10/14/08

NOW GET READY FOR THE RECESSION!

just found the inbox by Brian Holmes..

NOW GET READY FOR THE RECESSION!

There are only a few serious things to say about what's happened in the economy for over the last four weeks, or the last four years for that matter. The first is that despite the admiration being showered on Paulson, Bernank and Gordon Brown, what we are witnessing are financial
crimes, leading to disastrous consequences for nations, institutions and probably hundreds of millions of people. Second, the criminals have their main offices on Wall Street, in the City of London and in Washington, plus on every derivatives trading floor in banks all over the earth -- and there they should be prosecuted, not in a witch hunt but in order to find out exactly how they did it, to strip them of their most egregious spoils (plenty of that out there) and above all, to make the whole thing impossible in the future. Third, if the national bailouts are not transformed into social works projects producing valuable goods and services employing people who need it, and if serious financial-market regulation is not installed at the same time, then what will come of this whole mess is just a reinforcement of the present condition: government by greed, carried out in the coded language of mathematics.

The bankruptcy of this transnational financial government is now literal, but in terms of human development it has been that way all along. The only good news about the recession is that it will be a tangible reason to press for far-reaching changes in the system! The worst news will hit the most unprotected people, and often the furthest away from any of the easy money, which is why we are really talking about crimes, deep failures of responsibility on the Part of governments
as well as businessmen. I am thinking about the impacts on Latin America, on Eastern Europe, on Africa, on any small country without some juicy resource to put on the market.

It's too early to say anything specific about the geopolitical consequences of the meltdown, but what I find most remarkable about this recent turbulence is first that it has basically been a familiar case of "hot money" following into countries from a powerful outside source of
liquidity. This time, however, the target countries have been the US and Britain, plus the other Anglo-Saxon lands and to a lesser degree, European countries like Spain. It's true that Greenspan pumped up this excess liquidity with ridiculously cheap interest rates, especially
after the dotcom bust and September 11, but since the turn of the millennium that excess money supply has been massively augmented by influxes of capital from east Asia, mostly China. This hot money was looking for investments over and above the usual Treasury bonds, and
what it found was not only the government-backed Fannie and Freddy mortgages, but also all kinds of other packaged debt rated triple-A and further insured with credit-default swaps. So more and more loans were packed into CDOs and the money poured in to buy them, ironically just as it had poured into into the Asian dragons or Russia and the newly independent Eastern countries in the mid-1990s. This time, however, what you got was not capital flight but the systemic collapse of the shadow banking system that was trading all that junk, a collapse which is still going on via the unfinished process of deleveraging. That means that all the borrowed money used to pump up the paper values, often at 30 times the value of the actual stake put up by the speculators, now has to be either paid back or written off, with collapses and bailouts all along the daisy-chain. If the first massive bailouts were reserved for the US government-backed mortgage companies and for AIG's big credit-default insurance operation (located in the City), that's because the Chinese financial pipeline could not just be callously ruptured without
disastrous consequences on the international capital circuit. Still, the potentially positive result of all this is that foreign investors have been seriously burned by the Anglo-American derivatives machine, and now the London-New York tandem may now effectively lose its directive
position in the world economy.

A detail you may not have noticed is that directly in the middle of the turbulence, Chinese authorities made a decision to give peasants the rights to transfer the title of the land they occupy in exchange for money. It's not exactly a sale, because the government still formally
owns the land, but it does mean that the peasants' rights become liquid, they can be turned into cash. The significance of this is that China now sees the futility of continuing to produce for the West and then invest its profits there, in order to keep its currency value low and keep the
lid on inflation. That circuit, known as Bretton Woods II because it kept the American dollar at the center of the world monetary system, may now be finished. China is now likely to partially turn its back on the capital circuit linking it to America and open the floodgates of internal migration from the countryside to the coastal cities, while at the same time attempting to develop its internal market far beyond the existing levels. The idea will be to make China's productive capacity circulate internally in the form of goods and service, rather than
having exploited Chinese labor produce exports for credit-gorged consumers in the West. This could be a huge turnabout, setting the pace for the emergence of a truly sovereign Asian region, with respect to which the West could just become second-class, period. However, at the
same time you are looking at another vast expansion of the money economy, full of the usual dangers. Unless it is deeply transformed, the internal Chinese market will be subject to the same kind of predatory lending, real-time turbulence and uncertain future as we have just seen,
again and again and again. The existing stock markets there have fallen by 50% this year (and that was before last week). Even economic history isn't over yet!

What does it mean that yesterday (13 October), investors and traders made huge sums on the technical rebound of the stock markets? Is that a victory? Do we really need this light-speed financial market as a way to make capital available for productive activities? I read somewhere that in the US in recent years, for every dollar turned over in the real economy, you had up to five mathematical dollars biting each other's tails in the financial sphere. That circulation has given rise to an elite culture of glitz and also of power, the power to twist the state governments far from their original mandates (as in Greenspan pumping up the bubble) and then again, the power to practically control those states directly in real time, as we have seen in the past weeks where financial priorities simply took over government, always with the insistence that something must be done, now, before thinking, in time for the next stock-market bell. In this respect, finance has become the mirror of the overriding logic of war, which is the other major enemy of any kind of democracy. This is the reality: a vast and powerful culture
of finance, a transnational state unto itself, with its own language and with something like extraterritoriality or diplomatic immunity for its representatives. Think about the concept of financial crimes. If not, the crooks will be glad to do all the thinking for you.

best, Brian Holmes

1 comment:

neal said...

The bankruptcy of this transnational financial government is now literal, but in terms of human development it has been that way all along. The only good news about the recession is that it will be a tangible reason to press for far-reaching changes in the system! The worst news will hit the most unprotected people, and often the furthest away from any of the easy money, which is why we are really talking about crimes, deep failures of responsibility on the Part of governments.
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