“an arduous economic adjustment period”
reposted from AT:
On numerous fronts, the markets and economy confront a highly problematic breakdown in Wall Street alchemy - the disintegration of key processes that had for some time transformed ever-increasing quantities of risky loans into perceived safe and liquid debt instruments that enjoyed insatiable demand in the marketplace. In the case of the auction-rate securities, it was a clever restyling of long-term and generally illiquid municipal debt (as well as student loans and other borrowings) into perceived liquid securities that could be easily sold at regularly recurring auctions (every one to a few weeks).
With scores of flush corporate treasury departments and wealthy clients (managing huge credit bubble-induced cash-flows) keen to earn extra (after-tax) yield on “cash equivalents”, the Wall Street firms had been diligent in ensuring (making markets for clients, when necessary) a highly liquid and enticing marketplace. Now, with the onset of risk revulsion and acute financial sector balance sheet pressures, investors are running for cover and Wall Street firms are shunning the use of their own capital to support this and other markets. Market liquidity has evaporated, confidence has been shattered, and we are witnessing yet…
Charles:
Is there a political crisis in the U.S. ruling class ?
One wonders whether the Bush-Cheney regime has spear-headed a political train wreck for the world leading U.S. ruling class, opening up possibilities for working class advance.
Bush has extremely low approval ratings, and is significantly ridiculed in the monopoly media. Cheney has disappeared from view even more than before. McCain who is almost nominated is seen by conservatives themselves as representing the centrists of the Republican Party. Bottomline, the Bush admin actions have discredited extreme Regeanism or Reaganism in extremis with a large section of the population. Though perhaps these are inherent contradictions in Reaganism, inevitable, but long coming crises of the internal logic of socalled neoliberalism. Who knows ?
The Bush ruling class sector may have alienated large other sections of the ruling class. Not only is there evidence that Bush colluded with the Saudi ruling class to the advantage of the oil monopolists over other capitalists, including auto. Somehow the recent credit sector giant losses have occurred on Bush’s watch, discrediting ( almost literally) his ideology with masses.
The Big Three of the auto sector are in extreme profit crisis for several years. Michigan has been in a one state recession according to bourgeois economists. Just thirty years ago auto was still the leading industry of the US economy. The current crisis is the result of quite a blow being delivered to a major section of the capitalist class. Ultimately, it can only be the transfer of power from that section to other sections or another section of the bourgeoisie. The vanquished sector retains significant power , and the total development represents a division in the ruling class, and opportunity for the working class to advance.
Oddly, coincidently , not only is the Republican Party split, but a woman and a Black person are the only remaining candidates for the Democratic Party nomination. Obama is getting a significantly large number of white votes, a revolutionary trend in the US where Black/White unity is the leading revolutionary unity. The Democratic Party is a party of big business, but this development represents a subversion of the Democratic Party by working class forces.
CB
19 February 2008, 4:20 pmpeggy:
Charles - I’m not sure the ruling class has ever been that unified. But you do have a point. At present, Clinton and Obama are competing against one another for working class votes, each trying to show that she or he is more “liberal” (favoring the working and unemployed classes economically against big business) than the other. Some are saying that maybe in this competition each will drive the other leftwards. Even if they are both sponsored by big money, the rabble is roused now, and will expect its interests to be served, regardless of who becomes president. I guess we’ll just have to see.
19 February 2008, 8:54 pmI still dislike Clinton because of her stupid and petty attacks on her competitor. She has been told that those attacks are not doing anyone any good, but she just keeps up with them. To me this is scary.
Re the financial situation - maybe the sky is falling and maybe it isn’t. Who can really know? But either way, it doesn’t hurt for people to take shelter, get out of all the rackets, tend their own gardens.
Stan:
FULL
20 February 2008, 6:40 amVivian:
Stan, I almost never pipe up as you know, but I was wondering if you were going to write about Kosovo? From what I’ve gathered, it’s not legal under the UN resolution, it’s causing divisiveness in Europe, and precipitating a new Cold War. All going according to plan, I suppose.
I don’t know what this has to do with the financial elite, but I’ll bet that you can tell me!
20 February 2008, 11:26 amY.K.:
Liu’s article ends well:
…
“The current crisis presents an opportunity for a catharsis to reform the greed-infected global economy away from senseless and wasteful competition, toward cooperative enterprise to rebuild a new world community based on human values, to achieve equality without conformity, with compassion for the less fortunate and respect for diversity. The wind of change is sweeping the world.”
…
This article also gives some sense of a projected periodization or the significant phases of the financial collapse. From Financial Times, so not at all one of “our people”, but still an important summary of the view from a growing core of serious, skeptical, and miserable liberals. Completely unlike the masterful and dense series by Liu on “The Road to Hyperinflation”, it doesn’t seriously engage with the crisis at the world scale or at the level of ideas. But it can help provide orientation against government and media propaganda and confusion about the economy as the political, social, and cultural dimensions unfold.
http://news.yahoo.com/s/ft/20080219/bs_ft/fto021920081334359078
A very potent brew of insolvency, credit contraction, commodity inflation, asset deflation, and pension loss is underway. Coupled with the first wave of “baby boom” retirements, it seems increasingly clear that capitalism could not provide for the well-being of a single generation in the richest country at the height of its power. It appears like 2008-9 will be a nasty and dangerous shock, but actually it looks like a rough several years.
This latest crisis should also put to rest any claims on the left about neoliberal “free markets” and “transnationals” subsisting independently of the state. The rich control and exploit the polities of the world, but they need them desperately like parasites need hosts.
Question for Stan (and everyone):
The US has already lashed out at others as its hegemony declines, but what are your thoughts about the US turning the guns on itself?? There are a lot of heavily armed, paranoid, and manipulated suburbanites and there have been a disturbing series of shootings in the past few weeks. Very violent and apparently random, only at the individual scale, but socioeconomic deterioration brings out the crazies in large numbers…
Don’t mean to sound too catastrophist, but I don’t think the US population above shooting at itself any more than any other country. These trends aren’t easy to discern, but perhaps fascism instead of sporadic and general civil conflict is the more likely outcome and certainly the greater danger, if the political situation deteriorates further.
Y.K.
20 February 2008, 2:55 pmKevin:
http://www.youtube.com/watch?v=lIbdnM8Ts88
::cringe::
20 February 2008, 6:08 pmVivian:
Y.K., let me be the first to admit to being nearly completely pessimistic about our society. I say this because:
*I grew up in a huge extended Italian family. Although there were grudges and alliances–and re-alliances–the concept of “family” was supreme; how many people can even say that anymore? Americans can’t buy what humans have had since we evolved into homo sapiens.
*There was a therapist who wrote a book called “When Society Becomes an Addict”, in the 1980s who foresaw much of the problems that we have today.
*I am a regular attendee of the local dog park, where children under 12 are not allowed. I find this rule extremely wise, as nearly everyone has been knocked down by exuberant dogs, and where dogs frequently get aggressive without the intervention of owners. My own daughter, and adult as well as a nurse, was bitten just last month. Yet, and go figure, parents will bring toddlers in there, or allow their children to bark right in dogs’ faces. When confronted with the rule, however, nearly all parents react with hostility. [the other reaction is ignoring you; they NEVER leave]. This is a society that can’t seem to take responsibility for their actions, correct it, create alliances, or forgive.
I say I am “nearly completely pessimistic” because I am an avid gardener, and we folks tend to share, commiserate over failure, and try again next year. So make friends with or stay close to those who like to get their hands dirty!
20 February 2008, 6:30 pmCharles:
Peggy,
My thought on the level of unity of the ruling class is that, in general, a ruling class must be more united than the class it rules, otherwise it will be overthrown by the class it rules. So, I guess I’m saying the level of unity of a ruling class ( or a ruled class) must be defined relative to the level of unity of the class or classes it rules.
Charles
21 February 2008, 1:22 pmpeggy:
Charles, another way to look at it is that there may be two or more ruling classes, who hate each other, and each ruling class has its underlings who are loyal to their own leader and know no other loyalty or protector. Class solidarity among the workers is weak. And the underlings of Ruling Class A are sent out to fight the underlings of Ruling Class B. There must be a Marxist name for this kind of system (feudalism? or something?). It seems to me that we still have that.
21 February 2008, 8:59 pmDeAnander:
@peggy or there could be factions of the ruling class who *pretend* to hate each other, so as to keep their underlings caught up in a never ending drama (War with Oceania) — the cosy relation of the House of Bush to the House of Saud, while all the time the House of Bush whips up anti-Arab, anti-Muslim testeria at home, comes to mind.
22 February 2008, 3:38 amCraig:
@DeAnander : As noted by Vonnegut, “The two real political parties in America are the Winners and the Losers. The people don’t acknowledge this. They claim membership in two imaginary parties, the Republicans and the Democrats, instead.” Whether it is John McCain or liberal bloggers, no one in the ruling class wants the nation’s financial system to fall apart or to see a major rewriting of the rules.
22 February 2008, 11:02 amCharles:
Peggy,
Your comment makes me think of World War I and World War II where interimperialist rivalry resulted in millions of workers warring against each other as their ruling classes sought to divide and redivide the “world”.
In the US itself, I’d say there is one ruling class. And in the world , interimperialist rivalry is less than in the first half of the 20th Century.
22 February 2008, 4:25 pmMichael Anderson:
As far as the attitude of the ruling class goes, I think that Richard Heinberg’s description of our energy policy may well apply to the financial elite—”last one standing”. The magnitude of the systemic problems they (and, by association, WE)face are too widespread; indeed, WORLDWIDE-spread. There seems to be no system-wide consensus, or even a hint of one that would indicate concern for the system at large. I have noticed that Asian markets are faring rather the worse for this—is this by design? The world financial system is still controlled at the core by U.S. interests, disinterested in the fate of the people as they may be. Perhaps this is the ultimate manifestation of the Friedman philosophy, and they’re waiting for things to ripen up some more before trying some of the ideas that are “laying around”. I have a feeling those ideas are rather draconian, given the rise in venture capital for private security firms (far more than the venture capital category of “green” tech), and the fact that people will kill for a paycheck without a second thought. It’s still evolving…and the game MUST go on.
22 February 2008, 5:10 pmStan:
Mike Whitney’s latest on the coming train wreck
22 February 2008, 6:43 pmpeggy:
On the racial and racist dimensions of the sub-prime mortgage crisis:
http://www.thenation.com/blogs/edcut?bid=7&pid=287768
22 February 2008, 7:45 pmDeAnander:
The Militarisation of the World’s Urban Peripheries
The new battle for which the world’s elite are preparing their armed forces is not the battle of nation against nation, but of the Haves against the HaveNots.
23 February 2008, 12:17 amY.K.:
The threat of a new “alternative energy technology” bubble:
http://www.harpers.org/archive/2008/02/0081908
Not sure how this will work if there is a “systemic financial meltdown” or if “Uncle Sam” loses his credit card. It doesn’t account for social or political changes resulting from the end of this credit cycle. I don’t like prediction but this article does point out a possible escape route for fictitious capital.
23 February 2008, 6:06 amJosiah:
An informative and useful article by Walden Bello:
“Capital’s Apocalyptic Mood”
http://www.zcommunications.org/znet/viewArticle/16602
His discussion of the “disconnect between the real economy and the virtual economy of finance” is an interesting complement to many of Deanander and Stan’s analyses on this blog.
23 February 2008, 10:19 amJosh Narins:
I’ve worked in IT for some of the biggest trading firms. I’d add that although the company I recently left lost billions in mortgages, overall the Trading division was profitable. I don’t think any sort of depression-scale meltdown is likely. One person’s opinion.
I also think there is one important thing that hasn’t hit the radar called “dark pools of liquidity.” It’s a new way to commit financial crimes (lots of shuffling potential and under the table trades) and to let the big players gain advantage over the individual trader. Even if no crimes are committed, the second part is no good for anyone except the investment houses and funds (hedge, mutual and pension).
The real reason I’m writing is because of the possibility of an Obama Presidency. I loved Hideous Dream. I thought you overemphasized the racism, but, hey, I was never there.
If the Special Forces are as racist as you say, could you draft a letter to the Obama campaign with suggestions of what to do about such a thing? Maybe you think nothing would need to be done.
23 February 2008, 2:42 pmMichael Anderson:
Tnanks to Stan, Peggy, DeAnander, and Y.K.! Very clear now….and still the same old game. I just hope that some small residual good can come of an “alternative energy technology” bubble, but I wonder.
23 February 2008, 4:03 pmMichael Anderson:
This morning’s NYT on rising oil prices and poverty in the middle east. Anecdotal, but…this would seem to corroborate Stan’s, DeAnander’s, and Peggy’s info.
http://www.nytimes.com/2008/02/25/world/middleeast/25economy.html?_r=1&th=&oref=slogin&emc=th&pagewanted=print
25 February 2008, 1:27 pmKevin:
–”It also seems that the decline of the dollar has negative implications on three levels, not only on the US but also on the global economy. In the US, the weak dollar achieved a significant surplus in the trade balance deficit, a surplus that would have been impossible were it not for the mounting export of quality US goods to international markets at competitive prices. In addition, the appreciation of other currencies compelled institutions in the region and on the eastern coast of the Atlantic to invest in United States. These included Canadian institutions investing in the neighboring country, European institutions that see production in the United States a means to export and compete, and sovereign funds that struggle to enter the American economy where it hopes to find opportunities for future gains. The same applies to investment and hedge funds that wish to acquire institutions that have lost their capital and to bail banks with lost savings out, thus acquiring a stake in their assets and management.
While these changes in the US economy may lead to a recession, they are natural as part of the effort to achieve economic recovery in the foreseeable future, perhaps not more than a year. On the other hand, the Federal Reserve may face difficulties in other areas although it is worth noting that the geographic scope of recession, unemployment and other negative indicators only affect part of the United States and not the entire country.
However, the weakening dollar has caught both developed and emerging nations off guard, especially those whose currencies are tied or pegged to the US dollar with respect to transactions and upward or downward variations, or even with respect to modifications of US base interest rates. As far as these countries are concerned, the weakened dollar leads to rising inflation which expands at the expense of growth rates because every percentage point of inflation cancels one percentage point of nominal growth. Hence, as inflation increases, these nations are forced to double their economic activity to maintain high growth rates. The list of emerging economies facing this difficulty includes China, Russia, and India. Arab countries, especially the Gulf states, also face a similar situation, as their currencies are pegged to the dollar and their economies rely on exports. In these countries, inflation rapidly eats into the public budgets heavily dependent oil revenues.”
The Global Economy in the Grip of the Dollar
I told ya so……
27 February 2008, 4:04 pmKevin:
Economy
I told you so….
MODERATOR: Told who so? What?
28 February 2008, 3:24 amKevin:
Debased currency is a double edged sword in a global economy. This is not stagflation, our goods and services are now more competitive.
Chuck Fina
29 February 2008, 2:18 amY.K.:
@Kevin, You seem to be missing the bigger picture. There are a few more factors at least:
1)Hyperinflation (see articles above by Liu, others almost daily in Asia Times)
2)The probable nationalization of the US financial sector (see recent articles by Wolf / Roubini / Magnus … transcript of Magnus on this thread : http://forums.wsj.com/viewtopic.php?t=1594)
3)The relationship of real capital to financial capital (Why is Bernanke calling for “recapitalization of the banks” and warning of “bank failures” if everything is improving?)
4)US isn’t really manufacturing much anymore except weapons, and even then often the final stages are compiled in the US, but mostly built elsewhere (Electronic parts in East Asia, even planes as in the recent Airbus deal).
5) “Negative equity” (see Hudson : http://www.michael-hudson.com/ )
6) Loss of pension and retirement earnings (http://www.atimes.com/atimes/Global_Economy/GI14Dj01.html)
And that’s just looking at the US internal economic picture. What will be the US political and social outcome of this total mess? What about the US race and gender element of the crisis? (see article above and this one: http://www.nytimes.com/2008/03/02/business/02jobs.html?_r=1&oref=slogin&ref=business&pagewanted=all )
Is the rest of the world impotent to face this US/UK disaster? (consider Venezuela, Russia, Iran, China). It’s important to consider the whole picture. There are more questions than answers here.
2 March 2008, 3:03 pmCliss:
Re: financial markets in turmoil.
4 March 2008, 11:07 pmThe most dangerous part about the current situation is that real estate prices have not stabilized.
They are are sinking each and every day.
When bankers get together in the board room and go over their portfolios of real estate assets including repossessed homes & businesses and other properties, every day their portfolio is worth less than the day before.
Some analysts say that the meltdown will continue for at least 1 year, maybe 2 years and no one knows how far it needs to go before it stabilizes.
Banks and financial institutions have set aside billions for write-offs, but it’s not enough because it’s still cratering.
This is the real reason they are all broke. There is simply nothing the Fed can do the problem is too big.
I’ve read that a full 1/3 of all homes in the US will be abandoned permanently because we overbuilt.
Stan:
Do you have a citation for that figure? One third!?
Because if even half that were true, the physical capacity exists to end homelessness in the US… and that plain fact exposes the irrationality of the system, big time.
5 March 2008, 6:29 amJosiah:
Even as more than 1 in 100 Americans are now behind bars…
http://www.nytimes.com/2008/02/28/us/28cnd-prison.html?hp
5 March 2008, 7:08 amrgraves:
A similar figure was cited in a very interesting article by an urban planner in this month’s issue of Atlantic Monthly on newstands now– http://www.theatlantic.com/doc/200803/subprime
The author cites a study that “forecasts a likely surplus of 22 million large-lot homes (houses built on a sixth of an acre or more) by 2025—that’s roughly 40 percent of the large-lot homes in existence today.”
It goes on to note that the shoddy balloon frame and drywall construction of most of suburbia will not be able to stand up to disinvestment in the same way that the turn of the century brick buildings of the inner cities have.
6 March 2008, 9:56 amLisa:
Capitalism in an Apocalyptic Mood
February, 23 2008
By Walden Bello
Whether or not “military Keynesianism” and the disaster capitalism complex can in fact play the role played by financial bubbles is open to question. For to feed them, at least during the Republican administrations, has meant reducing social expenditures, resulting in their positive employment effects being overwhelmed fairly quickly by reductions in effective demand. A study Dean Baker cited by Johnson found that after an initial demand stimulus, by about the sixth year, the effect of increased military spending turns negative. After 10 years of increased defense spending, there would be 464,000 fewer jobs than in a scenario of lower defense spending.
But even more important as a limit to military Keynesianism and disaster capitalism is that the military engagements to which they are bound to lead are likely to create quagmires such as Iraq and Afghanistan that could trigger a backlash both abroad and at home. This would eventually erode the legitimacy of these enterprises, reduce their access to tax dollars, and erode their viability as sources of economic expansion in a contracting economy.
Yes, global capitalism may be resilient, but it looks like its options are increasingly limited. The forces making for the long term stagnation of the global capitalist economy are now too heavy to be easily shaken off by the economic equivalent of mouth-to-mouth resuscitation.
See full article at:
http://www.zcommunications.org/znet/viewArticle/16602
STAN: This one is also posted at IA.
6 March 2008, 9:21 pmCharles:
This if from The Spark, a newsletter handed out in front of the Blue Cross/Blue Shield building to BC/BS workers , in Detroit. I pass by the building walking to work. It discusses the inflationary impact of the latest moves by the Moneybags on average people.
Charles
Can’t Afford the Basics ?
The Federal Reserve is pumping money into the US financial system - but not to save people’s homes from foreclosure, only to bail out the gigantic financial institutions that were behind the subprime mortgage rip-off and the housing bubble. The collapse with their pants down. So the Fed is jumping in,handing them lots of cheap money.
Any guesses about what all those super-wealthy companies are doing with it ? They’re speculating all over again. This time, they’re speculating on basic commodities, driving up the prices of oil, gas, gold, wheat, corn, soy beans - basically anything they can get their hands on.
Over the past year, they have shoveled so much money into oil speculation, they drove up the price of a barrel of oil from $60 to over $102 in just one year. They pushed up the price of wheat so fast , it actually quadrupled in a year.
Over the month of February, this speculation got even wilder and crazier. The price of natural gas skyrocketed by 26%. Cocoa for chocolate , of all things , shot up by 38%. What’s next, record prices for bull crap and bird dung ?
The entire capitalist financial system is in the hands of madmen whose only aim is to make another million dollars in the next five minutes.
Their insane greed impacts u. Their bets on commodities quickly work their way through the supply chain, pushing up prives paid by consumers. Gas prices are a dollar per gallon higher than they were a year ago. Prices for basic foods, including bread, meat, vegetables, fruit and milk are increasing at their fastest rate in decades.
Families, already reeling from the housing crisis, are getting hit again. Many retirees on fixed incomes are pushed to stretch their checks past the third week in the month.
IN their drive to make profits, big companies and banks jump from one manie to another, causing one crisis after another. In so doing, they plunge millions and hundreds of millions of working people into crisis and ruin, while the big money interests are backed out of their problems by teh Fed and various government agencies.
When the Fed hands all that cash over to teh speculators, it’s like putting a gun in the hand of a mass murderer, along with a couple of grenades and a bazooka.
This is not an innocent mistake. It is the insanity of capitalism. - a system so corrupt and worn out it cannot meet the population’s needs.
14 March 2008, 4:13 pmCharles:
http://chronicle.com/weekly/v54/i31/31b01001.htm
Chronicle of Higher Education, from the issue dated April 11, 2008
THE MATERIAL WORLD
America’s Exhausted Growth Paradigm
1980 brought a new kind of business cycle, one that’s no longer sustainable
By THOMAS I. PALLEY
8 April 2008, 3:37 pmRobert Karaffa:
What Happens Next?? Well…….My wife is in Haiti right now and is pinned down just southeast of the capital because the rioting over food prices is so bad. We have no food shipments for the Dumay feeding programs (school and HIV) and can’t get to meetings, and can’t deliver new unexpired meds to our clinic. They left an orphanage at 31 Delmas under a hail of rocks. I’ve been worried about this for months and we put off constructing a small Pharmacy building to deal with food shortages instead. Our Haitian Optometry Tech had to duck into a church to dodge gunfire on his way home down Delmas. He’s OK. Yes it affects us all personally in one way or another sometimes several at once. Going to be hard to sleep for a while.
8 April 2008, 7:08 pm