The big machine of global capitalism, has thrown a rod. That knocking sound being heard for years by Marxist and left-liberal economists has finally resulted in the connecting rod of capitalism (credit) actually disconnecting from the piston (production.) The engine has come apart inside and its internal parts are flailing around in a very ugly way.
The term dreaded “D word” for Depression is starting to appear more often as this thing radiates out and in all directions drawing in all of the once happy campers in our new globalized world economy. Many pundits such as NY Times columnist Tom Friedman were much enamored by the interconnection of it all. Well you were right, Tom, we are all connected and now it’s not such a good thing after all. As Wall Street goes so goes Main Street - and Main Streets all over the world. So we now see such riveting spectacles as a panicked exodus of foreign workers from that dazzling wonder on the shores of the Persian Gulf, that Tower of Babel ‘city state’ of Dubai. See: http://www.nytimes.com/2009/02/12/world/middleeast/12dubai.html?em. It seems like it was only weeks ago that CBS’s 60 Minutes had Mike Wallace being chauffeured around that shiny monstrosity of a city, that ultra eco-hostile Las Vegas of the Middle East, being shown ludicrous artificial islands shaped like miniature continents destined to contain multi-million dollar condos - or whatever and shopping malls the size of small cities. But now with crude oil having plummeted to a paltry $40 at barrel, all that oil wealth backed credit has been sucked into the Great Credit Vortex in the Sky. And the Chinese Communist Party’s “growth miracle” of quick and dirty planet killing capitalism-driven development (after all isn’t that how the West did it?) is grinding to an ugly halt with their unemployed masses starting to ominously rumble in restive discontent as they experience their first real business cycle. And the Europeans who have tried to walk the thin line between maintenance of their post WWII semi-socialist economies (pejoratively known in the US as “welfare states”) and at the same time paradoxically be born-again Anglo-American Thatcher/Reagan/Clinton/Bush Neoliberals. Now, alas, they have too been caught with their collective bloomers down. A February 15 NY Times story tells of the alarming rise in unemployment in Europe and elsewhere: http://www.nytimes.com/2009/02/15/business/15global.html?hp. Not only did the Euro bankers slurp down the same toxic subprime mortgage contaminated Kool Aid that the big boyz of Wall Street were guzzling, but now their economies are also being sucked into the resulting sudden downdraft of a global economic recession – a double whammy! And entire countries like Iceland that totally ‘ran their railroads’ on high profit banking pumping out juicy dividends to institutional investors (read pension funds and the like) are now toast (along with many retirement plans.) - whole countries bankrupt!
Everyone is drawn in on some level regardless of degree of active participation. But the hapless Third World poor that were already left out during the gravy years will also take a hit. It’s difficult to see how those billions of landless wretched masses in the those hell holes on earth like Chad or Haiti or Cambodia, people who live on $2 or less a day, could get much worse off. But if the NGOs that provide desperately needed assistance start receiving less donations, and they will, things will even become even more desperate for those who Franz Fanton called the ‘Wretched of the Earth.” And on the next level up, those “low wage platforms” countries that got much of our manufacturing base (China, India, El Salvador, Thailand) things are not much better. Workers there are being laid off en mass (and without and any recourse to anything like employment insurance or SSI.)
Those economies that never climbed aboard the Neoliberal Bandwagon (or were forced aboard by the IMF and World Bank like most of the Third World) are being drawn into this thing buy by what he economists refer to as “a fall in aggregate demand.” As international trade stalls the downturn feeds on itself. That is the nature of capitalism - feedback loops within feed back loops, creating all kinds of further amplification of the originating action. The very psychology of consumerism goes sour. A reluctance to consume sets in even with people who still have a reliable income or adequate assets. For instance in the last few months the savings rate in the US perversely went up just at the point when in an aggregate sense such behavior makes things worse. There something called the “multiplier effect” that determines the amount of new spending generated by a given unit of spending. The multiplier effect is in turn determined by something economists call the “marginal propensity to consume”, in other words an inclination to spend money. It falls when the media is full news of doom and gloom regarding the economy. It’s up when most people feels fat and sassy and prosperous - whether they really are or not (like when there owner-occupied house goes up 15% a year in value during a housing market bubble.)
No one knows where this is all headed. The only solution available appears to be to try to again fix (the financial sector) and fire up (stimulate investment and consumption) the creaky old engine of world capitalism. The US economy functions as the sort of the big master motor of world of capitalism, so it falls on the US it to get our economy up and running again. Plus it was our financial sector’s collapse that started the whole unraveling process. Weirdly our function has evolved into being the master consumers of goods and services produced by others with money loaned to us by others. How long can this go on?
Throughout the so-called prosperity of the 1990s and first decade of the new millennium the US economy has actually been running on empty, or more specifically on money that was borrowed. The US government, controlled by the worst batch of dogmatic right wing ideologues ever assembled in one place, the second Bush administration and its enablers in Congress, ran annual deficits that would have made Marie Antoinette proud. They ginned up not one but two wars while perversely reducing the government's income by lowering taxes. The idiots claimed by cutting federal taxes, primarily for the already very rich, it would lead to more over all investment - thus more jobs. It didn’t work! The investment went overseas or into speculation. Profits from off-shoring production went to the rich but few new jobs that paid well were created. The appalling trillion-dollar shortfall that resulted was made up for by our issuing bonds (Treasury Bills), which were bought up mainly by the Japanese and Chinese who were also by the way producing much of what we were buying. In short they were loaning us money to buy the stuff that they made! But that was on the government side, and worked in a cockeyed sort of way. But it still did not account for all the massive funding of the consumption required to keep a multi-trillion dollar economy afloat and growing. Remember capitalist economies either grow (bubbles and booms) - good. Or they contract (recessions and depressions) - bad.
So the trick is always to keep it growing by hook or crook; governments insuring low interest rates is one way, deficit spending is another. In the Bush years low interest rates, deficit spending and other inducements fed into a housing bubble, which produced zillions of dollars out of thin air. This was enough to feed the maws of a consumer driven economy as people (with or without money) bought houses right and left and the stuff that went into them along with new cars and boats and gadgets and vacations. Those who didn’t buy new houses extracted equity on loans on the every increasing value of their existing homes or ran up credit card debt that carried usurious interest rates. But this mass use of credit was in some ways worse than a Ponzi scheme. In a Ponzi scheme there is real money somewhere at the bottom coming in even though it is a fraud, and is eventually recognized as such. In a classic finance bubble, the fraud is underwritten and sanctioned by the financial sector and the powers-that-be even though increasingly there is little less and less real value there. Everybody conveniently ignores that the emperor is butt naked that is it (the bubble) has to burst eventually. Everybody conveniently ignores this unpleasant truth because real money is being extracted and spent and on real goods and services. And. of course the sharpies, the hedge fund managers, the short sellers and the adroit brokers of every stripe are making a killing getting in and out before the axe falls. But in reality it’s mostly simply fictitious capital, loans using other loans as collateral. When it finally pops the ordinary investor (and recent homebuyers) eats shit big time.
Now it is time dust off the old Keynesian pump priming deficit spending mechanism that worked (eventually) to get us out of the last Big One. But now we have a bigger problem even than FDR faced. The problem is not the obstruction neo-Hooverite Neanderthal Republicans, FDR had then too. In our time they are standing firmly in the way (with their talk radio and Fox News propaganda machines) and undermining things as best they can. After all they have everything to lose politically if it’s fixed on the Democrats’ watch and everything to gain if it’s not.) And not only is the mess more than partly their fault as even more ardent supporters of financial market deregulation than the Democrats, but far worse is the fact that were Republican Party let deficits go through the roof while they ran things. As a party to two unnecessary and criminally mishandled wars and axiomatic support for an ever more bloated military budget un-funded by government revenues, they are up to their blow-dried hair in responsibility for both creating a bad situation and now ardently undermining the means to correct it.
The term dreaded “D word” for Depression is starting to appear more often as this thing radiates out and in all directions drawing in all of the once happy campers in our new globalized world economy. Many pundits such as NY Times columnist Tom Friedman were much enamored by the interconnection of it all. Well you were right, Tom, we are all connected and now it’s not such a good thing after all. As Wall Street goes so goes Main Street - and Main Streets all over the world. So we now see such riveting spectacles as a panicked exodus of foreign workers from that dazzling wonder on the shores of the Persian Gulf, that Tower of Babel ‘city state’ of Dubai. See: http://www.nytimes.com/2009/02/12/world/middleeast/12dubai.html?em. It seems like it was only weeks ago that CBS’s 60 Minutes had Mike Wallace being chauffeured around that shiny monstrosity of a city, that ultra eco-hostile Las Vegas of the Middle East, being shown ludicrous artificial islands shaped like miniature continents destined to contain multi-million dollar condos - or whatever and shopping malls the size of small cities. But now with crude oil having plummeted to a paltry $40 at barrel, all that oil wealth backed credit has been sucked into the Great Credit Vortex in the Sky. And the Chinese Communist Party’s “growth miracle” of quick and dirty planet killing capitalism-driven development (after all isn’t that how the West did it?) is grinding to an ugly halt with their unemployed masses starting to ominously rumble in restive discontent as they experience their first real business cycle. And the Europeans who have tried to walk the thin line between maintenance of their post WWII semi-socialist economies (pejoratively known in the US as “welfare states”) and at the same time paradoxically be born-again Anglo-American Thatcher/Reagan/Clinton/Bush Neoliberals. Now, alas, they have too been caught with their collective bloomers down. A February 15 NY Times story tells of the alarming rise in unemployment in Europe and elsewhere: http://www.nytimes.com/2009/02/15/business/15global.html?hp. Not only did the Euro bankers slurp down the same toxic subprime mortgage contaminated Kool Aid that the big boyz of Wall Street were guzzling, but now their economies are also being sucked into the resulting sudden downdraft of a global economic recession – a double whammy! And entire countries like Iceland that totally ‘ran their railroads’ on high profit banking pumping out juicy dividends to institutional investors (read pension funds and the like) are now toast (along with many retirement plans.) - whole countries bankrupt!
Everyone is drawn in on some level regardless of degree of active participation. But the hapless Third World poor that were already left out during the gravy years will also take a hit. It’s difficult to see how those billions of landless wretched masses in the those hell holes on earth like Chad or Haiti or Cambodia, people who live on $2 or less a day, could get much worse off. But if the NGOs that provide desperately needed assistance start receiving less donations, and they will, things will even become even more desperate for those who Franz Fanton called the ‘Wretched of the Earth.” And on the next level up, those “low wage platforms” countries that got much of our manufacturing base (China, India, El Salvador, Thailand) things are not much better. Workers there are being laid off en mass (and without and any recourse to anything like employment insurance or SSI.)
Those economies that never climbed aboard the Neoliberal Bandwagon (or were forced aboard by the IMF and World Bank like most of the Third World) are being drawn into this thing buy by what he economists refer to as “a fall in aggregate demand.” As international trade stalls the downturn feeds on itself. That is the nature of capitalism - feedback loops within feed back loops, creating all kinds of further amplification of the originating action. The very psychology of consumerism goes sour. A reluctance to consume sets in even with people who still have a reliable income or adequate assets. For instance in the last few months the savings rate in the US perversely went up just at the point when in an aggregate sense such behavior makes things worse. There something called the “multiplier effect” that determines the amount of new spending generated by a given unit of spending. The multiplier effect is in turn determined by something economists call the “marginal propensity to consume”, in other words an inclination to spend money. It falls when the media is full news of doom and gloom regarding the economy. It’s up when most people feels fat and sassy and prosperous - whether they really are or not (like when there owner-occupied house goes up 15% a year in value during a housing market bubble.)
No one knows where this is all headed. The only solution available appears to be to try to again fix (the financial sector) and fire up (stimulate investment and consumption) the creaky old engine of world capitalism. The US economy functions as the sort of the big master motor of world of capitalism, so it falls on the US it to get our economy up and running again. Plus it was our financial sector’s collapse that started the whole unraveling process. Weirdly our function has evolved into being the master consumers of goods and services produced by others with money loaned to us by others. How long can this go on?
Throughout the so-called prosperity of the 1990s and first decade of the new millennium the US economy has actually been running on empty, or more specifically on money that was borrowed. The US government, controlled by the worst batch of dogmatic right wing ideologues ever assembled in one place, the second Bush administration and its enablers in Congress, ran annual deficits that would have made Marie Antoinette proud. They ginned up not one but two wars while perversely reducing the government's income by lowering taxes. The idiots claimed by cutting federal taxes, primarily for the already very rich, it would lead to more over all investment - thus more jobs. It didn’t work! The investment went overseas or into speculation. Profits from off-shoring production went to the rich but few new jobs that paid well were created. The appalling trillion-dollar shortfall that resulted was made up for by our issuing bonds (Treasury Bills), which were bought up mainly by the Japanese and Chinese who were also by the way producing much of what we were buying. In short they were loaning us money to buy the stuff that they made! But that was on the government side, and worked in a cockeyed sort of way. But it still did not account for all the massive funding of the consumption required to keep a multi-trillion dollar economy afloat and growing. Remember capitalist economies either grow (bubbles and booms) - good. Or they contract (recessions and depressions) - bad.
So the trick is always to keep it growing by hook or crook; governments insuring low interest rates is one way, deficit spending is another. In the Bush years low interest rates, deficit spending and other inducements fed into a housing bubble, which produced zillions of dollars out of thin air. This was enough to feed the maws of a consumer driven economy as people (with or without money) bought houses right and left and the stuff that went into them along with new cars and boats and gadgets and vacations. Those who didn’t buy new houses extracted equity on loans on the every increasing value of their existing homes or ran up credit card debt that carried usurious interest rates. But this mass use of credit was in some ways worse than a Ponzi scheme. In a Ponzi scheme there is real money somewhere at the bottom coming in even though it is a fraud, and is eventually recognized as such. In a classic finance bubble, the fraud is underwritten and sanctioned by the financial sector and the powers-that-be even though increasingly there is little less and less real value there. Everybody conveniently ignores that the emperor is butt naked that is it (the bubble) has to burst eventually. Everybody conveniently ignores this unpleasant truth because real money is being extracted and spent and on real goods and services. And. of course the sharpies, the hedge fund managers, the short sellers and the adroit brokers of every stripe are making a killing getting in and out before the axe falls. But in reality it’s mostly simply fictitious capital, loans using other loans as collateral. When it finally pops the ordinary investor (and recent homebuyers) eats shit big time.
Now it is time dust off the old Keynesian pump priming deficit spending mechanism that worked (eventually) to get us out of the last Big One. But now we have a bigger problem even than FDR faced. The problem is not the obstruction neo-Hooverite Neanderthal Republicans, FDR had then too. In our time they are standing firmly in the way (with their talk radio and Fox News propaganda machines) and undermining things as best they can. After all they have everything to lose politically if it’s fixed on the Democrats’ watch and everything to gain if it’s not.) And not only is the mess more than partly their fault as even more ardent supporters of financial market deregulation than the Democrats, but far worse is the fact that were Republican Party let deficits go through the roof while they ran things. As a party to two unnecessary and criminally mishandled wars and axiomatic support for an ever more bloated military budget un-funded by government revenues, they are up to their blow-dried hair in responsibility for both creating a bad situation and now ardently undermining the means to correct it.
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