Billmon: Fuel Shortage
A big picture economy review: Fuel Shortage
For the financial markets, last week had a ugly feel to it, both on Wall Street and globally. It wasn't a crash, certainly, but also more than just a garden-variety correction. It felt like the preliminary stages of a sea change in sentiment -- the kind that either accompanies the popping of a bubble, or causes it, depending on your economic point of view.
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Posted by b on April 18, 2005 at 8:12 UTC | Permalink
Well, as I have also written regularly about this, I can only thank Billmon for putting this, as usual, in very clear terms, but I would like to point out a few things:
- the US budget deficit numbers are underestimated in your graph, Billmon, as they don't take into account the supplemental spending on Iraq (they also include the Social Security excedent, but that's another question) - and so I am not sure that they are declining in actual money spent by the US government. Exceptional spending is still spending
- there is no savings glut. These whole imbalances are caused wholly by the excess demand of the US consumer (including the US govt), fuelled by the deby bonanza which you so rightly underline. European and Japanese growth appears stagnant only in comparison to the artificially increased US one (which brings the Asian ones along thanks to imports). Spending on your credit card does not make you richer.
- the oil price increases are only the flip side of the unsustainable growth model of the USA and China, and it is simply the reflection that this artificially incurred rapid growth is bumping against real physical constraints in the commodity markets and the required transport infrasturcture, which have not kept up.
The ONLY way out is by a sharp reduction of US spending and an increase in US savings. This will trigger a sharp slowdown in the US; whether it triggers one in Asia will depend on their ability to switch domestic savings to domestic consumption. Europe will trundle along.
Posted by: Jérôme | Apr 18 2005 9:23 utc | 2
Another way to put it: the excess comes in the following cycle:
Easy debt boosts consumption, which boosts growth and imports, which boosts trade deficits; which boosts seigneuriage (as foreigners are keen to invest in the booming us economy or forced to recycle their excess dollars); which encourages excess spending by the government (knowing that it won't have to pay the price for its carelessness); which requires increasing debt, etc...
Now this cycle is not necessarily unhealthy per se, if enough spending goes to investment (that was the Rubin virtuous cycle during the Clinton years when foreigners invested in the US willingly, and not because they had to) and the overall growth rates of the various units are not unreasonable.
What has broken that cycle is a combination of several things:
- a long term problem is that US consumers, used to not paying the full price for things, tend to waste resources - thus sprawl, SUVs, the unwillingness to pay taxes which do not appear so necessary, etc... and this would have eventually bumped against peak oil or any other finite limits to resources; the appearance of China as a major economic power, boosted by US demand, has only accelerated this trend;
- the second factor has been the amazingly lax monetary policy of the Fed. This has led to an accelaration of the cycle, and unsustainable increases of various economic items. Consumption has been boosted by asset (leveraged) reevaluation, savings have fallen yet again, and imports have been boosted beyond reason. Thus the cycle has fallen into the "negative" kind of capital entry to the US - purchases of T-bills because they have to, not because they want to. It has also sent some numbers far into unsustainable range - such as the fact that the US now absorbs 80% of the world savings;
- the third factor, which can be squarely blamed on Bush, is that a lot of the government spending allowed by Greenspan's bubbles has been squandered - either wasted in military destruction, captured by military contractor/parasites, or given away to wealthy Americans (which in the best case spent it on ressource-draining vanity houses/cars/etc.)
Items 2 and 3 CAN be corrected by good policies, which the Dems should certainly promote - no budget deficits with no pointless military spending, and more reasonable interest rates to slow down runaway consumption. By shifting spending from the rich to the poor, this can still be mande painless, or even marginally positive, to a majority of Americans.
Posted by: Jérôme | Apr 18 2005 9:25 utc | 3
Todays Krugman column: A Whiff of Stagflation
In the 1970's soaring prices of oil and other commodities led to stagflation - a combination of high inflation and high unemployment, which left no good policy options. If the Fed cut interest rates to create jobs, it risked causing an inflationary spiral; if it raised interest rates to bring inflation down, it would further increase unemployment.Can it happen again?
Last week fears of a return to stagflation sent stock prices to a five-month low. What few seem to have noticed, however, is that a mild form of stagflation - rising inflation in an economy still well short of full employment - has already arrived.
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We shouldn't overstate the case: we're not back to the economic misery of the 1970's. But the fact that we're already experiencing mild stagflation means that there will be no good options if something else goes wrong... [possible events: Consumer pullback, oil supply disruption, Asian central banks not buying dollar assets, housing bubble burst] ..
Any of these events could easily turn our mild case of stagflation into something much more serious.
How do we get out of this bind? As the old joke goes, I wouldn't start from here. We should have spent the years of cheap oil encouraging conservation; we should have spent the years of modest growth in medical costs reforming our health care system. Oh, and we'd have a wider range of policy options if the budget weren't so deeply in deficit.
So if any of these things does come to pass, we'll just have to see how well an administration in which political operatives make all economic policy decisions, and the Treasury secretary is only a salesman, handles crises.
J: Your 2nd post contains what I would've added to your first: if the US has to massively reduce spending, there's only ONE way to do it. Dwarf the currently insane military. The US arguably wastes more money on war and weapons than the rest of the world together. THe official budget is now something like 500 bio. Yet even that doesn't cover all costs, otherwise you wouldn't have a 1+ trillion hole of officially unaccountable $$ (wasn't it Rep. Waxman who was investigating this incredible stufff?).
You're of course right to point that the whole global comparisons are twisted and perverted. The current EU and Japan growth would have been enough to cancel all unemployment, just 2 decades ago, but now that the US monster eats up all the money, their very decent growth overall looks like something ridiculous. Well, reality check, UK growth in the late 18th and most of 19th wasn't in the yearly +7% range, it was was smaller.
B: Stagflation. Bush as the new Carter. sheeesh...
You're quite right that the way inflation is assessed is a complete joke. The biggest burdens - usually those with the sharpest increase in prices, like housing and healthcare, drugs, ... - are vastly underevaluated in the global calculation; that is, the % allocated to housing would be fine if you're a millionaire, but it's way bigger for 95% of the people. There are also cases where important widespread expenses aren't even considered. Basically, it's like unemployment stats; the govt decides what to include and to which extent, according to the figures it wants to see at the end. Maybe is it better in Germany; it's one of the few countries who at long last opted for transparency in jobless stats (which basiucally caused an increase of 1 mio at once).
Posted by: Clueless Joe | Apr 18 2005 10:07 utc | 5
My new post on oil over at Kos
Thanks to fauxreal (I think) for the link to the CIBC study I exploited... (If it was someone else, don't hesitate to claim your dues!)
Thanks to all for all the links you post here, it provides a wealth of choices for future topics, as demonstrated today by diogenes' post being front paged.
Posted by: Jérôme | Apr 18 2005 11:49 utc | 6
Nouriel Roubini: Is the US Really Serious or Masochist About Demanding a Revaluation of the Chinese Currency? Playing with Fire and the Risk of a Market Crash
Thus, the crucial question is: are the US authorities really "serious" about demanding that China gets serious with its currency de-pegging or are really clueless and masochistic? Do they really mean what they say or are they clueless about the consequences of such reckless talk?There are at least three interpretations of the US posturing:
1. Talk is cheap and the posturing is aimed at containing protectionist pressures in the US.
2. The US authorities are really clueless or masochistic.
3. Wishful thinking that a Chinese revaluation alone would solve the US current account problems...
Posted by: Greco | Apr 18 2005 12:17 utc | 7
I no longer feel left out when people complain that they can't grasp any of this economics stuff: I have finally over-educated myself to the point where I can't put the system together...
A few questions that might help clear my mind:
Colman--
Don't think you even need one of the holy trinity's graphs (b,j,B) on that one; believe it's right there in the recent (interest rate driven) recovery of the dollar/flattening of barrel prices...
As I try to understand economics, I return periodically to Wild Blue Yonder. That's a keeper.
Hmmmm. Sure sounds like your report creatively confirms the laws a capital accumulation and the tendential fall in the rate of surplus-value.
Posted by: slothrop | Apr 18 2005 15:03 utc | 12
I ‘m sure not an expert like those who posted previously.
There are inherent contradictions in the US economy that aren’t being addressed by pundits, US leaders, or experts. Billmon pointed out that growth in the US economy is being led by increased consumption. But, US wages are deflating. Less than 10% of US profits come from manufacturing. The only sources of this excess money to buy cheap foreign goods that I see have to be 1) conversion of household equity into cash, 2) innovative financing (credit cards and scams), and 3) wealthy spending their tax cuts on luxury goods.
Home equity is now tapped out. Spending by the rich 1% doesn’t trickle down.
Several decades ago after I bought my house, my ex and I ended up at Consumer Credit Counseling (CCC). Then followed 7 years without credit cards. I have this scary gut feeling that millions and millions of credit cards are going to be cut up in millions of households. Americans will be force to live paycheck to paycheck paying off their debt, if they are lucky enough to have a job. This feels like a huge Crash to me.
Posted by: Jim S | Apr 18 2005 15:35 utc | 13
Stephen Roach's piece today: Tilt!
An unbalanced global economy is at risk of becoming unhinged. Beset by record imbalances between current account deficits and surpluses, it doesn’t take much to derail a system that is already in serious disequilibrium. Such a possibility now seems less remote in the face of a confluence of powerful blows -- an energy shock, threats to European unity, an outbreak of overt hostility between China and Japan, and the rising tide of US-led protectionist sentiment. Meanwhile, steeped in denial, global policymakers are asleep at the switch.
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The stewards of globalization are nowhere in any of this. Another G-7 meeting has come and gone, and I ask myself, Why do they even bother? The 16 April communiqué was as vacuous as ever. As the world economy lists to the downside, the G-7 states, “…the global expansion has remained robust and the outlook continues to point to solid growth for 2005.” Their primary focus on energy is to, “…welcome efforts to improve oil market data.” And they barely paid lip-service to the “elephant in the room” -- ever-widening global imbalances. The US succeeded in having any references stricken regarding its rapidly exploding current account deficit. The Wise Men appear to be smitten with Fed Governor Ben Bernanke’s recent whitewash of this problem, explaining away America’s external imbalance as an innocent outgrowth of a global saving glut (see Bernanke’s 14 April 2005 Homer Jones Lecture, “The Global Saving Glut and the U.S. Current Account Deficit”). A G-7 having its head in the sand says it all -- the managers of globalization don’t have a clue as to how to cope with the real-time problems of globalization.
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Little wonder world financial markets are reeling. An unbalanced global economy is not in great shape. The global growth engine -- the United States -- continues to derive its sustenance from asset markets and the unsustainably low real interest rates that support a wealth-driven impetus to aggregate demand. Not surprisingly, the Bernanke thesis conveniently celebrates the result without looking in the mirror and acknowledging the bubble-prone Fed’s culpability in creating this moral hazard. In the absence of another global consumer, I guess the rest of the world is willing to put up with a lot in order to keep the music going. Policy blunders are bad enough. History warns us that political risks are always the most destabilizing force of all. Those risks are now rising around the world. Beset by record imbalances and mounting political perils, a precarious global economy doesn’t have much to fall back on.
the US budget deficit numbers are underestimated in your graph, Billmon, as they don't take into account the supplemental spending on Iraq (they also include the Social Security excedent, but that's another question)
Deficit numbers are taken from the National Income and Product Accounts, not the Treasury numbers. NIPA definition is specifically designed to measure the economic impact of the federal budget, so I'm pretty sure, but not absolutely certain, it includes the defense supplementals -- as the money is spent, not as authorized. The SS issue isn't relevant: again, this is about measuring whether the overall fiscal balance is expansionary or contractionary, not about which "pots" the Treasury is using.
there is no savings glut. These whole imbalances are caused wholly by the excess demand of the US consumer (including the US govt
One man's glut is another man's excess demand. I guess it gets down to whether you think the current imbalances are "demand pulled" by U.S. fiscal and monetary policy or "supply pushed" by Asiatic mercantilism. Personally, I think it's the chicken and the egg all the way -- you couldn't have one without the other.
But the fact remains: The USA is on track to hit a current account deficit of about 8% of GDP. Off the top of my head, I think the US economy still accounts for about a third of global GDP. So that 8% equals about 2.6% of world economic output. Cut world output by 2.6%, and you're talking about a very deep global recession -- and I'm not even including the knock-on multiplier effects. Yes Asia and America would bear the brunt of the deflationary shock, but I seriously doubt Europe would "just trundle along."
the oil price increases are only the flip side of the unsustainable growth model of the USA and China, and it is simply the reflection that this artificially incurred rapid growth is bumping against real physical constraints.
Unquestionably true -- although I wouldn't underestimate the role of excess liquidity in pumping oil prices even higher than the supply-demand equation otherwise would take them. The hedge funds have been ruling the market for a couple of years now. They took it up and I suspect they'll bring it back down when the liquidity bubble pops.
Needless to say, I'm much less optimistic than Jerome that these imbalances can be made "painless or even marginally positive" for a majority of Americans, simply through income redistribution. When economic imbalances are perpetuated long enough, they become structural imbalances, and impossible to correct without pain. Given that we live in a global capitalist system with a shrinking social democratic safety net(albeit a lot smaller for some than for others)it's pretty clear who's likely to bear most of the pain.
I think Krugman is right: what we have here is indeed a "whiff of stagflation." But I smell a lot more stagnation in the mix than inflation. The Fed (with a huge assist from the Bank of Japan and the People's Bank of China) has been treating serious structural imbalances with massive doses of cheap money, which inevitably has inflationary side effects -- particularly in those economic sectors (like raw commodities) that were starved of capital in the '80s and '90s.
But the underlying dynamics -- massive industrial capacity in Asia designed to feed cheap imports to ever more deeply indebted American consumers -- are deflationary. (According to Brad Seltser, 50% of Chinese GDP is now devoted to fixed investment. 50%!!!)
I guess the main point of my post was that this deflationary undertow could gradually drag down all the swimmers even if they're all still clinging to the Bretton Woods II life raft. Consider that if a sharp US slowdown forces the Fed to stop raising rates at 3% (25 bps above current levels), it will match the BOTTOM of the last major rate cycle in 1993.
Carry that trend line forward, and pretty soon you get to zero, and game over for the Fed.
Posted by: Billmon | Apr 18 2005 16:02 utc | 15
@Coleman # What effect does allowing the Chinese currency float have on oil prices and their ability to buy oil? It seems to my mind, that if the renminbi appreciates relative to the dollar, the Chinese get oil cheaper, and this will tend to push the price of oil up even more for the US. What countering effect am I missing here?
# Does anyone have a link to a comparison in oil price in euros vs oil prices in dollars? How much has the price of oil risen rather than the value of the dollar dropped?
1. You might be very right on that one. A higher renimbi would mean cheaper oil for China, but also less exports. It is difficult to say to which side (up or down) of total consumption this will trend. I assume higher consumtion even when exports fall as internal prvate consumption is trending up.
2. Graph: Dollar and Euro Prices for Crude Oil
Until the Europeans killed off the three year long Euro appreciation versus the Dollar by throwing away the stability pact, Oil in Euros was trending much less higher then in Dollars.
Billmon - thanks for the extended reply.
- thanks for the precision on NIPA. It's just that I remember discussing the budget deficit numbers in a thread here a few weeks back and it seemed that the real deficit was higher than that on your graph. I'll defer to your numbers, not that it changes much in any case...
- chicken and egg. I agree, of course, neither(excess demand in the Us and excess savings in Asia) can exist without the other; on a reasonable scale, it is probably a smart way for both sides to get what they want - a good win-win policy. But my opinion is that the recent years have seen an increase in the scale of the unbalances - caused fully by Bush and Greesnpan's ultra lax budgetary and monetary policies - which has brought them to the noxious levels we now see.
- global recession. Yep, I don't see how we can avoid a correction of at least that size, if not more. I also think that Europe will prove surprisingly resilient to the crisis although it is indeed impossible that it will not be affected.
- as far as my optimistc scenario, it was just to say that it is still possible to imagine a path whereby the unbalances would be corrected in an orderly way and without the crash we all see coming. The practical obstacles to such a path are of course overwhelming, and do not come only from US politics. So don't really count me amongst the optimists...
- finally, on the oil prices, I cannot argue that global liquidity does not have an influence there as well, but as the Canadain research piece I commented in my latest Kos diary showes, there are real physical limitations to future oil production. The situation on the oil front is a lot worse that is currently acknowledged, which is why I am becoming a bore on this topic by repeating it endlessly...
PS Roach calculated a few weeks back that a "neutral" Fed rate wqould be at around 5.75%...
Posted by: Jérôme | Apr 18 2005 16:37 utc | 17
PS Roach calculated a few weeks back that a "neutral" Fed rate wqould be at around 5.75%...I know people here investing in the US on the basis of a worst case of 4% in two years. Just a little bit optimistic I suspect, but they're working on the theory that they can convert the loan to euros if it gets really bad over there.
Would it be awfully wrong of me to interpret the graph b linked to as saying that about half of the dollar rise in oil prices is demand and fear driven and half is dollar depreciation?
Why the usual condemnation of "marxists"? I'm w/ RossK: I'm learning. But, when I read Roach/Krugman/prudentbear/billmon, the analysis of the economy, sure sounds to me like anything teeple or sweezy or other marxists might provide. The investigations include the usual positivist methodology with all those data provided meticulously by university and government researchers. The defamation of "marxists" seems to revolve around the view marxists don't parse enough and therefore oversimplify. I suppose it would be nice to see proof of this--and not too selectively, please.
I guess it's the necessary, reflexive condemnation of marxists as uncreative dumbfucks which bugs me. My own evolving experience with the macro-econ literature suggests this arrogance is unjustified and is rehearsed so often by progressives in order to reassure the status quo everyone is playing by the same rules.
I guess.
Posted by: slothrop | Apr 18 2005 17:12 utc | 22
@Coleman Would it be awfully wrong of me to interpret the graph b linked to as saying that about half of the dollar rise in oil prices is demand and fear driven and half is dollar depreciation?
You are perfectly correct in that. As OPEC and Russia (in a rough view) sell oil in US$ and buy their daily needs in Euros, they have to lift prices when the Dollar goes down to be able to consume as before.
This stuff make my frontal lobes curl, but does it seem that Jerome, above, is more or less in agreement with http://www.truthout.org/docs_2005/041705A.shtml>Stirling Newberry about the vicious cycle of American debt and energy shortfall?
Jerome: Easy debt boosts consumption, which boosts growth and imports, which boosts trade deficits; which boosts seigneuriage (as foreigners are keen to invest in the booming us economy or forced to recycle their excess dollars); which encourages excess spending by the government (knowing that it won't have to pay the price for its carelessness); which requires increasing debt, etc...
Stirling:
The investment deficit and budget deficit together create conditions in which real wages do not increase as quickly and there is less growth in the kind of upwardly mobile employment that people need. This situation also creates incentives for government to tax consumption, both because this reduces the trade deficit, and because the wealthy cannot be taxed. This creates a wages deficit. The wages deficit, in turn, gives people an incentive to borrow more, particularly against their homes. This creates a wealth deficit, with increasing inequality in assets. The solution to the wealth deficit is for people to use gasoline to shop around for better bargains, and to buy homes further from where they work, and in areas that do not have to pay the carrying costs of large metropolitan areas. This means they burn more energy, and this loops back around to the beginning of the cycle. The whole cycle then is:1. Energy deficit creates trade deficit.
2. Trade deficit creates investment deficit.
3. Investment deficit creates budget deficit.
4. Investment deficit and budget deficit creates wages and wealth deficit.
5. Wages and wealth deficits create pressure to use energy to generate housing wealth, which starts the cycle over again.Each stage pushes the next along, because at each stage there is a group of people that can benefit by pushing the problem to the next group of people.
I think Stirling is partisan, i.e. he was attached to the Clinton political machine and is nostalgic for the Clinton/Rubin solution which was never given a fair shake (per Stirling, anyway). But to this semi-literate struggler with macro-econ, some of what he says seems to make sense.
I agree s/slothrop that tarring all Marxists with the "uncreative sectarian fossils" brush is unjust. The real sectarian fossils today are the die-hard adherents of the Chicago School imho, who can never get past the fundamental Article of Faith: that infinite growth is possible on a finite ball of rock.
slothrop,
One one level at least, the reasons to condemn Marxists may be much simpler. Simply, Marxist economic theory is fundamentally about a clash between abstract and concrete imperatives. But the macro-economists are (according to Marxian logic and terms) all abstract. So in their game, disciplined economic reasoning along Marxian lines is too unfocused to be useful for tactical thinking. Unprofitable, therefore useless.
But we are not reasoning our way to profit; we are trying to keep open avenues for humanity to survive, and to prosper, concretely! Here, where we can talk about humane goals, we have translation work to do. The same terms mean different things, and I'd like to learn how to translate without giving in to any desire or demand to merge these two languages into one.
Posted by: citizen | Apr 18 2005 18:26 utc | 25
DeAnander - I actually wrote my bit as a reply to one of Stirling Newberry's posts, and copied it back here with small modifications, thus some similarities... We tend to hog his Kos threads with our discussions on the economy of Europe, with me playing the starry-eyed optimist, seeing "Anglo-Saxon" plots everywhere...
"Anglo-Saxon" is the mirror of "Marxist", I suppose...
Posted by: Jérôme | Apr 18 2005 19:00 utc | 26
The defamation of "marxists" seems to revolve around the view marxists don't parse enough and therefore oversimplify.
Perhaps I should have said "vulger Marxism" -- in which blaming the "laws" of capitalist production becomes an all-purpose substitute for trying to figure out how those "laws" actually operate in the real world of a very complex globalized economic system.
Posted by: Billmon | Apr 18 2005 19:20 utc | 27
My question to the economically literate (and it isn't a rhetorical one): Is there anybody among you who thinks that a soft landing for the US economy is a probable outcome of the situation?
Posted by: teuton | Apr 18 2005 19:35 utc | 28
Billmon,
agreed. "Blaming the laws" is like saying the Mississippi river is just a big long groove in the continent, so let's not sail down it.
Reading the laws, though, that might keep you off a few sandbars.
Posted by: citizen | Apr 18 2005 19:43 utc | 29
Coming crisis: You don't sound that optimistic, J, with "global recession at best", though Billmon has the same fears. I'm no economist and am quite ignorant of this overall, but from what I see it's also my opinion. In theory, this can be fixed. That is, if we could control everyone and every human had complete knowledge and rational thinking. Since it's not, I don't think it can be avoided.
And Europe will be nastily hit as well, I don't doubt it. Though less than the US, and this may be what matters when the dust has settled (of course, EU won't be the only player that will suffer less than the US); I just wonder if this will go down to a last-man-standing trade war or if the system will collapse so strongly and fast that people won't even bother. What I also wonder is what will happen to the economic systems and theories if the US really goes down. We know what happened to the Communist bloc when the head was cut off, and I've always wondered if the same with the US would do in the now overarching laissez-faire capitalism.
Of course, I'm also trying to figure what the French Non to EU Constitution will mean in the medium and long run, even if it's an event of secondary importance in what is going on.
US has a 8% deficit? Well, considering that France and Germany are blamed for getting slightly over 3%, I'd say the US are doing even worse than any post-communist Eastern Europe country. Though maybe better than late 1990s Argentina.
Debts: Jeremy Rifkin was scared shitless about this 10 years ago when writing End of Work, seeing that people were actually going into debt to buy stocks, which would leave millions without resources when the market would readjust. I've been thinking about this often, and the US has been very lucky that the bubble went so high, because it's the only reason that prevented a complete collapse so far, imho.
slothrop: Well, whatever, Marxism still is right that the capitalist system has deadly inherent contradictions that will ultimately bring its downfall. Except it took longer than expected. Basically, it is a spiralling behaviour, each crisis being bigger and going lower than the previous one. Usually, between crisis, the situations rises higher than in the previous cycle as well (particularly obvious in the 90s). And this time went so high that the crisis took a long time to come compared to previous ones.
The following isn't classical Marxist theory, but something Diamond or anyone knowledgeable about the 2nd law of Thermodynamics should know. The final crash of the capitalist system can only come when it is the ruling system that basically owns the bulk of the planet and its resources. Then the law can come with full force, because capitalism would then be a nearly completely closed system - which it wasn't as long as there were countries to colonise and an Evil Empire to bleed. (of course, one could suspect that most economic-social-political systems would face this crisis had they become a worldwide system)
Posted by: CluelessJoe | Apr 18 2005 19:49 utc | 30
Well, here is my favourite marxist readings on the american and world economy today:
Robert Brenner: Towards the Precipice
Robert Brenner: NEW BOOM OR NEW BUBBLE?
Gérard Duménil and Dominique Lévy: THE NEW CONFIGURATION OF U.S. IMPERIALISM IN PERSPECTIVE
Peter Gowan: U.S. hegemony today (The global economy from a geopolitical point of view)
Posted by: Greco | Apr 18 2005 19:59 utc | 31
Want to rethink primitive accumulation and how current it is? Try Silvia Federici's Caliban and the Witch: Women, the Body and Primitive Accumulation.
Posted by: citizen | Apr 18 2005 20:08 utc | 32
presently, the difference I see in the interpretions is the role of technology imputs and the "transformation" of these inputs into value. Regarding this problem, "marxists," because of the labor theory of value, place too much faith on labor exploitation as the driver of accumulation and misapprehend the the transformation of value by tech (ex: productivity gains by new media, etc.). But these are devil in the details stuff.
But the basic analysis including the climbing expense of fixed capital investment and falling returns on such investment combined with high variable costs (what marxists call in toto the increasing organic composition of capital) is the tendency capital struggles to overcome. Added to this the problem of investment opportunities, and, well, both bourgerois/marxists can read the same data and agree about the reasons for collapse.
What to do? Well, that's where the ships of theory depart for different courses...
Posted by: slothrop | Apr 18 2005 20:13 utc | 33
@clueless US has a 8% deficit? Well, considering that France and Germany are blamed for getting slightly over 3%, I'd say the US are doing even worse than any post-communist Eastern Europe country. Though maybe better than late 1990s Argentina.
8% US is current account deficit, 3% Europe is budget deficit. Europe current account is positive or about equilibrium. Us budget deficit is ? as I have not seen any number that I feel I can trust but I bet its over 3%.
@teuton Is there anybody among you who thinks that a soft landing for the US economy is a probable outcome of the situation?
Anything less than 1929 is a soft landing in my view and is most probably achievable if some people would act. That doesn´t look likely right now.
Than again the economic theory framework is a complex dynamic system and these are hard to predict especially in the time dimension. And todays complex dynamic system can change. Outside events may change the fabric of the system itself which leads to a new system with new degrees of freedom.
That´s the fun with macro economics. You always get new challenges.
Come on, you red, catastrophological bears! Don't you heard the news?
BOSTON (MarketWatch) -- Banc of America's chief investment strategist raised his recommended allocation on U.S. stocks Monday for the first time in more than two years, telling clients that last week's 3% decline in the Standard & Poor's 500 represents a strong buying opportunity.
Posted by: Greco | Apr 18 2005 20:31 utc | 37
The following isn't classical Marxist theory, but something Diamond or anyone knowledgeable about the 2nd law of Thermodynamics should know. The final crash of the capitalist system can only come when it is the ruling system that basically owns the bulk of the planet and its resources. Then the law can come with full force, because capitalism would then be a nearly completely closed system...
I think this is already happening -- global capitalism coming up against the realities of a closed system -- and some of what we are seeing now in the US is imho "internal colonisation" -- as the opportunities for external colonisation are exhausted or become too costly (one way or another, diminishing returns). I suspect this is happening in at least three senses in the US:
Literal/Geographical: Some areas and demographics of the US exist more or less as colonies of the coastal concentrations of capital -- poverty, toxicity, etc, are "dumped" onto designated spots (the TVA region, Cancer Alley in Louisiana, cored-out ex-industrial towns, Walmart-bombed rural counties) much as the ever-adorable Larry Summers advised dumping toxic waste on brown people in poor countries. Unsurprisingly, brown people are also often located in these dumping grounds w/in the US. This internal-colony dynamic has been there all along (after all, the entire US is a colonial nation), but with the gutting of human services including schools, plus the rocketing cost of health care, plus disappearance of physical industry, no compensatory benefit or redress or "way out" is being offered to the residents of the "sacrifice zones."
Criminalisation/Control: The gulag of brutal US prisons [never forget we imprison more people per thousand residents than the Chinese, by a large factor. iirc only the Russians imprison as high a percentage if the population as the Yanks] creates another internal colony, also serving as a minatory example for those who might rebel against their colonised status on the outside. I think 2 mio Americans are in prison and another 5 mio on parole or otherwise under direct control of the authorities. The racial bias of the US CJS is so notorious that I think we need not go into that at tedious length... the persons living under these stringent controls amount to a Bantustan in their own right -- or several. To be sure, some are violent offenders and we might be glad that someone is keeping an eye on them. But in many cases their "crime" was the possession or sale of recreational drugs which elsewhere in the world are considered legal or a mere misdemeanor. In many states they have lost their right to vote as a result of arrest or imprisonment -- another attribute of the colonised is that they don't get to vote in the affairs of their colonisers.
Class/Race/Debt: The ruling class has turned on its own society now, to loot and exploit. In addition to the traditional crashing and looting of third world nations, the plutes are now crashing and looting the economies of "their own people" -- a perfectly meaningless trope insofar as capital is now global, infinitely mobile, infinitely liquid, and can be moved out of the way deftly at the right moments. The ruling class is now, imho, as international as the ruling class of Europe during the heyday of monarchical nation-states -- with a Hapsburg of some flavour on every throne in sight, every monarch the cousin or in-law of every other, etc. The loyalty of the "Davos class" is to their money and to each other (in that order, I suspect) and not to anything so tediously local as a nation-state. Flags, like taxes and the obligation to repay a debt, are for "little people". Hence there is no emotional or moral obstacle to "looting one's own nest". I am guessing that, in the wake of the anti-bankruptcy legislation, we will see imprisonment of defaulting debtors (i.e. "debtors' prison") and possibly forced labour. There have been one or two cases already of arrest and detainment for unpaid and unpayable medical bills -- outlying points, but possibly indicative.
The indebted in the US may well become another internal colony, treated by their own gov't and usury-industry exactly as WB/IMF treats third world countries suckered or forced into debt. I note in passing that w/in a generation this could become an enormous selling point for Islam with its strictures against usury!
As to the Second Law -- here's the irrepressible and alarmingly productive Stan Goff: http://stangoff.com/index.php?p=12>Capitalism is Against the Law (Part I) and http://stangoff.com/index.php?p=13>Paet II quoting what I consider a rather astute and not excessively abstract bit of Red analysis:
“Imperialism is the political expression of the accumulation of capital in its competitive struggle for what remains still open of the non-capitalist environment”
-Rosa Luxemburg, “The Accumulation of Capital,” 1913
In other words, to my ear pretty much what was said above: capitalism struggles towards the state of Total Commerce, Total Enclosure: the penetration of commerce and monetism into every crevice of society until there is no transaction between human beings that is not a market transaction, no good or service that is not sold for money, no commons, no human rights (only "earned" and "paid for" privileges), no "unproductive mouths", no communication that is not advertising, no intellect that is not property. The dream of the plutocrat is that one day, you will have to pay fori the air you breathe -- and the dream of his buddy the totalitarian is that you will be wearing a whole-body wireless monitoring system so that we know how many breaths to bill you for.
At which point -- or, please God, well before it -- the system will crash because there is no uncolonised space left from which to loot resources (source) or into which to dump "externalised" costs (sink). On a purely personal note, the totally capitalised world comes pretty close to my idiosyncratic vision of Hell. Frankly, the suppositional peak oil crash might be preferable.
Sorry this isn't as coherent as I would like -- scribbling in haste. Lunch break over...
good thoughts DeA.
just found this and grined:
Jim Grant once said (I'm paraphrasing), "Knowledge is cumulative in science and technology, but it's cyclical in finance."
@slothrop in other words the Yanks will soften their landing by landing on someone...?
Posted by: DeAnander | Apr 18 2005 21:22 utc | 41
DeA,
the Davos class
Now that is a useful term. Thank you.
Posted by: citizen | Apr 18 2005 21:26 utc | 42
DeAnander: As someone who has spent time in poor pre-monetized communities and in pre-"socialist market system" China, I can assure you that many social mechanisms are vastly improved by being turned into purely commercial impersonal transactions. All that's solid melts away, but a lot of what was solid was oppressive and ugly for anyone on the bottom side of the ladder of Authority. I used to fault old Karl M. for over-praising the destruction of traditional culture by the market - because of the loss of all those nice community values. But that was before I saw community values hammering nails that stand up.
(I don't have the moral acuity to know whether the beggars in modern China are worth the suffocation of the communists ... )
Go into the Exchange in London, that place more venerable than many a court, and you will see representatives of all the nations assembled there for the profit of mankind. There the Jew, the Mahometan, and the Christian deal with one another as if they were of the same religion, and reserve the name of infidel for those who go bankrupt - V.
Posted by: citizen k | Apr 18 2005 21:34 utc | 43
@slothrop in other words the Yanks will soften their landing by landing on someone...?
If goods do not cross boarders, armys will.
Don´t know where I picked that up, but it is reasonable to me. With protectionism rising all around the grand cycle turns to invasions again.
DeA - I would like to post your thoughts 4:51 when you think they are coherent enough. You are on to something...
Herbert: A Radical in the White House
Roosevelt referred to his proposals in that speech as "a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race or creed."Among these rights, he said, are:
"The right to a useful and remunerative job in the industries or shops or farms or mines of the nation.
"The right to earn enough to provide adequate food and clothing and recreation.
"The right of every farmer to raise and sell his products at a return which will give him and his family a decent living.
"The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad.
"The right of every family to a decent home.
"The right to adequate medical care and the opportunity to achieve and enjoy good health.
"The right to adequate protection from the economic fears of old age, sickness, accident and unemployment.
"The right to a good education."
I mentioned this a few days ago to an acquaintance who is 30 years old. She said, "Wow, I can't believe a president would say that."
fascism & war will soften "the landing"
Kunstler's not too worried about Fascism:
Many of my friends and colleagues live in fear of the federal government turning into Big Brother tyranny. I'm skeptical. Once the permanent global energy crisis really gets underway, the federal government will be lucky if it can answer the phones. Same thing for Microsoft or even the Hannaford supermarket chain.
In the shorter term, I think the Bush Administration is in for a very rude awakening if it attempts to impose martial law (say, following another terrorist attack). Seems to me that, rather than shooting up fellow crackers, the cops will turn their guns back at the Administration itself -- not only because they won't want to shoot at their racial brethren, but also because it'll be fairly obvious at that point that the "Global War On Terrorism" isn't preventing terrorism, but propagating it. (Unless, I suppose, the Administration will be able to convince enough people that 9/11 II had been perpetrated by domestic leftists...)
As far as war goes, the U.S. will no doubt continue to blow things up. But as the occupation in Iraq ably demonstrates, that won't enable it to control the world's oil supplies -- and thus won't help to soften the landing.
"If goods do not cross boarders, armies will..."
Sheesh....don't be saying that to those of us currently under the puffy thumb of the slow motion Anschluss...
Oh, hang on a second.
Maybe that's where the soft landing is gonna come from.
Oh well, at least then they won't be able to 'Blame Canada' anymore.
http://www.worth1000.com/cache/contest/contestcache.asp?contest_id=5717>The Totalised Capitalist World in Images
a recent image-hacking contest online -- how far will advertisers go? slow to load, many images, imho well worth the wait.
@b thanks, but give me a day or so...
I can't see any flaws in Bilmon's analysis. In fact, I hope some of my students read it, as they will have to work this problem through on their final exam in macro.
We are really on the cusp of something big and bad. It doesn't happen often, and when it does, you stand there like the proverbial deer in the head light. First stage of grief. Denial. That's the problem. Denial is going to cost you a lot of money. (I'm not through that stage yet, unfortunately). Next stage: anger. That's the next election, but it's too late to do any objective good.
Acceptance means really liking the pulses. They are cheap and nutritious.
Posted by: Knut Wicksell | Apr 19 2005 1:44 utc | 49
Don't know what has the stock market spooked but doubt that they are smart enough even to understand what Billmon has laid out much less worry about it. I'm not any smarter than them but do know even that when economies/industry move into uncharted territory and begin proclaiming that the old rules are no longer operative and everything is not just okay but positively robust that it's time to think about it again. Dow 36,000 (without massive inflation) and The New Economy that posited companies didn't need to make anything and could do it with debt instead of capital while stock prices were trading at historically irrational levels didn't seem credible to me.
Now "deficits don't matter," we can have "guns and butter" without inflation and the free market fairy is the solution to all economic problems also don't seem credible or sustainable. What I don't know is if the US consumer is merely eating the surplus "potatos" the world is producing or if we're chowing down on the "seed potatoes" of the world. All I know is that we are consuming and not investing with all that capital the world is loaning us, and not sure how that can be a good thing in the long run.
Posted by: Marie | Apr 19 2005 1:57 utc | 50
DeA,
The Totalised Capitalised World -- lots of funnies there (how do you find this stuff?) but the ones with NASCAR adds on Abrams tanks in Iraq -- made the metaphore into a mirror -- so close to the truth it is.
agree with b on this "internal colonisation" idea of your's.
Posted by: anna missed | Apr 19 2005 2:13 utc | 51
fascinating discussion, all. thanks.
Knut-- what are "the pulses" that are cheap and nutritious? is this another way of saying eat the rich? :)
Kunstler's idea of a post-industrial era seems to think of a collapse as a quick thing. From the examples of other such moments, though, isn't a more likely scenario a varying generational decline?
Those alive today will have one experience...a painful economic adjustment, in addition to a painful reality adjustment. By the time of their grandkids, the world will function differently. For that generation, population decreases will occur for reasons that are not problems today...diseases that we now deal with in industrial nations, (or new ones that have been unleashed between now and then)....starvation, migration out of unsustainable places as unpredicatable climate and weather patterns create food problems.
Between this generation and that one, continued wars for energy, as the Pentagon predicts, but these exacerbate rather than deal with the problems because different solutions are not sought when adjustments would be easier to produce...which is the defining moment of this generation.
But I'm obviously not an expert and am just repeating scenarios I've read about elsewhere. Before Diamond's Collapse, there was another book, The Green History of the World. Has anyone else here read that one?
Posted by: fauxreal | Apr 19 2005 2:39 utc | 52
BTW, another thought on "how things are different" -- over at Stan's place (www.stangoff.com, aka Feral Scholar) there is a new posting of a paper by Susanne Soederberg -- attention Comrade Slothrop, this might be your cup of tea. Stan comments:
[I am including only a snippet of Soederberg’s lengthy paper on this as a teaser, with a link. I hope those who are interested in this will read the whole thing. Anyone seriously interested in class struggle needs to read it. Because Seoderberg, like a few others, describes a system in which the financial pole of capital now runs things. This has huge implications for worker organizing, for example, when the worker is no longer faced with a productive capitalist who must protect his profit and his investments by guaranteeing productivity, even when it means bargaining with angry workers. The new boss is a hedge fund, a highly diversified portfolio that reads the hot-money numbers of the whole portfolio, and when one enterprise falls behind in its speculative value, it is simply liquidated. In many respects, everything we ever knew about organizing the old union way is being rendered, with a few exceptions, obsolete. This means workers need a new form of organization, directly political, to fight back with. For the life of me, the only thing I can think of is a party. -SG]
I have other fish to fry tonight and haven't much intelligent to add -- I do get the sense that some very different form of organising and bargaining is required to curb the near-totalitarian power that finance capital seems to be acquiring.
Clueless:
The final crash of the capitalist system can only come when it is the ruling system that basically owns the bulk of the planet and its resources.
Or when it can not expand any more for some other reason (like poor people refusing to hand over their water supply to the system and succeding). That is the crash can come when capitalism rules the whole world or when it is stopped from expanding. Anyway the crash will come.
Fauxreal:
Knut-- what are "the pulses" that are cheap and nutritious? is this another way of saying eat the rich? :)
I thought about that one for a while and settled on the pulses from the headlights...
DeA:
On union organisation, there was a struggle between General Motors plant in Sweden (formerly Saab) and one in Germany which looks like a prequel to a more global capitalism. Both places were told one would be shut down and the strong swedish and german unions started underbiding each other, while the governments started overbiding each other with new accessroads and what have you not. Winner: GM.
These factories used to be different companies and are situated in different countries thus making union cooperation hard. When hedgefunds rule all autocompanies it will be so much harder, and even now two strong well-organised unions in two close, germanic-speaking, social democratic ruled, both within the EU, countries fail miserably.
Posted by: A swedish kind of death | Apr 19 2005 12:24 utc | 54
The REALLY BIG economy picture: Bushco's economic plan.
Posted by: Lupin | Apr 19 2005 12:26 utc | 55
It might be that the current market tremors are a result, in part, of the possibly misguided cracking down on credit card debt just passed by Congress. Could it be that consumers are a tad shaken by the idea that their card debt is more inescapable than they thought? Or perhaps more likely, is it possible that the big players can at least look that deeply into the implications of that bankrupty bill? If consumer spending (and debt) is the main engine, that bill might have been shortsighted. Which of course is the completely s.o.p. of the current Administration. They're just ass-kissing the banks after all.
Carry that trend line forward, and pretty soon you get to zero, and game over for the Fed.
Posted by: Billmon | April 18, 2005 12:02 PM | #
I've had the same thought for awhile ...
If your deflation scenario is right and the Fed responds to a recession with a further reduction of rates (ie the standard central bank response) we could end up in a liquidity trap. Which is Japan got when their asset bubble burst. Think 1.5% GDP growth rates for the next 10 years. Which would make for a falling standard of living and some very grumpy Americans.
Posted by: | Apr 20 2005 20:20 utc | 57
What will thw wealthy elite do when we can no longer support them?
Posted by: pb | Apr 21 2005 1:08 utc | 58
With an imminent oil crisis on the horizon why is there a Nascar race every single week? What a waste.
Posted by: Jo | Aug 17 2005 18:45 utc | 59
The comments to this entry are closed.
Billmon says "Whether an economic slowdown is good or bad news depends on your point of view -- and your expectations. For the Fed, which is worried about an inflationary surge or a dollar crisis (or both) slower growth is good news, at least up to a point."
Here I am on a different path as I thing that inflation is already much higher than visibile in the Consumer Price Index and the Producer Price Index. Those numbers are calculated in a ways that always makes them smaller than real inflation.
Real interest rates (Fed overnight lending rate - inflation) are hardly positive in the 1-2% realm as they should be in "neutral" mode.
If inflation is higher, which will show itself only with a delay, the Fed must tighten further to protect against a inflation spiraling upwards.
If the Fed does not do so, the return on Dollar investments is negative and then run away from the Dollar is amplified.
But maybe Alan Greenspan will do the crazy thing, try to fuel another bubble somewhere by pushing the monetary overpoduction. With Ben Bernanke as a possible successor, helicopters will be available.
Posted by: b | Apr 18 2005 8:45 utc | 1