28 Comments

1. jaqwith:

   “effectively nationalizes the banks” - I thought the Fed was privately owned? Anyway keep up the good work.

   14 March 2008, 9:16 pm

2. Y.K.:

   The political economy of the credit crisis is getting exposed … no doubt. It will be fascinating to watch them twist if the financial system collapses before the election (of McCain).

   In that vein, the ex-NY governor Spitzer is arrogant, disgusting, opportunistic, and a law-breaker … BUT his kind of opportunism focused on “Wall Street excess” to gain votes. Of course, he was only interested in the small stuff, nothing that would touch the system or his multi-million dollar real estate fortune, but he still angered enough “guys” to go under surveillance: http://www.gregpalast.com/elliot-spitzer-gets-nailed/#more-1979 Liberals tend to frame Spitzer as a sex scandal, but the problem is also that he broke the law and he’s expected to execute it. He didn’t just cheat on his wife, he paid for prostitutes with complex and deceptive wire transfers. At least he didn’t put on diapers (or commit war crimes…) ! http://www.alternet.org/blogs/peek/56689/ (Any link between Vitter’s diaper-wearing and his manipulation of Native American female health care monies? http://www.huffingtonpost.com/chris-kelly/david-vitter-is-thinking-_b_88727.html )

   It seems to me that there has been more sexual violence over the last year or two, toward women and children as usual, but most recently it has turned directly to violence, in the form of anonymous large scale shootings. This is surely connected to the material and moral bankruptcy of US capitalism.

   15 March 2008, 4:57 am

3. Stan:

   A financial bubble {1} is a market aberration manufactured by
   government, finance, and industry, a shared speculative hallucination
   and then a crash, followed by depression. Bubbles were once very rare -
   one every hundred years or so was enough to motivate politicians,
   bearing the post-bubble ire of their newly destitute citizenry, to enact
   legislation that would prevent subsequent occurrences. After the dust
   settled from the 1720 crash of the South Sea Bubble, for instance,
   British Parliament passed the Bubble Act to forbid “raising or
   pretending to raise a transferable stock”. For a century this law did
   much to prevent the formation of new speculative swellings.

   FULL

   Can’t the media find any economists who don’t think that handing
   hundreds of billions of taxpayer dollars to the big banks and the
   incredibly rich people who own and manage them is a good idea?
   Apparently not, given the coverage so far to the Fed’s proposal to lend
   $200 billion to the banks using mortgage backed securities as collateral.

   FULL

   15 March 2008, 5:47 am

4. Legume Sam:

   It seems as if Dean Baker is just having a good laugh when he writes of “handing hundreds of billions of taxpayer dollars to the big banks.” When the Fed makes a loan, it just creates money out of nothing. We have a “fiat-based currency,” remember? Everyone knows that Baker knows better — he, after all, is an advocate of economic democracy.

   And Eric Janszen? “Our economy is in serious trouble.” Such melodrama! Is this supposed to be news? Maybe we should have known back in the 1970s, when the foundations of the neoliberal economy were erected? Or even later, in the 1980s, when the expansion of the housing bubble raised rents above tolerable rates in much of the US? Or how about the 1990s, when the media were spouting praises of economic boom when the working classes were just breaking even? “Given the current state of our economy, the only thing worse than a new bubble would be its absence.” Yes, we are pathetic, and our only opportunity lies in borrowing lots of money during bubble phases of the economy so that we can spend the rest of our lives hiding from creditors (bankruptcy having disappeared as an option) when the bubbles burst and we are left with unpayable debts. Enjoy those 24/7 phone calls!

   It’s the same old story. The economy is a scam run for the benefit of the wealthy. For the elites which possess seigniorage, the economy is like the goose which laid the golden eggs. Eventually the temptation becomes so great that you kill the goose to get the eggs, just like in the fable. For the rest of us, money is a fool’s game, a game which (in the absence of secure property rights or any possession of mass power) most of us are obliged to play.

   For the past thirty-five years, the economy has been structured around the principle of “monetarism” and dollar hegemony. What this meant for us Americans was a steady withdrawal of Keynesian economic guarantees from the 99% at the bottom in favor of a “bail out the rich” economic policy that kept up the pretense of capitalism as a hedge against that inevitable day when its time will be up. What it meant for the the so-called “third world” was a forced integration into capitalism — depriving ordinary people of their access to the means of subsistence so that they are obliged to participate in the money economy.

   15 March 2008, 12:01 pm

5. Stan:

   Save the Economy, Dismantle the Empire
   A Grand Global Bargain?

   By MICHAEL HUDSON

   LINK

   15 March 2008, 8:26 pm

6. Michael Anderson:

   Just in from NYT:

   The Federal Reserve Cuts Its Lending Rate a Quarter Point

   The Federal Reserve announced it was cutting its lending rate
   to financial institutions to 3.25 percent from 3.50 percent
   to help provide relief to a spreading credit crisis.

   http://www.nytimes.com/2008/03/17/business/17fed.html?hp

   JPMorgan Chase Says It Will Acquire Bear Stearns for $2 a Share

   Bear Stearns, facing collapse because of the mortgage crisis,
   agreed Sunday evening to be bought by JPMorgan Chase for a
   bargain-basement price of less than $250 million, the two
   companies announced.

   The all-stock deal values Bear Stearns at about $2 a share,
   based on JPMorgan’s closing stock price on Friday, the
   companies said. In contrast, shares of Bear Stearns, which
   fell $27 on Friday, closed at $30.

   http://www.nytimes.com/2008/03/17/business/17bear.html?hp

   Another rate cut….from recent past examples, this one ought to last about 2 days before the market drops again; and a bigger fish buying up a big fish for pennies on the dollar with borrowed money from the Fed. And no limit on borrowing for investment banks now. As of 10:41 PM PDT 3/17, the Asian markets are already sliding. This should be an “interesting” week, in the Chinese sense of the word. Wouldn’t be surprised if it was “Black Monday”.

   17 March 2008, 12:45 am

7. Stan:

   Here is from today’s Guardian:

   Business, of course, needs consumers to carry on spending in order to make money, so a way had to be found to persuade households to do their patriotic duty. The method chosen was simple. Whip up a colossal housing bubble, convince consumers that it makes sense to borrow money against the rising value of their homes to supplement their meagre real wage growth and watch the profits roll in.

   As they did - for a while. Now it’s payback time and the mood could get very ugly. Americans, to put it bluntly, have been conned. They have been duped by a bunch of serpent-tongued hucksters who packed up the wagon and made it across the county line before a lynch mob could be formed.

   The debate now is not about whether the US is in recession but how deep and long that recession will be. Super-bears have started to say that this is perhaps “The Big One”, by which they mean the onset of a new Great Depression. The need to rescue Bear Stearns has done little to still those voices.

   FULL

   Here is from Mark Jones, nine years ago:

   The capitalist world system is sinking into turmoil and chaos.

   Imperialism won a decade more life for itself by plundering the fallen
   socialist world. The ‘fire sale at the end of history’ consumed a
   staggering accumulation of values and assets, the hard-earned achievement
   of decades of sacrifice and labour by generations of Soviet men and women.
   It helped fuel the greatest Wall Street boom in history and the
   most-sustained period of US expansion.

   By some estimates more than three trillion dollars was pumped out of Russia
   and eastern Europe between 1990-1998 — a sum equivalent to the gross
   national product of France, Italy and Britain combined. No-one knows what
   the true losses are, and the haemorrhage continues to bleed this vast
   territory white, at the costs of millions of lives, of the despoliation of
   the Soviet resource-base, the ransacking of nature and unrestrained
   environmental destruction, and by stealing the futures of hundreds of
   millions of lives; stealing even the food from their mouths (Russian
   nutritional levels have fallen drastically).

   Such a catastrophe has few historical precedents: the annihilation of the
   native American civilizations after the 16th century is one. But the
   conquest of the Americas, the genocidal extirpation of at least 70 million
   native Americans slaughtered or dead through famine and disease, the
   wholesale enslavement of African peoples and their mobilization in the
   greatest flowering of slave-production since ancient times: all this bloody
   massacre and plunder, which formed primitive accumulation and allowed 18th
   century protocapitalism to launch the Industrial Revolution: this was the
   work of three centuries! And the equivalent plunder of eastern Europe and
   the former Soviet Union has been the work of less than a decade…

   Such is the frantic acceleration of capitalism’s moloch-machinery, such is
   the intensification of the frenzy of exploitation which sucks whole peoples
   and generations into its maw; and still it is not enough. The sacking of
   socialism released vast new resources, in particular energy (oil above all)
   and enabled a dramatic hike in the profit-rate in the imperial centres. It
   has directly fuelled the boom in asset-values in the Anglo-Saxon centres
   and helped stabilize the German-led European Union…

   …The mechanism of boosting crop-production also led directly to the
   dispossessing of hundreds of millions of peasants, decanting these
   discontented, hungry masses into the vast new megacities of Asia, from
   Bengal to Shenzhen. But this Green Revolution was won not only at terrible
   social cost; it has resulted in a wholly-unsustainable agriculture which is
   ravaging the environment and depleting water resources and soil fertility
   at an unprecedented rate. At the same time, environmental pollution has
   created a nightmare world for the multimillioned Asian masses.

   ‘Booming’ Asian capitalism has created this stinking environmental hell,
   characterised by the pollution of water bodies, coastal seas and the land,
   covering vast regions with global-warming induced forest fires, turning the
   megacities into uninhabitable death traps.

   The ‘Keynesian’ reformers seek to refuel Asian capitalism, but if they
   succeed then these fundamental resource and environment crises will only be
   intensified to an intolerable degree; in the next decades the collapse of
   Asian ecosystems will only accelerate, made worse as global warming raises
   sea levels and inundates coastal regions where almost a billion people now
   live. Thus Keynesian reforms, insofar as they are implemented successfully,
   will serve only to exacerbate the underlying crisis and to hasten the final
   day of revolutionary reckoning.

   The contradictions of Asian capitalism are ripening in Indonesia and
   elsewhwre and is producing aftershocks which are beyond the capacity of
   world imperialism to direct or control. The mechanism of crisis has assumed
   a capricious, uncontrollable character and this tendency itself is
   accelerating. Imperialism, which in the past has eagerly sought to
   intensify crises, in eastern Europe, Latin America, Asia and elsewhere, is
   now in a desperate struggle to slow down and contain evolving crisis, but
   does not know how. Whereas crisis has always been welcomed as a mechanism
   for destroying the working class, for increasing the tempo of exploitation
   through constant speed-ups and restructuring and the retirement of
   ‘obsolete’ capital (i.e., the productive systems painfully built-up in the
   course of development and often perfectly suited to the specific conditions
   in the neocolonies), today imperialism wants to apply the brakes to a world
   crisis spinning out of control…

   …But the crisis of world capitalism has no precedent. Exemplified by
   incredibly sharp contradictions between wealth and over-accumulation in the
   metropolitan poles, and the despair and deflationary stagnation of the
   peripheries, with the relentless immiseration of the newly-urbanised
   landless, lumpen masses in the sprawling megacities, world capitalism
   presents a spectacle not seen since the shattering dramas of finance
   capitalism and imperialism which destroyed the Pax Britannica in 1914 and
   which led directly to both the Russian Revolution of 1917 and the
   installation of the United States as 20th century hegemon.

   The historical cycle which began in 1917 has ended, and that the collapse
   of the USSR was only the harbinger of still more striking and apocalyptic
   events, in which the stake is not just the safety of US imperialism, but
   the survival of world capitalism itself. Therefore it is clear that the
   present world crisis is still in its early stages…

   …as the crisis continues to deepen
   and the inexorable decomposition of morbid capitalism, the gangrene which
   has already begun to kill off its extremities, accelerates. The malevolent
   heart of vampire-imperialism beats inside the Washington Beltway. Here are
   the arrogant institutions of imperial power. Here are the great services –
   the dark forces — of its increasingly-open criminal rule. From here will
   belch forth the foulest, hitherto unknown technologies of repression,
   control, assassination, genocide and global war waged by US imperialism
   against the whole of humankind, including the US working class which itself
   has suffered much under the iron heel.

   For two decades the US working class experienced a decline in wage-levels
   and living standards with no precedent in US history. Renewed prosperity
   has come only from the hyper-exploitation of the colonial hinterlands,
   increasingly wracked with social and ecological crisis and entering a new
   kind of historical impasse. This rotten imperialism will be torn to pieces
   by the same vast forces that are wracking the capitalist world system. The
   neoliberal-globalist politics of the past decade is already foundering as
   its theoretical models and practical policies come under increasingly
   bitter attack by the forces of the capitulationist-left (the NGOs,
   academics, labour unions and soft social-democrats).

   Keynesian reformism is being feverishly dusted off, the long-discredited
   politics of social reforms and demand management being hurriedly refreshed
   in the face of a catastrophic world deflation which is already exposing the
   brittle, shallow foundations of post-war ‘miracle’ Japan. Vamped-up
   Keynesianism, as we have seen, would only propel world capitalism deeper
   into the historical impasse from which there is no escape anyway.

   New cycles of capitalist growth, which can only be brief and local in any
   case, will only deepen the underlying contradictions between capitalist
   development and the environmental and resource-depletion costs which are
   the true source of the superprofits sucked by vampire imperialism from the
   material world which workers have to inhabit: the world of relentless
   exploitation and environmental degradation, with few of the promised
   compensations of consumerism…

   It was in another post he asked the question, upon projecting metatrends forward for a decade, “Who can hold off the wolves of deflation howling around the campfire?”

   17 March 2008, 7:38 am

8. Michael Anderson:

   Time for Blackwater in the streets yet? BTW, GREAT page on IA about the rooftop garden in Chicago! We are looking at moving to a smaller area, and may possibly be pressed for space, depending on available land. Saved all the info.

   17 March 2008, 12:11 pm

9. Michael Anderson:

   um…PS…we’re growing things here, too!

   17 March 2008, 12:27 pm

10. Stan:

    Hat tip to Audrey for this very graphic graphic on US bank reserves:

    http://research.stlouisfed.org/fred2/series/BOGNONBR

    17 March 2008, 6:01 pm

11. Legume Sam:

    Stan/ Audrey:

    Help us out here. What does your graphic mean in terms of the greater picture?

    STAN: Our banking system is broke, in the red. Your bank does not have your money any more. It invested it in vapor. The vapor has e-vapor-ated. FDIC has to cover this… but FDIC is complicated. If you were invested in Bear Stearns, for example, FDIC doesn’t cover you. Oops. If the losses exceed the already heavily indebted US government capacity to replace the insured accounts, the debt will become worse… and no one wants to buy that debt right now (in the form of t-bills) because the interest rate is way below the rate of inflation. Domestic and foreign t-bill holders are watching the dollar drop out of the sky with all the aerodynamic features of a cinder block… thus the purchasing power of their dollar holdings is being defaulted away like… well, more vapor.

    That precipitous fall on the graph has happened in a matter of days. Da bubble is busted.

    Hint: Make sure if you have any holdings that are not covered by FDIC (many mutual funds, eg); cash out to pay off a card or a car or something… if there is anything left now.

    Here is the real terror on Wall Street… if the depreciation of the dollar becomes great enough, the world has nothing to lose by cashing out themselves… what’s called a “run on the dollar.” That is a full-fledged, worldwide panic that can render a greenback more valuable as toilet paper than a universal exchange equivalent.

    http://www.guardian.co.uk/business/2008/mar/18/creditcrunch.marketturmoil1
    http://www.alternet.org/workplace/79961/

    17 March 2008, 6:21 pm

12. James M:

    My question (not rhetorical) is whether there remains some incentive for foreign countries to step in and bail / buy out failing banks, as Abu Dhabi did with Citigroup. Can countries like, say, China really weather a complete U.S. economic meltdown? Will we start seeing more desperate cash transfusions soon?

    17 March 2008, 9:16 pm

13. Cliss:

    Re: going over Niagara Falls.
    I think it’s fairly clear. We live in a completely controlled economy with a controlled monetary supply. There is no free market in this system; it’s all manipulated; pushed & pulled in all sorts of ways in order to achieve its objectives, which is to protect the investor class.
    I live in Portland, and I’ve been watching with amazement how many new houses have been built. They are in various stages of finishedness: completely done, or half-done, or just a foundation with 4 plywood walls. Most are abandoned, with not even a “For Sale’ sign in the front yard. Nothing. The builder just walked away from it. I can’t tell you how many houses are like that in my neighborhood.
    I just couldn’t figure out, what was wrong with those builders? If this was their livelihood, doesn’t it seem reasonable they would find out about the housing market, sustainability, before going to all that work and sinking in their investments?
    Well, I found out later it really wasn’t their fault. The banks just suddenly cut off their loans, and the credit market seized up.
    They had no choice but to walk, with no one wanting a house in an overbuilt market. I’ve read that a full 1/3 of all houses are / will not be needed in the upcoming leaner economy.
    That’s the danger of having such a controlled economy: it’s vulnerable because the normal market forces don’t function within it. Also, Big Daddy FED is unable to fix the problems because they are too big.
    I recall reading an article which Stan wrote several years ago, predicting that “U.S. financial markets are imploding. The rest of the world understands this, and they are jockeying for position after we fall”.
    We knew it was coming, but it’s still tough to watch. Like a slow-motion train wreck: you knew it was coming, but it’s still gut wrenching.

    17 March 2008, 10:03 pm

14. DeAnander:

    I wonder if someday someone will be writing (in Mandarin?):

    Finance capital won a decade more life for itself by plundering the fallen American world. The ‘fire sale at the end of history’ consumed a staggering accumulation of values and assets, the hard-earned achievement of decades of sacrifice and labour (as well as theft and chicanery) by generations of North Americans, both native-born and immigrant/colonist. It helped fuel the greatest Pacific-Asian financial boom in history and the most-sustained period of Chinese, Indian, and Indonesian expansion.

    By some estimates more than three trillion dollars was pumped out of the former USA and Canada between 2008 and 2015 — a sum equivalent to the gross national product of France, Italy and Britain combined. No-one knows what the true losses are, and the haemorrhage continues to bleed this vast territory white, at the costs of millions of lives, of the despoliation of the North American resource-base, the disappearance of the enormous US weapons cache, the ransacking of nature and unrestrained environmental destruction, and by stealing the futures of hundreds of millions of lives; stealing even the food from their mouths (American nutritional levels, already low in the heyday of “factory food,” have fallen drastically since the Crash).

    It would be nice to think that this crash of the dollar was engineered by the rest of the world to keep the mad Yankees in check, to prevent an invasion of Iran, to encourage a withdrawal from Iraq, to tame the would-be hegemon. It would be nice to think of it as a curb rein applied by some kind of decent grownups appalled at US grandiosity and imperial delusion. But it seems from where I sit to be just plain ol’ cause and effect: the usual financial chicanery coming home to roost, just as Trollope described it in The Way We Live Now but on a larger scale and a faster clock.

    Prima facie it looks like a perfect storm: the dollar crashes just as the price of oil spikes, just as reckless resource liquidation starts to make its true cost felt on many fronts (water, topsoil, lumber, minerals…). I have felt for many years that we were living in very dangerous, unstable times, but it is deeply disturbing to see my own habitual pessimistic speculations staring back at me from headline news.

    17 March 2008, 11:16 pm

15. Legume Sam:

    The notion that we’ve been living in an unreal economy bound to crash shows up in Harry Shutt’s 1998 book The Trouble With Capitalism. Basically, the US has been living in an unreal economy for thirty-five years, as the whole notion of inflating a world-economy based on the US dollar (the worldwide reserve fiat currency) originated back then. It “worked” as long as the rest of the world propped up the value of the US dollar. The investors could maintain their faith in profit while the real world-economy itself slowed. The rest of the world is no longer doing that.

    Money has exchange-value because it is a claim upon (wage) labor-power. Thirty-five years of hidden inflation has expanded the US dollar’s claim upon wage labor out of all proportion to the actual (wage) labor-power being performed out there.

    Now, the idea that the “banking system is broke” doesn’t really make sense to me. How can the banking system be broke when the banking system itself creates our money?

    I didn’t understand the statistic you posted. But what I read into your “banking system is broke” statement is that the Fed will, at some point, be obliged to print enough money to fill the hole in the banking system, plus whatever extra is necessary to deal with the mistrust precipitated by this seizing-up of the credit system. The result will be rampant inflation, as the world-economy goes back to realizing its dollar-values the old-fashioned way, by redeeming them for the products of labor-power.

    18 March 2008, 2:31 am

16. Stan:

    Banks create money by making loans, iirc, authorized at 3-10% of reserves. Their reserves were — after Glass-Steagal was euthanized — inside the bubble. What’s 3% of negative-billions?

    And Fed-ignited hyper-inflation ( to attempt a rescue of Wall Street) is exactly what we are facing. That soup on the menu, ma’am, will be $5,000.

    18 March 2008, 4:46 am

17. Stan:

    Here are Liu and Hudson on economics and war:

    Liu:

    War is the mother of all inflation. Modem democratic governments always find it easy to borrow than to level taxes needed to pay for war. To pay back the mounting national debt, the temptation for inflation is irresistible. As the wave of inflation of the 60s and 70s which began around 1965, was triggered by the enormous cost of the Vietnam War, the current wave of inflation is tied to the two wars in Afghanistan and Iraq and the homeland security costs related to the global war on terrorism. As with the Vietnam War which failed either to contain the spread of communism in the Southeaster nation, or to strengthen the US economy, the current war on terrorism will only drag down the US economy without improving US national security.

    FULL

    Hudson:

    The reality is that the existing level of debts cannot be paid. The problem is by no means confined to the bottom of the economic pyramid, but is concentrated at the top. The U.S. Government itself turns out to be the world’s largest subprime debtor. Its $2.5 trillion debt to foreign central banks–and even larger private-sector debt to other foreigners–cannot be paid, given the nation’s heavy military and trade deficits. Recognition of this political fact at the core of the international financial system has led foreign governments and investors to dump dollar-denominated bonds and stock. This has driven down the dollar’s exchange rate, raising dollarized prices for oil and other raw materials.

    What is ironic is that the larger the U.S. trade deficits and foreign military spending have grown, the more of these dollars are turned over to foreign central banks by foreign exporters and other recipients of U.S. funds.

    FULL

    18 March 2008, 5:07 am

18. Legume Sam:

    Stan:

    Banks create money by making loans, iirc, authorized at 3-10% of reserves.

    They will change the rules, and create the money regardless. Seigniorage means never having to say you cheated.

    18 March 2008, 8:17 am

19. Stan:

    To say so out loud would be an offence against American optimism, but the unspoken truth is that the good old days are gone, probably for a very long while. Like its predecessors, this particular financial meltdown has brought fear verging on panic. The difference, however, is that it is destroying not only wealth. It is also destroying illusions.

    The US has long inhabited a world of make-believe – of a war that demands no sacrifice, of a consumer boom that demands no payment, of a power and prosperity that seemed America’s birthright, whatever events in the real world. Now those fantasies are yielding to the truism coined by Herb Stein, a top White House economic adviser in the 1970s. If something can’t go on for ever, it won’t.

    FULL

    19 March 2008, 6:46 am

20. Legume Sam:

    Rupert Cornwell:

    The US has long inhabited a world of make-believe – of a war that demands no sacrifice, of a consumer boom that demands no payment, of a power and prosperity that seemed America’s birthright, whatever events in the real world.

    Pardon my impudence as a mere non-economist, but isn’t the world economy still a world of make-believe?

    Remember Henry Liu’s discussion of dollar hegemony:

    To prevent speculative and manipulative attacks on their currencies, the world’s central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world’s central banks to acquire and hold more dollar reserves, making it stronger.

    So dollar hegemony was the firewall that elite world-society used to block out the firestorm that was (and is) the $1 trillion/day global currency exchange. The firewall will crumble, as the Fed prints more currency to prop up the illusion of capitalism as usual. They’ll probably go looking for another firewall, another “world of make-believe.”

    I don’t hear anything from anyone losing their belief in capitalism. I don’t see any politicians actually addressing this situation. Here in my locale I see a tent city in Ontario, a city council promising the same old NIMBY politics, and an ecological disaster waiting to happen. Illusion reigns supreme.

    19 March 2008, 7:35 am

21. Michael Anderson:

    It seems this is not limited to the U.S. military/disaster capitalism complex, or the Fed. Our “ally” (sic) Britain is experiencing some interesting speculation also:

    http://www.guardian.co.uk/business/2008/mar/20/creditcrunch.hbosbusiness

    Or. as the Sydney Morning Herald put it in their headline:

    “Hunt for trader who rorted $217m in a day

    “British authorities have launched a hunt for a stock market trader who may have made over $217 million in a “modern day bank robbery” after an attack on the share price of the country’s biggest mortgage lender.”

    It seems the rats are leaving the Titanic, but not without looting the ship’s safe first. Didn’t we learn it from the Brits?

    20 March 2008, 7:38 am

22. Charles:

    One could argue that the world has been living in an unreal economy since the beginning of the 20th Century at the origin of finance capital ( imperialism-monopoly capitalism). The world “ended” with WWI and then with the crash of the 20’s and then with WWII.

    Capitalism won’t end automatically. Has to be ended consciously by masses.

    20 March 2008, 12:27 pm

23. Charles:

    Precis on theories of capitalist crisis by economist James Devine

    http://archives.econ.utah.edu/archives/pen-l/2008w11/msg00058.htm

    20 March 2008, 3:53 pm

24. Legume Sam:

    One could argue that the world has been living in an unreal economy since the beginning of the 20th Century at the origin of finance capital ( imperialism-monopoly capitalism). The world “ended” with WWI and then with the crash of the 20’s and then with WWII.

    Here’s the way I see it: at the beginnings of finance capital, the “bubbles” created by finance capital were capable of being covered by the expansion of goods and services in a relatively immature capitalist economy. The crash of 1929-1932 was a crisis in investor confidence. They could have continued like they were doing; they chose not to.

    Today, however, the bubbles of the present-day finance economy are way beyond anything that can be made into an increase in goods and services. The economy has hit what James O’Connor calls the “second contradiction of capitalism,” in which ecological limits are an undertow to capital’s growth-imperative.

    Capitalism won’t end automatically. Has to be ended consciously by masses.

    Actually, capitalism could end of its own accord; it could cause such ecosystemic destruction that what was left of economic culture and of ecosystem resilience was unable to support the profits system. Abrupt climate change could knock the remaining survivors into the Stone Age. And the “masses” would play no part in ending capitalism as such.

    20 March 2008, 8:49 pm

25. Charles:

    Fictitious capital

    http://en.wikipedia.org/wiki/Fictitious_capital

    Fictitious capital is a concept used by Karl Marx in his critique of political economy. It is introduced in the third volume of Das Kapital, a manuscript which Marx never edited for publication.

    Fictitious capital could be defined as a capitalisation on property ownership. That ownership itself was very real and legally enforced, and so were the profits made from it, but the capital involved was fictitious in the sense that it was not backed by any real physical asset value or earning power.

    Fictitious capital could also be defined as “tradeable paper claims to wealth” but this definition disregards that tangible assets themselves may under certain conditions also gain a vastly inflated value, far beyond what they are really worth.

    Contents [hide]
    1 Origins
    2 Effects
    3 Illustration
    4 See also
    5 References

    [edit] Origins
    Marx saw the origin of fictitious capital in the development of the credit system and the joint-stock system.

    Governments and banks could create additional money or credit, which generated purchasing power unrelated to the value of real production or real consumption, or to the real value of physical assets owned.

    They could also issue debt securities of various kinds which could be traded in, regardless of whether these were backed by assets or deposits, and which became objects of speculation.

    Companies could likewise issue share certificates that were speculated in. Again, this caused fluctuations in asset values unrelated to what a business and its production were really worth.

    [edit] Effects
    The general effect was that:

    the market value of physical and financial assets could, backed by credit, be driven up and artificially inflated by some margin, purely as a result of supply and demand factors which could themselves be manipulated for profit. That margin of value could, however, just as suddenly disappear, if large amounts of capital were withdrawn.
    profit could be made purely from trading in a variety of financial claims existing only on paper.
    profit could be made by using only borrowed capital to engage in (speculative) trade, not backed up by any tangible asset.
    In addition, changes in underlying technology of a competitor, such as a labor saving advance, can render market value of paper claims to an asset “fictitious.” Many features of modern global capitalism reflect the impact of such changes. Thus, a business firm may attempt to prop up the market value of its stock by increasing the rate of exploitation of its work force in order to keep up with the innovating firm. Other firms may attempt to use legal sanctions in the form of, for example, intellectual property law to prevent competitors, or potential competitors, from developing labor saving advances.

    [edit] Illustration
    Marx cites the case of a Mr Chapman who testified before the British Bank Acts Committee in 1857:

    “though in 1857 he was himself still a magnate on the money market, [Chapman] complained bitterly that there were several large money capitalists in London who were strong enough to bring the entire money market into disorder at a given moment and in this way fleece the smaller money dealers most shamelessly. There were supposed to be several great sharks of this kind who could significantly intensify a difficult situation by selling one or two million pounds worth of Consols and in this way taking an equivalent sum of banknotes (and thereby available loan capital) out of the market. The collaboration of three big banks in such a maneouvre would suffice to turn a pressure into a panic.” (Das Kapital Vol. 3, Penguin edition, p. 674).

    Marx added that:

    “The biggest capital power in London is of course the Bank of England, but its position as a semi-state institution makes it impossible for it to assert its domination in so brutal a fashion. None the less, it too is sufficiently capable of looking after itself… Inasmuch as the Bank issues notes that are not backed by the metal reserve in its vaults, it creates tokens of value that are not only means of circulation, but also forms additional - even if fictitious - capital for it, to the nominal value of these fiduciary notes. And this extra capital yields it an extra profit.” (ibid., p. 674-675, emphasis added).

    [edit] See also
    Capital accumulation
    Economic bubble
    Speculation
    Stock market bubble

    [edit] References
    Karl Marx, Das Kapital, Vol. 3.
    Makoto Itoh and Costas Lapavitsas, Political Economy of Money and Finance.

    26 March 2008, 11:36 am

26. Charles:

    Actually, capitalism could end of its own accord; it could cause such ecosystemic destruction that what was left of economic culture and of ecosystem resilience was unable to support the profits system. Abrupt climate change could knock the remaining survivors into the Stone Age. And the “masses” would play no part in ending capitalism as such.

    ^^^^^
    CB: yea, socialism or barbarism .

    capitalism will not end in socialism “automatically”. It might end in barbarism, nuclear war or eco-catastrope, “automatically”. We want it to end in socialism. So, what we want won’t happen “automatically.

    26 March 2008, 11:42 am

27. Charles:

    In other words, the only acceptable ending of capitalism must be won by masses. Tiny elites, even if they are progressive, can’t change the world by themselves. I love Margaret Mead, but her famous quote is wrong ( and elitist).

    1 April 2008, 11:41 am

28. Legume Sam:

    IMF Puts Cost of Crisis Near $1 trillion

    Problems ‘Metastasized’ To Threaten Economy Worldwide, Report Says…

    10 April 2008, 1:40 pm

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