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.
