discussion of this article

Jacob Richter said…

This coincides with Stephen King's article on the best-case scenario being something like Japan. However, I would like to raise one more historical precedent: the Long Depression of 1873-1896.

The economies of the developed world may shrink bit by bit over a period of time and not just stagnate like Japan's did. It was in this context that "absolute immiseration" of workers was being touted, and it was also in this context that the revisionism debate arose (once the recovery kicked in).

Tue 17, March 2009 @ 00:48

bill j said…

UBS summarise things like this;

"— No de-coupling, no rebalancing. The world economy has entered recession. While some cyclical re-balancing is likely—as weak US domestic demand reduces imports and as lower energy prices trim the US import bill—the long-term prospects for rebalancing remain uncertain. Expansionary US monetary and fiscal policies risk replacing household borrowing and spending as the primary drivers of US and global imbalances.

— Erosion of US dollar hegemony. The dollar’s role as mainstay of global monetary arrangements is challenged by financial dislocations as well as the gradual move by many emerging economies to alternative ‘nominal anchors’. However, the emergence of a global alternative to the dollar does not appear imminent.

— End of a golden era. The world economy has exited an unprecedented half-decade of strong growth and robust profitability. Equity and corporate credit returns have been severely challenged by financial stress and weakening growth. When fundamental conditions improve, returns will be driven more by falling risk premiums than by earnings growth."

I think that's a pretty accurate summary of the current situation and ties in with the general themes we've been arguing over the last few years, not withstanding the obvious faults in our prognosis.

Its possible to take issues with Brian's piece from a few points;

On China I think he's too pessimistic. It seems likely that the Chinese stimulus package will drag it out of recession and is large enough to offset the fall in exports, certainly based on the pick up in imports in February, rising PMIs, and huge surge in railway construction

He underestimates the scale of flows from the emerging markets, its not just Chinese foreign exchange reserves but the oil exporters as well totalling $8 trillion by 2008.

He grossly overestimates the scale of the pensions, mortgage and insurance sector, as this is based on the value of stocks, which have halved over the last year, and mortgage back securities and agencies, which have similarly plunged. While of course ignoring that many of those mortgages are owned by the very same Chinese and oil back SWFs.

He has no figures on profits at all, when all estimates show there has been a quantum increase in profitability over the last two decades and particularly over the last five years peaking in late 2006 early 2007. Profits held up right up to the third quarter of 2008. It'll be interesting to see where they are now. Figures out late March.

His argument that speculative investments are "more risky" than investments in the real economy doesn't really hold water. Speculative investments aren't necessarily more risky, it depends when they're made and what are the scale of rewards. Certainly up to 2007 they were pretty safe and very profitable.

I remain unconvinced about the analogy between now and 1929. In 1929, the world was already stagnant barring the USA. What turned the world into the Great Depression was the collapse of its only dynamic component - the USA. That was hardly the case before 2008 and still isn't the case now. Large parts of the world are still growing - China, India etc. albeit much less than in the recent past. Debt and bad loans are being written down very rapidly, indeed extremely abruptly after the freeze of the world's financial systems in the autumn. The big unknown is whether the rebalancing of the world economy towards the emerging markets can take place quickly enough to offset the decline in the old empire.

Tue 17, March 2009 @ 10:27

Arthur Bough said…

I agree with Bill's comments here. I am not at all convinced by Brian's argument. I'm not sure whether Brian agrees with the Long Wave theory or not, but if we take his dates then there is a clear problem. If 2005 marked the end of a 25 year Long Wave Boom as he says then that boom must have began in 1980, and would have included all of that period of the 1980's when unemployment was far higher than current levels, when growth was sluggish with repeated recessions etc. even through to the recessions of the early 90's.

Furthermore, if this boom began in 1980, then the previous downturn would have to have been one of the shortest ever known in the history of the Long Wave, because its generally accepted to have begun around 1974, but even if you date it from the late 60's that would mean a wave lasting only 10 years or so.

I think Brian overstates the severity of the current recession, we are nowhere near the levels of unemployment of the 1980's, and the Labour force is much larger today than it was then. And as Bill says this is nothing like 1929 or the depression that followed as I have written elsewhere. Then Europe had been suffering from the Long Wave downturn throughout the 1920's. I don't know what Brian means by China being at the stage of development based on extractive industries. It is generally held to be the new workshop of the world, and as a mark of its importance in the world economy as a consumer also it recently passed the US in the number of cars bought in the month.

I think to confuse the fact that the US and Britain had for 20 years sicne the late 80's operated a Supply Side Monetarist policy of increasing liquidity into the economy to offset the effects of the Long Wave decline during that period - the period that Brian beleives was actually a Long Wave boom period - as it attempted to achieve a readjustment of production away from high wage economies to low wage economies in a new world of globalisation without the existence of the USSR, and to do so with the minimum of social disruption, with that period being one of boom is a mistake. The real economic growth achieved by China, India, and other Asian economies, as well as by economies in Latin America, the Middle East, and to some extent even parts of Africa from the late 1990's onwards was not at all based on some mirage of liquidity as was that growth in the former economies in the preceding period.

The continued expansion of liquidity in the US, Japan, and UK has come about as attempts to rein in past excesses led to rapid asset price deflations with knock on effects to the real economy - the Credit Crunch is just a more pronounced version of that - and arises due to the still uncompetitive nature of those economies compared to China etc., and the failure to have brought about the necessary adjustment in Capital allocation. A good example of that is the Car industry. It should be as clear as clear can be that the US Car industry with its high wage levels, and huge cost base could not compete with car production in low cost economies around the globe. But, the existence of huge monopolistic production by GM and Ford in the US in particular meant that Capital remained locked up in these enterprises producing vast numbers of cars using way above what was the average socially necessary labour. They could continue to do so, because of the huge balance Sheets of those companies that enabled loss making production to continue for year after year - also subsidised by the State to some extent, and by the expansion of those companies into the provision of financial services. A massive disproprtion and misallocation of Capital was created which needs to be rectified, but which Capital is reluctant to do in a sudden and ruthless way, because of the social disruption and destabilisation that such a move would bring with it. Hence the contiued attempt to sustain the production in those economies during the last period on the basis of debt, whilst that readjustment continued.

Bill is right, the last period has seen vast quantitites of Surplus Value produced around the world, large amounts of which are available to be thrown at this problem, and are in the process of so being thrown. The Chinese have today announced that they are relaxing the rules on the xpanion of Chinese Capital overseas, Chinese growth looks set to hit 8% again this year, and most economists are now seeing an end to the recession in the second half of 2009, with growth resuming next year.

That seems right to me. It is a recession within the context of a continuing Long Wave Boom that I believe did not begin until 1999. It is no different than the many similar recessions that occurred during the post war boom except for the obvious i.e. a globalised economy, and in particular a global labour market with fewer frictions given the absence of the USSR, fewer struggles for natiobnal liberation etc., the decline of former leading powers and rise of new ones, and the consequence of the Credit Crunch as a result of that previous excess of debt and liquidity made possible due to the role of the dollar.

In fact, I was watching a programme the other day and looking at the many, many new gadgets, gizmos and inventions appearing currently. I can't think of any time in previous history when there has been such an explosion of such innovation hitting all aspects of life all of which have huge potential for the expansion of the market in the production and sale of new use values, and of new means of production. No under such conditions this is not the end of the boom, but just it warming up.

Tue 17, March 2009 @ 14:32

Graham B said…

An interesting article. As Arthur says, I think it is best to characterise the present recession as the result of a gross misallocation of capital. I don't think it is 1929 in terms of unemployment or industrial production in developed economies and China is still forecast to grow at around 6% this year, though it will depend on the success of the fiscal stimulus package. Nevertheless, the sheer severity of this global recession means that comparisons with post-war recessions are rightly on everyone's lips. Financial crises stemming from asset price bubbles are hardly new and the cost and time for recovery can be great, even without policy mistakes such as letting Lehman Brothers fail. Losses are now at over $1tn and the final cost could be over double this and we now have the unwinding of a disproportion on such a scale that this in itself may be sufficient to signal the end of the long upward wave.

But I don't think that we can state this with Brian's conviction, and this rests on what has always been a thorny issue for most of the Left: profitability. Although there is a lack of clarity in his article on this point (and little empirical evidence to back-up his claim), I think he views the housing bubble that imploded in 2007 as resulting from a lack of profitable opportunities for capitalist investment in the previous five years, if not stretching back further. But are all speculative bubbles the result of depressed profitability? Brian says:

"Let us get the order and the connections properly arranged. What allowed China to expand? Three factors, one political and two economic. The political was to allow capitalist accumulation – the other two are economic. The first was the multinationals’ need to restore profitability by taking production offshore and in many cases away from their markets. Secondly and more importantly was the consumer boom in the 'developed' world made possible by easy and expansive credit."

Agree with the first two but the last one, that he considers the most important, that the growth of China was driven by easy credit and a consumer boom in the 'West', is getting the order the wrong way around. Why were global interest rates historically low, even before all the cuts by central banks, and where did the loanable capital come from that encouraged the easy credit, houehold debt and inflated the bubble? Wasn't it the pooling of super-profits generated in China?

Wed 18, March 2009 @ 22:24

purple said…

The current world recession is caused by excess capacity due to overproduction. There is little new about this recession, in an economic sense. I wonder how many China commenters have been to China ? There is vast excess capacity in China, one can see it everywhere. To liquidate capacity is going to mean increases in unemployment or long-term stagnation (the Japan route). Their vast surplus will buoy them for the short-term, and that only.

A secondary aspect of the current situation is the inability of the U.S. to be a reserve currency without devaluation, or deficit spending. Eventually the artifact of Bretton Woods is going to break down, and the world will rapidly enter a phase of economic, political and military dispute unseen since the first World War. But my sense is that different factions of capital don't want that , for now, because of the immense profitability of the last generation.

Sun 22, March 2009 @ 21:48

Arthur Bough said…

I don't think this is a crisis of overproduction other than to the extent that in any crisis goods are produced, which cannot be sold. But, for a marxist a crisis of overproduction is more than that, it is an overproduction of Capital not of Use Values. A crisis where there are unsold commodities may not be a crisis of overproduction, but a crisis of underconsumption, which can be remedied by Keynesian measures. Alternatively, it can as I beleive this is be a crisis of disproportion.

For a further expansion of these ideas see my blog "A Crisis Out of All Disproportion" http://boffyblog.blogspot.com/2009/03/crisis-out-of-all-disproportion.html here.

Sun 22, March 2009 @ 22:16

bill j said…

Its difficult to say how long China's surplus will buoy them. The short term maybe long enough. The world economy suffered a systemic crisis of its financial system in the autumn, which lead to a freeze in world lending and on the back of that world trade, and on the back of that world production.

Industrial output has collapsed even faster than consumption, as manufacturers rid themselves of their inventories. The question then is how long is the short run? If its long enough for the world economy to adjust to the new world, then it will be long enough.

The issue of debt is an important one. Brian says;

"Today the states’ resources are largely exhausted propping up the banks. They do not have much left for the real economy except to print money."

Actually state endebtedness is not that high on historical levels and its even more difficult to sustain this view given the quantitative easing of the US Fed and on a lesser scale Bank of England.

The Fed have just printed another $trillion, reducing the US government debt by 15% overnight. A few more doses of that and their will be no more need to worry about debt. Although there maybe a need to worry about foreigners demand for US assets, which is already on the very rapid decline, over the last quarter there was an outflow of funds from the USA to the rest of the world see here;

http://blogs.cfr.org/setser/2009/03/23/financial-de-globalization-illustrated/

"Foreign central banks are no longer providing the US with much new credit. Indeed, they withdrew $13.6 billion of credit from the US in the fourth quarter, as central banks’ agency sales ($96b) and the fall in their deposits in US banks (bank CDs fell by $80 billion) produced a net outflow despite record purchases of US treasuries ($179b, all short-term bills). And the US — through the Fed’s swap lines — provided a rather large sum of credit ($268 billion) to the rest of the world. For the year as a whole, the BEA data indicates the US government lent $534 billion to the rest of the world while foreign governments lent “only” $421 billion to the US."

That explains the rise of the dollar even as foreigners withdrew their funds from the USA. Americans withdrew their funds from the rest of the world even faster. While the US government shipped treasuries abroad.

The post Lehman collapse has meant that the work of several years has been concentrated into a few months. The land will lie very differently by the summer.

Mon 23, March 2009 @ 12:43

vngelis said…

There seems to be an approach that this crisis is just like another wheel taking a turn, at the next turn everything will pick up once more.

This crisis signifies the end of the USA as a military/hegemonic power. Its limits were imposed by the costs of two wars, which have both been lost. The theory that ever more wars stimulate growth, or that the rise of the transnational corporations would herald in an era of endless growth and suspend the laws of economic activity so there would never be 'boom and bust' has been proven to be hogwash.

There will be no way out of this current crisis. We have all the conditions in place, mass unemployment, defaulting banks, centralisation of economic and political power and a defeated military. The only economic activity in the anglo-american world apart from wars has been recycling debt in what they call the 'financial industry' and selling goods made elsewhere.

Mon 23, March 2009 @ 23:38

Dimitris said…

"The Fed have just printed another $trillion, reducing the US government debt by 15% overnight. A few more doses of that and their will be no more need to worry about debt." How can this happen? doesn't the government borrowing from the FED (the FED purchases government bonds). Can you provide the specific data about this?

Tue 24, March 2009 @ 09:19

bill j said…

There's a somewhat technical discussion of it here

 http://www.econbrowser.com/archives/2009/03/quantitative_ea_1.html

Essentially what quantitative easing does is increase borrowing from the Fed by printing money, so the US government does not pay for the assets it purchases or creates, in other words it does not actually increase borrowing at all.

Normally a counterparty i.e. a bank buys the Treasury security from the Fed. The Fed debits the bank's account with the Fed, and these debits net out the credits that would be created as a consequence of the Fed's new loans. The Feds reserves go up with the loans, down with the sale of Treasuries, so the net result is an increase in loans from the Fed but no change in reserve deposits.

With quantitative easing, the Fed buys the treasuries with the cash it creates so the reserve deposit increases by the amount of new cash created - in the USA $1 trillion in the UK £80 billion.

So it basically devalues the debts of the USA or UK denominated in dollars or pounds by that amount. Its no surprise that it is the two debtor imperialists, who have begun quantitative easing in a big way, while the creditors have stayed well clear. But that's not to say they're happy.

The response of the Chinese - the largest owner of US treasuries around 26% of the total or $740bn is interesting, whereas it required the Chinese to sell goods for US dollars, the US Fed can simply print the dollars without bothering to sell the Chinese anything. So who is bearing the cost of the US bail out? The Chinese, who have just seen the value of their treasuries devalued by the US government. And as a result the Chinese have announced they would like to see the creation of a "world super currency".

http://www.bloomberg.com/apps/news?pid=20601087&sid=ae6ezzIMK6cs&refer=home

“There is concern and even frustration among top policymakers in Beijing about China’s high exposure to U.S. dollar-denominated financial assets,” said Brian Jackson, senior strategist at Royal Bank of Canada in Hong Kong.

Fat chance of course, Wen famously stated that while the Chinese were worried about their US treasury investments, there was no where else in the world for them to put their money. Certainly they'll be spending a bigger slice of it at home, in order to avoid the recession, but even their problem with surplus capital isn't going to disappear overnight. So they are also going on a massive spending splurge, purchasing around $100bn of US equities over the last year, and spending around $10bn a week so far this year on FDI in raw materials producers and loans to Brazil and Russia.

Tue 24, March 2009 @ 11:03

bill j said…

More here

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.

http://mpettis.com/

Tue 24, March 2009 @ 17:05

Arthur Bough said…

Vingelis said,

"There will be no way out of this current crisis. We have all the conditions in place, mass unemployment, defaulting banks, centralisation of economic and political power and a defeated military. The only economic activity in the anglo-american world apart from wars has been recycling debt in what they call the 'financial industry' and selling goods made elsewhere."

Oh how many times have I heard that??? I remember in the early 1980's - when actually the economic crisis was much, much, much worse than today - comrades from the SWP who had this catastrophist theory of Capitalist collapse - lagrely borne out of a desperation by petit-bouregois elements at the fact that workers do not automatically accept the wisdom that they want to impart to them - claiming that once again this was it, this was the crisis that would put an end to Capitalism. I told them then it wasn't going to happen, and it certainly ain't going to happen now.

Dimtris asks,

""The Fed have just printed another $trillion, reducing the US government debt by 15% overnight. A few more doses of that and their will be no more need to worry about debt." How can this happen? doesn't the government borrowing from the FED (the FED purchases government bonds). Can you provide the specific data about this?"

And Bill replies,

"Normally a counterparty i.e. a bank buys the Treasury security from the Fed. The Fed debits the bank's account with the Fed, and these debits net out the credits that would be created as a consequence of the Fed's new loans. The Feds reserves go up with the loans, down with the sale of Treasuries, so the net result is an increase in loans from the Fed but no change in reserve deposits."

Actually, this is back to front. Quantitative Easing is what used to be called Open Market Operations. What Bill describes here is in fact what the Central Bank does to TIGHTEN money supply not ease it. The two processes work like this.

Suppose the Government wants to borrow money to spend. It does this by issuing a Government Bond. Investors can buy this Bond, and in doing so the Money they use to do so is drained from Bank Deposits. Traditionally, Banks had to keep a certain proprtion of Deposits to the Money they lent out. This meant that say the Bank had to retain 10% of all the money deposited with them they could lend Ten Times the money they took in, because each time they lent money that loan also created a deposit from the recipients of the money spent by the person taking out the loan. This is what is known as the Credit Multiplier. In fact, in recent years with deregulation all of those restrictions basically disappeared so the Banks themselves - alongside all the other fianncial institutions who partook in the creation of Credit - were able to virtually create money out of thin air. Traditionally, though that Credit Multiplier also worked in reverse so that as Money was taken out of banks to buy these Bonds, so the amount of credit that could be sustained was reduced accordingly. Ceteris Paribus it would mean a rise in interest rates, because a reduced supply of money would face the same demand for money. Its also what led to the Supply Side economists arguments about "crowding out" of private demands for that money for investment.

In fact, if the Government then spent the money it boorowed this would create new deposits with that money so the net effect SHOULD have been neutral.

However, if the Government or Central Bank wants to tighten Money Supply they can follow this procedure of selling Bonds to the Banks thereby creating the effects set out above without that money then being spent in the economy, and creating new deposits. In the past they also had other tools at their disposal for this purpose such as simply instructing the Banks that they had to keep a higher proportion of deposits to lending. In large part many of these things were scrapped by the Tories as part of the deregulation of the Banking system.

In contrast Quantitative Easing involves the Bank not SELLING Bonds to the Banks as Bill says, but BUYING Bonds held by the Banks. It buys these Bonds with actual new notes that it simply prints. In fact, it does not have to do this just with the Banks. Large Companies also issue Bonds in order to raise finance rather than borrowing from the Bank or issuing new shares. They sell these Bonds to investors in the Bond markets. The Bank now has the authority to buy these Bonds too, in effect simply lending money that it has just printed directly to companies so that they can use this money for investment. It is a very high powered way of getting more money into the economy to circulate quickly, much more powerful than simply reducing interest rates which only works if the lenders will lend at those interest rates.

It is essentially the method in a practical way that Ben Bernanke described a few years ago that earned him the nickname "Helicopter Ben", because he said that if they wanted to defeat deflation they could simply print new bank notes and drop them in huge bundles out of helicopters so that those who picked them up would go out and spend their windfall.

The big danger with actual printing of money in this way compared with the normal way that Central Banks "print money" by easing Credit through lower interest rates is that it has a much greater tendency to create runaway inflation. It was this kind of actual printing of money that caused hyper inflation in the Weimar republic, and now IN Zimbabwe, previously in Argentina and so on. Once the notes are out there it is much harder to get them back, whereas lowered interest rates can be hiked again. And because there is a 2 year time lag between increases in the money supply and the consequent effect on prices that inflation can become embedded in the system, before Central Banks have realised, and before they have tried to reign back in the money they have pumped out. Trying to do so when the inflation has begun risks creating a severe downturn.

Tue 24, March 2009 @ 17:44

Arthur Bough said…

Bill's further statement which I should have read more carefully, where he says,

 " With quantitative easing, the Fed buys the treasuries with the cash it creates so the reserve deposit increases by the amount of new cash created - in the USA $1 trillion in the UK £80 billion."

Is absolutely correct.

Tue 24, March 2009 @ 17:55

Graham B said…

Whilst we're on such technical matters, perhaps an easier one; the Obama/Geithner plan to 'rescue' the banks. How is it supposed to work and what are non-recourse loans? Clearly a massive sweetener to private investors, hence the 7% rise in the DOW on the day it was announced, and I see that Krugman has been consistently against, claiming it is little different from the old Paulson plan to buy up toxic assets and won't even work.

Tue 24, March 2009 @ 19:40

vngelis said…

Oh how many times have I heard that??? I remember in the early 1980's - when actually the economic crisis was much, much, much worse than today - comrades from the SWP who had this catastrophist theory of Capitalist collapse - lagrely borne out of a desperation by petit-bouregois elements at the fact that workers do not automatically accept the wisdom that they want to impart to them - claiming that once again this was it, this was the crisis that would put an end to Capitalism. I told them then it wasn't going to happen, and it certainly ain't going to happen now.

A Bough

Dont confuse me with the SWP or Healy before them.

We did not have sustained mass unemployment in either of the periods they predicted a total capitalist collapse so you are barking up the wrong tree. We now do for more than a decade and a half hence alongside de-industrialisation and soon de-retailisation as well.

We have around 8 million people in the UK on the government payroll for inactive pay be it job seekers allowance, incapacity, tax credits etc.

We have also had the largest more sustained period of mass immigration in post-war Britain in a situation whereby the full time job is no longer there and a in a situation where wages are pegged to the floor (minimum wage which is unlivable in 40% of the UK).

We also passed a milestone during last September when the UK became nominally bankrupt. Alongside that we have had massive taxpayer bailouts without the money actually existing in the first place to bailout the banks. The next phase of the crisis will be governments being unable to pay their treasury bonds. In order to do so they will of course attempt to turn the rest of the UK to Bangladesh living standards, there is no other way. Someone will have to pay for the bailouts. They cannot go on the governments credit card as its maxed out.

I dont also recall massive wars in the 1980's which the UK or Europe was involved in. They have been in two in our decade at tremendous cost both financially but also geo-politically in threatening the world that privatisation is the only available option.

Tue 24, March 2009 @ 21:46

Graham B said…

vngelis; some historical perspective is necessary here. Financial crises have been commonplace and are often fuelled by house price bubbles and a growth in parasitic financiers. Two comprehensive (bourgeois) surveys:

"The Aftermath of Financial Crises", Reinhart and Rogoff, Dec 2008

"Banking Crises: An Equal Opportunity Menace", Reinhart and Rogoff, Dec 2008

The issue with the current global crisis is the final size of the losses and what it means for the peak-to-trough declines in GDP, industrial production and unemployment (but not the only one as the measures taken by governments are also important). But if you think there has been a perpetual crisis for the last decade and a half, it's not surprising that you believe that the recession will essentailly destroy the UK economy. And, whatever you think about the impact of China over this period, it has changed the balance of economic power and this crisis is only going to accelerate that shift.

Tue 24, March 2009 @ 22:45

vngelis said…

In reply to Graham B when personal debt exceeds GDP then nominally the UK is bankrupt as debt exceeds value of production. How low can the crisis go depends on what happens to house prices. If they fall to 1997 levels around 4 million mortgages will be called back. Failure to call them in will imply everybody else paying a mortgage ie 8 million should stop as well. Dumping so many properties onto auction will trigger even further house price collapses. The issue at stake isn't how low it will go, but when will the downward spiral end. It wont. Someone will have to pay. The crisis will dumped on the remaining workers, less pay more hours, fewer imports, a breakdown of world trade.

The issue now at stake isn't what will happen to China but what will happen to the USA. They run the world, not China or Russia or the BRIC economies. It will be obliged to impose punitive taxes to stay afloat and introduce import taxes to raise government revenue. But it cannot do this when its own transnationals dont pay any tax and their production is abroad. Hence the USA will split up between those who are for punitive import taxes and those who aren't.

When Goldman Sachs heard about the 90% Bonus Taxes for the banksters they started playing the soviet national anthem on the trading floor. The parasites know a split is coming. But nothing can be done in a downward spiral.

Tue 24, March 2009 @ 23:44

bill j said…

From what I understand the Geithner plan is for the public and private to put in the first 14% (7% each) of the price of the dodgy assets, around $100bn each, and for the remainder (86%), to make up the remaining trillion, to be guaranteed by a loan provided by the FDIC.

So the private investors are only on the hook for a maximum of 7% of the possible losses. Krugman has pointed out that banks could buy their own dodgy loans via a few variegated contractual devices and therefore offload the risk at minimal cost to the taxpayer, hence nationalising the risk and privatising the profits.

And it is very like Paulson's plan which isn't surprising as Geithner was his right hand man.

I agree with Vngelis about Arthur's tone. I don't think its appropriate to say everyone who thinks there may be a depression is "petit bourgeois" or a "Healyite" or "SWP". Its a perfectly reasonable point of view that needs to be discussed.

As Graham points out;

http://www.economics.harvard.edu/faculty/rogoff/files/Aftermath.pdf

Rogoff and Reinhart show that such financial crises are pretty regular occurances, albeit this one is very big. Although I noticed that interestingly, and this reflects the growth of the emerging markets over the last five years, there is not a single country with a debt crisis at present. Of course the whole point about quantitative easing is that the government does not have to pay for the treasury bonds it simply prints them at no cost. The cost is borne by the creditor not the debtor.

Tue 24, March 2009 @ 23:55

Arthur Bough said…

To Graham,

What the Geithner Plan does is to enable assets that formerly could not be priced to be priced. The reason they could not be priced - the Banks have to put them on their Balance Sheets valued as "marked to market" meaning what they could get for them if they sold them immediately, is that no other Bank or financial institution would buy them a) because they were all holding on to what cash they had and b) nobody knows how much of the mortgages that are bundled up in these securities are bad or going to go bad. You can only get a market price if there is a market. The plan effectively creates a market, by removing most of the risk, and by enabling a wide range of institutions to buy the assets.

So, for example, the world’s biggest Bond Fund PIMCO, run by former Poker player Bill Gross, has said that it will buy up some of these assets. No wonder, as Mark Tinker of AXA Framlington said, on CNBC yesterday these MBS's and other derivatives were created initially to spread risk. So each bundle contains a proportion of sub-prime mortgages, and a higher (supposedly) proportion of non-sub-prime mortgages. The calculation is that even if the sub-prime mortgages go bad the vast majority of the rest will not, and the returns on them will more than offset the losses. As he pointed out, the majority of people in the US have 27 year fixed rate mortgages, so unless there is some massive rise in unemployment of the kind Vingelis seems to think we already have(!) and worse, then these people will continue to pay their mortgages and the securities will turn out to be sound. The real problem has been with the insurance of losses against these securities - one of the reasons the monoline insurers and people like AIG got into a mess.

As I understand the plan it sets up a 6 to 1 leverage so that any private institution only pays for a sixth of the total investment they make. They are effectively lent the rest by the State; it’s a huge version of what is called buying on margin. In addition the fed will buy an equivalent amount to that bought by the private institutions. Losses incurred will also be insured through the State. So a market is created for securities where none existed prices can be established for those securities, and that in it will improve the Balance Sheet position of the banks because, they will now be able to value these assets, where previously they were essentially valued at zero. The State benefits because they now get to buy these assets at a price that the market specialists think is adequate to return a profit.

And as absent some really catastrophic turn of events, these mortgages will get paid over the next 20 years, the insurance they have given will not be needed, and they may even make a profit.

To Vingelis. Having debts greater than your annual income does not make you bankrupt either for an individual let alone a state. If you have assets to cover those debts, or have continuing income to cover the interest payments on those debts you are not at all bankrupt.

As for your suggestion that there has been mass unemployment for the last decade and a half, what can I say? I think you demonstrated the answer to that with your own comment about the need to have such high levels of immigration to cover all the jobs that needed to be done, and for which few domestic workers were prepared to take on!

As for the level of wages and so on where there is a degree to which that is true for a minority of workers, I have to say that I simply don't recognise the picture you are painting, and none of the ordinary workers I speak to come into the category you describe. On the contrary most of them would describe their situation over the last ten years as having increased substantially.

I don't think your comments about the US and taxes are correct either. In fact, as Bill says, with a large amount of money printing, much of the debt of the State will be magicked away, and the subsequent inflation will wipe away much private debt too. As a sign of the real state of things, Goldman Sachs has said it wants to pay back the money it had from the State as soon as possible.

Your comments about UK house prices are wrong too. There is no reason whatsoever why falling house prices to 1997 or any other level will cause mortgages to be called in. There is no connection. So long as people continue to pay their mortgages and with mortgage payments having shrunk to around a third of their previous levels the vast, vast majority of people will be able to continue their mortgage payments, then there is no reason why mortgage providers WOULD call in mortgages, which they could in any case do if people WERE defaulting on them. Again provided the majority of people remain in work - and they will - there is no reason they will not be able to pay these much reduced mortgages, and so they will simply stay in their homes, and there will be no mass of properties thrown on to the market in the way you suggest.

To Bill, I wasn't calling Vingelis petit-bourgeois or a member of the SWP or a Healyite. In fact, the words Healyite never crossed my keyboard! I was saying that the Left has had a tradition of seeing Capitalist collapse as just around the corner, and in large part it comes out of a) a lack of understanding of economic theory but, b) more importantly, a desperation for it to happen as some shortcut to revolution, by people who have lost faith in the working class being won over to their Marxist position, a frustration that often is a result of those people having that attitude to workers in the first place, and expecting them to be easily won over, and having a sectarian attitude towards them when they aren't. That is clearly true of the SWP, and explains why they ended up going off to find some other social force to replace the working class.

In fact, the reality is that if there IS a Capitalist collapse it will not be the left who will benefit. Any collapse now, would almost certainly see a sharp move to the Right, an authoritarian government, a massive increase in support for the BNP, and all that goes with it. We should hope no collapse is imminent.

Wed 25, March 2009 @ 16:12

vngelis said…

AB stated that bankruptcy only comes into force when you cant re-finance your debts. The issue now is that if you are operating in a scenario where you are constantly in debt and require debt financing to operate then you are controlled by the banksters. If interest rates go up, business goes down or the banks call in the debt, either which way you go under. This is the real case scenario for millions of people at the moment, not some far-out fantasy.

Mass unemployment is anything which signifies more than 10% of the active population in my eyes According to ONS statistics only 75% of the population has ever been economically active, and being economically active has meant anybody having a part-time job. When old manufacturing jobs were relocated millions became economically inactive. This is common knowledge as the rates of incapacity benefit were under 100k in 1980 and now they number in the millions.

Add official unemployment we already have around 5 million and this number has been steady from around 1992.

British workers even those made redundant would not lower their standard of living taking on new minimum wage unliveable jobs. No one volunteers to commit economic harakiri. Hence the economic necessity of mass immigration to fill those jobs that could not be done without a mass reduction in the standard of living of British workers.

You then go on to argue that by printing money one can then avoid reality. If that was the case both China and Russia would not be calling for a new world reserve currency if they had faith in the USA not unleashing global hyperinflation...

Your whole premise on house prices is that a) banks wont call in mortgages which fall to create a situation of negative equity

b) most people will remain in work c)house prices wont fall below a certain level. I wish I could have your confidence in what will be. Studio flats have already been on offer in London for less than £100k prices not seen since the early 1990's and repossessions have already reached 45k up from a few thousand a few years ago.

Finally a capitalist collapse and who benefits from it isn't what is the issue, but whether we are in a downward spiral from which there will be no point of return. Forced onto the margins of society the working class will be forced to act. This has started with the issues that developed around the strikes in the energy sector. Whether it benefits or wins again is another issue. The problems of the working class will be solved by the working class, not anybody else for them or on behalf of them. Whether capitalism collapses or not depends on what happens next. I am not hedging my bets that we will just linger through.

Wed 25, March 2009 @ 23:54

bill j said…

There are some interesting stats on profitsd from the Bureau Economic Analysis today. They show a very sharp fall in the rate of profit over the final quarter, but consistent with the idea that this is essentially a financial crisis, non-financial production was only hit marginally, while financial profits collapsed. I'll do a longer post shortly.

Thu 26, March 2009 @ 15:28

Arthur Bough said…

“AB stated that bankruptcy only comes into force when you cant re-finance your debts. The issue now is that if you are operating in a scenario where you are constantly in debt and require debt financing to operate then you are controlled by the banksters. If interest rates go up, business goes down or the banks call in the debt, either which way you go under. This is the real case scenario for millions of people at the moment, not some far-out fantasy.”

a) Interest rates have gone DOWN massively not up.

b) Even with rising interest rates you do not go bankrupt as a result as you stated provided you can pay, or you can dispose of assets to cover the debts.

c) You were saying Britain had become bankrupt. That isn’t true. Not only is it more than capable of paying the interest on its debts out of current income, but it has huge assets at home and overseas which can be sold to more than cover those debts.

d) You can only understand where the economy is going if you understand the basic principles of economics and finance, and base your conclusions on an analysis of facts. The problem is that far too often the Left doesn’t understand those basic principles, and doesn’t base its statements on the facts, but just issues will statements based on wishful thinking, usually to the effect that Capitalism has entered some ultimate collapse of the type you gave in your initial comment. Its no wonder workers pay so little attention to anything the left says.

“Mass unemployment is anything which signifies more than 10% of the active population in my eyes According to ONS statistics only 75% of the population has ever been economically active, and being economically active has meant anybody having a part-time job. When old manufacturing jobs were relocated millions became economically inactive. This is common knowledge as the rates of incapacity benefit were under 100k in 1980 and now they number in the millions.”

That’s another example. For one thing a large number of people are retired and do not WANT a job. On your basis here there would ALWAYS be mass unemployment.

“Add official unemployment we already have around 5 million and this number has been steady from around 1992.”

But, we have a much larger workforce now than we had during the 1980’s. In fact, the statistics show more people IN employment than ever. I remember the mass unemployment of the 1980’s, and I can tell you this is nothing like it.

“British workers even those made redundant would not lower their standard of living taking on new minimum wage unliveable jobs. No one volunteers to commit economic harakiri. Hence the economic necessity of mass immigration to fill those jobs that could not be done without a mass reduction in the standard of living of British workers.”

Lots of people work in Minimum Wage jobs. If there were real mass unemployment of the kind you describe, if Capitalism really were in the kind of terminal crisis you want to have us believe workers would be scrabbling for every job they could get, and the Capitalist State would have scrapped the Minimum Wage.

“You then go on to argue that by printing money one can then avoid reality. If that was the case both China and Russia would not be calling for a new world reserve currency if they had faith in the USA not unleashing global hyperinflation... “

No I didn’t, I said as did Bill that by printing money you avoid the problem you said was unavoidable of having to raise taxes. I have said all along that the consequence of that will be a massive rise in inflation. That is why Money Capitalists and their representatives are beginning to squeal, because in an inflation Creditors lose out to Debtors. That’s one reason the US is pursuing that policy as it has done in the past – it inflates away its debts. Its also why China is sent a shot across the bows, but the last thing it wants at the moment is for the dollar to lose its status which would send the dollar into freefall, and wipe out the value of Chinese Bond Holding in the US, and the rest of its dollar holdings.

“Your whole premise on house prices is that a) banks wont call in mortgages which fall to create a situation of negative equity

b) most people will remain in work c)house prices wont fall below a certain level. I wish I could have your confidence in what will be. Studio flats have already been on offer in London for less than £100k prices not seen since the early 1990's and repossessions have already reached 45k up from a few thousand a few years ago.”

a) Of course banks and Building Societies won’t call in debts because someone has gone into negative equity!!! In fact, it’s the last time in the world they would want to! If they have to sell the house under those conditions they may not get back the Capital advanced. Provided the person who has gone into negative equity pays their mortgage the Bank is happy, because that is how they make their profits! The vast, vast majority of people who retain their jobs, and who mortgage costs have fallen to around a third of what they were will continue to pay their mortgage and stay where they are – unless they have a pot of cash and take advantage of lower house prices to buy a better property.

b) The vast, vast majority of people WILL remain in work. Even during the 1930’s the vast majority of people remained in work, and those that lost jobs were normally only out of work for around 8 months. We are not in anything like those conditions now.

c) I said nothing about house prices falling below a certain level. House prices and peoples ability to pay their mortgage are totally unrelated. The latter depends only on having a job and a sufficient income to pay the monthly repayment, which has nothing to do with the price of the house! IN fact, if house prices DID fall dramatically, the consequence would be that a load of first time buyers would enter the market, people who had cash savings would rush to move to a better house, and so on. It would in fact, be wholly stimulative in its economic effect.

“Finally a capitalist collapse and who benefits from it isn't what is the issue, but whether we are in a downward spiral from which there will be no point of return.”

That is the whole point of why I take issue with you so strongly, and disagree with Bill’s point about people being free to argue that we may enter a Depression. The fact is that even during the Depression the scenario you paint above did not happen. I am happy for people to argue that we might be entering a Depression, though I think they are wrong. Its this idea of it being some final denouement from which Capital can’t recover I object to, because it is wholly inconsistent with Marxist theory. In short its nonsense. In fact, as I’ve written on my blog here:

http://boffyblog.blogspot.com/2009/03/more-conflicting-data.html and here:

http://boffyblog.blogspot.com/2009/03/european-recovery.html

there are already tentative signs of recovery. World Stock Markets bottomed at the end of last year, Chinese Stock Markets are up 40%, and that is normally a presage that the real economy is likely to be on the way up around 6 months later. Much of the economic data, and commentary suggests that the worst of the Credit Crunch is over, that the recession will come to an end by the end of this year, and that growth will resume in 2010.

“Forced onto the margins of society the working class will be forced to act.”

Why will it be forced to act???? What historical law says that must happen??? There is none. The lesson of history is quite the contrary that at times of severe economic depression the working class is forced on to the defensive, the forces which atomise and weaken the working class – such as competition between workers for jobs, and so on – make working class resistance more difficult to organise, and strengthen the power of the bourgeoisie. Again the history shows that during such periods when workers do respond, other class forces are likely to line up behind the bosses – in current conditions where the working class has absolutely no leadership, that will be an inevitability – and the State then smashes the workers response as Thatcher did in the 80’s, or if that is not sufficient the bosses can always resort to the fascists.

“This has started with the issues that developed around the strikes in the energy sector. Whether it benefits or wins again is another issue. The problems of the working class will be solved by the working class, not anybody else for them or on behalf of them. Whether capitalism collapses or not depends on what happens next. I am not hedging my bets that we will just linger through.”

The energy strikes show what is wrong with your whole thesis. In fact, the energy strikes come at a time when the expansion of the last 10 years has begun to have an effect on raising workers confidence globally, as always happens in such periods as the demand for Labour rises, and workers find it easier to win their demands. But, although the strikes as strikes essentially about jobs and conditions, and against bosses were progressive, the original demands, and the ideas of many of the workers involved summed up in the slogan of “British Jobs for British Workers” were reactionary nationalism. It was fortunate that comrades from the Socialist Party had workers who could intervene to change that – pity they haven’t taken that on board in supporting the reactionary nationalist platform of Bob Crow and the CPB’s No2EU stunt. But, although I agree that only the working class can resolve its problems it won’t come to those necessary conclusions of its own accord. In a period of recession it is far more likely to absorb and take on board reactionary ideas and solutions to its problems such as those of nationalism. That is why the hope that lies behind most of those who hope for crisis around the corner as a shortcut to revolution is wholly misplaced.

Thu 26, March 2009 @ 21:06

vngelis said…

AB

My main premise is that the conditions for a global depression are evident as we have mass unemployment in a series of countries, we have countries going to the IMF for new loans to stay afloat (Ukraine) and the USA has gone from being the worlds creditor nation in the 1980's to the one of the worlds most indebted.

This is the worlds first global crisis for it is affecting almost everybody simultaneously, bar China provisionally, although its spread there as well in the mass layoffs.

One may indeed have a larger workforce but the types of jobs which have led to an expanded workforce aren't real new jobs, they are minimum wage. If one person worked in a steel factory for £500 a week in 1983 and they could buy a house, now if x5 people work in minimum wage jobs they cant even buy a studio flat. The job market has expanded but not in any fundamental way. The size of a labour force does not dicatate the quality of work (ie wages and conditions related to other costs in life)

AB said: Lots of people work in Minimum Wage jobs. If there were real mass unemployment of the kind you describe, if Capitalism really were in the kind of terminal crisis you want to have us believe workers would be scrabbling for every job they could get, and the Capitalist State would have scrapped the Minimum Wage.

You seem to confuse the past with the present. Thatcher allowed incapacity benefit to take the place of mass unemployment as a means of buying social peace. In countries where this was impossible ie the redundant miners of Bolivia, the protests movements in the countryside were led/organised by ex-redundant miners. Imperialism in decline is socially aware of resistance. The next phase of the crisis is leading to try and get people of incapacity benefit as voted in Parliament and there are 3 million on that. If one factors in food price inflation which has been running at 15-20% over the last year or so, those on the bottom with fixed incomes are sufferring disproportionately than anybody else. Take into account the rises in gas/electricity, rents then real price inflation is already running at 20%.

AB said: I said as did Bill that by printing money you avoid the problem you said was unavoidable of having to raise taxes. I have said all along that the consequence of that will be a massive rise in inflation. That is why Money Capitalists and their representatives are beginning to squeal, because in an inflation Creditors lose out to Debtors. That’s one reason the US is pursuing that policy as it has done in the past – it inflates away its debts. Its also why China is sent a shot across the bows, but the last thing it wants at the moment is for the dollar to lose its status which would send the dollar into freefall, and wipe out the value of Chinese Bond Holding in the US, and the rest of its dollar holdings. "

What you describe above in my eyes is collapse. The US dollar is the worlds reserve currency. When two members of the G20 core members of the BRIC countries ask for it to stop having that role, how will it survive. Obama may issue bonds until the cows come home as may Blair but they are contigent on people buying them. If no one buys them, re-financing stalls and the levels of debt instead of being miniscule become milestones round someones neck that they cant get shot of. China is currently choosing to buy minerals and raw materials INSTEAD of US bonds, something which is tangible, instead of worthless bits of paper...

AB said:

") Of course banks and Building Societies won’t call in debts because someone has gone into negative equity!!! In fact, it’s the last time in the world they would want to! If they have to sell the house under those conditions they may not get back the Capital advanced. Provided the person who has gone into negative equity pays their mortgage the Bank is happy, because that is how they make their profits! The vast, vast majority of people who retain their jobs, and who mortgage costs have fallen to around a third of what they were will continue to pay their mortgage and stay where they are – unless they have a pot of cash and take advantage of lower house prices to buy a better property. "

Banks insure all investements and if a person defaults on the debt they get it from the insurers. That is why AIG has gone into freefall. Banks have already cut thousands of small businesses overdraft facilities and they are already sending out letters asking people either to re-finance their debts (longer periods or to pay back the difference from negative equity kicking in)

AB said:

b) The vast, vast majority of people WILL remain in work. Even during the 1930’s the vast majority of people remained in work, and those that lost jobs were normally only out of work for around 8 months. We are not in anything like those conditions now. "

Are we now referring to the UK which in the 1930's was the premier imperialist power? Or Germany and Italy? The vast majority of people will not remain in work and unemployment will continue to rise this time indefinitely as the society created under Anglo-American capitalism are non-productive (coupon clippers in the form of financial industries creating debt) and shopping malls to offload this debt.

AB said,

c) I said nothing about house prices falling below a certain level. House prices and peoples ability to pay their mortgage are totally unrelated. The latter depends only on having a job and a sufficient income to pay the monthly repayment, which has nothing to do with the price of the house! IN fact, if house prices DID fall dramatically, the consequence would be that a load of first time buyers would enter the market, people who had cash savings would rush to move to a better house, and so on. It would in fact, be wholly stimulative in its economic effect."

On the above I would counter with the opposite view. For the last 15 years most people have refinanced as a way of surviving the lack of wage rises in proportion to a standard of living they are expected to have (due to the concentrated propaganda of marketing). Hence falling house prices would mean millions cannot re-mortgage, will not go out, go on extra holidays, get a new kitchen car etc. What we are witnessing now in fact.

I will respond to the other points when I have read your blog fully to do justice to your arguments. But I thinkwhere we differ is our understanding of Depression. The 1930's depression led to the rise of fascism and WW2. It led to 30% collapse in US production. This is my understanding of Depression.

Thu 26, March 2009 @ 21:45

Graham B said…

"This is unquestionably the worst global economic crisis since the 1930s." Martin Wolf, FT 24 Mar.

http://blogs.cfr.org/setser/2009/03/25/this-is-unquestionably-the-worst-global-economic-crisis-since-the-1930s/

Yes, worse than 1980-82 or 1973-75. Is it the 1930s?

http://www.calculatedriskblog.com/2009/03/what-is-depression.html

and this graph for decline in GDP in US recessions from 1929 to estimated 2009Q1;

http://3.bp.blogspot.com/_pMscxxELHEg/SbcCn2ma2XI/AAAAAAAAEv4/IBHBUO7M6kY/s1600-h/GDPdeclines2.jpg

Thu 26, March 2009 @ 22:58

Arthur Bough said…

Graham,

I don't think anyone denies that we are in a recession or that there has been a significant decline in GDP as the graphs and commentary you provide demonstrate. However, compare the decline for 09 in the second graph of less than 5% with the more than 25% drop during the Great Depression!!! I think you can see the differecne in scale, and despite that Capitalism DID NOT collapse. The current decline is similar to that shown for 57, and that point is illustrative. There were many such recessions during the post war boom, but precisley because they occurred within the condiiotns of the Long Wave boom it was possible to use the same kind of Keynesian stimulus measures being used now to quickly bring them to a close.

That is my response alos to the comments of Martin Wolf. What is important is not the degree to which output falls, but the duration of the fall. The recession of 1981 came after the end of the Long Wave boom in the 1970's to which state's first responded with Keynesian measures, only to abandon when they weren't working, and were causing stagflation. But, unlike now the recession of trhe early 80's - because of those conditions - dragged on and on, with economic activity remaining at a low level even when it was not technically in recession,and with a consequent effect on employment levels etc. In fact, it continued to drag on into the 90's. After the workers were defeated in the mid 80's, Thatcher was able to switch from the Austrian School economics solutions adopted under the auspices of Hayek and his followers in the Tory Party, to the adoption of Friedmanite Monetarist polcies - Friedman as opposed to Hayek and Von Mises had argued that the depression was caused by too tight a Monetary Policy - and began to pump liquidity into the system - the US under Greenspan began to do the same thing, which led to the asset price bubbles in Stocks and property at the end of the 80's, which then had to be corrected and together with the oil price spike, which could also be seen as a consequecne of that loose monetary policy brought on the recesion of 91.

In fact, since the start of the new Long Wave boom in 99, there have been two mini-recessions prior to this, but as with the post-war period theyw ere short-lived. This is more pronounced because the Credit Crucnh IS different, is more severe perhaps even than 1929, but as Bill says, that still tends to be the characteristic of the current crisis i.e. predominantly a fianncial rather than specifically economic crisis - though I'd argue their is a crisis of disproprtionality too. The fact, is that different from the early 80's this crisis is NOT likely to drag on. As I said in my blog, the durable goods figures surprised on the upside, home sales likewise, mortgage applications likewise, the baltic Dry Index is up which suggests trade may be beginning to turn, LIBOR and EURIBOR rates are down quite significantly,and US rates are down too suggesting that the Credit Crunch is ending. China is growing rapidly and stimulating its economy, India continues to grow strongly, and in the last few days commodity prices have started to rally suggesting increasing demand.

I wouldn't stand on an aircraft carrier with a "Mission Accomplished" banner behind me, but I think the signs are there that by the year end the recession will be over. Unlike the 80's the condiitons then exist for rapid growth to resume from there.

Fri 27, March 2009 @ 16:08

Arthur Bough said…

“My main premise is that the conditions for a global depression are evident as we have mass unemployment in a series of countries, we have countries going to the IMF for new loans to stay afloat (Ukraine) and the USA has gone from being the worlds creditor nation in the 1980's to the one of the worlds most indebted.”

a) I don’t accept the idea that there is “mass” unemployment in a series of countries. In most countries unemployment levels fell over the last ten years, quite substantially, and although they have risen again they have not yet even risen to the levels of the early 1980’s let alone the 1930’s. Changes in the structure of Capitalism, particularly in the West have led to an increase in more transient forms of employment, but that in itself tells us nothing about the propensity for “Depression”. In fact, it might work against it through less frictional unemployment.

b) The IMF was set up after the War, precisely so that countries COULD go to it for loans. The main reason countries are going to the IMF is related not to an economic crisis but to a financial crisis, due to the Credit Crunch. But, on the other side of the coin economies such as China, and many other Asian countries – in fact the very economies which are the most dynamic and are driving the new world economy forward – have huge financial SURPLUSES. They are not alone, the primary producers in the Middle East, in Russia in Latin America, and even some in Africa have built such surpluses too, some of which sit on Company Balance Sheets, some in State’s Sovereign Wealth Funds. And even in the US, there is literally trillions of dollars sitting in cash waiting to be invested by rich people, pension funds, and mutual funds that have been out of the market waiting for sufficiently low prices, and suitable conditions to come back in. Many large US Corporations have masses of cash on their Balance Sheets, and analysts expect to see in the enxt few months a splurge of mergers and acquisitions as those companies use the cash to pick up distressed companies and assets on the cheap.

c) The US has become the world’s largest debtor, but it also remains the country with the largest foreign assets by far. As this week’s Bond auction showed it is still able to get plenty of people to buy its debt. The fact of its debt in itself says nothing about the potential for Depression, anymore than it has done for the last 30 years. It is a matter for rebalancing and restructuring.

“This is the worlds first global crisis for it is affecting almost everybody simultaneously, bar China provisionally, although its spread there as well in the mass layoffs.”

Not at all true. Asian banks, and western banks whose operations are mostly in Asia such as HSBC and Standard Chartered have not been affected by the financial crisis, because Asian economies have largely themselves been unaffected by the financial crisis. After the Asian crisis of the late 90’s they cleaned up their act, and built strong financial bases. Dubai has been affected because its economy has been built on integration within that western financial system, but outside Dubai, the Middle eastern Economies have remained strong with huge cash balances, despite the recent fall in oil prices. The Russian rouble has fallen not because of any financial crisis itself, but because of the falling oil price effect on Russian export earnings. In a global economy the knock-on effects of the financial crisis into the real economy has affected all economies, but that is not the same thing, and even there despite sharp slowdowns economic growth remains robust by historical standards in many of the most dynamic economies. Even in Eastern Europe as Paul Mason showed on Newsnight Slovakia has escaped the consequences so far, because its banks did not get involved in buying derivatives, and its people had not gone in for large scale borrowing as people in Britain and the US had done.

“One may indeed have a larger workforce but the types of jobs which have led to an expanded workforce aren't real new jobs, they are minimum wage. If one person worked in a steel factory for £500 a week in 1983 and they could buy a house, now if x5 people work in minimum wage jobs they cant even buy a studio flat. The job market has expanded but not in any fundamental way. The size of a labour force does not dicatate the quality of work (ie wages and conditions related to other costs in life)”

True there has been an increase in part-time jobs, temporary jobs etc. But, not all jobs are of that nature, in fact, they are still the minority. I doubt that anyone working in a steel factory in 1983 would have been earning £500 a week except perhaps its Manager. In 1983, you would think yourself very lucky to have been earning £200 a week in most jobs. The reason it was possible to buy a house in 1983, and become more difficult since is not actually a sign of falling incomes, but of ridiculously inflated house prices – particularly in London, which bears no resemblance to the reality in the rest of the country – caused by excessive demand and speculation resulting from the pumping of liquidity into the system. And unlike, the 1980’s and early 90’s when hundreds of thousands of workers suffered in low paid jobs where the protection of Wages Councils had been scrapped for the last ten years, those workers HAVE had the benefit of a Minimum Wage without which there wages might have been lower.

The fact remains that Employment is at record levels, and that is not an indication that the economy is suffering “mass unemployment”, let alone that it has entered some death spiral from which it cannot recover.

“You seem to confuse the past with the present. Thatcher allowed incapacity benefit to take the place of mass unemployment as a means of buying social peace. In countries where this was impossible ie the redundant miners of Bolivia, the protests movements in the countryside were led/organised by ex-redundant miners. Imperialism in decline is socially aware of resistance. The next phase of the crisis is leading to try and get people of incapacity benefit as voted in Parliament and there are 3 million on that. If one factors in food price inflation which has been running at 15-20% over the last year or so, those on the bottom with fixed incomes are sufferring disproportionately than anybody else. Take into account the rises in gas/electricity, rents then real price inflation is already running at 20%.”

Thatcher could have achieve that simply through Unemployment Benefit and Supplementary Benefit. I am very suspicious of the argument that you can only get a picture of Unemployment by including the figures for Incapacity Benefit, because it seems to me the argument of the Right who make the claim that people on Incapacity Benefit are all work-shy scroungers. For a long time you have only been able to claim IB if you were subject to an independent medical examination, and many seriously ill people didn’t pass, so I think your argument here is not only wrong but very dangerous. I don’t deny that the real extent of inflation is much greater than the official statistics for certain groups of people. But, this has nothing to do with the numbers actually unemployed. In fact, precisely because of that fact, there is an increased incentive to take all those low-paid jobs that immigrants have had to be brought in to take on in order to avoid that situation.

“What you describe above in my eyes is collapse. The US dollar is the worlds reserve currency. When two members of the G20 core members of the BRIC countries ask for it to stop having that role, how will it survive. Obama may issue bonds until the cows come home as may Blair but they are contigent on people buying them. If no one buys them, re-financing stalls and the levels of debt instead of being miniscule become milestones round someones neck that they cant get shot of. China is currently choosing to buy minerals and raw materials INSTEAD of US bonds, something which is tangible, instead of worthless bits of paper... “

No, you still haven’t grasped the argument. China and Russia DO NOT WANT the dollar to lose its role at the moment, because it would not be in their interest. They would lose a shed load of money that they have already lent to the US. They are playing politics. The dollar WILL lose its role as reserve currency, but it will happen in a way that protects most of that money in a phased transition to the Euro taking its place. Obama and Brown ARE NOT dependent on people buying Bonds. The whole point about Quantitative Easing is that you print the money with which to buy the Bonds yourself! Not only that, but you buy up existing bonds held by others, or issued by Companies etc. as a means of increasing the amount of money in circulation. Even so the US Bond Auction this week was more than twice oversubscribed, and although the first UK Bond Auction for the 40 year Gilt was under-subscribed, another auction later in the week for a shorter dated Gilt went off with no problems. There is still trillions of dollars out there waiting to be invested in these things. And actually China is buying US Bonds as well as hard assets, and materials.

“Banks insure all investments and if a person defaults on the debt they get it from the insurers. That is why AIG has gone into freefall. Banks have already cut thousands of small businesses overdraft facilities and they are already sending out letters asking people either to re-finance their debts (longer periods or to pay back the difference from negative equity kicking in)”

But, your point shows why they would not force such a default, because it risks a systemic collapse. As I said provided people continue to pay their mortgage, and there is no reason why with mortgages having fallen to a third of their previous levels, and with the vast majority remaining in work, they will not, the banks are happy. Actually, AIG went into freefall because its investment arm had gone into investing in derivatives, not because of calls upon it to cover financial losses from banks. Its true that under some conditions the Bank or BS can ask a customer to make up a shortfall. However, that is only in conditions where the mortgage was issued as say a 90% mortgage and the fall in the house price means that the mortgage is now for more than 90%, and thereby in technical breach of the original contract. Few people are going to be in that situation. Its true that as a result of the credit Crunch lending criteria to small businesses has been tightened but that is a different issue to that you originally raised. Moreover, the Government has introduced special measures to provide such financing both for small businesses and to larger businesses, including now with QE the potential of lending directly to large businesses by buying their Bonds. Its undoubtedly been the consequences of the Credit Crunch in restricting such short term financing for businesses and for international trade which has been responsible for most of the contraction in output and trade, but with these measures introduced by the State, and with the easing of the Credit Crunch, those problems will rapidly be removed providing the basis not for further contraction but for expansion to take up pent up demand.

“Are we now referring to the UK which in the 1930's was the premier imperialist power? Or Germany and Italy?”

I was referring to Britain, which by the 1930’s had long since been surpassed by the US and Germany. In Germany unemployment fell as a result of the Keynesian methods used by Hitler, but in Britain unemployment remained high, yet as I said on average people were only out of work for around 8 months.

“The vast majority of people will not remain in work and unemployment will continue to rise this time indefinitely as the society created under Anglo-American capitalism are non-productive (coupon clippers in the form of financial industries creating debt) and shopping malls to offload this debt.”

Wild speculation not founded on any kind of economic theory or empirical reality, and of the kind I have referred to before. It appears to be based on nothing but wishful thinking. You give no grounds for your argument that unemployment will rise “indefinitely” – unlikely under any scenario. It is quite clear that Capitalism Anglo-American or otherwise IS productive, or the huge sums of Surplus Value, created could not exist! It is true that Britain and the US have a problem in that over the last 30 years, they have shunted off Capital overseas in search of higher rates of profit, and filled the gap by providing employment in the service sector. However, that shouldn’t be exaggerated too far. Even services can be productive dependent upon the service being provided, and how it is provided. The Financial Services sector is productive of huge amounts of Surplus Value even now, and it has helped finance the transition of the economy during that period. More importantly, the world economy is increasingly dependent not upon the fortunes of the British economy, but of economies such as India and China.

AB said,

c) I said nothing about house prices falling below a certain level. House prices and peoples ability to pay their mortgage are totally unrelated. The latter depends only on having a job and a sufficient income to pay the monthly repayment, which has nothing to do with the price of the house! IN fact, if house prices DID fall dramatically, the consequence would be that a load of first time buyers would enter the market, people who had cash savings would rush to move to a better house, and so on. It would in fact, be wholly stimulative in its economic effect."

“On the above I would counter with the opposite view. For the last 15 years most people have refinanced as a way of surviving the lack of wage rises in proportion to a standard of living they are expected to have (due to the concentrated propaganda of marketing). Hence falling house prices would mean millions cannot re-mortgage, will not go out, go on extra holidays, get a new kitchen car etc. What we are witnessing now in fact.”

I think that the refinancing argument is true of the US far more than it is true here. Even in the US, the greatest determinant of consumer spending is not the ability to refinance, but the level of income. In fact, the data out in the UK today on savings showed that only around 13% of people have no savings, and the average level of savings was I think around £20,000 – though I am speaking from memory – these figures were quite a bit more than I would have expected, and I think show that the idea that everyone has been maxing out their credit cards, and borrowing up to the hilt are an exaggeration. I think it reflects maybe the way a younger section of the population has been acting rather than the norm. On the contrary, as I have written before, people of my generation and slightly older have been in a very fortunate position of being able to buy houses at prices that were very favourable compared with those of today, and whose standard of living reflects it.

In fact, although its true that for a long period during the Long Wave downturn wages here and in the US were stagnant that has not been the case as the wage data show for the last ten years. Although, an end to the house price madness might mean some people do not remortgage – though a large majority will still be living in houses bought several years or more ago whose value is way above the amount of their mortgage, and for example in my own area house prices are continuing to rise! – this does not affect, the millions you cite, and will be more than offset by the income effect of rapidly falling mortgage repayment levels. One guy on the TV a couple of weeks ago told of how his mortgage had fallen from over £900 a month to just £300 a month, or a saving of around £7.500 a year. That would more than cover an average foreign holiday, and other spending.

“I will respond to the other points when I have read your blog fully to do justice to your arguments. But I think where we differ is our understanding of Depression. The 1930's depression led to the rise of fascism and WW2. It led to 30% collapse in US production. This is my understanding of Depression.”

I don’t agree that the Depression led to the rise of fascism or to WWII, but that’s another discussion. Output did fall 30% during the depression and that lasted 20 years – the downturn had actually begun in Europe in the 1920’s long before the 1929 Stock market Crash – and compares with a fall now of around 5%. As I said not at all comparable. A 30% fall did not spell the end of Capitalism then, a 5% fall certainly doesn’t spell the end of Capitalism now.

Fri 27, March 2009 @ 17:54

Graham B said…

Is it the 1930s? Arthur, it was a rhetorical question. No, it's not the Great Depression - the graph speaks volumes - but is probably the most severe global recession since WWII.

Sat 28, March 2009 @ 15:34

vngelis said…

Arthur Bough said…

“My main premise is that the conditions for a global depression are evident as we have mass unemployment in a series of countries, we have countries going to the IMF for new loans to stay afloat (Ukraine) and the USA has gone from being the worlds creditor nation in the 1980's to the one of the worlds most indebted.”

a) I don’t accept the idea that there is “mass” unemployment in a series of countries. In most countries unemployment levels fell over the last ten years, quite substantially, and although they have risen again they have not yet even risen to the levels of the early 1980’s let alone the 1930’s. Changes in the structure of Capitalism, particularly in the West have led to an increase in more transient forms of employment, but that in itself tells us nothing about the propensity for “Depression”. In fact, it might work against it through less frictional unemployment.

AB arguments,

One does not understand what your explanation of mass unemployment is. I said at least 10% of the working age population. You provide no figures or percentages. All you add is that they have not risen to the level of the early 1980's, when they were around 4 million. That only implies one is to take for granted what Labour has done to official statistics, rebranded them in such a manner to show that unemployment has fallen, when it has indeed risen if one adds official unemployment, incapacity and job 'training' schemes and part-time work (less than 16hours a week so benefits aren't cut).

On the issue of finance you separate it from the economy by playing with words when you say there is no economic crisis. With over a billion people on less than a $ a day, with levels of indebtedness never seen before in the history of the USA, with cities resembling war zones (more than 500 kids shot in Chigaco alone over the last 6 months and Obamavilles rising in California) if this isn't an economic crisis, then sorry I must have blinked and missed the Iraq and Afghan wars and the population displacements occurring there.

You then go on to argue that a new round of mergers and acquisitions are about to take place and that will kickstart the dead donkey which is US capitalism. If monopolies created value, and not destroyed it, then presumabely an overproduction of products increases sales, not depresses them

You then argue that Asian countries haven't been affected by the crisis.

How can that be with the figures coming out of Japan and the mass sackings in China. If the Americans aren't buying the products, cos they are indebted and are being made unemployed in figures not seen since the early 1970's, so who is sucking up all these Asian exports? Martians?

AB said,

" True there has been an increase in part-time jobs, temporary jobs etc. But, not all jobs are of that nature, in fact, they are still the minority. I doubt that anyone working in a steel factory in 1983 would have been earning £500 a week except perhaps its Manager. In 1983, you would think yourself very lucky to have been earning £200 a week in most jobs. The reason it was possible to buy a house in 1983, and become more difficult since is not actually a sign of falling incomes, but of ridiculously inflated house prices – particularly in London, which bears no resemblance to the reality in the rest of the country – caused by excessive demand and speculation resulting from the pumping of liquidity into the system. And unlike, the 1980’s and early 90’s when hundreds of thousands of workers suffered in low paid jobs where the protection of Wages Councils had been scrapped for the last ten years, those workers HAVE had the benefit of a Minimum Wage without which there wages might have been lower."

On the above I have personal recollections of wages and prices. Skilled sweatshop workers making dresses for the big name stores were earning around £350 and up to £450 with overtime in 1983. Private tutors were earning £30 an hour in 1983. You could purchase a 2 bed flat in 1983 in London for £30k (same area you are now looking at £400k). Sweatshop workers are lucky to be making £200 a week now paid in cash, tutors are essentially on the same rate and all other costs for living, from bus fares, to food prices, to rents, to house purchases have quintipled or actually reached stratospheric proportions. In relation to previous generations people starting off now are generally worse off, as they may have student debts, they have no right to council housing (most are housing associations), credit cards are an eseential part of existence and speculation and hyperinflation of property prices are the norm, with the average price of the richest area in London being £6.3million whilst the average London wages are £30k, a disparity unheard of either in the 1970's or 1980's or 1990's.

From the moment politicians ask for the $ to no longer be the worlds reserve currency the cat is out of the bag. The dollars fall will continue primarily because the costs linked to sustaining the US population to the standard it is accustomed to can only be done based on debt. Your main hypothesis is that the US-UK can sustain levels of debt indefinitely into the future as it is a small proportion of overall GDP.If the Chinese continue to work for nothing whilst adapting their way of life and living in cities then yes, but that aint going to be when we have food-price inflation worldwide. It also assumes we haven't had the growth of fictitious capital in the background which may be anything in the region of up to 1,000 times of world GDP. Whilst Germany suspended capitalist collapse by taking over all industries via the mechanism of state orders to large companies (corporatism) this was done in order to have a general war. Capitalist collapse doesn't mean overnight everything stops but that the old order will not continue in the same way and the speed of destruction is akin to the speed of growth in previous periods. Factories being bombed throughout Europe and 50 million dead ie evidence of capitalist collapse but not the overall collapse of capitalism.

Sat 28, March 2009 @ 20:28

Arthur Bough said…

Graham,

My point remains - severe in what way? It is probably the worst FINANCIAL crisis ever. But, as Bill correctly says, a Financial Crisis is not the same as an Economic Crisis. And in terms of an economic crisis the point is severe in what way? A 5% fall in output now may be more than the fall in output in 1981 - both in absolute and percentage terms, the former can be taken for granted because we are at a much higher level of output, so 5% now is more than 5% in 81 - but, if you fall by 3% during a crisis after already having fallen or grown very slowly for 7 years - which was the case in 81, and was the case in many of the years after 81 - then the actual economic consequecnes of that are far more severe than those arising from a 5% fall now coming after 10 years of economic growth. Moreover, if the duration of that crisis is only that of the normal recesion i.e. around 18 months then the further consequecnes of that are considerably different than that of a slump such as that from the mid 70's to late 90's.

The consequences of thatc an be seen in relation to unemployment and the effects on workers. In 81' 3 million unemployed with the real figure much higher. Residual militancy from the previous Long Wave Boom leads to people's march for Jobs and some resistance until defeat of the Miners. Today, with a much bigger workforce unemployment only just at 2 million despite large number of migrant workers, and in place of the weakness of the labour Movement during most of the 80's and after, we see the signs of rising militancy building from icnreased worker confidence as demand for labour has risen over the last ten years shown by the refinery strikes and so on, let alone the strikes of Frenchh workers and other around the globe. Not only is it not the 1930's its not the 1980's either. Its more like 1957, and the continuing rise in living standards and workers militancy that developed during that period.

Sun 29, March 2009 @ 18:59

Arthur Bough said…

“One does not understand what your explanation of mass unemployment is. I said at least 10% of the working age population. You provide no figures or percentages. All you add is that they have not risen to the level of the early 1980's, when they were around 4 million. That only implies one is to take for granted what Labour has done to official statistics, rebranded them in such a manner to show that unemployment has fallen, when it has indeed risen if one adds official unemployment, incapacity and job 'training' schemes and part-time work (less than 16hours a week so benefits aren't cut).”

There is no definition of “mass unemployment”, but as the “normal” rate of unemployment is taken as being around 5-6%, I would suggest that an unemployment rate of 10%, whilst being high i.e. recessionary does not constitute mass unemployment. By contrast unemployment in the 1930’s reached 25% on official statistics with unemployment in some areas such as the North-East reaching 70%! Nothing like that exists today. That was with a much smaller workforce, and with a lot of disguised unemployment – for example, only a minority of married women worked, and given the limited nature of Unemployment Benefit its likely that a lot of people were unemployed but not registered. Given that the petit-bourgeoisie, the small shopkeepers etc. constituted a much bigger percentage of the population at that time, prior to supermarkets, its likely that there was a considerable amount of underemployment in that sector too.

In the 1980’s again with a much smaller workforce than today the official unemployment figure rose to over 3 million or 50% higher than the figure today. Its likely that actual unemployment was closer to more than 5 million. In actual fact, the fiddling with the unemployment figures that you lay at the door of New Labour – not that I would want to defend them for their own fiddling with statistics – was mostly done during that time under Thatcher with 20 different changes to the method of calculation to reduce the official figures.

As for the other things you mention. “Training”, it was in fact the Tories who introduced YOP’s, and other such schemes in the early 80’s. They also introduced through the Manpower Services Commission lots of similar schemes for adults that must have taken at least hundreds of thousands off the official figures. They introduced the idea of people being able to take higher rate benefits at age 59 if they agreed to come off the official figures. Those schemes were on a scale far exceeding anything that exists today.

As for Incapacity Benefit I can only repeat that I have no intention of accepting the propaganda of the Right that people claiming it are already shirkers who could work. I accept that people who have been through the process of independent medical examination are unfit for work. I don’t see how a socialist can argue otherwise without giving succour to the Right.

As for part-time working I can assure you that there was plenty of that in the 1980’s too, and during the 90’s. So you can’t point to that as now being some increase in unemployment over those periods.

“On the issue of finance you separate it from the economy by playing with words when you say there is no economic crisis.”

I haven’t said there is no economic crisis, I have argued that there is no Depression, and certainly no death spiral for capitalism as you have suggested. It is correct to separate out the fact of the Financial Crisis from the economic crisis, though, as Bill also does. That is because a) at the time the Financial Crisis broke the world economy was actually growing very strongly, b) the main nature of the current crisis is defined by that Financial Crisis not by any underlying structural economic weakness, and c) whilst the Financial Crisis may be the worst in history, the Economic Crisis certainly isn’t.

“With over a billion people on less than a $ a day,”

But, in fact the income levels of most people including many living in developing countries have risen sharply over the last ten years, because of the economic boom! Rapidly rising commodity prices have been one factor in that, but the spread of industry due to globalisation has also been a significant part too. The rise in living standards for literally millions in China and India for a start!

“with levels of indebtedness never seen before in the history of the USA,”

But with levels of savings at levels that hugely outweigh that indebtedness stored in SWF’s, Balance Sheets and elsewhere throughout the world, with the rate of profit and capital formation rising etc.

“with cities resembling war zones (more than 500 kids shot in Chigaco alone over the last 6 months and Obamavilles rising in California) if this isn't an economic crisis,”

that has nothing to do with economic crisis, and is nothing compared to the riots of the 1980’s in Britain alone.

“then sorry I must have blinked and missed the Iraq and Afghan wars and the population displacements occurring there.”

Again these have nothing to do with economic crisis.

“You then go on to argue that a new round of mergers and acquisitions are about to take place and that will kickstart the dead donkey which is US capitalism.”

No I didn’t. I set out a number of factors which lay the basis for renewed expansion that being one of them, but I didn’t specifically limit that to the US.

“If monopolies created value, and not destroyed it, then presumably an overproduction of products increases sales, not depresses them”

I don’t understand you point here. Monopolies clearly do create value in general. In fact, there’s a strong argument within Marxist Economic theory for suggesting that because of the economies of scale, ability to invest in R&D etc. they probably produce more value than non-monopoly firms. The overproduction of Capital does not DEPRESS sales, it simply means that the Capital locked up in those commodities cannot be reproduced. If that becomes transformed into a general overproduction THEN the consequences of lay-offs etc. could depress sales. The point I was making was that there is a huge volume of Capital sitting on the sidelines waiting to be utlilised ocne confidence resumes, just as there is a large potential of first time buyers who could stimulate demand for houses when prices fall to a sufficiently low level, or stabilise, and when the current measures to end the credit crunch result in them being able to obtain mortgages to make those purchases. In fact, all those things are beginning to happen.

“You then argue that Asian countries haven't been affected by the crisis.

How can that be with the figures coming out of Japan and the mass sackings in China.”

What I said was that Asian countries had not been affected by the FINANCIAL crisis. Look at the Asian banks or banks like HSBC or Standard Chartered. They were not involved in the buying of all these MBS’s etc. there financial position has remained robust, in fact some have been able to pick up cheap assets. Of course, the Asian economies have been affected by the economic crisis, but even then not disastrously. China still has growth of 6-8%, and is likely to increase that as a result of the stimulus measures being taken by the Chinese Government. Other Asian economies continue to grow even if at a slower pace.

“If the Americans aren't buying the products, cos they are indebted and are being made unemployed in figures not seen since the early 1970's, so who is sucking up all these Asian exports? Martians?”

Indebtedness has not prevented the US from continuing to import for the last 30 years. Its not the reason for the reduction in imports now. In fact, the US was not the main destination for Chinese exports, and China ran trade deficits with Europe and other countries. The majority of Chinese exports go to other Asian economies, the same ones who are still growing, but more importantly, China has 1 billion people of its own to sell goods to, and those people have had rapidly rising living standards for 20 years, and also have large amounts of savings. It has been part of the Plan in China for some years to diver increasing production to developing the home market, and current conditions make this a good time to accelerate that shift. In actual fact, the US figures not seen since the 1970’s are for monthly numbers losing jobs, not for the global total of unemployment. As the latest figures suggest there are signs that in a number of sectors of the economy that process is reversing – home sales, durable goods sales etc. Of course, unemployment is a lagging indicator and is likely to remain high even after recovery is underway.

“On the above I have personal recollections of wages and prices. Skilled sweatshop workers making dresses for the big name stores were earning around £350 and up to £450 with overtime in 1983.”

I can only say they must have been working at least double shifts to earn enough overtime pay to reach those levels!!! As late as 1987, I did some work at a medium sized engineering firm where the manager was only earning £300 a week, and I remember at the time thinking he was quite well-paid! When I left my job working for Royal Doulton in 1977, I was earning just over £40 a week! Although, inflation between 1977 and 1983 pushed wages up, it didn’t push them up by 1,000%!!!!

“Private tutors were earning £30 an hour in 1983.”

In 1981 through to 1985 I worked as a part-time temporary lecturer, and did some home tuition. In fact, I was mostly teaching those tens of thousands of kids on the aforementioned YOPS and YTS schemes. The rate varied between £18 and £25 an hour. However, the reason for the high rate, was that a) you could usually only get a few hours work per week and as the term went on that would drop to often only 2 or 3 hours, b) you got no holiday pay, c) you got no sickness pay d) you had no security, and d) the work was awful. As I recall at the time by contrast the permanent full-time lecturers were earning around £10 per hour or around £350 per week.

“You could purchase a 2 bed flat in 1983 in London for £30k (same area you are now looking at £400k).”

As I said the result of a) ridiculous prices for property in London, and b) the consequences of asset price inflation. By contrast, I bought my first house a 3 bedroom Town House with garden back and front when I was 23, for cash in 1977, for £5,500. I bought my current 3 bedroom detached house with large gardens, on the same basis in 1988 for £32,000, and it is now currently valued at around £150,000. The simple answer is for those who can to move out of London to where house prices are more reasonable.

“Sweatshop workers are lucky to be making £200 a week now paid in cash”

and in 1983 they would have been lucky to be earning a fifth of that.

“tutors are essentially on the same rate”

because the conditions that led to a sudden demand for temporary lecturers in the 80’s no longer exist! Compare the salary of a permanent full-time lecturer in 1983 with today!

“and all other costs for living, from bus fares, to food prices, to rents, to house purchases have quintipled or actually reached stratospheric proportions.”

Yet, apart from house prices those increases are less than the average rise in incomes!

“In relation to previous generations people starting off now are generally worse off, as they may have student debts, they have no right to council housing (most are housing associations), credit cards are an essential part of existence and speculation and hyperinflation of property prices are the norm, with the average price of the richest area in London being £6.3million whilst the average London wages are £30k, a disparity unheard of either in the 1970's or 1980's or 1990's.”

Possibly so, but a much larger proportion of the population i.e. those who are not just starting off, are benefiting from favourable conditions they have enjoyed in the past. But, to take up your points. Student debts. In part true, but when I went to University in 1977 only 2% of the population went, so there is a trade off. Secondly, both my kids went to University, but lived at home during that time, and worked in the holidays. Not only did they not accrue student debts, but actually managed to save a few thousand pounds during the period. In 1974, when I got married I had no right to a Council house either. We lived in a damp flat for three years, ate beans on toast, and saved everything we could so that after 3 years we had enough to buy our first house for cash. At the time I was earning £25 a week, and my wife who was only 18 was earning less than £20 a week. Credit Cards are not an essential part of existence, in fact the majority of people should cut them up.

House prices in London certainly have gone through the roof partly due to speculation and rich Russians buying expensive property. But I doubt the average Londoner would have been buying any of those properties anyway so it’s a bit irrelevant.

“From the moment politicians ask for the $ to no longer be the worlds reserve currency the cat is out of the bag.”

But, the world’s politicians are not asking for that. As I said China and Russia are playing politics. The last thing they want is for the dollar to collapse!

“The dollars fall will continue primarily because the costs linked to sustaining the US population to the standard it is accustomed to can only be done based on debt.”

Actually, the dollar has been rising over recent months not falling. The pound has fallen by around 30% to the dollar from over $2.10. The Euro has also fallen from being up at $1.60 to around $1.30. In part that is a flight to safety to what is still the world’s largest economy, in part it’s a reflux of dollars by US citizens and corporations who have sold assets abroad. The dollar will fall because of the printing of money, but increasing US Exports, a rebalancing of the economy to divert Capital and labour to more profitable industries and away from unprofitable ones like cars will eventually stem the flow, though US living standards will fall relative to the new economic powers in Asia.

“Your main hypothesis is that the US-UK can sustain levels of debt indefinitely into the future as it is a small proportion of overall GDP.”

Nope, its not. No economy can do that. My main hypothesis is that this is a sharp recession that has been made worse by the worst financial crisis in history, but within the context of a Long Wave economic expansion that began in 1999 and will last until around 2025. As with previous such expansions new dynamic world economic forces emerge to lead it – in this case China, India etc, and a relative decline of the previous economic powers takes place with a consequent adjustment of national income – as happened in the past to Britain for example. This period has been made unique as a result of the use of monetary policy during the 25 year period of the downturn to effect some structural shifts, and to maintain employment levels at artificial levels to avoid social disruption. That monetary policy which led to the large amounts of public and private debt acted as a drag on the US and UK as the main culprits of that policy – Japan also – which explains why their growth has been less robust than other economies that did not have that debt hangover. The debt blow-off of the Asian economies was delayed in the case of the US and UK, and has now caught up. The current crisis is equivalent to that crisis of 1998, and is necessary for readjustment and for a resumption of growth to occur.

The underlying factors which lead to the development and sustenance of the Long Wave boom – a large number of new technologies developed during the Innovation Cycle, depressed prices of basic commodities (though since 199 these have adjusted upwards but not yet fully) remain low, there is a plentiful supply of cheap labour, there is a plentiful supply of Capital, and consequent low interest rates, and there is a high rate of profit – remain intact. The main characteristic of the current crisis is as Bill has argued elsewhere that of a financial crisis and cutting off of credit necessary to ensure that the Exchange of Commodities can occur. IN a sense it is similar to the crisis of 1847 caused by the 1844 Bank Acts, and which was resolved by the suspension of those acts and the resumption of money and credit flows.

“If the Chinese continue to work for nothing whilst adapting their way of life and living in cities then yes, but that aint going to be when we have food-price inflation worldwide.”

Chinese wages have been rising in real terms at around 10% a year! That is one reason that food prices rose, because Chinese workers diets improved! Its why more cars are sold now in China than in the US! Moreover, Chinese food imports are likely to fall in price as a result of a rising RMB, and as development continues in China the likely result will be at least the introduction of more Capitalistic methods to replace inefficient peasant farming in China, if not something more revolutionary and dynamic. The consequence will be much increased Chinese food production at much lower cost. Moreover, high food prices on a global level are assisting the development of a number of economies such as Angola, which has some of the most fertile soils in the world, which are massively underutilised. Angola has a $6 billion programme to increase agricultural production to take advantage of the higher prices. The consequence of such investment in many African, Latin American and Asian countries will be a large increase in food production, the adoption of more efficient and profitable methods, and consequently lower global food prices.

“It also assumes we haven't had the growth of fictitious capital in the background which may be anything in the region of up to 1,000 times of world GDP.”

But, what exactly do you think the economic consequence of this is? How does this affect your thesis about terminal collapse?

“Whilst Germany suspended capitalist collapse by taking over all industries via the mechanism of state orders to large companies (corporatism) this was done in order to have a general war.”

Actually, not true but a separate discussion.

“Capitalist collapse doesn't mean overnight everything stops but that the old order will not continue in the same way and the speed of destruction is akin to the speed of growth in previous periods.”

But, we don’t see that!

“Factories being bombed throughout Europe and 50 million dead ie evidence of capitalist collapse but not the overall collapse of capitalism.”

And we most certainly don’t see that!

Sun 29, March 2009 @ 22:22

vngelis said…

Due to the length of the replies and the repetition of points it would be good to summarise differences in views but obviously I will miss out points, not because I am ignoring them but for the sake of brevity.

On unemployment and a definition of it I said around 10% of the working population. Most of E. Europe has a higher level than that as evidenced by the high levels of emigration (a phenomenon which was also evidenced in Ireland in the 1970's) Greece, Spain and Portugal as well as Southern Italy all suffer levels higher than 10%. Irrespective now of the official figures I will add another. The amount of people who are getting state handouts in whatever form, be they tax credits, incapacity benefits, carers allowance, job training schemes, etc. and the rules which have meant one can work part-time be considered in employment but still receive state handouts, is proportionally GREATER than anything that occurred in 1971, the year when the long post war boom officially ended when gold no longer backed the US dollar.

You then state official unemployment reached 70% in the 1930's in the North East. It is still in those figures if you factor in all state handouts for whatever reason. In the old mining region of Ebbw Vale where having visited it and had discussions with the local MP, most people are on some form of benefit (+60%) whilst average incomes are £15k. I am not interested in what the benefit is or who takes it up, or the reasons that led them to it, that is not my point, my point is that economic inactivity becomes the norm, ie generalised parasitism whose main basis of existence is the ability of the UK government to rack up debts and get people in Asia to work for free.

We will not obviously agree on the notion what mass unemployment is and whether it exists, but I will just add that it was only yesterday Brown was stating we had put an end to 'boom and bust'. Thatcher fiddled the unemployment statistics that is not in doubt, Labour just re-branded them in another form, but they are economically inactive whichever way you look at it and they constitute fully 25% of the working age population according to ONS statistics of how many work only 74.9% of the adult age population. This figure has been consistent for over 3 decades. A person who doesn't want to lower his standard of living by taking on board minimum wage slavery jobs in order to become homeless as you cant live on those jobs in the big cities of the UK, isn't a shirker in my eyes, but a defender of standards. He/she moves sideways, goes on to incapacity benefit as a way out. That isn't a crime in my eyes never was never will be. If bosses paid living wages and unions fought for real jobs then avoiding those types of jobs when your standard of living would improve would be shirking. That I would condemn. The rule for part time working whereby you could work up to 16 hours a week and not lose your benefits eg housing was inroduced by Labour to show that unemployment figures where going down and more immigration was necessary to fill in minimum wage jobs as they continued to privatise what remained of the UK economy and do the City of Londons bidding.

Most bourgeois economists from Martin Wolf to the Observer one Keegan yesterday in fact see a Depression already here. Either they are wrong to do that, they are exagerating, or I am a bourgeois apologist agreeing with them. Without numerical definitions of what Depression means in practice we end up arguing philosophy. Good to a point but gets us nowhere.

You then argue that the rise of homelessness in the USA isn't a sign of an economic crisis nor the levels of unemployment. Its ok to say it to me, but those made unemployed or sleeping rough would see it differently. Crisis comes at an individual level and a small wave that becomes a flood and then a hurricane occurs over time. Obamavilles are spreading in the USA, whether you choose to ignore them or underrate them. Their levels of unemployment have surpassed anything that happened in the early 1970's and it is still early days.

By this summer Obama will be left with two options either declare the US government cannot repay its debts or get rid of the dollar and go over to another currency. The third option is another war on top of the three they are fighting now. This event will happen in our lifetimes not in some distant future of another two decades.

The largest M&A in history was the Time-Warner-CNN-AOL etc if I am not mistaken. One year later all the companies together were worth significantly less. Monopolies destroy value in capitalist terms for they have arisen out of a need to arrest declining rates of profit or to gain competitive advantage ie increasing market share. But none end up being more valued than yesteryear if you added up their values individually.

China will not be able to bailout bankrupt US-UK capitalism.

I said "It also assumes we haven't had the growth of fictitious capital in the background which may be anything in the region of up to 1,000 times of world GDP.”

A.B responded,

"But, what exactly do you think the economic consequence of this is? How does this affect your thesis about terminal collapse?"

Investment banks having been deregulated beyond all recognition and were allowed to create fictitious casino markets whereby the banksters enriched themselves beyond all logical parameters, this then fed onto the real economy with disparities of 1 to 400 for the wages between the workers and the CEO's. Now one after another banks are collapsing and so are the big corporations, GM, Chrysler etc. If we are to believe such levels of fictitious capital can be sustained without creating hyperinflation we will also believe that conditions today aren't bad for the average worker, when we have almost total de-unionisation, agency workers and wages pinned to the floor alongside mass immigration into minimum wage slavery jobs.

It isn't rich Russians who led to the property hyperinflation of London but the Buy to Let market unleashed by Tony Blair alongside the expansion of housing benefit by relaxing the rules for landlords and their agents. Russians and any other foreign investors made money on buying property in London by using minimal amounts of investments in relation to the price and then re-mortgaging over and over again and getting the cash out of the country thus making more money than any put it. Overall the housing market in London was rigged by up to 33% by foreign investors and another 20% odd by the Buy to Let market. The knock on effect of hyperinflation in property prices was a deterioration of the position of the working masses in disparities not seen since Victorian times. Certain areas attempted to ameleriote this disparity in being able to get Housing Association flats for key workers (box flats in rabbit hutch conditions with high service charges and few expanded local amenities) but at largely inflated prices.

Mon 30, March 2009 @ 23:39

Arthur Bough said…

“On unemployment and a definition of it I said around 10% of the working population. Most of E. Europe has a higher level than that as evidenced by the high levels of emigration (a phenomenon which was also evidenced in Ireland in the 1970's) Greece, Spain and Portugal as well as Southern Italy all suffer levels higher than 10%.”

You did, I just don’t accept that 10% constitutes “mass” unemployment. Especially, when considered against real mass unemployment in the 1930’s when there were levels of 70% in a number of areas. The OECD has just announced that it expects to see unemployment rise to an average of 10% throughout Europe in 2010. So, high unemployment in some parts will be matched by lower unemployment elsewhere.

“Irrespective now of the official figures I will add another. The amount of people who are getting state handouts in whatever form, be they tax credits, incapacity benefits, carers allowance, job training schemes, etc. and the rules which have meant one can work part-time be considered in employment but still receive state handouts, is proportionally GREATER than anything that occurred in 1971, the year when the long post war boom officially ended when gold no longer backed the US dollar.”

I’d suggest that contradicts your argument. If we were in the death spiral you insist, if we had real mass unemployment then those things would not be true. Instead we would see the kinds of policies adopted in the 1930’s of Unemployment and other welfare benefits being cut. The reason Nixon closed the Gold Window in 71, was actually in response to DeGaulle’s demand to be paid in Gold not dollars because the dollar was falling as a result of the US’s printing of money to cover the Vietnam War. I have been making a comparison with the Slump of 81 not 71, and I’m not sure your statement is accurate in relation to 81. Certainly we’ve seen no People’s March for Jobs.

“You then state official unemployment reached 70% in the 1930's in the North East. It is still in those figures if you factor in all state handouts for whatever reason.”

That’s like saying there are more horses on the road now than in the 19th century if you count all the horse-power of every car!!!! State handouts are given for many reasons that have nothing to do with unemployment! The fact that they are being paid, and are likely to be increased is an indication of Capitalism’s ability to pay, not an indication its in some death spiral!

“In the old mining region of Ebbw Vale where having visited it and had discussions with the local MP, most people are on some form of benefit (+60%) whilst average incomes are £15k. I am not interested in what the benefit is or who takes it up, or the reasons that led them to it,”

Well lots of pensioners get benefits for a start, but you can’t count them as unemployed. Parents get benefits for kids but it doesn’t mean the parents are unemployed!

“that is not my point, my point is that economic inactivity becomes the norm, ie generalised parasitism whose main basis of existence is the ability of the UK government to rack up debts and get people in Asia to work for free.”

I wouldn’t disagree that welfarism has been established to create that kind of dependency culture, and to turn a sizeable underclass into a modern day equivalent of the medieval serf. But, that underclass constitutes nothing more than a small if growing minority. It is not at all representative of the vast majority of the working class. And that vast majority over the last ten years has seen significantly rising living standards – nothing to do with new labour I hasten to add, but simply a consequence of the Long Wave Boom.

“We will not obviously agree on the notion what mass unemployment is and whether it exists, but I will just add that it was only yesterday Brown was stating we had put an end to 'boom and bust'.”

Its certainly not 10%.

“Thatcher fiddled the unemployment statistics that is not in doubt, Labour just re-branded them in another form, but they are economically inactive whichever way you look at it and they constitute fully 25% of the working age population according to ONS statistics of how many work only 74.9% of the adult age population. This figure has been consistent for over 3 decades.”

Its probably been true for longer than that. Three are always people who for one reason or another are out of the work force. On two separate occasions my wife chose not to work for around 4 years in each once when our second son was born, and later when she finished work to look after them when they were older. She would have counted in that figure. There are lots of people in my age group, who have managed to accumulate reasonable pensions, and who decided to retire at 50 or 55. They too would be included in that figure. But, its hardly a statistic that shows poverty, on the contrary.

“A person who doesn't want to lower his standard of living by taking on board minimum wage slavery jobs in order to become homeless as you cant live on those jobs in the big cities of the UK, isn't a shirker in my eyes, but a defender of standards. He/she moves sideways, goes on to incapacity benefit as a way out.”

But, that’s exactly what the Right claim!!! I’m sorry, but I will not give succour to the Right. People on Incapacity Benefit are sick NOT simply choosing not to work!

“The rule for part time working whereby you could work up to 16 hours a week and not lose your benefits eg housing was inroduced by Labour to show that unemployment figures where going down”

In the early 1980’s I would have loved such a facility. When I first started lecturing in 1981 I worked 4 days a week, and was able to sign on as I was not working for two days. As an indication of how Capital really responds in a severe crisis compare that with the situation two years later. Then, when I was working just a day and a half, doing only around 5 hours teaching, I was told I could not sign on, because the rules had been changed!!!

“Most bourgeois economists from Martin Wolf to the Observer one Keegan yesterday in fact see a Depression already here. Either they are wrong to do that, they are exagerating, or I am a bourgeois apologist agreeing with them. Without numerical definitions of what Depression means in practice we end up arguing philosophy. Good to a point but gets us nowhere.”

I’m not aware that Wolf has actually said we are in a Depression. I’d be surprised, because generally speaking the notion of a Depression implies not just a severe reduction in output, but a severe reduction in output for a prolonged period. So far, this recession has not lasted longer than a normal recession, and most commentators see it ending by the end of this year. The Asia Development Bank today, for example, said it saw growth in output in Asia as a whole resuming next year. The restructuring of the US auto industry now underway will play a large role providing a profitable market for the remaining efficient car producers, and shifting the Capital and Labour tied up in inefficient and costly US production to more profitable areas of production.

“You then argue that the rise of homelessness in the USA isn't a sign of an economic crisis nor the levels of unemployment.”

I didn’t say that!!!! I said your example of kids shooting each other was not a sign of economic crisis. That was going on during the boom!!!

“Their levels of unemployment have surpassed anything that happened in the early 1970's and it is still early days.”

But the main unemployment came in the 80’s not the 70’s!!!

“By this summer Obama will be left with two options either declare the US government cannot repay its debts or get rid of the dollar and go over to another currency.”

Another wild statement based neither in economic theory or empirical evidence!!! The US Government both CAN repay its debts, and for the reasons both I and Bill have explained can in any case simply print money to repay them. That will have necessary inflationary implications 2 years down the road – unless of course there is a huge increase in the quantity of Exchange value produced and thrown on to the market that is the equivalent of those money tokens – and ultimately the dollar will fall, and the Euro will take over as world reserve currency. But, certainly not this Summer!!!!

“The third option is another war on top of the three they are fighting now. This event will happen in our lifetimes not in some distant future of another two decades.”

I don’t know if you watch the news at all, but they are pulling troops out of both Iraq and Afghanistan! Another war using up money they need to bail-out the economy at home is the last thing they need right now.

“The largest M&A in history was the Time-Warner-CNN-AOL etc if I am not mistaken. One year later all the companies together were worth significantly less.”

Only because of the Tech Wreck.

“Monopolies destroy value in capitalist terms for they have arisen out of a need to arrest declining rates of profit or to gain competitive advantage ie increasing market share. But none end up being more valued than yesteryear if you added up their values individually.”

Absolutely not true. Monopolies arise for the reason Marx set out. The more efficient companies get bigger, as they get bigger they get even more efficient because of economies of scale, and because they become more efficient they get even bigger. That’s why as Marx says, they are a more mature more progressive form of Capitalism. And I can assure you that Microsoft has certainly grown in value. The same would be true of pretty much any Monopoly/oligopoly you mention. The only ryder to that would be that obviously over time new industries arise, and as a result new firms – like Microsoft – emerge in those industries, and over time become the new large companies.

“China will not be able to bailout bankrupt US-UK capitalism.”

China has been bailing out US Capitalism for the last 10-20 years. It has plenty of firepower left. So too have the oil states etc. They don’t have to finance the whole economy simply provide sufficient Capital and liquidity for a limited period. But, its also not just China. Google has today announced its putting $100 million into a Venture capital business. Its chicken feed out of the billions of cash it has to spend. Microsoft has around $40 billion in cash. TESCO has announced its opening 30 banks in its stores and is going to start offering mortgages, because it too has loads of cash, and a huge cash flow.

“Investment banks having been deregulated beyond all recognition and were allowed to create fictitious casino markets whereby the banksters enriched themselves beyond all logical parameters, this then fed onto the real economy with disparities of 1 to 400 for the wages between the workers and the CEO's.”

Huge disparities in incomes of this sort are nothing new so can’t be used as a reason or symptom of capitalist crisis. In fact, during the 1990’s the ration of CEO pay to the pay of workers within their companies in the US rose to 1,000 to 1! A disparity of income does not of itself cause a crisis just a skewed nature of consumption spending, and savings ratios.

“Now one after another banks are collapsing and so are the big corporations, GM, Chrysler etc.”

But, not as a result of this crisis! Chrysler has already gone bust once several years ago. I was writing more around 5 years ago that GM was going to go bust, followed by Ford, because their car production was simply too costly – besides the fact they were producing the wrong type of vehicles. Had it not been for GMAC GM WOULD have gone bust years ago. Apart from the US car companies three are no big corporations going bust, though they are clearly scaling back as you’d expect in a recession.

“If we are to believe such levels of fictitious capital can be sustained without creating hyperinflation we will also believe that conditions today aren't bad for the average worker, when we have almost total de-unionisation, agency workers and wages pinned to the floor alongside mass immigration into minimum wage slavery jobs.”

The two things are not at least directly related. Its not clear exactly how much of the “fictitious” Capital actually was/is fictititious. In fact, much of this netted itself off, for every seller of a CDO there was a buyer. Its only fictitious if the assets on which it was based themselves turn out to have been fictititious. The reality is that the majority of those assets will turn out to be sound, UNLESS there really is a severe and prolonged recession that leads to not just the sub-prime but the higher rates debt going bad. I simply don’t see the basis for that happening, and the IMF has said that the actions being taken by Governments around the world preclude a repeat of the Depression.

But, we DON’T have almost total de-unionisation! We have unionisation at around the average percentage for the last century. Unionisation during that period was rarely more than 25%. It rose during the Long Wave post-war boom for the reasons I have outlined previously. For the AVERAGE worker things are that bad – compared to previous times. For the AVERAGE worker living standards have risen. Just look at the percentage spent nowadays on basic things such as food and shelter compared with say the 1980’s or even 1960’s or 70’s. That percentage has fallen significantly. Now workers rising living standards mean they spend money instead on mobile phones, digital cameras, computers and computer games, foreign holidays, large screen TV’s, DVD players, and increasingly leisure activities such as cinema, eating out etc. All because both wages have risen, and because prices in relative terms have fallen.

Many of the immigrant workers were NOT employed on Minimum Wage jobs. Look at the Polish workers who came out on strike at the power stations in support of the refinery workers, for example.

“It isn't rich Russians who led to the property hyperinflation of London but the Buy to Let market unleashed by Tony Blair alongside the expansion of housing benefit by relaxing the rules for landlords and their agents.”

Not for the multi-million pound properties you cited it wasn’t!!!!!

“Russians and any other foreign investors made money on buying property in London by using minimal amounts of investments in relation to the price and then re-mortgaging over and over again and getting the cash out of the country thus making more money than any put it.”

The Russians were already rich when they came here from their exploits back home!

“Overall the housing market in London was rigged by up to 33% by foreign investors and another 20% odd by the Buy to Let market. The knock on effect of hyperinflation in property prices was a deterioration of the position of the working masses in disparities not seen since Victorian times.”

The foreigners who bought the multi-million pound houses you cited didn’t thereby push up the prices of houses ordinary workers would have bought, because they never would have bought those multi-million pound houses. They may have taken advantage as did others of the ridiculous London Property prices, and the asset price bubble to engage in speculation, but that’s another matter.

“Certain areas attempted to ameleriote this disparity in being able to get Housing Association flats for key workers (box flats in rabbit hutch conditions with high service charges and few expanded local amenities) but at largely inflated prices.”

Its unrelated just as is the building of Council houses alongside the Duke of Devonshire still having Chatsworth House and other large stately piles to live in during previous decades. The real answer to the needs of workers in London and the South - apart from moving to somewhere where house prices are more reasonable, which would both cause house prices to fall and wages for remaining workers in London to rise – is for workers to form Housing Co-ops to provide housing for themselves, to form Worker owned Construction Co-ops to provide work for unemployed Building workers, to build and maintain those houses, to demand through the Labour Movement and Co-operative Movement that the merged Co-op Bank and Britannia use some of its combined £70 billion of assets to finance the building of said assets, and that the workers through these Co-ops build up through their payments of rents, the funds for maintenance and the building of additional homes.

Tue 31, March 2009 @ 20:38

vngelis said…

That’s like saying there are more horses on the road now than in the 19th century if you count all the horse-power of every car!!!! State handouts are given for many reasons that have nothing to do with unemployment! The fact that they are being paid, and are likely to be increased is an indication of Capitalism’s ability to pay, not an indication its in some death spiral!

AB

The issue though is whether state handouts are a greater percentage of overall GDP now or 3 decades ago. If they are less now, your argument holds, if more, mine holds. Either which way historical indicators show us what is happening, not numbers on their own. Official unemployment in 1973 when John Major said he was unemployed was less than 500,000 a figure which just means people may be between jobs. An official figure x4 of that to me still equals mass unemployment.

A definition of Depression according to bourgeois economists is the following when compared to the past

Question: What is a Depression?

Answer: A depression is a severe economic downturn that lasts several years. Fortunately, the U.S. economy has not experienced a depression since The Great Depression of 1929, which lasted ten years. The GDP growth rates were of a magnitude not seen since:

1. 1930 -8.6%

2. 1931 -6.4%

3. 1932 -13%

4. 1933 -1.3%.

During the Depression, unemployment was 25% and wages (for those who still had jobs) fell 42%. Total U.S. economic output fell from $103 to $55 billion and world trade plummeted 65% as measured in dollars.

http://useconomy.about.com/od/grossdomesticproduct/f/Depression.htm

William Keegan in the Observer argues that we are in the beginning of a Depression, ie it has already arrived and that this is a sychronised downturn

http://www.guardian.co.uk/business/2009/mar/29/global-recession-credit-crunch

You then argue that because people have tv's or dvd players and they go on holiday that means increasing living standards. People have had tvs in the 1980's and video players, having a plasma tv or a dvd player is just a move sideways like owning a digital camera instead of an old style one. The technology has improved like having electric windows in your car instead of winding them up. The comparison though to show an improvement is based on other related factors, such as average wages, types of jobs available and other related costs to sustain life in comparison to other layers in society.

Even Polly Toynbee in todays column highlights the disparities

http://www.guardian.co.uk/commentisfree/2009/mar/31/jacqui-smith-mps-expenses-media

I will just add if the average media wage is £23k to live on that in London without going into debt one would have to be a monk in relation to the hedge fund areas whereby £700 million salaries are common. Buy to Let allowed the borrowing of money to expand without having assets in the first place. This then occurred in commercial property and scandals like this are the tip of the iceburg which will bring the whole of the property market down.

http://www.thisislondon.co.uk/standard/article-23669085-details/Mayfairs+poker+Don+who+gambled+it+all/article.do

Some of the largest property developers in the UK have debts surpassing their assets by 20 to 1 like Wimpey Homes. The business model over the last decade and a half was debt piled on to debt. The party is over. The crash is here and it aint going away by piling more debt on to more debt. Bankruptcy cannot be avoided by printing money.

Wed 01, April 2009 @ 00:11

bill j said…

The OECD describe this crisis as a "Great recession" rather than a "Great Depression" and interesting but inciteful distinction I think.

Wed 01, April 2009 @ 17:59

Arthur Bough said…

Reply To Vingelis 3rd March 2009

“The issue though is whether state handouts are a greater percentage of overall GDP now or 3 decades ago.”

No its not, your argument was about whether living standards had risen or fallen during that period, and whether unemployment had risen or fallen. The extent of state payments tells us nothing about that. In fact, the biggest increase in state handouts came at a time when unemployment was sent down to its lowest levels, when living standards rose very rapidly. That is the period of the Post War boom, which saw a huge transfer to workers in the form of the establishment of the NHS, and other aspects of the Welfare State!!! My argument is precisely that at times of boom the Capitalist State is capable of buying social peace by increasing such provision.

“Official unemployment in 1973 when John Major said he was unemployed was less than 500,000 a figure which just means people may be between jobs. An official figure x4 of that to me still equals mass unemployment.”

In fact according to the ONS that period was the period of lowest percentage unemployment on record!!!!

“- the lowest unemployment rate on record is 3.4 per cent in October-December 1973 and November 1973- January 1974.”

See: http://www.statistics.gov.uk/cci/article.asp?id=1029

During the 1960’s with a much, much smaller Labour force than today a figure of 600,000 unemployed was considered FULL EMPLOYMENT. On that basis today’s figure can in no meaningful sense be described as “Mass unemployment”.

“A definition of Depression according to bourgeois economists is the following when compared to the past ….

During the Depression, unemployment was 25% and wages (for those who still had jobs) fell 42%. Total U.S. economic output fell from $103 to $55 billion and world trade plummeted 65% as measured in dollars.

http://useconomy.about.com/od/grossdomesticproduct/f/Depression.htm “

Precisely, but we have just had ten years of rapid economic growth, we have had so far only two quarters of negative growth, and the signs are that even that is coming to an end, and during that period the negative growth has been nothing like the declines in the figures you quote above for the real Depression! You should conclude from that that we are NOT in a Depression, yet oddly you don’t!!!

William Keegan in the Observer argues that we are in the beginning of a Depression, ie it has already arrived and that this is a sychronised downturn

http://www.guardian.co.uk/business/2009/mar/29/global-recession-credit-crunch

But Keegan does not actually say what you claim. The closest to it is his statement,

“Now, as I have emphasised before, the pace of the downturn in the UK - put at a 7.25% annual rate by the National Institute of Economic and Social Research in the three months to January - is of Depression proportions”.

But, it is dangerous to extrapolate monthly or quarterly figures into annual statistics. Its likely that 2009 will see an overall decline in GDP, but if recovery begins in the second half, even more so if as some commentators are now suggesting recovery begins in the second quarter, that annual decline will be much less than 7.25%! Moreover, even were that the case it would still be a far cry from the year after year declines and slow growth seen from the mid 70’s to the late 90’s! Part of the problem with the analysis quoted by Keegan

“As Christopher Dow points out in his book Major Recessions, in 1929 the gross national product of the US and Europe was about the same. Between 1929 and 1932, GNP in the US declined by 28%, whereas the fall in Europe was 7%. As Dow puts it, "Four fifths of the fall in output in industrial countries occurred in the USA."

Is precisely that it misses the fact that Europe had begun its decline just prior to 1914. It resumed it from around 1920 with recession or slow growth throughout the 1920’s, at a time when the US was growing like topsy on the basis of its new mass production techniques, and introduction of consumer credit, as well as the low interest rates that flowed from its influx of Gold resulting from its exports of those goods to the rest of the world. In fact, the US then was the equivalent of China now. The difference is that the US caught in the Long Wave decline succumbed too, whereas China and the other new dynamic forces of today, riding on the Long Wave boom, are continuing to grow rapidly!

“You then argue that because people have tv's or dvd players and they go on holiday that means increasing living standards.”

Not just that. A look at the Household Survey shows that the proportion of income spent on basic things such as food, heating, clothing has continued to fall as living standards rise. Just look at the fact that the average family throws away a third of all the food it buys as an indication of that.

“People have had tvs in the 1980's and video players, having a plasma tv or a dvd player is just a move sideways like owning a digital camera instead of an old style one. The technology has improved like having electric windows in your car instead of winding them up. The comparison though to show an improvement is based on other related factors, such as average wages, types of jobs available and other related costs to sustain life in comparison to other layers in society.”

Where people have much better commodities as a result of improving technology and production techniques, and at lower costs than the commodities those new ones replace that is STILL an improvement in living standards! In fact, that is precisely the point Marx makes in the Grundrisse about the way Capitalism by revolutionising production methods DOES achieve that “Civilising Mission” as he calls it. But far more than that. Its not just that the proportion of income spent on basic has declined markedly or that people have much better commodities at lower prices, they also have much more of them! In the 1980’s most families would only have had one car at most. Now walk around most estates, and you will see not just one car or even two, but often 3 or 4 outside each house, and often not just old bangers or small cars, which was common in the 80’s. In the 1980’s most people had just one TV, whereas now many people have 3 or 4. In the early 80’s virtually no one had a Computer. Certainly, no one had mobile phones, satellite navigation systems or video cameras and so on.

“Even Polly Toynbee in todays column highlights the disparities

http://www.guardian.co.uk/commentisfree/2009/mar/31/jacqui-smith-mps-expenses-media

I will just add if the average media wage is £23k to live on that in London without going into debt one would have to be a monk in relation to the hedge fund areas whereby £700 million salaries are common.”

I simply don’t understand what you are saying here. Nobody contests that what Toynbee says about disparities is true, but there is nothing new in that. Disparities are a feature of class society. By the way she wasn’t saying the MEDIA wage was £23k, she was saying the MEDIAN wage was £23k. What does that have to do with living like a monk in an hedge fund area. I don’t understand the point you are making. Surely, very few workers ARE going to be living in the same areas as the Hedge Fund managers, so they will not be paying the prices for houses that the Hedge Fund Managers pay!!!! That argument seems to go absolutely nowhere.

“Buy to Let allowed the borrowing of money to expand without having assets in the first place.”

Buy to Let had nothing to do with creating the expansion of credit. It was the other way around. It was the pumping of liquidity into the system, the creation of vast amounts of cheap credit that facilitated Buy to Let, and other such malinvestments of Capital!

“This then occurred in commercial property and scandals like this are the tip of the iceburg which will bring the whole of the property market down.

http://www.thisislondon.co.uk/standard/article-23669085-details/Mayfairs+poker+Don+who+gambled+it+all/article.do “

Actually, according to Nationwide, last month house prices rose by nearly 1%, the first rise since 2007, and yet another signal of the fact that the recession is drawing to a close, and that the Credit Crunch is largely over.

“Some of the largest property developers in the UK have debts surpassing their assets by 20 to 1 like Wimpey Homes. The business model over the last decade and a half was debt piled on to debt. The party is over. The crash is here and it aint going away by piling more debt on to more debt. Bankruptcy cannot be avoided by printing money.”

I don’t disagree that in the US and UK a lot of the boom was based on credit creation, and necessarily so to achieve the breathing space for adjustments that Capital required in these economies. But, the data is already contradicting your apocalyptic warnings.

““House prices in the UK rose in March for the first time since October 2007, a survey showed on Thursday, raising expectations the housing market downturn may be nearing an end.

The Nationwide Building Society said house prices rose 0.9 percent on the month in March after a 1.9 percent drop in February, and a separate survey by the Bank of England showed lenders were becoming more willing to extend credit.

The mortgage lender cautioned against jumping to conclusions about a housing market rebound. However, investors seized on the news as a sign that the Bank of England's aggressive interest rate cuts may be helping conditions to perk up…

The figures also boosted shares in construction firms, with homebuilders Barratt Developments and Persimmon gaining nearly 20 percent and 12 percent respectively.

Construction activity fell at a slower pace in March though the sector still shed jobs at a record rate, CIPS/Markit purchasing managers data showed on Thursday.

But a survey by the Bank of England on Thursday showed lenders intended to make more credit available to consumers in the next few months, which should also provide a boost to the housing market.

In a further sign of easing credit markets, HSBC, the country's biggest bank, on Thursday said customers who take out one of its tracker mortgages can borrow up to 75 percent of the value of their home, up from the previous ceiling of 60 percent.

The government has pumped billions of pounds of taxpayers' money into shoring up banks against collapse and has tried to extract promises from them to lend more to consumers and businesses in return.

And recent figures suggest such measures may be starting to take effect.

Bank of England data on Monday showed approvals for new mortgages rose to 38,000 in February, their highest in nearly a year, and the Royal Institution of Chartered Surveyors' monthly survey has shown rising interest from prospective buyers for some months.

Nationwide said the annual rate of decline in house prices eased to 15.7 percent in March compared with a 17.6 percent fall in February. But it said the comparison was skewed by conditions last year, so no strong conclusions could be drawn from it.

And economists expect further price falls before any recovery begins, as it will take time for the effect to be fully felt from cuts in interest rates to a record low of 0.5 percent and the Bank of England's quantitative easing plan.

"The current upturn in activity is therefore more likely to reflect the return of buyers who have delayed purchasing through the worst of the financial turbulence at the end of 2008 rather than the beginnings of a swift recovery," Nationwide chief economist Fionnuala Earley said.

"Nevertheless, the willingness of borrowers to return to the market is encouraging and likely to in part reflect the falling cost of borrowing."

Said Reuters

And in the US,

“The National Association of Realtors said on Wednesday its index of pending home sales rebounded in February from a record low, up 2.1% to 82.1. The Institute for Supply Management’s index of manufacturing activity contracted in March but at a slower pace than anticipated.

Meanwhile, the Commerce Department said February construction activity dropped 0.9%, narrower than expectations of a 1.5% drop.

Outplacement firm Challenger, Gray & Christmas said Wednesday that job cut announcements fell 19.3% from February.”

That “Mission Accomplished” banner might still be premature, but the data as opposed to your dodgy assertions certainly seems to yet again contradict your catastrophism.

Fri 03, April 2009 @ 11:12