Scenes From the Global Class War Scrawny Geese; No More Golden Egg By MICHAEL HUDSON, CounterPunch, October 27, 2008 On Friday, October 24, the pound sterling dropped to just $1.58 (down from $1.73 earlier in the week, an enormous plunge by foreign-exchange standards), and the euro sunk to just $1.26, while Japan's yen soared by 10 per cent. These shifts threatened to disrupt export markets and hence industrial sales patterns. Global stock markets plunged from 5 to 9 per cent abroad, and there was talk of closing the New York market if stocks fell more than 1,000 points. Pre-opening trading saw the Dow Jones Industrial Average down the maximum limit of 550 points (largely on foreign selling) before bounding back to lose "only" 312 points as the dollar soared against European currencies. Friday's currency turmoil and stock market plunge was a case of the chickens coming home to roost from the class-war policies being waged by European and Asian industry and banking squeezing their domestic consumer markets - that is, labor's living standards - in favor of export production to the United States. The internal contradiction in this industrial and financial class warfare is now clear: To the extent that it succeeds in depressing labor's income, it stifles the domestic consumer-goods market. This disrupts Say's Law - the principle that "production creates its own demand," based on the assumption that employees will (or must) be paid enough to buy what they produce. This has not been true for many years in Europe and Asia. But production has been able to continue without faltering because of an international deus ex machina: consumer demand in the United States. This is not to say that no class warfare is being fought in the United States. Indeed, living standards for most wage earners today are down from the "golden age" of the late 1970s. But the U.S. economy had its own financial deus ex machina to soften the blow: Alan Greenspan's asset-price inflation that flooded the banks with credit, which was lent out to homebuyers and stock market raiders. Rising home prices were applauded as "wealth creation" as if they were a pure asset, much like dividends suddenly being awarded to one's savings account. Homebuyers were encouraged to "cash out" on the rising "equity" margin, the (temporarily) rising market price of their homes over and above their (permanent) mortgage debt. So while most mortgage money was used to bid up the price of home ownership, about a quarter of new lending was reported to be spent on consumption goods. Credit card debt also soared. In the face of a paycheck squeeze, U.S. consumers were maintaining their living standards by running further and further into debt. But once the housing bubble burst the game was up.
Scrawny Geese; No More Golden Egg
By MICHAEL HUDSON, CounterPunch, October 27, 2008
On Friday, October 24, the pound sterling dropped to just $1.58 (down from $1.73 earlier in the week, an enormous plunge by foreign-exchange standards), and the euro sunk to just $1.26, while Japan's yen soared by 10 per cent. These shifts threatened to disrupt export markets and hence industrial sales patterns. Global stock markets plunged from 5 to 9 per cent abroad, and there was talk of closing the New York market if stocks fell more than 1,000 points. Pre-opening trading saw the Dow Jones Industrial Average down the maximum limit of 550 points (largely on foreign selling) before bounding back to lose "only" 312 points as the dollar soared against European currencies.
Friday's currency turmoil and stock market plunge was a case of the chickens coming home to roost from the class-war policies being waged by European and Asian industry and banking squeezing their domestic consumer markets - that is, labor's living standards - in favor of export production to the United States. The internal contradiction in this industrial and financial class warfare is now clear: To the extent that it succeeds in depressing labor's income, it stifles the domestic consumer-goods market. This disrupts Say's Law - the principle that "production creates its own demand," based on the assumption that employees will (or must) be paid enough to buy what they produce.
This has not been true for many years in Europe and Asia. But production has been able to continue without faltering because of an international deus ex machina: consumer demand in the United States.
This is not to say that no class warfare is being fought in the United States. Indeed, living standards for most wage earners today are down from the "golden age" of the late 1970s. But the U.S. economy had its own financial deus ex machina to soften the blow: Alan Greenspan's asset-price inflation that flooded the banks with credit, which was lent out to homebuyers and stock market raiders. Rising home prices were applauded as "wealth creation" as if they were a pure asset, much like dividends suddenly being awarded to one's savings account. Homebuyers were encouraged to "cash out" on the rising "equity" margin, the (temporarily) rising market price of their homes over and above their (permanent) mortgage debt. So while most mortgage money was used to bid up the price of home ownership, about a quarter of new lending was reported to be spent on consumption goods. Credit card debt also soared. In the face of a paycheck squeeze, U.S. consumers were maintaining their living standards by running further and further into debt.
But once the housing bubble burst the game was up.
Great find, thanks ARGeezer.
Speaking of really wild optimism, note that the authors of "Dow: 36,000" were at the conservative end of the bull-market visionary book-sellers crowd. Thus Dow:40,000 and Dow:100,000 (by 2020 no less).
Chiliasm, I think is the word to describe all this. Chiliastic numerology. And what else but a standard chiliastic cult's revelation-postponement (see here for similarly failed prophecy) is shown in this 2006 article, where the authors of both 36,000 and 100,000 remain confident in their predictions - its just that they were off a bit:
Glassman, 59, defends "Dow 36,000's" original premise as well. The prediction -- that the Dow would triple by 2005 -- is still valid, he says, although he's pushed the deadline out to 2021... Glassman and Kadlec say their out-of-print books, offered for sale on Amazon.com for as little as one cent, are still relevant. "Dow 36,000" held that stocks were safer than bonds over the long term. When investors recognized this, the Dow would triple in value, the authors wrote. "There's nothing that's occurred over the past few years that's changed our minds about the original thesis," said Glassman, who writes a syndicated investing column and is a resident fellow at the American Enterprise Institute, a Washington-based think tank.
Glassman and Kadlec say their out-of-print books, offered for sale on Amazon.com for as little as one cent, are still relevant.
"Dow 36,000" held that stocks were safer than bonds over the long term. When investors recognized this, the Dow would triple in value, the authors wrote.
"There's nothing that's occurred over the past few years that's changed our minds about the original thesis," said Glassman, who writes a syndicated investing column and is a resident fellow at the American Enterprise Institute, a Washington-based think tank.
(As a McCain advisor Hassett is shameless though, he has recently complained of voting fraud by the Democrats! Totally shameless.
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Speaking of failed prophesies however, my all time favorite and a book of historical significance, surely, is without a doubt, David Lereah's "Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them (2005)".
This awesomely titled book is by the author of The Rules for Growing Rich : Making Money in the New Information Economy (2000), where he was plugging Internet stocks a few months before the dotcom crash. Undoubtedly this man is the epitome of timely financial advice. A true oracle of the New Gilded Age.
The optimism of the realtor was matched, according to Amazon (I assume it was a blurb?) by David Berson, Chief Economist at Fannie May who had this to say about the book: "An important book, whether you agree with the author (as I do) that housing will remain an excellent investment or are convinced that home prices are poised for a plunge, David Lereah lays out a compelling vision of housing as a continuing positive investment--and how you can profit from real estate if you already own the home you live in, are looking to move from rental housing to an owner-occupied home, or want to use real estate as an investment."
Note on the Amazon page for the Real Estate Rapture book, the number and ferocity of comments it has attracted, and especially this gem of a recommendation.
The author would wish he could change the title and that people would go beyond the title to the substance of the book:
"Obviously I would change the title," says David Lereah, the former chief economist of the National Association of Realtors and author of "Why the Real Estate Boom Will Not Bust - And How You Can Profit From It," published in paperback in February 2006. "There are places in the book where I actually say the boom is not healthy. But people don't read the book, and they just look at the title and they criticize it."
I love this prophets of profits shred to bits thing though. So much so, that I think I might make a diary out of this comment :-) The road of excess leads to the palace of wisdom - William Blake
BBC NEWS | Business | Darling spending plan 'misguided'
The government's plan to spend its way out of the looming recession is "misguided and discredited", say leading economists. Chancellor Alistair Darling wants to bring forward spending on key state-funded projects to kick-start economic recovery. But a group of 16 economists say it risks damaging private sector recovery.
The government's plan to spend its way out of the looming recession is "misguided and discredited", say leading economists.
Chancellor Alistair Darling wants to bring forward spending on key state-funded projects to kick-start economic recovery.
But a group of 16 economists say it risks damaging private sector recovery.
All very serious. And these clowns did such a good job of predicting the recent past that their credibility sails on, resolute and undented. Naturally.
The City and its financial services industry must be much like Wall Street in the US--a giant leech attached to the body politic. Heat from the glowing embers of that sector will cause the leech to let go--eventually. The question is how much public debt will have to be assumed before that happens. Let all of these financial service firms die. There is nothing that can be done to stop it. The only question is how much of our wealth to put on the funeral pyre. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Cost of crash: $2,800,000,000,000
Snippets of this interview were repeated constantly throughout the day.
Howard Dean said the first thing Democrats needed to do was turn up. He was right. Money is a sign of Poverty - Culture Saying
1) There's a strong concentration on technicalities at the expense of the political message being pushed.
- For example a lot of concentration on the technical notions that a cut in low earner tax (e.g. a NI holiday) would feed into the economy quicker than infrastructure:
- No mention of the role of infrastructure contracts in slowing the collapse of construction employment.
- No mention that infrastructure spending provides more stimulus than tax cuts.
- No mention that in a highly indebted environment, low end tax cuts are as vulnerable as other money supply measures to "pushing on a string" problems.
2) Most of all however, no mention, as you note that they wouldn't actually be proposing a tax cut for the low end, let alone a tax cut for the low end only.
3) The allocative efficiency argument is so depressing, as we face a crisis built up out of the misallocation of resources by the market over a long period.
>The right-wing tendencies of the British blogosphere
I think I might make a diary out of this comment :-)
Yay!
In the French and Russian revolutions the priests and aristocrats who underpinned those orders were dealt with rather harshly if they did not succeed in fleeing. We are just now at a stage where the problems posed by our equivalents of those priests and aristocrats, the neo-classical economists who brought us finance capitalism and the executives of the largest investment banks rating companies, insurance companies, etc., have just begun to be recognized. Better worlds await, if we can only change the way we see things. Yet the vast majority of the population still lives in superstitious dread of the supposedly awesome powers of these high priests of money.
We are not at a point where an alternative to neo-classical economics has seized the imagination of the majority of the population. It is not a question of understanding, but rather of the effects of indoctrination wearing off. Christopher Hill, writing about the English Revolution spoke of a "mindstop" that made it very difficult for most Englishmen to even conceive of deposing, let alone executing Charles I. We are at such a point now. Let us hope that it can be resolved better and with less social damage, death and suffering than accompanied the English, French and Russian Revolutions.
Anarchy or fascist distopia are the two walls of the abyss into which we do not want to descend. In order to prevent such a descent, which would surely be accompanied by an environmental catastrophy, farsighted leaders with cool heads in which feasible alternatives can flourish must prevail. We must abandon efforts to save the unsalvageable so that we can save what can be saved. Trying to prop up the financial services industry is like the lifeboats trying to tie lines onto the Titanic to keep it from sinking. Continuing down that path will likely have similar results for us. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Say, I am selling great pizzas, you are selling good shoes. We would gladly exchange the goods (with or without much mediation of money). But we are both in deep mortgage debt, and we cannot afford to buy each other's goods. Not only we can't buy or do much, we can't service a large portion of people just like us as well. Only those with good equity balance can buy at our shops - we are all doing best to service them. In effect, exclusively them. That's the barrier of money. It's very good to be on the wealthy side. If we would barter our goods, then... dunno... that would probably be very unfair to hard-working financial experts as we would get the same quality goods as only their money could buy. Escaping their network of rent and interest payment would be revolutionary indeed; wouldn't they have an excuse for forceful reaction?
It would be interesting if more LETS began appearing throughout the world as a result of this crisis. Truth unfolds in time through a communal process.
LETS involve monetising credit (which is what Banks do as well), and rely upon trust. That's fine among communities where trust is normal, but once the "commercial" world is involved, trust goes out of the window.
As Comrade Stalin said:
"Trust: but Validate". "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
B2B Barter systems like the WIR in Switzerland and proprietary systems such as Bartercard and BX all have credit built in, and where you have a barter system with in-built credit, then the result is a monetary system.
The reason for the pervasive (multi billion Swiss Franc) success of the WIR in Switzerland is that all members have to give a charge on their property to secure against defaults (ie non payment of debit balances).
ie the WIR is property-backed.
No one has yet managed to extend these B2B systems to customers as well (B2C).
But this will happen, and when a simple piece of software (a "transaction engine") does appear (there are several candidates) all that will be necessary for a complete credit solution is a mutual guarantee backed by provisions made into a mutually owned default fund.
At that point we will have created a "Clearing Union" (as advocated by Keynes) and banks as credit intermediaries will have become obsolete.
Of course, they could still have a role as service providers managing the process of credit creation; setting guarantee limits; managing defaults and so on...all without putting their capital at risk by creating credit based upon it... "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
