation.

However, way back in the eighties the neoliberal agenda was taking a direction that
many could see was dangerous. Then the inflated housing market made no economic sense.
Many simply applied Newton's law of gravity to it.

The basics of capitalism are in chapter one of Capital.

He further sees that the value relation which gives rise to this expression makes it necessary that the house should qualitatively be made the equal of the bed, and that, without such an equalisation, these two clearly different things could not be compared with each other as commensurable quantities. “Exchange,” he says, “cannot take place without equality, and equality not without commensurability". . Here, however, he comes to a stop, and gives up the further analysis of the form of value. “It is, however, in reality, impossible , that such unlike things can be commensurable” – i.e., qualitatively equal. Such an equalisation can only be something foreign to their real nature, consequently only “a makeshift for practical purposes.”

Aristotle therefore, himself, tells us what barred the way to his further analysis; it was the absence of any concept of value. What is that equal something, that common substance, which admits of the value of the beds being expressed by a house? Such a thing, in truth, cannot exist, says Aristotle. And why not? Compared with the beds, the house does represent something equal to them, in so far as it represents what is really equal, both in the beds and the house. And that is – human labour.
This commensurability, human labour is defended here in the Socialist Worker (This weeks) (http://www.socialistworker.co.uk/art.php?id=16951)


There is a long tradition of attempts to blame the problems of capitalism on banking and finance. This is often coupled with the argument that capitalism can overcome its contradictions if only the financial sector was suitably restrained or regulated, or even abolished altogether.

Typically these arguments counterpose an allegedly healthy “real economy” on the one hand and a parasitic finance system on the other – locating the problems of capitalism in the sins of the latter, be it greed, speculation or stupidity.

However, Lenin tells us in his summary of imperialism:
2) The merging of bank capital with industrial capital, and the creation, on the basis of this “finance capital,” of a “financial oligarchy.”

This financial oligarchy is described here,

With the power accumulated from these unregulated offshore British outposts led by the Cayman Islands, the Anglo-Dutch financial oligarchy has assembled an incredible strike force, above and against the interest of nation-states.

* Hedge funds are the dominant force in the Japanese yen and to an extent, the Swiss franc carry-trade. The carry-trade has provided an enormous source of liquidity for some of the most risky derivatives and leveraged financial games in the world. The unwinding of this trade, represented by the 3.6% appreciation of the yen from Feb. 26 to March 2, by itself can bring down the world financial system.

* According to reports, during 2005, the hedge funds were responsible for up to 50% of the transactions on the London and New York stock exchanges.

* Senators Carl Levin and Norm Coleman (R-Minn.)—chairman and ranking member of the Senate Permanent Investigations Subcommittee of the Homeland Security Committee—have shown that the hedge funds are a center for circulating hundreds of billions of dollars in hot-money flows and tax shelters. They document a case of the brothers Sam and Charles Wyly of Texas, who used two Cayman Island hedge funds to store and shelter $300 million from taxes in the United States.

* The hedge funds are among the biggest speculators in some of the most precarious derivatives instruments, like credit derivatives, and collateralized debt obligations (CDOs), which are adding instability to the shaking world financial system.

* The hedge funds are leading a frenzied wave of mergers and acquisitions, which reached nearly $4 trillion last year, and they are buying up and stripping down companies from auto parts producer Delphi and Texas power utility TXU, to Office Equities Properties, to hundreds of thousands of apartments in Berlin and Dresden, Germany. This has led to hundreds of thousands of workers being laid off.

They are assisted by their Wall Street allies. Taken altogether, the hedge funds, with money borrowed from the world's biggest commercial and investment banks, have pushed the world's derivatives bubble well past $600 trillion in nominal value, and put the world on the path of the biggest financial disintegration in modern history.


This bubble is hard to comprehend, it is more than 10 times the world's GDP.

One then would ask what has derivatives to do with human labour, it appears to have no relation to use value whatsoever. This is because financial products make something out of nothing.
These derivatives are at the root of "troubled assets" and the bailout. There is no transparency so no one knows how deep the black hole is.
The fed and the Bank of England are buying these bad debts.
This is basically a massive money laundering scheme financed by the taxpayer ie largely the working class.

This scam as been mainly focussed in the US and the UK. This is why the recession started in the West.
This has set a worldwide depression that is seeing the financial oligarchy externalize its problems to the emerging economies.
The G20 showed that most countries were not on board for bailing out the financial centres. Only Japan gave a sizable loan to the IMF.
The industrial centres are stronger economies than the financial centres.
This parody song (http://www.youtube.com/watch?v=0sbzZ4nNvuo) covers it to some degree.
Deindustrialisation was the madness that neoliberalism brought to the table.
The imbalance is becoming more than apparent.
France and Germany 's working class did not allow neoliberalism such free reign.
They too are suffering from depression but their banks are not so frozen.

from the BBC


In France, it is very difficult to spend money you do not have
If I had to use one word to describe France's financial system, the word I would choose would be "cautious".
French banks are immensely careful about whom they lend money to and, to limit risks, they spread their investments much more widely than those in the US or UK.
Only about a quarter of banking activity is related to investment banking and dealer-broker activity - the rest is all to do with retail banking.
This meant when the credit crunch bit, the French banks were hit a lot less hard than those in many other countries.
But it is not just about banking investments - this country as a whole simply takes far fewer risks.
Germany's bailouts are relatively small compared to the US and UK.

The rest of the world has to be careful it cannot pull the plug on the US. Yet it has to pay attention to the fundamental weakening of the financial centres.

BTW China's deflation fears are still controversial (http://news.xinhuanet.com/english/2009-01/28/content_10731425.htm).
China's deflation fears have perhaps been over stated too

[peaccenicked]

Lynx, the hyperinflation in Zimbabwe, is a product of an economy under siege.
Patriotism is anti-imperialist. Workers are fighting under different conditions.

Hyperinflation is when inflation gets out of control. It seems to me that everything is pointing to it in the West. Finance capital has went out of control, the central banks are looking for solutions that have nothing to do with tight monetarist policy. The battle is against deflation for them and the only real deflation that is going on is the bubble and in
the manipulation of oil prices against competitors.

How do we prepare?

The traditional demand has been for a scale of sliding wages. Technically, this might be a half measure. But like Bolivia, and this is perhaps the future of Iceland we demand general elections till somebody shows signs of stopping the rot. Till that some one is ourselves.

[Kibbutznik]

I'm surprised that no one here reads Monthly Review. They have been right on top in analysing the current financial crisis.

Try John Bellamy Foster and Fred Magdoff's essay, "Financial Implosion and Stagnation: Back to the Real Economy (http://monthlyreview.org/081201foster-magdoff.php)".

[Die Neue Zeit]

Long slump in Aust because Marx ignored



Australia faces a decade of weak economic growth and double-digit unemployment because it failed to heed the warnings of Karl Marx, an academic says.

University of Western Sydney associate professor of economics and finance Steve Keen said Marx's words, published in 1894, predicted the damage big banks would cause to the economy.

Keen said that like Japan, the Australian economy would be afflicted with a long run of recessions or flat growth because of high debt levels.

"It's a similar sort of story with massive levels of private debt and a massive speculative bubble," he said.

"The government stimulates the economy out of a crisis and the financial sector stimulus is not enough to turn the economy around, and it's adding to government debt rather than solving the problem."

Keen said the Australian unemployment rate would climb to "at least" 10% by late 2010 and stay around that level for the next decade.

But Melbourne Institute research fellow Michael Chua says the jobless rate will stay in single digits as federal government stimulus and interest rate cuts spurred economic activity.

Chua says he expects the jobless rate will rise to 5.1% by September, up from 4.5% at present.

"Job losses were inevitable, particularly in full-time employment," Chua said.

"However, the unemployment rate is unlikely to be in the double digits as the fiscal stimulus packages and the easing in monetary policy will go some way towards supporting economic activity."

Most economists are tipping a recession and rising unemployment this year, but even the most bearish major banks see an economic recovery in 2010.

Keen says he is not expecting capitalism to collapse but that Marx's words, published in the 1894 volume The Process of Capitalist Production as a Whole, had sounded a warning note about money lenders.

"The credit system, which has its focus in the so-called national banks and the big-money lenders and usurers surrounding them, constitutes enormous centralisation, and gives this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner - and this gang knows nothing about production and has nothing to do with it," Marx's words published 11 years after his death said.



http://tvnz.co.nz/business-news/long-slump-in-aust-because-marx-ignored-2457506

[Lynx]

Lynx, the hyperinflation in Zimbabwe, is a product of an economy under siege.
Patriotism is anti-imperialist. Workers are fighting under different conditions.
In theory, what could the workers of Zimbabwe have done? This question is perhaps addressed as much to cyu as anyone else.


Hyperinflation is when inflation gets out of control. It seems to me that everything is pointing to it in the West. Finance capital has went out of control, the central banks are looking for solutions that have nothing to do with tight monetarist policy. The battle is against deflation for them and the only real deflation that is going on is the bubble and in
the manipulation of oil prices against competitors.
I accept the potential for a collapse and the contingency plans of Russia, China and others. But I'm doubtful anyone will 'pull the plug' unless the power does go out. Until then, no one will want to knowingly precipitate a collapse.


How do we prepare?

The traditional demand has been for a scale of sliding wages. Technically, this might be a half measure. But like Bolivia, and this is perhaps the future of Iceland we demand general elections till somebody shows signs of stopping the rot. Till that some one is ourselves.
What about nationalizing the banks? A long overdue, minimal demand to say the least.

Do you find the Monthly Review article to be a sober analysis?

[peaccenicked]

The trouble with the monthly review article is that it relies too much on Keynes.
The US is not Japan
(http://seekingalpha.com/article/111507-the-u-s-is-not-japan)

I find the nationalization of the banks inadequate as a demand. The State has been usurped by toadies of the financial oligarchy. Hence we need a State that acts in our interests. Nationlization with workers control is better. There may however be a better formulation than this. I dont know.


But I'm doubtful anyone will 'pull the plug' unless the power does go out. Until then, no one will want to knowingly precipitate a collapse.

The matter of will, is not likely to be an issue, market forces may bring the plug to be pulled, in a sink or swim environment.

[communick]

I find the nationalization of the banks inadequate as a demand. The State has been usurped by toadies of the financial oligarchy. Hence we need a State that acts in our interests. Nationlization with workers control is better. There my however be a better formulation than this. I dont know.


Socialist Alternative has been having discussions about "Nationalization" and how this word is perceived. The formulation we are trying to use is Public Ownership under Democratic Control.

[communick]

Workers Control is good too.

[Lynx]

The trouble with the monthly review article is that it relies too much on Keynes.
The US is not Japan
(http://seekingalpha.com/article/111507-the-u-s-is-not-japan)
If so, then the next bubble is predicted to be larger.

I find the nationalization of the banks inadequate as a demand. The State has been usurped by toadies of the financial oligarchy. Hence we need a State that acts in our interests. Nationlization with workers control is better. There my however be a better formulation than this. I dont know.
Would it be adequate to 'solve' the credit crunch?

[cyu]

From the left we have to note that the dollar is the currency of the no 1 imperialist power. It is used as a weapon to bully poor countries. If the dollar collapse which is not a matter of direct political will, it will hit the poor but mainly those in the USA.


In theory, what could the workers of Zimbabwe have done? This question is perhaps addressed as much to cyu as anyone else.

The thing to remember is that if you are poor in a country, you already have a great deal less economic power than the rich in your country. Each dollar (or whatever currency) that the rich man holds, is equivalent to an economic vote. The greater the disparity between the number of "economic votes" the rich man has and the number of "economic votes" you have, the less economic power you have in your society.

If the local currency collapses, while it's true the few dollars you may hold in your bank / mattress may become worthless, it is also true that the wealthy lose a much greater proportion of their economic power. This is a good thing.

However, back to the question of what poor workers could do to bounce back from currency collapse as quickly as possible: convert all your old currency to a currency of your own devising as soon as possible. It order to ensure others see your new currency as legit, you have to back it with something, but NOT gold. (Gold has about as much intrinsic value as paper currency itself.) If you are a poor worker, the obvious thing to do is to back the currency you issue with whatever it is that you produce. Maybe it's flour, maybe it's oil, just as long as it's something others will use.

If you don't personally create something that's easy to use to back currency (for example, you might be a writer), then you just encourage farmers or oil field workers to issue their currency instead. In that case, you just accept their currency as payment for whatever it is you do. You then trade that currency around to others - eventually someone will take the currency back to the original producer, and redeem it for the flour, or oil, or whatever.

What happens if someone wants to pay you using the old (falling) currency? Your goal, of course, is to get what you want - the old currency is just a tool. If you are sure someone else is still willing to accept the old currency, then fine, accept it as payment - but spend it immediately and buy something with more intrinsic value. Do not hold / save the old falling currency. It's like a live grenade - keep it in your hands for as little time as possible - preferably not at all if you can help it. If everyone follows your example, then the market will be flooded with the old currency that used to be in people's savings accounts - rising supply of the old currency means lower value - eventually it will be worthless.

Even holding the new currency isn't that smart either. The better thing to do with any money you earn is to use it to increase the productive ability of your society. However, you'll note that this kind of wealth is collective wealth, not individual wealth. Everyone around you can produce more and thus you get more - this kind of economic strategy fits the left much more than the right, which is why capitalists are still mired in individual accumulations of paper / electronic wealth, boom-bust cycles, mass unemployment, idle resources during depressions, etc.

There's some more discussion of this at http://www.infoshop.org/rants/yu1.html

[gilhyle]

I'm surprised that no one here reads Monthly Review. They have been right on top in analysing the current financial crisis.

Try John Bellamy Foster and Fred Magdoff's essay, "Financial Implosion and Stagnation: Back to the Real Economy (http://monthlyreview.org/081201foster-magdoff.php)".

The essential idea here is "the underlying growth of surplus value falls increasingly short of the rate of accumulation of money capital.". I am not convinced by the very gross GDP and debt figures used to supposedly prove the point. The time series is far too short to prove the point. It would be nice if it were all that easy.

[peaccenicked]

c

[peaccenicked]

The essential idea here is "the underlying growth of surplus value falls increasingly short of the rate of accumulation of money capital.". I am not convinced by the very gross GDP and debt figures used to supposedly prove the point. The time series is far too short to prove the point. It would be nice if it were all that easy.

What are you trying to say ..
What figures of yours are you referring to.....
Which point out of the many in that intense article are you talking about.

It may seem obvious to you but I am left guessing.

[peaccenicked]

If so, then the next bubble is predicted to be larger.

Would it be adequate to 'solve' the credit crunch?

Would giving a bird freedom help to make it sing? Would workers control
solve the debt crisis.?

I might be a minority of one .


Cancel all debt and bank charges.
End all punitive debt collections
Stop all payments on mortgages

Solved! But even this needs more thought!

[rararoadrunner]

Comrades: let me put in my two kopecks worth, standing them on end, dialectical-fashion:

On the one hand, I would agree with those who maintain that the world capitalist system is entering another Great Depression: while Nikolai Kondratiev observed that these occur about every 50 years since the Industrial Revolution, and Ernest Mandel explained that they are the working through the capitalist system of the implications of various revolutions in the production process which result in massive productivity increases, in turn generating mass unemployment and underemployment (since the Industrial Revolution, we have seen interchangable parts, the assembly line, and automation of production, together with corresponding leaps in power production and transmission, result in these Long Waves), Juliet Schor and Philip Foner have pointed out the centrality to capitalist development of the political struggle for shorter work hours to capitalism's ability to recover from these crises: who speaks of using productivity increases to enable increases in wages, and corresponding decreases in hours, now? Unless this changes soon, capitalism will have, by its very totalitarianism, have closed the door on its further survival.

On the other hand: while various governments are having fiscal crises, none is as vulnerable as is the United States of America: when the hammer falls on the US dollar, the combination of worldwide Depression and US hyperinflation may well create revolutionary conditions...

...The question, of course, is: will the results be socialism...or fascism? We have already seen, in the Soviet case, that socialist revolution is reversable if it doesn't overthrow the capitalist world-system: hence, we must always keep our eye on the test of "socialism" that it be none-other than economic democracy, if we aren't to fall into inadvertantly embracing a "socialism" which is but a disguise of fascism (although, given the historic antipathy in the United States for both socialist and fascist ideology as previously expressed historically, if fascism triumphs in the US, it won't admit that it is fascist, any more than did Stalin's government).

Hope this contribution was helpful: back to you, comrades!

By the way: I agree that there must be an immediate moratorium on plant closures, foreclosures, evictions, repossessions, and other debt collections: advocacy of this demand would vault parties, PACs, etc. straight into the political vanguard, with substantial followings...

[ckaihatsu]

On the other hand: while various governments are having fiscal crises, none is as vulnerable as is the United States of America: when the hammer falls on the US dollar, the combination of worldwide Depression and US hyperinflation may well create revolutionary conditions...


Look, we really shouldn't be holding our breaths on this -- while there's always plenty of crises and privation to go around, thanks to capitalism's inequality of everything, the current period is *not* one of *general* privation or industrialization, the way the 19th, and arguably, 20th centuries were.

My position is that U.S. imperialism is now so widespread and enveloping, with economic growth / progress at such a standstill, that we can call this current period one of "neo-feudalism", meaning that we're in a *stasis* of hegemony and financial colonization at a *global* level.

Global bourgeois leaders are interconnected as never before, and they will continue to carry out an Orwellian pretense of international competition while they macro-manage the world's currencies / economies from behind the scenes.





One year ago, after the initial collapse of the US housing market and eruption of the credit crisis, concern at the forum over these worrisome developments, which had been almost universally unanticipated, was tempered by assurances from American bankers and politicians that the disorder would be quickly resolved and that, in the worst case scenario, a US recession would be mild and brief. Most of the discussion centered on the widely held notion that the problems in US financial markets would not spread to Europe or Asia, due to the phenomenon of "decoupling."





Just how serious and universal a crisis was underscored on the opening day of the forum by the International Monetary Fund's downwardly revised estimate of world economic growth for 2009 of a mere 0.5 percent, including major contractions in the US, Britain, France, Germany and Japan. That followed the previous week's IMF forecast that world trade volumes would shrink 2.8 percent in 2009. Also on Wednesday, the International Labour Organization warned that some 51 million jobs could be lost worldwide this year.


This is turbulence writ large, but the bourgeoisie is still at the controls of the airplane. While there's obviously no "decoupling", the fundamental international political order has *not* changed at all.





Wen urged an expansion of regulatory "coverage of the international financial system, with particular emphasis on strengthening the supervision on major reserve currencies." He said the financial crisis was "attributable to inappropriate macroeconomic policies of some economies and their unsustainable model of development characterized by prolonged low savings and high consumption, excessive expansion of financial institutions in blind pursuit of profit." He also denounced "the failure of financial supervision."

Putin was, if anything, more blunt. He attacked the concept of a "unipolar world," called for an end to the privileged position of the US dollar as the world's major reserve currency, and noted that "just a year ago, American delegates speaking from this rostrum emphasized the US economy's fundamental stability and its cloudless prospects." He continued, "Today, investment banks, the pride of Wall Street, have virtually ceased to exist. In just 12 months, they have posted losses exceeding the profits they made in the last 25 years."


What strikes me most about these statements from the world's second tier of politicians is that they implicitly acknowledge that they *are* second tier. There are no bellicose statements, no confrontational rhetoric, no strivings from the up-and-coming -- this is a ballet of finger-pointing, probably followed by drinks at the bar afterwards.





Steven Roach of Morgan Stanley Asia spoke at Davos of a "rising tide of economic nationalism." And delegates from so-called developing countries complained that the massive US deficits resulting from Obama's stimulus program and bank bailouts would suck up the bulk of available private credit on world markets.

"Large economies are accessing international capital markets for themselves," said Trevor Manuel, the finance minister of South Africa. Ernesto Zedillo, the former Mexican president who was in power during that country's financial meltdown in 1994, said, "The US needs to show some proof they have a plan to get out of the fiscal problem. We, as developing countries, need to know we won't be crowded out of the capital markets, which is already happening."

http://wsws.org/articles/2009/jan2009/pers-j31.shtml



The massive contraction of the world economy brings us to deflation, and so, because of the nature of capitalism's unplanned and anarchic development, we're left with a dynamic of playground politics on the world stage. Who gets to be in the "beautiful crowd" of credit now? Any possible movement forward at this point will be determined by the U.S.'s financial paparazzi as much as anything else.


Chris






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-- Of all the Marxists in a roomful of people, I'm the Wilde-ist. --

[Niccolò Rossi]

Thought I might post this here, it's an article entitled The most serious crisis in the history of capitalism, an analysis of the current economic crisis within the framework of capitalist decadence and the saturation of world markets, published by the ICC in the most recent edition of International Review.



The bourgeoisie is afraid, very afraid. Between August and October, a real gale of panic was blowing over the world economy. The noisy declarations of the politicians and economists were testimony to it. "At the edge of the abyss", "An economic Pearl Harbor" "A Tsunami on the way", "A September 11 for finance"... only the allusion to the Titanic was missing[1].

It has to be said that the biggest banks on the planet were about to go bust one after another and that the stock exchanges were plummeting, losing $32,000 billion since January 2008, or the equivalent of two years annual US production. Iceland's stock exchange fell by 94% and Moscow's by 71%.

In the end, the bourgeoisie, going from ‘salvage' plan to ‘recovery' plan, managed to avoid the total paralysis of its economy. Does this mean that the worst is now behind us? Certainly not! The recession we are only just entering is going to be the most devastating since the Great Depression of 1929.

The economists admit it clearly: the present "conjuncture" is "the most difficult for several decades", as the HSBC "the biggest bank in the world" put it on 4th August[2].

"We are facing the most difficult economic and monetary policy environments ever seen" said the president of the American Federal Reserve, going one better, on 22nd August[3].

As for George W Bush televised speech on 24 September?

"We're in the midst of a serious financial crisis....The government's top economic experts warn that without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold: more banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically. And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs. Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And ultimately, our country could experience a long and painful recession".

And now this "distressing scenario" of a "long and painful recession" is coming true, hitting not just the "American people" but the workers of the whole world.


Continued at: http://en.internationalism.org/ir/2009/136/crisis

[ckaihatsu]

The current crisis of international finance only begs the *political* question -- if the world's economy and productivity is currently set into motion by the credit system, then *who* makes the decisions about credit and credit worthiness?





At the end of the Second World War [the bourgeoisie] organised monetary and financial institutions on an international level (via the Bretton Woods conference) and above all it systematised the resort to credit. Thus, having hit a low point in 1953-54 and despite the short calm in the years 1950 and 1960[22], total American debt began again slowly but surely to increase from the mid-50s on. And when the crisis came back on the scene in 1967, this time the ruling class didn't wait four years before doing something. It immediately resorted to credit. These past 40 years can in fact be summarised as a succession of crises and and an exponential rise in world debt. In the USA, there were officially recessions in 1969, 1973, 1980, 1981, 1990 and 2001[23]. The solution of the American bourgeoisie in the face of these difficulties is also visible on the graph: the axis of debt goes up sharply after 1973 and even more sharply during the 1990s. All the bourgeoisies in the world have acted in the same way.

But debt is not a magical solution. Figure 2[24] shows that, since 1966, debt has been less and less effective in creating growth[25]. It's a vicious circle: the capitalists produce more commodities than the market can normally absorb; next, credit creates an artificial market; the capitalists then sell their commodities and reinvest their profits in production and... then you need more credit to sell the new commodities. Not only do debts accumulate, but with each new cycle, you need more and more debts to maintain an identical rate of growth (since production has been enlarged). Furthermore, an increasingly large part of all this credit is never injected into the circuit of production but disappears immediately into the abyss of deficits. Over-indebted households often take out new loans to pay back their old debts. The state, companies and banks work in the same way. Finally, over the past 20 years, with the ‘real economy' in perpetual crisis, a growing part of the money created goes to fuel speculative bubbles (the Internet bubble, the housing bubble, etc...)[26]. It is more profitable and in the end less risky to speculate on the stock exchange than to invest in the production of commodities which will be extremely difficult to sell. Today five times more money circulates in the stock exchange than in production[27].

http://en.internationalism.org/ir/2009/136/crisis


I'd like to add that, since the world's currencies are entirely relative and float in relation to one another, the biggest lever of intervention that governments have is the * fractional reserve requirement * for banks. Normally the average person on the street would say "the interest rate", meaning the government central bank's setting of its own interest rate, in response to market conditions -- but this is an ineffectual and meaningless control today (for the U.S.) since the engine is already flooded with gas and there's no place to go anyway because markets are drying up.

According to the following source China's central bank is doing the *opposite* of the U.S. central bank -- China has the problem of *too much* value in its currency / economy, so it is vault-stuffing -- taking every imaginative measure it can think of to keep the value *off* the market and out of its currency.

This is because it wants to continue to export its cheap goods, but this business has already become so successful that if it let the full revenue from its sales actually reflect in its currency, the value of its currency would rise very high, relative to other currencies like the U.S. dollar. This would make the face-value *price* of its exports *very expensive*, on the basis of the currency alone, and that would hurt sales.

So the People's Bank of China, its central bank, *raises* the ratio of reserve value required in the bank, relative to the amount of currency in circulation. According to this source it is now at 16.5% -- basically a 6-to-1 ratio of currency-to-reserves.





[China has been raising] the reserve requirements of commercial banks. In essence, the PBOC (People's Bank of China) prints money to fund its trade surplus and then increases the amount of yuan banks have to keep as reserves at the Central bank, preventing the printed cash from reaching the economy. As of May of last year, commercial banks' reserve requirements were at 16.5 percent

http://www.marketoracle.co.uk/Article8320.html


Here's the interesting part: Every currency has a *different* reserve ratio. If I recall correctly, the U.S.'s has now *dropped* to something like 8%, or a 12-to-1 ratio of currency-to-reserves. This is because it has increasingly needed *credit* to pay for its imports from sellers like China. By *lowering* the amount of reserve value it *officially* needs to keep on hand, putting * 12 times * that value out into the economy, it is over-extending the *actual* value, in reserves, that it has on hand, relative to China's * 6 *-to-1 ratio. This is in addition to the U.S.'s massive national debt and current accounts deficit.

To help out its struggling #1 customer China has been buying U.S. Treasuries in kind, effectively adding its massive reserves of value to the U.S. economy, and thus backing up its debt.

So in all accuracy this is a gargantuan *merger* of nation-state economies, much like the integration of the Southern economy to the Northern economy in the U.S. after its Civil War. Right now the U.S. as a whole is the "South", straggling along with a mountain of debt, funded by the largesse -- and forced economic symbiosis -- of China's booming economy, thanks to the hyper-exploitation of Chinese workers.

From the proletariat's point of view this manipulation of reserve currency requirements is the businessmen's jotting-on-the-paper-napkin over martinis at the bar. Just because the various officials of the bourgeoisie have come to a gentleman's agreement on how to sort out the varying levels of national value *doesn't* mean that it helps out our situation of employment, union organizing, labor solidarity, or wages.

We need to emphasize that, despite the historic financial fallout all around, the world's bourgeoisie still remains in *political* control, in a feudal-like lording over us, which must be ended with global labor solidarity.

[ckaihatsu]

Fun and s/b useful in classes, at work, with friends, wherever. Yes, it's an unfair attack on people who took mortgages falsely promoted, but it does get at the financial angle, no? [...]
----------------------------------------------------------------------------------------------



The financial crisis explained in simple terms:

Heidi is the proprietor of a bar in Berlin . In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around and as a result increasing numbers of customers flood into Heidi's bar.

Taking advantage of her customers' freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.

A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi's borrowing limit.

He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the bank's corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a risk manager (subsequently of course fired due his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi's bar.

However they cannot pay back the debts.

Heidi cannot fulfil her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %.

The suppliers of Heidi's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.

The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.

The funds required for this purpose are obtained by a tax levied on the non-drinkers.

Finally an explanation I understand ......

[peaccenicked]

In my view, the entire topic of inflation is intentionally obfuscated by the economists at work across the entire financial sector spectrum. They prefer to maintain a high level of ignorance among the public, and of confusion even among the analysts, so that the USGovt officials and Wall Street bankers can continue to steal savings via confiscation by inflation, all without any formal tax levy and without any legislation in support. Worse, inflation is blessed as good, which actually enables those Elite in Power to continue vast counterfeit rings. Their vehicles are USTreasury Bonds, Fannie Mae bonds, Congressional appropriations, and sacred USMilitary budgets, each of which has had almost zero enforcement. It is my contention that each has been a principal part of syndicate activity, sanctioned and protected by USGovt agencies and US Financial titans, along with lapdog regulators. Generally, the dumber the nation remains, the more the Elite can continue to ply their privileged trade. The era of paper pusher domination is gone, as Wall Street gradually will resemble a Ghost Town that mirrors suburban residential foreclosure blight. The nation has probably never been more ignorant on matters pertaining to inflation in its history, as it is now. The next stage will feature grand exposure of lies, fraud, deceit, and corrupt relationships including routine bribery, insider trading, and counterfeit rings.

The penalty suffered is a wrecked nation, and inevitable lost sovereignty. When foreigners own over half the national debt, and the USEconomy is in tatters, and the US banking system is both dysfunctional and in failure mode, foreigners have the right to take control. They will do so. The arrogant will be swept aside as thoroughly as the billionaires will be ruined. If you think such words are wild and silly, just wait and watch! Receivership committees are being formed in foreign lands, but they must contend with military threats. Numerous bilateral trade agreements are being hammered out, designed to circumvent the corrupt paper price systems in US & UK control. Times are changing, and the door is open for some degree of colonization. Wealth will flow in the direction of those prepared. Owners of actual gold & silver, as well as crude oil & natural gas, will lead the next era.

INFLATION OR DEFLATION ?

Most one-word answers are replete with ignorance, usually revealing big blind spots. The simple answer is that the overall USEconomy, complete with its cancerous Financial System, is enduring both inflation and deflation simultaneously. Inflation is defined as the growth of the monetary base (money supply) beyond the growth of the economy itself. Why smart people cannot grasp this is beyond me. Many smart analysts often forget it, or unlearned it. They insist on the official distraction definition of rising prices, which is NOT inflation. Instead, fast rising prices is a typical symptom of inflation, one of its effects, but not during a credit collapse like now. If focus is given to various classes, then the contrast of rising and falling prices is more clearly seen. Until late 2006 and early 2007, residential property was rising in price. But since then, property prices have been falling. Energy prices experienced a blowoff top in summer 2008, but now are in decline. Wages were rising gradually also, but now are somewhat flat. Stocks peaked in value in October 2007, and have crashed worse than any 12-16 month period since the Great Depression. Asset backed bonds were rising in value until 2006 also, as in mortgages, but have fallen in a manner better described as a tumultuous tragic crash. Prices are indeed falling for many groups, but from credit collapse and credit restriction. However, inflation continues, as in monetary inflation. But the two chambers of the real tangible economy and financial sector expose a split in inflation symptoms recently.

The most queer asset class nowadays involves the USTreasury Bonds. They are now experiencing their own blowoff top, closely associated with what my analysis has called The Dollar Death Dance. As long as the USEconomy continues in decline, as long as the corporate failures continue, the USDollar will show strength. Given the colossal amount of funding necessary for the wide assortment of bailouts, rescues, stimulus packages, and nationalizations, with price tag over $8500 billion, the USGovt and USFed have a powerful motive to doctor a USTreasury rally. This accomplishes two purposes. It encourages a flight into the frying pan, errrr flight to quality, which renders the supply as huge. It also lifts the bond principal prices, and reduces the yields paid to investors both domestic and foreign. The USTBond complex exposes an utterly huge money flow, which must be incorporated into money velocity data. It probably is not, by deflationist theory advocates. Jim Willie (http://www.321gold.com/editorials/willie/willie010209.html)

Deflationary theory is been killed by "quantitive easing" (http://www.revleft.com/vb/quantitative-easing-explained-t97165/index.html)

For one example look here
(http://inthesenewtimes.com/2009/03/06/bank-of-england-ignites-quantitative-inflation/)

From here. (http://inthesenewtimes.com/2009/03/07/off-the-scales/)


Today’s unparalleled expansion of federal debt and obligations is being dressed up as textbook “Keynesian”. It’s rather obvious that we are in dire need of some new books, curricula and economic doctrines. But from a political perspective, the title is appropriate enough. From an analytical framework perspective such policymaking is more accurately labeled “inflationism” - a desperate attempt to prop inflated asset prices, incomes, business revenues, government receipts, and economic “output”. There have been many comparable sordid episodes throughout history, and I am not aware of any positive outcomes.


The left is more influenced by Keynes than Marx who saw that inflation was an increase in the money supply excessive to the gold base at the time.
Inflation is also linked by Marx to the increase in the cost of production. This is a deeper level look at the economy. It is best expressed to day by deindustrialization and
the need for capital to find ever more cheaper labour. Ultimately this is the motor that
has had fewer and fewer options and has frozen credit, in western economies. This has also lead to deregulation of the financial markets, and huge volumes of fictitious Capital. Again depreciating the currency.
This is not just a crisis but a catastrophe. Sooner or later, committees of action will
arise in most communities just in order to survive, as the west becomes the equivalent to one big soup kitchen. The financiers are robbing us blind and they have only just started.

[rararoadrunner]

I'm surprised that no one here reads Monthly Review. They have been right on top in analysing the current financial crisis.

Try John Bellamy Foster and Fred Magdoff's essay, "Financial Implosion and Stagnation: Back to the Real Economy (http://monthlyreview.org/081201foster-magdoff.php)".

I for one do try to keep abreast of what's happening over at Monthly Review and other socialist analytical publications: as time and money are limited, however, comrades such as yourself help us immensely by giving us timely heads-ups.

Indeed, I submitted my A Theory of Industrial Imbalances and Investments for publication there a couple of times: alas, they were inundated with submissions, but were comradely enough to recommend alternative publications to which I could submit my work for publications: that process is ongoing...

Meanwhile: I am grateful to authors like the one of the article you cited for continuing the work of Marx, Engels, and other students of scientific socialism in getting beneath the realm of circulation to penetrate the realm of production: Marx's continuation of the philosophers' work of getting beneath the world of appearences to get at the essentials, put on a materialist basis, if you will (which is why Marx took seriously Engels' advice to study and critique political economy). Especially in times of capitalist crises like these, we workers need the best analysis we can find just to survive, let alone triumph over capitalism...

Once again my thanks, hasta pronto, y a la victoria, siempre, MKO.

PS: Right after attending, and being introduced at, a State Central Committee meeting of the Peace and Freedom Party, I posted "Power to the People" under my username, rararoadrunner (same as here) over at YouTube.com: I did a mashup to promote my own "economic stimulus package" which, while far from comprehensive, talks about things the major parties in the USA ain't...(check it out!)

[KurtFF8]

A new book on the crisis was just published by the Monthly Review called "The Economic Crisis: Causes and Consequences". It's quite a good read and explains things quite well (along with being written by socialists, thus offering a deeper understanding).

Here's the link (http://www.monthlyreview.org/books/greatfinancialcrisis.php)

[More Fire for the People]

What do you think of the critics who say the Monthly Review economists are just trying to Marxinize Keynes?

[Die Neue Zeit]

My regret is that the Monthly Review isn't emphasizing more on the woefully underrated Kalecki. He was the "Keynes before Keynes," but without the bourgeois clap-traps.

[KurtFF8]

What do you think of the critics who say the Monthly Review economists are just trying to Marxinize Keynes?

I would disagree. They often, in that book, point to the shortcomings of Keynesian economics and explicitly say that they support a socialist solution to the crisis.

They do use some Keynesian economics to explain certain aspects of the modern bourgeois economy, but they certainly aren't Keynesian economists.