LENIN'S TOMB

 

Wednesday, March 19, 2008

Auguring Armageddon posted by Richard Seymour


By now, the panic quotes are flying in thick and fast. You can see a sample of them here. Big investors, and big capital, are saying that this could be the big one, a collapse of a kind we haven't seen since - well, take your pick between World War II, or 1929. The federal reserve has slashed interest rates as it always does when recession starts to bite, and organised a huge bailout operation to save Bear Sterns, but no one is kidding themselves that this is going to solve the problem. There is talk about the financial crisis spilling over into the 'real economy', as if this was a problem that started with some bad loans. Will Hutton told Observer readers on Sunday that American industry was doing perfectly swell, thanks in part to something he chose to call 'free trade' (doesn't exist, never will), and was being put at risk by a greedy and arrogant financial class. It's a tempting idea, and it's an analysis that I suspect much of the soft Labour left and many union leaders support, since the upshot is that we should rein in finance capital and invest heavily in manufacturing: quite the opposite of the strategy adopted by Brown and Darling, who have based their recent bland budget and broader economic strategy on the most benign possible forecast. In fact, their only recent intervention of any kind was the horribly belated nationalisation of Northern Rock, and they are now taking the opportunity to shed jobs rather than protect them, so that it can be returned to the private sector on profitable terms. That's a measure of the cravenness of our government's pursuit of neoliberalism: at all costs, the City must be appeased, because it is Gordon Brown's most cherished source of growth. Of course it is right that the running down of manufacturing and the financialisation of the economy has done us no favours, producing some of the lowest growth in post-war history. And it has certainly weakened the bargaining power of labour, while bringing immense rewards to the ascendant rentiers, not just in Britain but globally - Fortune's recent ecstatic fawning over the accomplishments of a tiny billionaire class making the point. However, bad loans are an artefact of deeper structural problems in the global economy, and the problem isn't reducible to the 'subprime' market either.

Take a sojourn, if you will, in that mad, hedonistic, irresponsible decade known as the 1990s, in that mad, hedonistic, irresponsible, incontinent continent known as North America. How louche we all were, how flush with cash and ebullient with it. Well, not all of us. Not the majority who actually weren't flush with cash and netting big rewards on the stock market. Not those whose incomes froze for most of the period laughably known as the 'new economic paradigm' or just the 'New Economy' (a marketing gimmick as sickly sweet as New Coke, and every bit as durable). Not those for whom benefit cuts and welfare-to-work programmes left them poorer and more exploited than ever before. And not those who had to work three or four jobs to keep the family eating. But if the 1980s saw Wall Street assume a commanding position in the US economy, by the 1990s it was a major cultural fetish as well. Everybody who was anybody came to know the thrill of combining technophilia with the bull market swagger: you could not only buy shares, but do so online. In fact, approximately 80% of the increase in financial net worth was accounted for by the top 20% of the population. Most who tried dabbling in shares lost money, but they weren't the ones on the news or selling books. Dude, made a cool two mil: easy bucks, money coming from nowhere, now I got a botox smile and rims. Anyone can do it. It was as if God had blessed America (by the way, I'm surprised that Obama doesn't see the virtues of a slogan like "God damn America"). The Clinton administration, having abandoned its reformist programme, was bigging up the bond market. With wages low, and labour conditions deteriorating, some profitability was restored to capital. The stock market was flooded with cash, and IPOs (in which investors plough money into an upstart entity in exchange for a share of future profits) were bankrolling a wave of flimsy new ventures that would mostly go under by the turn of the millenium. Take a look at Doug Henwood's The New Economy - the ratio of financial assets to GDP shot up in the mid-1990s to close to 950%. The Bubba bubble was only briefly interrupted by the threat of the South-East Asian financial crisis spreading, but with the bailout of Long Term Capital Management, the survival of the US economy compounded the consensus: the American model was working, while the old corporatist dinosaurs of Asia and the Rhineland were floundering.

However, one consequence of basing a boom on low wage growth and poor productivity growth is that consumption had to be supported by debt. So, by 2000, households' outstanding debt as a proportion of personal disposable income reached 97%: an all-time high, and higher than the 80% during the second half of the 1980s (see Brenner's The Boom and the Bubble). By 2000, over 40% of new-home mortgages were financed with down payments of less than 10% of the value of the home, while it was estimated that a quarter of new mortgages were being issued to people who were broke. (Robert Brenner's The Economics of Global Turbulence). Household savings also declined drastically in the US during the 1980s and the 1990s. From 1950-1980, household savings were at a ratio of 8-9%. In the 1990s, they averaged 5.2%, and in the years 2000-3, 1.9%. People have been spending more and more of their available income, and without this change, it is estimated that household consumption would have grown 1% slower in the years 1992-2000. In other words, to even get the modest rates of growth attained through the 1990s, which averaged 3.4% per year, the American economy had to be systematically leveraged so that the effects of upswings and downswings were magnified. (Henwood's After the New Economy; Andrew Glyn's Capitalism Unleashed).

Corporate debt also soared, so that interest payments actually wiped out a great deal of the profits that were being made: between 1997 and 2001, the ratio of manufacturing net interest to manufacturing net profits rose to 40.5%, a postwar record (Brenner's The Economics of Global Turbulence). Even after a slump in 2000-1, the credit bubble continued to swell. More intricate forms of structured credit were devised to spin out more value from less 'real' input. Investors sought to maximise returns through high-risk derivatives, the credit default swap market (in which more secure institutions such as hedge funds are paid to guarantee a creditor against losses in the event that the debtor defaults), total return swaps (in which investors accept the costs of holding an asset, such as depreciation, but gets the full return from it), and collateralised debt obligations (a form of mortgage securitisation). With techniques of labyrinthine complexity, they sliced, diced and tranched debts, distributing risks and rewards across portfolios, with the effect of increasing the chances of both gains and losses given any credit event. When the market booms, all seems to be going splendidly. Debts seem to be being paid - and if individuals or companies lack the funds to make the payments, they can always borrow more money to keep up the payments in the existing debt, on the assumption that future growth will sustain them. Amazingly, it did not. Manufacturing died on its arse, wages froze, job growth was slow, and eventually both individuals and corporations were defaulting on their debts. The underlying structural imbalances in the US economy brought this about. The crisis of profitability that struck all advanced capitalist countries in the 1970s was managed in the US by financial liberalisation, which gave the US ruling class wider opportunities for extraction across the world, but which also led to slower growth rates; busted labour unions, which reduced labour costs for employers, but also led to higher borrowing, with the savings and loans crisis prefiguring the current credit crunch; reduced taxes for corporations and profits, which meant both a transfer of the tax burden to the poorest, and also a reduction in welfare as a supporter of consumption. The financialisation policy put a premium on shareholder value, adding pressure to the drive for short-term profits rather than sustainable growth. It also exaggerated the value of executives who could deliver such profits, so executive pay soared, especially in the form of stock options in which executives were encouraged to share in the value created under their management. This partially accounts for the wave of corporate scandals - fictitious accounting, rigging information, concealing operating expenses. It wasn't just a boon for executives: companies that succeeded in inflating their value could acquire competitors and run them into the ground. (Glyn, Capitalism Unleashed). Huge costs are incurred, of course, but mainly by employees and customers. The criminal justice system doesn't take corporate crime very seriously, and well-placed executives and owners can usually protect themselves from the worst effects of a crisis. Concurrent with all this is the growing centralisation and concentration of capital. Mergers and acquisitions followed by rationalisation and downsizing has meant that most Americans are employed not by the biggest owners, but by small employers who are themselves highly leveraged and exposed to the deep insecurity built into a neoliberal economy.

In short, it will not do to speak of a small class of arrogant financiers causing all these problems. If it really was as simple as that, then the rest of the capitalist class would be beating down the doors of power to demand reform, and plead for restraints to be applied to the ostentatious upstarts. And they would get it.

Coda: One of the major global banks to have suffered least so far from this collapse has been HSBC, one of Britain's 'big five'. It did have substantial exposure in the 'subprime' market. It did experience considerable losses. Yet, its profits increased quite substantially on last year: know why? Because they had shifted a huge amount of their investment from the United States to Asia, particularly China. After recent losses, they seem to have cut investments in the US drastically. Although those economies are hardly insulated from any crash in the US, consumer spending has been rising for years in China, and the country is about to open up its financial sector even further. Further, it looks set to invest more overseas. So far Chinese growth has been a huge boost to US capitalism, but it seems clear that any major crisis in the US will redound to the benefit of China in particular. China is the fourth largest economy in the world by nominal GDP, just above the United Kingdom. It is the second largest economy in the world by the arguably more accurate measure of purchasing power parity, just below the United States, and not very far below either (see the IMF's figures). China is one of the few countries in the world, alongside India, to have experienced a higher growth in capital accumulation during the 1990s than in previous decades - almost everywhere else, capital accumulation was much slower, including in the United States. (Glyn, Capitalism Unleashed). Of course, what China doesn't have, and can't possibly compete in, is an empire. To be sure, it does occupy Tibet - as we see, in a quite repressive fashion - and Taiwan would like its independence. Yet, compared to America's awesome global dominion, this is a handful of beans. Parenthetically, one has always hoped for a more radical Tibetan liberation movement to emerge, something with enough blood in it to put Richard Gere off his soy beans. Yet, one can't help but marvel at the hypocrisy of liberal critics such as Steven Spielberg and Mia Farrow banging on about the fucking 'genocide Olympics', as if they didn't live in a country that was not merely investing in another country whose elite is waging a vicious counterinsurgency war but actually prosecuting a far more vicious one in several countries that they don't even own yet. The main point I would make, however, is that while policymakers will attempt various means including protectionist ones to defend the economy, this whole situation is likely to make the US ruling class far more reliant on its military power. The grab for Iraq was a crucial part of the intense competition with China, and winning that competition - frustrating the rise of a major geopolitical rival, as the PNACers insist - is probably going to involve more assertiveness in South Asia. They'll need to control Pakistan as well as Afghanistan. They'll want their military bases back in Uzbekistan. They'll want to control as much of the oil and gas reserves near the Caspian sea as they can keep out of Russia's hands. And they'll have to do something about Latin America, where growing moves toward independence are undermining US capitalist interests and letting China in on the action. A crisis doesn't just mean economic turmoil; it means a more deadly and fraught world system.

Labels: capitalism, financial sector, imperialism, ruling class, us economy

7:25:00 am | Permalink | Comments thread | | Print | Digg | del.icio.us | reddit | StumbleUpon | diigo it Tweet| Share| Flattr this

Search via Google

Info

Richard Seymour

Richard Seymour's Wiki

Richard Seymour: information and contact

Richard Seymour's agent

RSS

Twitter

Tumblr

Pinterest

Academia

Storify

Donate

corbyn_9781784785314-max_221-32100507bd25b752de8c389f93cd0bb4

Against Austerity cover

Subscription options

Flattr this

Recent Comments

Powered by Disqus

Recent Posts

Subscribe to Lenin's Tomb
Email:

Lenosphere

Archives

September 2001

June 2003

July 2003

August 2003

September 2003

October 2003

November 2003

December 2003

January 2004

February 2004

March 2004

April 2004

May 2004

June 2004

July 2004

August 2004

September 2004

October 2004

November 2004

December 2004

January 2005

February 2005

March 2005

April 2005

May 2005

June 2005

July 2005

August 2005

September 2005

October 2005

November 2005

December 2005

January 2006

February 2006

March 2006

April 2006

May 2006

June 2006

July 2006

August 2006

September 2006

October 2006

November 2006

December 2006

January 2007

February 2007

March 2007

April 2007

May 2007

June 2007

July 2007

August 2007

September 2007

October 2007

November 2007

December 2007

January 2008

February 2008

March 2008

April 2008

May 2008

June 2008

July 2008

August 2008

September 2008

October 2008

November 2008

December 2008

January 2009

February 2009

March 2009

April 2009

May 2009

June 2009

July 2009

August 2009

September 2009

October 2009

November 2009

December 2009

January 2010

February 2010

March 2010

April 2010

May 2010

June 2010

July 2010

August 2010

September 2010

October 2010

November 2010

December 2010

January 2011

February 2011

March 2011

April 2011

May 2011

June 2011

July 2011

August 2011

September 2011

October 2011

November 2011

December 2011

January 2012

February 2012

March 2012

April 2012

May 2012

June 2012

July 2012

August 2012

September 2012

October 2012

November 2012

December 2012

January 2013

February 2013

March 2013

April 2013

May 2013

June 2013

July 2013

August 2013

September 2013

October 2013

November 2013

December 2013

January 2014

February 2014

March 2014

April 2014

May 2014

June 2014

July 2014

August 2014

September 2014

October 2014

November 2014

December 2014

January 2015

February 2015

March 2015

April 2015

May 2015

June 2015

July 2015

August 2015

September 2015

October 2015

December 2015

March 2016

April 2016

May 2016

June 2016

July 2016

August 2016

September 2016

October 2016

November 2016

December 2016

January 2017

February 2017

March 2017

April 2017

May 2017

June 2017

July 2017

August 2017

Dossiers

Hurricane Katrina Dossier

Suicide Bombing Dossier

Iraqi Resistance Dossier

Haiti Dossier

Christopher Hitchens Dossier

Organic Intellectuals

Michael Rosen

Left Flank

Necessary Agitation

China Miéville

Je Est Un Autre

Verso

Doug Henwood

Michael Lavalette

Entschindet und Vergeht

The Mustard Seed

Solomon's Minefield

3arabawy

Sursock

Left Now

Le Poireau Rouge

Complex System of Pipes

Le Colonel Chabert [see archives]

K-Punk

Faithful to the Line

Jews Sans Frontieres

Institute for Conjunctural Research

The Proles

Infinite Thought

Critical Montages

A Gauche

Histologion

Wat Tyler

Ken McLeod

Unrepentant Marxist

John Molyneux

Rastî

Obsolete

Bureau of Counterpropaganda

Prisoner of Starvation

Kotaji

Through The Scary Door

Historical Materialism

1820

General, Your Tank is a Powerful Vehicle

Fruits of our Labour

Left I on the News

Organized Rage

Another Green World

Climate and Capitalism

The View From Steeltown

Long Sunday

Anti-dialectics

Empire Watch [archives]

Killing Time [archives]

Ob Fusc [archives]

Apostate Windbag [archives]

Alphonse [archives]

Dead Men Left [dead, man left]

Bat [archives]

Bionic Octopus [archives]

Keeping the Rabble in Line [archives]

Cliffism [archives]

Antiwar

Antiwar.com

Antiwar.blog

Osama Saeed

Dahr Jamail

Angry Arab

Desert Peace

Abu Aardvark

Juan Cole

Baghdad Burning

Collective Lounge

Iraqi Democrats Against the Occupation

Unfair Witness [archive]

Iraq Occupation & Resistance Report [archive]

Socialism

Socialist Workers Party

Socialist Aotearoa

Globalise Resistance

Red Pepper

Marxists

New Left Review

Socialist Review

Socialist Worker

World Socialist Website

Left Turn

Noam Chomsky

South Africa Keep Left

Monthly Review

Morning Star

Radical Philosophy

Blogger
blog comments powered by Disqus