The crisis of bourgeois economics

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Re: The crisis of bourgeois economics

Post by blindpig » Thu Mar 16, 2023 2:54 pm

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Consequences and Lessons of the New U.S. Bank Collapses
By John Ross (Posted Mar 15, 2023)

This article was originally published in Chinese at Guancha.cn.

Consequences and Lessons of the New U.S. Bank Collapses
The collapse in rapid succession of Silicon Valley Bank and Signature Bank, the second and third largest bank collapses in U.S. history, fully confirms the extremely damaging character of the U.S. stimulus policies which were launched to attempt to deal with the economic consequences of the Covid pandemic. Indeed, the path from the errors of these stimulus packages to the collapse of the two U.S. banks is a particularly direct one. This therefore reinforces the importance of all circles in China understanding the errors of these policies – this is necessary as, unfortunately, some sections of the media in China have supported the type of erroneous stimulus packages launched in the U.S. and suggested that China should copy them.

A long analysis of the errors of these U.S. stimulus packages was already given in my article for Guancha “怎样“花钱”才能振兴经济?美国的失败给出了答案,” so all the details included there will not be repeated here – for further information readers can look at it. This article will just deal with the links between the specific collapse of the U.S. banks and these errors in U.S. economic policy. It will also explain an apparent paradox. Why did these two banks collapse due to their involvement with what are generally regarded as the safest of all financial assets, U.S. Treasury bonds, and one of the riskiest of all financial instruments – crypto currencies?

U.S. Propaganda Compared to U.S. Economic Reality
In its recent political propaganda, the U.S. has been claiming that its economy was doing well and the stimulus packages it launched during Covid were a big success. President Biden had done press conferences to make such claims. But anyone following money, and not words, knew this was not true. In addition to underlying negative structural trends in the U.S. economy financial markets were also sending out extremely clear signals of economic problems.

The most important of these was what might appear a very technical issue but is in fact deeply significant – so much so that it is well worth non-economists understanding it for reasons that can be explained in a short way. Readers will rapidly find out why this apparently technical issues in fact has extremely strong practical consequences. This issue is the inversion of the U.S. yield curve – that is, the creation of a situation where the interest rates on US long term bonds are lower than short term ones. As shown in Figure 1 this is an extremely rare event, having only occurred four times in the last forty years, and is one of the clearest and most reliable indicators of serious problems in the U.S. economy.

Figure 1 shows over the long run the relation between U.S. long term, 10 year, and short term, two-year bond interest rates – that is, how much the two interest rates differ. As can be seen, almost always U.S. long term interest rates are higher than short-term ones. This is logical because the risk of lending money over a long period is greater than over a short period – so a greater reward, a higher interest rate, has to be paid to get someone to lend money for a longer period. But, as can be seen, on four occasions this normal relation has changed and short-term interest rates became higher than long term ones. On each of the three previous occasions this event, the inversion of the yield curve, was followed by very serious problems in the U.S. economy.

*When the yield curve inverted in 1989 this was followed by recession in 1990.
*When the yield curve inverted in 2000 this was accompanied by the severe dot com share price collapse and a sharp slowdown in the U.S. economy.
*The inversion of the yield curve in 2006 was followed by the collapse of the U.S. sub-prime mortgage market, the 2008 financial crisis, and a severe U.S. economic recession.

What is notable is therefore not only the rareness of this indicator of yield curve inversion but also its reliability – that is, there are no occasions on which the yield curve inverted and this was not followed by a major crisis. It is because it is such a reliable indicator, and because it has always been followed by such severe economic consequences, that it is worth even non-economists paying great attention to this issue.

Therefore, when in July 2022 the U.S. yield curve inverted, this was a very clear signal that serious problems were developing in the U.S. economy. Furthermore, this inversion continued to worsen until it reached a peak of -1.09% on 8 March 2023. This was clearly indicating a serious problem and therefore that all the claims in words that everything in the U.S. economy was doing well were false.

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Figure 1

From Yield Curve Inversion to the U.S. Banking Crisis
The mechanisms that drove this inversion of the yield curve led directly to crises in both the Treasury bond market and in crypto currencies – and through them to the bank collapses.

As was analyzed in detail in “怎样“花钱”才能振兴经济?美国的失败给出了答案,” in order to attempt to deal with the economic consequences of the Covid pandemic the U.S. launched large purely consumer focussed stimulus programs. As, by definition, consumption is not an input into production this meant that an enormous boost was being given to the demand side of the U.S. economy, but no direct increase was being given to the economy’s supply side. The result of a huge increase in demand and no increase in supply was inevitable – rapid inflation.

To summarize the trends, which are analyzed in detail in the earlier article.

*In order to create the consumer stimulus, the U.S. government increased its borrowing by an extraordinary 26% of GDP in a single year. Almost all this money was used to stimulate consumption, that is demand, and very little to increase investment, that is supply as well as demand.
*Simultaneously the U.S. broad money supply was increased by 26% in a year.
*The result was that between the 4th quarter of 2019, that is immediately before the pandemic, to the 4th quarter of 2022, that is the latest available data, U.S. consumption rose by a large $3,769 billion, but U.S. net investment, that is, taking into account depreciation, fell by $93 billion.
This produced the sharp increase in demand (consumption) with no increase in supply (investment).
As a result, U.S. inflation began to rise rapidly – increasing from 0.1% in May 2020 to 7.5% in January 2022. This timeline showed clearly that inflation was being created by U.S. economic policy and not by the Ukraine war – as that war did not break out until February 2022. U.S. Inflation then reached a peak of 9.1% in June 2022.

Raising Interest Rates
To attempt to control this inflationary wave the U.S. Federal Reserve then began to rapidly raise interest rates. These interest rate rises were the mechanism that led to the simultaneous crisis in the Treasury Bond markets and that for crypto-currencies – these in turn creating the bank collapses.

As Figure 2 shows, to attempt to control the inflationary wave created by U.S. economic policy, the Federal Reserve began to rapidly raise its interest rate. This increased from 0.25% in February 2022 to 4.75% in February 2023 – a rise of 4.5% in only one year.

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Figure 2

With the massive issuing of Treasury Bonds to finance the huge U.S. government borrowing mentioned above, the price of U.S. Treasury bonds began to fall due to a huge increase in their supply. But the interest rate on a bond moves in exactly the opposite direction to its price – that is, as the price of U.S. Treasury bonds fell the interest rate paid on them rose. First, the interest rate on ten-year US Treasury yields began to rise – it had reached its lowest recent point at 0.5% in March 2020. Then the interest rate on two-year Treasury bonds began to rise rapidly, and this was then strongly propelled by the Federal Reserve raising its own interest rate – two-year Treasury Bond yields had reached their lowest recent point at 0.11% in February 2021. In July 2022, as already noted, two-year interest rates rose above ten-year interest rates, inverting the yield curve. By 8 March 2023 the interest rate on a ten-year U.S. Treasury bond had risen from 0.5% to 3.98%, and the interest rate on a two-year bond from 0.11% t0 5.09% – creating the 1.09% inversion of the yield curve.

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Figure 3

The Road to the Bank Collapses
These rises in interest rates then directly led to the bank collapses via two routes.

First, the sharp rise in interest rates on Treasury Bonds, and related financial instruments such as Municipal Bonds, was caused by their fall in price. Such bonds were held by banks as their “safest” assets. But this meant that the safest assets of these banks were falling sharply in value. As a result, if a bank had a large holding of such “safe” bonds its assets could became less than its liabilities – causing the bank to collapse. This was the chief reason for the collapse of SVB. SVB’s market value fell from $6 billion dollars to zero in a week.

Signature Bank was hit by another route – not through exposure to a “safe” asset but to one of the riskiest, that is crypto-currencies. Signature Bank, since 2018, was one of the few banks that accepted deposits of crypto assets. But crypto assets are subject to huge price fluctuations because they are not backed by physical assets – unlike, for example, gold. Rising interest rates already put the price of crypto assets under downward pressure and then they suffered a further deep crisis with the collapse of the FTX crypto exchange, which is at present the subject of a police investigation.

The rising interest rates, which were necessary because of the soaring inflation unleashed by the U.S. stimulus policies, therefore created a crisis in both “safe” and “risky” assets – bringing about the bank collapses.

Consequences for the U.S.
What, therefore, are the consequences and lessons of this latest U.S. financial crisis?

First, of course, it demolishes the propaganda claim by Biden and others that the U.S. economy and financial system was in excellent shape. Those who analyzed that the U.S. stimulus packages were destabilizing have definitely been proved correct.

Second, claims that since the 2008 financial crisis the stability of the U.S. financial system has been established have been proved to be false. Once again, a financial crisis has been ignited in the core of the U.S. financial system.

Third, while an economy cannot function without Treasury bonds it can perfectly well function without destabilizing crypto-currencies and these should be eliminated.

Fourth, it is too early to say just how serious the damage will be to the U.S. financial system. But the collapse of a bank like SVB with over $200 billion in assets, the second largest bank collapse in U.S. history after the 2008 fall of Washington Mutual Bank with $307 billion in assets, is obviously a major financial event. Some of the direct effects can be controlled by U.S. Federal intervention at a cost – deposits at the banks will be guaranteed. The direct knock-on consequences are still not clear – at the time of writing share prices in a series of other U.S. banks were falling sharply.

But even if the direct consequences are dealt with there will also be indirect effects which are much harder to control. In particular, the U.S. Federal Reserve will need to consider if its monetary tightening will create instability in the financial system. This is the reason that Goldman Sachs, for example, has speculated that the Federal Reserve will not raise interest rates as expected at its next meeting. Although Goldman Sachs may well be wrong on this specific issue, nevertheless undoubtedly the Federal Reserve will have to act with greater caution – which means that a lower priority will have to be given to raising interest rates, and other measures, to control inflation. And inflation, of course, is one of the most destabilizing of all economic processes.



Lessons for China
Finally, there are clear lessons for China. The warnings about the dangers of the type of U.S. stimulus policies made by the present author and others have been entirely confirmed by events. But these damaging policies in the U.S. were rationalised by fundamental errors in economic theory – errors which are unfortunately repeated in sections of China’s media.

The most fundamental of these concerns the role of consumption in the economy – the erroneous idea that consumption is an input into production and can therefore be a contribution to GDP growth. This is false. Consumption, by definition, is not an input into production. Therefore, consumption is only part of the economy’s demand side, it is not part of the economy’s supply side. Investment, in contrast, is not only part of the economy’s demand side it is part of the economy’s supply side.

Statements such as “consumption contributed 75% to GDP growth,” or “consumption contributed 75% to GDP growth and investment 25%” are simply confused and false. The contribution of consumption to production, that is to the economy’s supply side, and therefore to GDP growth, is always precisely zero. The statement that “75% of GDP was consumed and 25% was invested” is correct but the statement “consumption contributed 75% to GDP growth and investment 25%” is false – none of the production was created by consumption. For clarity of thinking statements such as ““consumption contributed 75% to GDP growth” should simply be stopped being made as they create confusion. These issues are all dealt with in more detail in 怎样“花钱”才能振兴经济?美国的失败给出了答案.

In the U.S. this false concept that consumption was a contribution to GDP growth was used to rationalize and justify a stimulus program that was entirely based on increasing consumption and did nothing for investment. That is, there was a basic confusion regarding the difference between the demand side of the economy, of which consumption is a part, and the supply, that is the production, side of the economy. The policies resulting from this confusion in turn unleashed an inflationary wave which destabilized the economy and led to the bank collapses.

I know some readers may think that the present author has spent a lot of time dealing with what might seem abstract questions of economy theory in articles. But as the bank collapses demonstrate these theoretical issues have extremely powerful and practical consequences. Marxism explains this real situation of the economy extremely clearly. As Marx noted it is production, not consumption or exchange, which is dominant: ‘The result at which we arrive is, not that production, distribution, exchange and consumption are identical, but that they are all elements of a totality, differences within a unity. Production is the dominant moment, both with regard to itself in the contradictory determination of production and with regard to the other moments. The process always starts afresh with production… exchange and consumption cannot be the dominant moments… A definite [mode of] production thus determines a definite [mode of] consumption, distribution, exchange.’[1]

The confusions of “Western,” in fact marginalist, economics in contrast allows the real situation to be obscured leading to such damaging results as the U.S. stimulus packages. To avoid such damaging consequences, it is therefore crucial that such confusions do not circulate in China. Keeping the theoretical cupboard in good order is not an abstract but an extremely crucial practical issue – as the damage of the U.S. bank collapses graphically demonstrates.

[1] Karl Marx, Economic Manuscripts of 1857-58, in Collected Works, vol. 28 (London: Lawrence and Wishart), 36.

https://mronline.org/2023/03/15/consequ ... collapses/

The second-largest bank failure in US history reveals double standard

Many are outraged after venture capitalist-favored Silicon Valley Bank is bailed out by US government in full, as working people continue to struggle

March 14, 2023 by Peoples Dispatch

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Many expressed outrage after the US government announced that it would pay out all Silicon Valley Bank depositors in full, a pricetag of over USD$100 billion, especially to venture capitalists, while working people remain in dire straits. (Photo: Tony Webster)

On March 10, the Silicon Valley Bank collapsed in the second-largest bank failure in US history, topped only by the 2008 recession-era failure of Washington Mutual. SVB, which was founded in 1983 and was the go-to bank for tech startups and other venture capitalists, was the sixteenth-largest US bank according to assets.

The bank failure has sent the US economy reeling, with many working people concerned about the impact this could have on their paychecks, personal savings, and whether or not a 2008-like crisis could be provoked.

US authorities have attempted to employ a crisis control strategy, with US President Biden addressing the nation in televised remarks on March 13, saying, “every American should feel confident that their deposits will be there if and when they need them.”

The SVB failure was precipitated by the Federal Reserve hiking interest rates which devalued government bonds, which SVB had invested heavily in and are usually safe investments. The Fed had been raising interest rates as a way to combat inflation. Some on the left have argued that the best way to drive down inflation is to fight the true cause, price-gouging, through a price freeze and taxing profits made through gouging.

The US government typically only insures deposits up to USD 250,000, but the vast majority of SVB deposits exceeded that amount, a sum total of USD 151.6 billion beyond the 250,000 limit. However, the government announced on March 12 that it will cover the full uninsured sum to SVB customers, leaving public funds severely depleted in case there is another massive bank failure. On Sunday, March 12, New York-based Signature Bank became the third-largest bank in US history to fail with USD 110 billion in assets, setting off alarms of more failures to come.

Many expressed outrage after the US government announced that it would pay out all SVB depositors in full, a pricetag of over USD$100 billion, especially to venture capitalists, while working people remain in dire straits. Most people in the US have trouble paying weekly expenses. Rents have been skyrocketing with over 40% of tenants paying over 30% of their income towards rent. Food insecurity is also at a record high at 34 million people. Yet, the government cannot agree to pass through a student loan forgiveness program for the working class, which would cost USD 400 billion dollars over the next 30 years (approximately USD 13 billion per year).

Average working people in the US are not bailed out when they make risky investments, whether that be on college loans, housing, or any other expense. Some point out the hypocrisy of former secretary of the treasury Larry Summers, who called student loan forgiveness “unreasonably generous” yet said of the recent SVB debacle, “this is not the time for moral hazard lectures or for lesson administering or for alarm about the political consequences of ‘bailouts.’”

https://peoplesdispatch.org/2023/03/14/ ... -standard/
"There is great chaos under heaven; the situation is excellent."

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Re: The crisis of bourgeois economics

Post by blindpig » Fri Mar 17, 2023 2:23 pm

Aggressive US Rate Hikes Blamed for Silicon Valley Bank Debacle

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People queue up outside the headquarters of the Silicon Valley Bank (SVB) in Santa Clara, California, the United States, March 13, 2023. | Photo: Li Jianguo/Xinhua

Published 16 March 2023 (10 hours 39 minutes ago)

Neil Shearing, chief economist at Capital Economics consultancy, argued on Monday that more than half the effects on the real economy of higher interest in developed markets have yet to be felt.


The demise of Silicon Valley Bank (SVB) is partly due to aggressive interest rate hikes by the U.S. Federal Reserve, experts have said.

The collapse of SVB has spooked global markets, but "it's not really a surprise, given that the rate hike was quite substantial over such a short period of time," Charlie Cai, a professor of Finance at the University of Liverpool, told Xinhua on Tuesday.

"Historically we have had such a low interest rate in the U.S. for a long period of time. There are a lot of business models built on the expectation that the rate hike will not be that fast and steep. Then COVID-19 also gave a lot of free cash during that period," said Cai.

SVB was built on two key strengths: low interest rates and the tech sector, but these elements also eventually led to its collapse, said Cai.

SVB was shut down by U.S. regulators on Friday after the tech-heavy lender reported massive losses from securities sales, triggering a run on the bank's deposits. It was the second-largest bank failure in U.S. history, and was quickly followed by the closure of cryptocurrency sector lender Signature Bank on Sunday.

"Despite SVB's unique characteristics, its failure reminds us that the financial system is more fragile than we would like," read an article co-authored by the Systemic Risk Centre at the London School of Economics, and financial services company Lambodex.

SVB appeared to play it safe by investing deposits into U.S. government bonds, a type of investment without much credit risk, said the article. However, the risk SVB faced was not default but rising interest rates, as it bought its bonds during a period when interest rates had been very low for quite some time.

"The central banks did not sufficiently appreciate new types of risk created by the low interest policy," said the article published on Wednesday. As firms adapted to the low interest rates, they eventually came to depend on them, meaning that when rates increased they faced significant difficulties, the article added.

Creon Butler, research director at the policy institute Chatham House, also said on Wednesday that the SVB collapse had raised questions about whether U.S. bank regulation and its tech industry funding model were fit for purpose.

There should be a rethink of whether the extent and pace of monetary policy tightening is appropriate for the United States and other advanced economies, said Butler.

"Central banks may need to be more sensitive to the risks of financial instability as they seek to control the global inflation shock. In these circumstances, it would be better to move more slowly than risk a major crisis," he added.

Neil Shearing, chief economist at Capital Economics consultancy, argued on Monday that more than half the effects on the real economy of higher interest in developed markets have yet to be felt.

The impact of higher rates on the financial sector also appears with a delay, Shearing said. "This has already been the most aggressive monetary tightening cycle in four decades, and when interest rates move up so sharply it shouldn't be a surprise if some things break."

https://www.telesurenglish.net/news/Agg ... -0018.html

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Capitalist nationalization
March 17, 13:16

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Capitalist nationalization

President Joe Biden pulled off what most American statists could only dream of. The forty-sixth president of the United States essentially nationalized the country's banking system.

In response to the collapse of Silicon Valley Bank (SVB), a small bank that provided loans to many start-up companies, especially in biotech, the Biden administration announced that it would not bail out the bank, as the US government did during the 2008 Great Recession. How, you ask, did Joe Biden respond to this challenge?

Instead, the Federal Reserve launched the Term Bank Funding Program. It will offer loans for up to one year to banks, savings associations, credit unions, and other eligible depository institutions, and will accept U.S. Treasury bonds, government debt, mortgage-backed securities, and other financial assets as collateral. And they will be valued at face value.

In support of the program, the Fed will allocate up to $25 billion from the Exchange Stabilization Fund, which appeared back in the 1930s. The Fed has been drawing from it throughout the financial crisis into the pandemic to stabilize the markets. At the same time, a “wide list of assets” was accepted as collateral. This keeps the economy afloat during a recession and, in theory, prevents a financial crisis from escalating into a full-blown depression.

To be clear, this money comes from the US Treasury Department and is used to cover the Fed's losses to bail out failing banks. The Biden administration assures us that taxpayer money to bail out SVB (and very soon other small banks around the country) will not go in any case. But if the stabilization fund has to fork out, and losses are inevitable, then they will go - and how.

How can the Biden administration claim that it is not using public funds, that is, taxpayer money, for these bailout measures? The bulk of the funding will come not from taxpayers, but from the Federal Deposit Insurance Corporation (FDIC), which has an estimated $250 million in treasury. The money comes from the banks themselves, who receive commissions from the FDIC throughout their operations.

Due to the political publicity, the Biden team strongly insists that this is not financial assistance. According to the administration, this is "just" an exceptional measure to keep the economy running, which Biden, ludicrously, has repeatedly called "damn strong."

But whether it's DIA funds or taxpayer money, the fact remains that the federal government is once again saving the banking system by pumping money into it.
Much more important is how it happens. The government is saving not just bondholders, but all depositors in a row. This has never happened before.

Moreover, as Shark Pool economist and show host Kevin O'Leary lamented to Fox News host Neil Cavuto, bailing out all depositors indiscriminately—even those with more than the $250,000 insured account—the federal government had effectively nationalized banking. sector.

After all, it was not only the SVB depositors who suffered because of negligence and unprofessionalism. This contagion may also spread to other small and medium-sized regional banks.
As O'Leary noted in an interview with Fox News, the government "repaired" the banking sector and thereby saved it from any risks: now it does not matter whether this or that bank is well managed or not.

David Goldman of Asia Times noted that commercial and industrial loans from smaller banks account for only half of the larger ones. By 2022, the loan portfolios of small banks are almost equal to large ones, he notes.

Therefore, when Biden and his apparatchiks assure everyone that there are no systemic risks for the market, listen to them with a bit of skepticism. After all, this will affect not only SVB and other small banks. The banking crisis will sweep through almost all small banks and therefore the entire industry, as many large banks are heavily dependent on doing business with small ones.

Finally, remember the words used in the Bank Term Financing Program. The Fed believes it "will help stabilize markets by accepting a wider range of assets as collateral for loans to financial institutions."
That sounds like evidence of systemic risk, doesn't it?

The most likely outcome of all these actions is not only the nationalization of the banking system. It will also shrink to a few large banks that will manage all the rest. And here is the most terrible thing: the centralization of banking forces and their final merger with political power is coming.

At the same time, the impact on small businesses, which account for 48% of all jobs in America, will also be detrimental. The Small Business Administration likes to remind the public that small businesses are "the backbone of the American economy." Actually, that's the way it is. And if these growth engines are denied credit for expansion, the US economy will suffer even more.

Let's not forget that the "innovators" from Silicon Valley, under which the chairs are burning because of the collapse of the SVB, will go to Congress next week to beg for financial assistance. Now, their pleas must be resisted by Congress in every possible way. Even those companies that cooperate with the Pentagon. The government has no right to spend even more money on failing enterprises - this will suffice.

Finally, it is important to understand how exactly the banking crisis of 2023 began. Yes, the mismanagement and poor leadership of the SVB played a role. But this failure was brought closer by the government itself. It was the economic stimulus of Presidents Trump and Biden that convinced Fed Chairman Jerome Powell to raise interest rates sharply.

As SVB and many other banks became addicted to chronically low interest rates and easy money, their management did not expect their luck to run out. The bank collapsed precisely because of high interest rates, because it could not cover the losses.
The new federal budget from the Biden administration provides for trillions of dollars in additional spending. As I noted earlier, this is not serious. This is a trial balloon of sorts to get people talking about taxing the rich and supporting Biden's chaotic class war.

If this budget is passed, even remotely, the associated costs will only exacerbate the current financial crisis. Moreover, if Powell keeps raising interest rates, other banks will need help very soon.

With his spending, Joe Biden will let our country go around the world. Here he helps the rich depositors of these banks. Biden actually nationalized our banking sector, which until recently was private. Know this: with every year of his presidency, America will be plucked a little more. And in the end, we will turn into the spitting image of the European Union: a paradise for crony capitalists and a nightmare for innovators.
As former President Donald Trump would have tweeted, "That's sad."

(c) Brandon Weichert is a former congressional staffer and geopolitical analyst, senior editor of 19FortyFive.com, contributor to The Washington Times, and contributing editor to American Greatness and Asia Times. Author of Space Victory: How America Remains a Superpower, Shadow Warfare: Iran and its Pursuit of Dominance, and Biohackers: How China Seeks to Control Life Itself

https://inosmi.ru/20230316/bayden-261427588.html - zinc
https://www.19fortyfive.com/2023/03/joe ... cas-banks/ - original in English

Yesterday the "First Republican Bank" continued its fall, which is on the verge of bankruptcy.
European banks also collapsed yesterday, including French Paribas and Swiss Credit Suisse, which is in the most deplorable state and is actually begging for government support measures.

https://colonelcassad.livejournal.com/8229171.html

Google Translator

Like nationalization is a bad thing.....well, it ain't happening, yet, despite this whining from the political opposition. But it does put the lie to all that free market bullshit.

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U.S. politicians have insisted that, unlike the 2008 bank bailouts that generated waves of popular movements from Occupy Wall Street to the Bernie Sanders campaign, no taxpayer money will be spent towards SVB or Signature. (Photo: Michael Fleshman)

Yes, the U.S. gov’t did bailout the banks. What would a people’s bailout look like?
By Peoples Dispatch (Posted Mar 17, 2023)

Originally published: Peoples Dispatch on March 15, 2023 (more by Peoples Dispatch) |

The March 10 collapse of Silicon Valley Bank sent shockwaves throughout the world economy. Since then, the U.S. government moved quickly and decisively to bailout the bank’s depositors to the tune of USD 151 billion. The collapse of SVB, a bank utilized heavily by the tech industry and venture capitalists, is the second largest bank failure in U.S. history. Signature Bank, based out of New York, also failed quickly afterwards as SVB’s crash triggered distrust in the banking system across the nation. The U.S. government also bailed out Signature, spending USD 70 billion to ensure that the bank’s depositors had access to all of their money.

Many are outraged at the amount of money being thrown at banks and venture capitalists, and are calling for a bailout of the people, not the rich.

Is this really a bailout?
Top U.S. officials including U.S. President Biden and Treasury Secretary Janet Yellen have attempted to reassure the public that the government is not in fact bailing out the banks. This is due to the mass public backlash over the sheer quantity of government money spent on these banks.

U.S. politicians have insisted that, unlike the 2008 bank bailouts that generated waves of popular movements from Occupy Wall Street to the Bernie Sanders campaign, no taxpayer money will be spent towards SVB or Signature. Instead, the money is coming from a “special levy” on banks. However, some have pointed out that the money that banks will use to pay this levy comes from bank profits, which are ultimately generated through fees taken from customers and the money made by speculating using customers’ deposits. In other words, the bank’s money is really the people’s money.

Do banks really keep your money safe?
This recent bank crisis has shed light on some uncomfortable truths about the banking system under capitalism. Although the deeper cause of SVB’s collapse was the Federal Reserve raising interest rates which devalued government bonds, this interest rate raise caused customers to begin to mistrust SVB’s investment in such bonds. This created a “bank run”, in which large numbers of depositors begin to withdraw all their money from the bank at once.

Why should it be a problem for depositors to want their money back, if banks exist to keep people’s deposits safe and whole? This is because in reality, banks do not keep money safe, they gamble with it. In order to generate profits, banks invest the vast majority of their customers’ deposits into stocks, bonds, or other securities. Bank runs happen every few years across the globe, but banks are usually never financially prepared for them, as they are incentivized under capitalism to generate the most profits possible by speculating on more and more of their deposits. For example, if one bank speculates on 90% of their deposits, they will fall behind a bank which speculates on 95%.

This was exacerbated in 2020, when the Federal Reserve eliminated the reserve requirement altogether. For decades, banks were required to keep a certain amount of deposits in reserve. But the Fed used the pandemic as an excuse to eliminate this rule, and now banks are required to keep 0% of deposits in cash. Banks now have very little of their money in cash: SVB had 5% out of USD 175 billion before its crash, and both Bank of America and JPMorgan have 2%.

What would a bailout of the people look like?
The banks and venture capitalists gamble with people’s money. Yet time and time again, the government bails them out when risky gambles naturally go wrong. But some are pointing out that when it comes to the working class, the U.S. government does not invest billions of dollars within a matter of days.

The majority-Black city of Jackson, Mississippi has gone without reliable drinking water since September 2022. The bold social spending proposals of the Build Back Better legislation package were slowly chipped away at and ultimately destroyed supposedly for being too expensive, although the proposed social programs would have been a fraction of the billions just spent on banks.

Not only is the U.S. not investing in working people—it’s divesting. 32-states are set to cut food stamps drastically this month, creating what experts call a “hunger cliff”, impacting over 30 million people. Some could see monthly food assistance fall from USD 281 to USD 23. This comes at a time when groceries were 11.3% higher in January than they were a year prior. Eggs, in particular, cost 70% more than they did a year ago.

The dire economic straits of working people in the U.S. are too numerous to list, but here are a few more realities: Tech companies like Uber and Lyft successfully upheld legislation in California that keeps gig workers’ wages down to as low as USD 6.20 an hour. Over one in four U.S. adults have rotting teeth, disproportionately Black people, people with low incomes, and those with less than a high school education. Most people in the U.S. struggle with weekly expenses.

Some argue that if the government begins to invest in poor and working people instead of the rich, these efforts will be generously rewarded in the nation’s economy. Biden’s student debt relief program is currently being stymied by right-wing billionaire donors in the nation’s court system. But student loan forgiveness could boost the U.S. economy, experts say, as more adults would have the money to participate in consumption, especially in the housing market.

More than half of the people in the U.S. from ages 16 to 74 read below a sixth-grade reading level, but if literacy skills are raised through investments in public education, this would generate USD 2.2 trillion in annual income for the U.S., a Gallup study found. This would account for almost 8% of the nation’s GDP.

Peoples Dispatch spoke with Breakthrough News journalist Eugene Puryear on what exactly a bailout of the people could look like. “We can look to the precedent that was set during the COVID-19 pandemic in 2020. Something like the Paycheck Protection Program could be set up by the Federal Reserve,” Puryear said.

It could also take the form of direct checks to workers who are facing potential disruptions in their income.

Puryear proposed the nationalization of private banks. This way, the banks “could keep all of the various operations that need to be going, like payroll, [for] any legitimate business that was somehow caught…in the ructions created by the banks that they chose to do business with.”

These solutions, says Puryear, could resolve issues “in the favor of workers and in ways that put the pain most on the investors and the speculators.”

However, ultimately,

whatever we do to address the SVB crisis, we will be doing again and again and again, because it won’t be solving the fundamental problem.

“The only thing we can really do,” Puryear said, to end the cycle of economic crises and bank bailouts,

is to get rid of capitalism, because that’s where this comes from.


https://mronline.org/2023/03/17/yes-the ... look-like/

***********

The Bank Panic of 2023: If you can bail out the banks, you can roll back prices
March 17, 2023 Gary Wilson

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The Bank Panic of 2023 isn’t over. The collapse of the Silicon Valley Bank, the second largest bank failure in U.S. history, was followed by a landslide of banking crises.

Credit Suisse, the second largest Swiss bank after UBS, faces possible failure. With the shares of Credit Suisse falling 30% on March 15, the Swiss central bank provided a $54-billion rescue lifeline.

Credit Suisse barely survived the 2007-08 financial crisis. European bank stocks crashed 15% in the week following SVG’s failure.

On March 13, the credit rating agency Moody’s downgraded the entire U.S. banking system outlook to negative from stable. Again, that’s the whole banking system, not just one or two banks.

The collapse of Silicon Valley Bank could be the start of “a slow-rolling crisis” in the financial system with “more seizures and shutdowns coming,” the chief executive of BlackRock, the world’s largest asset manager, said.

The Guardian reported, “The high-profile economist Nouriel Roubini told Bloomberg News that if Credit Suisse were to collapse it could result in a ‘Lehman moment’ – a reference to the collapse of the U.S. investment bank Lehman Brothers in August 2007 at the start of the global financial crisis.”

Immediately after the collapse of Silicon Valley Bank, the Biden administration announced a complete bailout of all wealthy uninsured depositors.

In the New York Times, Paul Krugman wrote: “Yes, it was a bailout. The fact that the funds will come from the Federal Deposit Insurance Corporation rather than directly from the Treasury doesn’t change the reality that the government came in to rescue depositors.”

“The Federal Reserve announced an emergency lending facility on March 12 to shore up the U.S. banking system,” the Financial Times reported. “The Fed said it would make additional funding available to eligible depository institutions to ‘help assure banks have the ability to meet the needs of all their depositors.’ It added that it is ‘prepared to address any liquidity pressures that may arise.'”

In effect, the government has nationalized the bank insurance system to guarantee all deposits, starting with the wealthy depositors at Silicon Valley Bank, Signature Bank, and Silvergate Bank. Silvergate collapsed just days before Silicon Valley Bank and Signature two days after. The Signature collapse was the third-largest bank failure in U.S. history.

Those three banks were related in two ways. First, both their borrowers and depositors were heavily concentrated among technology companies. Big Tech expanded rapidly during the pandemic and is now laying off thousands of workers.

Secondly, the three banks were heavily invested in long-term U.S. Treasury bonds, considered safe during the COVID shutdown, when the Fed lowered interest rates to almost zero. But a surge in inflation started in 2021, and the Fed responded with aggressive rate hikes that slashed the market value of the long-term Treasuries.

The New York Times reported on March 16 that many banks are holding big portfolios of long-term Treasury bonds that are now worth a lot less than their original value. U.S. banks are sitting on $620 billion in unrealized losses from Treasury securities according to Federal Deposit Insurance Corporation data, with many regional banks facing big hits. “Adding in other potential losses, including on mortgages that were extended when rates were low, economists at New York University have estimated that the total may be more like $1.75 trillion,” the Times says.

Inflation is still ravaging as real wages have continued to drop for the 23rd straight month.

Shelter (the government’s term for housing costs, primarily based on rent levels) was the most significant contributor to monthly inflation, accounting for over 70% of the increase. Food, household furnishings, and daily household upkeep also increased.

Rents were up 8.76% in February, the highest on record.

The cost of living has outpaced wage growth for 23 straight months, bringing wages down 1.3%.

The obvious question is, if they can bail out the banks, why can’t they roll back prices and end the inflation crisis for the working class? They could do it but won’t unless there’s a fight for it.

As Frederick Douglass declared: “Power concedes nothing without a demand. It never has and it never will.”

https://www.struggle-la-lucha.org/2023/ ... ck-prices/
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Re: The crisis of bourgeois economics

Post by blindpig » Wed Mar 29, 2023 3:02 pm

US BANKING PROBLEMS HERALD THE END OF THE DOLLAR RESERVE SYSTEM
David P Goldman

Mar 27, 2023 , 3:59 p.m.

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Other currencies will continue to gain ground against the dollar (Photo: Yuri Nunes/EyeEm/Getty Images)

America's banking system is broken. That doesn't bode well for more high-profile flops like Credit Suisse. Central banks will keep dying institutions on life support.

But the era of dollar-based reserves and floating exchange rates that began on August 15, 1971, when the United States severed the dollar-gold peg, is coming to an end. The pain will be transferred from the banks to the real economy, which will starve for credit.

And the geopolitical consequences will be enormous.

The forfeiture of dollar credit will accelerate the shift to a multipolar reserve system, to the advantage of China's renminbi as a competitor to the dollar.

Gold, the "barbarian relic" loathed by John Maynard Keynes, will play a larger role because the dollar banking system is dysfunctional and no other currency, surely not the tightly controlled renminbi, can replace it. Now near an all-time record price of $2,000 an ounce, gold is likely to rise further.

The greatest danger to the dollar's hegemony and the strategic power it gives Washington is not China's ambition to expand the international role of the renminbi. The danger comes from the exhaustion of the financial mechanism that has enabled the United States to accumulate a negative net foreign asset position of $18 trillion over the past 30 years.

Germany's flagship Deutsche Bank hit a record low of 8 euros on the morning of March 24, before recovering to 8.69 euros by the end of that day's trading, and its credit default swap premium, the cost of insuring its subordinated debt, shot up to about 380 basis points above LIBOR (London InterBank Offered Rate: "London Interbank Offer Rate"), or 3.8%.

That's as much as during the 2008 banking crisis and the 2015 European financial crisis, though not as much as during the March 2020 covid lockdown, when the premium topped 5%. Deutsche Bank will not fail, but may need official support. You may have already received that support.

This crisis is completely different from 2008, when banks raised trillions of dollars in bad assets based on "phony loans" to homeowners. 15 years ago, the credit quality of the banking system was rotten and leverage was out of control. Current bank credit quality is the best in a generation. The crisis stems from the now impossible task of financing America's ever-expanding foreign debt.

It is also the most anticipated financial crisis in history. In 2018 the Bank for International Settlements—a kind of central bank for central banks—warned that 14 trillion dollar short-term loans from European and Japanese banks used to hedge currency risk were a ticking time bomb waiting to explode (" Has the derivative volcano already begun to erupt? ", October 9, 2018).

In March 2020, dollar credit was bogged down in a race for liquidity when the covid lockdowns began, causing a sudden shortage of bank financing. The Federal Reserve put out the fire by opening multi-billion dollar swap lines to foreign central banks. It expanded those lines of exchange on March 19.

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Consequently, the dollar balance of the world banking system exploded, as measured by the volume of foreign claims in the world banking system. This opened up a new vulnerability, namely counterparty risk, or banks' exposure to huge amounts of short-term lending to other banks.

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America's chronic current account deficits of the past 30 years are equivalent to trading goods for paper: The United States buys more goods than it sells and sells assets—stocks, bonds, real estate, and so on—to foreigners to offset the difference.

The United States now owes $18 trillion net to foreigners, roughly equal to the cumulative sum of these deficits over 30 years. The problem is that foreigners who own US assets receive cash flows in dollars, but need to spend money in their own currencies.

With floating exchange rates, the value of dollar cash flows into euros, Japanese yen, or Chinese renminbi is uncertain. Foreign investors need to hedge their dollar income, that is, sell US dollars short against their own currencies.

That's why the size of the currency derivatives market skyrocketed along with America's liabilities to foreigners. The mechanism is simple: if you receive dollars but pay in euros, you sell dollars against euros to hedge your exchange risk.

But your bank has to borrow the dollars and lend them to you before you can sell them. Foreign banks borrowed perhaps $18 trillion from US banks to finance these hedges. That creates a gigantic vulnerability: If a bank appears dodgy, as Credit Suisse did earlier this month, banks will withdraw credit lines in a global rush.

Before 1971, when central banks kept exchange rates at a fixed level and the United States covered its relatively small current account deficit by transferring gold to foreign central banks at a fixed price of $35 an ounce, none of this was necessary.

The end of gold's peg to the dollar and the new floating exchange rate regime allowed the United States to run massive current account deficits by selling its assets to the world. The populations of Europe and Japan were aging faster than the United States, so they had a correspondingly greater need for retirement assets. That arrangement is now coming to a messy end.

A fail-safe indicator of global systemic risk is the price of gold, especially the price of gold relative to alternative hedges against unexpected inflation.

Between 2007 and 2021 the price of gold tracked US Treasury Inflation-Indexed Securities (“TIPS”) with a correlation of approximately 90%.

However, from 2022 gold rose while the price of TIPS fell. Something like this happened after the global financial crisis of 2008, but last year's movement has been much more extreme. Below is the residual from the regression of the gold price against the 5-year and 10-year TIPS.

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Looking at the same data on a scatter plot, it is clear that the linear relationship between gold and TIPS remains in place, but both its baseline and slope have changed.

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Indeed, the market worries that buying inflation protection from the US government is like Titanic passengers buying shipwreck insurance from the captain. The gold market is too large and diverse to manipulate. No one has much confidence in the US Consumer Price Index, the indicator against which the TIPS payment is determined.

The dollar reserve system will not go away with a bang, but with a whimper. Central banks will step in to prevent any dramatic failure. But bank balance sheets will shrink, credit to the real economy will decline, and international lending in particular will evaporate.

On the side, financing in local currency will replace credit in dollars. We have already seen this happen in Türkiye, whose currency imploded during 2019-2021 as the country lost access to funding in dollars and euros.

To a large extent, Chinese trade finance replaced the dollar and supported Türkiye's remarkable economic turnaround last year. Southeast Asia will be more dependent on its own currencies and the renminbi. The dollar frog will boil in slow increments.

It is fortuitous that Western "sanctions" on Russia over the past year have led China, Russia, India and the Persian Gulf states to find alternative financing arrangements. This is not a monetary phenomenon but an expensive, inefficient and cumbersome way to get around the US dollar banking system.

However, as dollar credit wanes these alternative arrangements will become permanent features of the monetary landscape, and other signs will continue to gain ground against the dollar.

David P. Goldman is an American economist, music critic, and writer, best known for his series of essays in the Asia Times under the pen name Spengler. Goldman claims that he writes from a Judeo-Christian perspective and often focuses on demographic and economic factors in his analysis. In 2015, Goldman and Uwe Von Parpart, a longtime Asia Times contributor , joined an investment group that took control of Asia Times HK Ltd. He became Deputy Editor (Business) of Asia Timesin 2020. Goldman was Global Head of Credit Strategy at Credit Suisse 1999-2002, Global Head of Fixed Income Research at Bank of America 2002-2005, and Global Head of Fixed Income Research at Cantor Fitzgerald 2005-2008. He continues to advise CEOs and institutional investors.

https://misionverdad.com/traducciones/l ... en-dolares

US BANKS SIT ON $1.7 TRILLION IN UNREALIZED LOSSES
28 Mar 2023 , 4:19 pm .

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There is currently no security in the US banking system (Photo: File)

After the rapid collapse of Silicon Valley Bank (SVB) and Signature Bank in early March, along with the untimely debacle of Credit Suisse, regulators and businessmen in the United States and Europe have scrambled to publicly reassure consumers that banks are insurance. However, how safe is your savers' money?

The reality is that there is nothing safe about the American financial system. Money is safe as long as bank customers do not flock to withdraw their deposits, which is precisely what is happening.

According to analysts, the potential for "contagion" throughout the financial system is now minimal after the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve and the Treasury joined forces to support all depositors, both without safe as safe.

The crisis at the SVB was caused by rising interest rates that helped trigger a bank run on its large base of uninsured depositors, a problem besetting US banks, which had unrealized losses of $1.7 trillion a year. end of 2022 (losses almost equal to the total capital of the banks).

*Unrealized losses are not reflected on banks' balance sheets due to an accounting practice in which assets are kept on banks' books at the value at which they were purchased, rather than their current market value, so Banks will only realize these losses if they are forced to sell their holdings in the middle of a bank run in which depositors withdraw their funds.
*Unrealized loss occurs when a stock falls after an investor has bought it but not yet sold it. If a large loss is not realized, the investor is likely to expect the stock to thrive and the value of the stock to rise after the price at which it was purchased.

https://misionverdad.com/los-bancos-de- ... realizadas

Google Translator

**************

Over $100 Billion Withdrawn From US Banks in a Week Amid Bankruptcies and Closures
MARCH 27, 2023

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The emblem of the US Federal Reserve. Photo: Graeme Sloan/Sipa USA/Legion-Media.

US authorities continue to affirm that the banking system remains “sound and resilient” despite decreases in deposits, the bankruptcy of Silicon Valley Bank (SVB), the closure of Signature Bank, and the crisis in the First Republic Bank, not to mention the crises in European banking conglomerates Credit Suisse and Deutsche Bank.

Recent data published by the US Federal Reserve reports that between March 8 and 15, during the period surrounding the bankruptcy of Silicon Valley Bank (SVB) and the closure of Signature Bank, US banking customers withdrew $98.4 billion.

The data shows that the largest withdrawals, totaling $120 billion, were at small banks, while deposits at large banks increased by $67 billion. The withdrawals reduced total deposits in the US bank system to just over $17.5 trillion.


On Friday, US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell participated in a special closed-door meeting of the Financial Stability Oversight Council, during which US officials discussed the current situation in the country’s banking sector.

In a statement released after the meeting, the board noted that “while some institutions have come under stress, the US banking system remains sound and resilient.” In addition, the board decided that US economic bodies should monitor financial performance more closely.

On March 10, the US banking system experienced the largest bankruptcy since the 2008 financial crisis: SVB, the 16th largest bank in the country, collapsed after depositors, mostly linked to the sector’s technology and venture capital-backed companies, were advised to withdraw their money as concerns about the crisis spread.

Two days later, regulators shut down New York-based Signature Bank, which was heavily involved in the cryptocurrency industry, due to systemic risks and to prevent industry contagion. After that, First Republic Bank was also forced into the fray after failed attempts to revert the crises through announcements regarding an unsuccessful buyout from financial corporations.

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Meanwhile, in Europe, the crisis in the financial giant Credit Suisse has remained unresolved despite massive support from the Swiss National Bank to salvage one of its oldest financial institutions, while in Germany, Deutsche Bank has been showing a sharp decline in its stock exchange value also due to uncertainties regarding its financial strength.

Parallel to these events, a sharp increase in the price of gold and Bitcoin serves as evidence of negative consumer perception about the future of the financial system.

https://orinocotribune.com/over-100-bil ... -closures/
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Re: The crisis of bourgeois economics

Post by blindpig » Mon Apr 03, 2023 2:35 pm

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Tale of two capitalisms

A common misconception about capitalism
By Prabhat Patnaik (Posted Apr 03, 2023)

Originally published: Peoples Democracy on April 2, 2023 (more by Peoples Democracy) |

THERE is a commonly-held view that while capitalism in its early stages brings about unemployment and hence an accentuation of poverty, this initial damage is subsequently reversed as it keeps growing. The unemployed get largely absorbed into the ranks of the active army of workers, and with a reduction in the unemployment rate, wages begin to rise; and they rise impressively as labour productivity increases.

This view appears at first sight to be supported by historical evidence: poverty in Britain is estimated by Marxist historian Eric Hobsbawm to have increased with the onset of industrial capitalism; but certainly from the middle of the nineteenth century things changed for the better as far as the workers were concerned. This would suggest that capitalism, no matter what transitional hardships it may cause to the workers, is eventually beneficial even for them.

This entire conception however is erroneous. There is absolutely no theoretical reason to expect that capitalism would reverse the damage it causes initially to the material conditions of the workers; and the reason for the actually-observed improvement in these conditions at a later stage has nothing to do with any spontaneous tendency of capitalism.

This idea that while capitalism may initially hurt the workers it later improves their condition, can be traced to the English economist David Ricardo, who had put forward the argument in the context of the introduction of machinery. He argued that such introduction initially displaces workers causing much hardship, but it raises the rate of profit and hence the rate of accumulation of capital, because of which the displaced workers are re-absorbed into employment; in fact the workers as a whole can even see an improvement in their wages if they do not reproduce themselves too rapidly and thereby control the rate of growth of the workforce.

Ricardo’s argument has two obvious flaws. First, he was talking about a one-shot introduction of machinery; but capitalism introduces newer machinery and methods of production on a continuous basis. Even if we accept his argument that the unemployment-creating effect of a one-shot introduction of machinery would get reversed eventually through an enhanced rate of accumulation of capital and hence an enhanced rate of growth of labour demand, this eventual occurrence never materialises, as in the interim new rounds of machines are introduced.

The matter therefore has to be looked at in dynamic terms. If g is the rate of growth of the capital stock and also of output (the ratio of output to capital stock is assumed to remain unchanged despite technical progress whose main effect is supposed to be a reduction in labour cost) and p the rate of growth of labour productivity, then the rate of growth of labour demand is g-p. If this is less than the natural rate of growth of the workforce n, then the unemployment rate will keep on increasing over time. There is nothing in the working of capitalism to make g-p exceed n.

Of course some would argue in defence of Ricardo that if labour productivity kept growing while the unemployment rate too kept increasing (so that the wage-rate remained tied to a subsistence level), then the rate of profit that could be obtained from production will keep rising and that this would keep pushing up the rate of accumulation until the unemployment rate fell significantly. But this is where the second problem with Ricardo’s argument comes in, namely that he assumes that there would never be a demand constraint upon the realisation of the potential output and hence upon the rate of profit and the rate of accumulation. He assumes in other words that Say’s Law,which asserts that “supply creates its own demand,” invariably holds. But once we recognise that there is a “realisation problem”, that the rate of profit, which emerges from the wage rate, given the conditions of production, need not be “realised”, and that the rate of accumulation of capital stock, and with it the rate of growth of labour demand, need not keep increasing without limit, then it becomes clear that there is no mechanism within capitalism to reabsorb into the active army of workers all those who are displaced by its continuous introduction of technical progress.

Both the above points had been made by Marx in criticism of Ricardo’s assertion that the introduction of machinery only had a transient ill-effect on the level of employment and the condition of workers. Once these points are taken into account, there is absolutely no theoretical basis for the belief that capitalism, while initially harmful to employment and the workers’ condition, eventually improves their lot.

How then does one explain the indubitable historical fact that there was a turnaround in the living conditions of metropolitan workers in the course of the development of capitalism? The answer here lies in the large-scale emigration of European workers to the “New World” that occurred in the course of what is called the “long nineteenth century” (that is, the period up to the First World War). Between the end of the Napoleonic war and the First World War, according to economist W Arthur Lewis, approximately fifty million European workers migrated from their countries of origin to other temperate regions of white settlement, such as the United States, Canada, Australia, New Zealand and South Africa.

This was a “high wage” migration, since the wages both in their countries of origin and in their countries of destination, were high, in contrast to another wave of migration that was occurring simultaneously. This second wave was from tropical and semi-tropical countries like India and China to other tropical and semi-tropical countries like Fiji, Mauritius, the West Indies, East Africa and South-Western United States; these tropical migrants who were part of a low-wage migration were not allowed to move freely to the temperate regions of white settlement (they still are not to this day).

Lewis explains this difference between the high wage and low wage migration streams, by suggesting that there had been an agricultural revolution in Britain (which had spread elsewhere) that had raised the incomes of the rural population in their countries of origin. But there is very little evidence of any such agricultural revolution. The real reason for the high wages associated with the first migration was that the migrants simply took over the land belonging to the indigenous tribal population by force, and set themselves up as farmers earning high levels of income, which raised the wage rate both in the countries from which they came and the countries to which they came.

The scale of this temperate-to-temperate migration was very large: for Britain for instance it has been estimated that between 1820 and 1915, roughly half of the increase in population every year just emigrated. This in terms of scale would be analogous to roughly 500 million persons emigrating out of India in the period since independence. The possibility of migration on such a scale is just not available to persons in the third world today. But it is this possibility being available to the population of the metropolis that accounts for the turnaround in the fortunes of the European workers in the nineteenth century. It is not the spontaneous tendencies of capitalism that explain such a turnaround, but the fact that a large segment of the population could simply migrate abroad and by grabbing hold of the lands of the original inhabitants, set themselves up as reasonably well-off farmers. The possibility of snatching away land from the original inhabitants arose because of the phenomenon of imperialism.

Imperialism helped this process of a turnaround in the metropolitan workers’ material conditions of life in a second way too. I mentioned above that the system being demand-constrained prevents the re-absorption of the workers displaced by machinery. But a demand constraint can be broken by selling machine-made goods at the expense of the artisan producers in the colonies and semi-colonies, as indeed happened historically. This would have the effect of reducing or keeping low the level of unemployment in the metropolis; indeed it would amount de facto to an export of unemployment from the metropolis to the colonies and semi-colonies, who are powerless to protect their economies from such deindustrialising imports because they are ruled by the metropolis.

It follows that contrary to the misconception that capitalism itself tends to overcome the initial damage it inflicts on the working population of the metropolis, it is the phenomenon of imperialism,which ensures both a land grab around the globe and an export of unemployment to the colonies and semi-colonies,that underlies the turnaround in the fortunes of its domestic workers. This must not be taken to mean that the workers in the metropolis are complicit in the imperialist project; it is just the way the system works.

https://mronline.org/2023/04/03/a-commo ... apitalism/
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Re: The crisis of bourgeois economics

Post by blindpig » Thu Apr 13, 2023 3:02 pm

DECOUPLING BETWEEN THE CHINESE AND US ECONOMIES CONTINUES SLOWLY BUT SURELY
Apr 11, 2023 , 1:30 p.m.

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There are no signs of US exports of manufactured goods returning to pre-trade war status (Photo: Adobe Stock)

Five years ago, during the Donald Trump administration, the trade war between the United States and China began. Currently, despite diplomatic tensions, especially due to the situation in Taiwan and the episode of the supposed Chinese spy balloon, the two largest economies in the world remain coupled but with a gradual disconnection.

Below we present some data systematized by PIIE that draw the current panorama:

*US exports to China continue to suffer.
*China is now moving some purchases of foreign goods away from the United States.
*Both countries fear that the other side will suddenly weaponize trade flows and cut off imports or exports in the name of security. Trying to get ahead of that, now everyone is rehearsing diversification.
*Newly released data for 2022 shows that US exports are falling further and further behind their foreign peers who also sell into the Chinese market.
*Semiconductor sector sales declined in 2022 and may not return either due to the new US export control policy. Services exports from that country plummeted during the pandemic and have yet to recover.
*Buyers of Chinese agricultural products are diversifying to other suppliers, while the US agricultural sector remains heavily dependent on the Chinese market for its exports.
*Since the beginning of the trade war, there has been a decline in US competitiveness associated with higher input costs due to Trump's tariffs, which specifically targeted parts and components needed by businesses.
*There are no signs that US exports of manufactured goods will return to their pre-trade war status.
*The value of US energy exports to China fell 13% in 2022 since trade routes were reconfigured after the war in Ukraine.


https://misionverdad.com/desacoplamient ... ero-seguro

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**********

The Global South is Dumping the Dollar
Posted by INTERNATIONALIST 360° on APRIL 7, 2023

The Global South is dumping the dollar.



We’re joined by journalists in Beirut, Nairobi, Recife (Northeast Brazil) and São Paulo, for this special panel.

Clinton Nzala is a political commentator and analyst based in Nairobi, and writer for Pan-African media outlet, African Stream.

Esteban Carrillo is an Ecuadorian journalist based out of Beirut. He is the news editor for the cradle, an online news magazine covering geopolitical developments in West Asia.

Brian Mier is a Brazil-based reporter and correspondent at teleSUR English and a host on Brasil 247.

Camila Escalante is the Editor of Kawsachun News and currently reporting in São Paulo.

https://libya360.wordpress.com/2023/04/ ... he-dollar/

******

Federal Reserve Forecasts US Economic Recession This Year

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Minutes of the Federal Reserve's March policy meeting released. Apr. 12, 2023. | Photo: Twitter/@AinslieBullion

Published 12 April 2023


The U.S. Federal Reserve considers that the country's banking distress will indeed affect the economy.

According to the central bank's minutes released Wednesday, recent banking turmoil in the U.S. leads to forecasts of "a mild recession beginning later this year."

Minutes from the March 21-22 Federal Open Markets Committee (FOMC) meeting pointed to the collapse of Silicon Valley Bank and Signature Bank that triggered a banking crisis in the U.S. with effects on financial institutions around the world.

The FOMC said the Fed believes the U.S. banking distress will indeed affect the economy. In this regard, the meeting summary indicates that "a mild recession beginning later this year" will see "a recovery over the next two years."

Fed officials expect U.S. Gross Domestic Product (GDP) of 0.4 percent for all of 2023.


The Fed raised benchmark U.S. interest rates by 0.25 percent in March, the ninth hike in 13 months. This brought rates to a record high of 5 percent.

The Consumer Price Index (CPI) grew at an annual rate of 5 percent last month, up from an expected 5.1 percent and 6 percent in February.

"Reflecting the effects of expected lower tightness in product and labor markets, core inflation is expected to slow sharply next year," the minutes read.

https://www.telesurenglish.net/news/Fed ... -0019.html
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Re: The crisis of bourgeois economics

Post by blindpig » Thu Apr 27, 2023 2:55 pm

Corporate magazine describes and bemoans the ‘end of capitalism’
April 27, 2023 Chris Fry

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Fortune magazine worried about the ‘end of capitalism.’

An April 5th article from the aptly-named pro-capitalist magazine website, Fortune.com, carried the title: “‘We may be looking at the end of capitalism’: One of the world’s oldest and largest investment banks warns ‘Greedflation’ has gone too far.”

This piece by Will Daniel is a study of an essay by Albert Edwards, the chief global strategist at the French bank Société Générale. This investment bank is labeled as “systemically” important by the G20.

Corporations, particularly in developed economies like the U.S. and U.K., have used rising raw material costs amid the pandemic and the war in Ukraine as an “excuse” to raise prices and expand profit margins to new heights, he said.

Furthermore, Edwards wrote in the Tuesday edition of his Global Strategy Weekly that after four decades of working in finance, he’s never seen anything like the “unprecedented” and “astonishing” levels of corporate Greedflation in this economic cycle. To his point, a January study from the Federal Reserve Bank of Kansas City found that “markup growth”—the increase in the ratio between the price a firm charges and its cost of production—was a far more important factor driving inflation in 2021 than it has been throughout economic history.

Here is a chart that shows the widening profit margin that Edwards is talking about:

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Edwards predicts that these “super normal profits” by corporations in the U.S. and abroad will “inflame social unrest.”:

“[T]he end of Greedflation must surely come. Otherwise, we may be looking at the end of capitalism,” he warned. “This is a big issue for policy makers that simply cannot be ignored any longer.”

Of course, this French banker needs merely to look out his office window to see the millions of workers who are pouring into the streets of Paris and other cities to protest the Macron government’s slashing of pensions by raising the retirement age, all to shore up corporate profits.

A rebuke of the Fed’s interest rate hikes and a call for price controls

The Fortune.com article’s writer, Will Daniel, describes the debate over the Federal Reserve’s policy to curb inflation by raising interest rates. The Fed lays the blame for rising prices on the workers and their increasing wages and “full” employment. The Fed is deliberately working to generate a devastating recession and impoverish the workers and oppressed.

But banker Edwards instead blames corporate price gouging for the sky-high rate of inflation and, reluctantly and out of sheer desperation, suggests an alternative strategy – price controls:

Edwards noted that many of his colleagues are “less sympathetic to the use of price controls”, but he argues their use may be warranted because “something seems to have broken with capitalism.”

The strategist referenced a paper by University of Massachusetts Amherst economists Isabella Weber and Evan Wasner, titled, “Sellers’ Inflation, Profits and Conflict: Why can Large Firms Hike Prices in an Emergency?” which found that corporations engaged in “price gouging” during the pandemic and argued temporary price controls may be the only way to prevent the “inflationary spirals” that could come as a result of this gouging.

It must be noted that Edwards never suggests wage controls, which were implemented by President Richard Nixon in 1971, because even this banker recognizes that workers’ wages play no role in this current sky-high inflation rate and wage controls would create even more “social unrest.”

China avoids financial crises and inflationary spirals.

On March 26, the New York Times published an opinion piece by Zhiwu Chen, director of the Hong Kong Institute for the Humanities and Social Sciences, titled “How China keeps putting off its Lehman moment.”

The “Lehman moment” that Chen refers to is the collapse of the mega Lehman House Investment Bank in 2008, crushed by the unfolding financial crisis stemming from the subprime mortgage escapade. That fraudulent scheme, generated by the largest banks and insurance companies on Wall Street, caused millions of families to lose their homes and millions of workers to lose their jobs. Although the subprime crisis became global, China and its working class were virtually unscathed.

The article goes on to describe how, when the Chinese real estate developer Evergrande defaulted on its debt and when the tech giant Alibaba overreached on its IPO offering, bourgeois economists in the West predicted that the Chinese financial system would soon collapse. But that didn’t happen.

Although Chen never uses the word “socialism,” he does detail how the Chinese Communist Party was able to use that system’s socialist foundation to stave off crises and, crucially, safeguard the standard of living of an alert, conscious Chinese working class:

Most of China’s biggest and most powerful companies, including all of its major banks, are state-owned, and executives are usually members of the Communist Party, which controls top-level corporate appointments. Party committees within corporations further ensure that many important business decisions align with government policy. Even healthy and influential private companies can be ordered to undergo painful restructuring or curtail certain business operations, as a government crackdown on the e-commerce leader Alibaba and other Chinese tech giants that began in 2020 made clear.

Ultimately, all of this serves the party’s absolute priority of maintaining social stability; there is zero tolerance for financial distress or major corporate failures that could trigger street demonstrations. And government control of the business sector is only increasing.

Through its National Development and Reform Commission (NDRC), China does indeed have constantly monitored and updated price controls, keeping inflation far below that of the U.S. and the rest of the imperialist world.

In the Fortune article described above, Edwards tells how most bourgeois economists disdain price controls because corporations will simply cut back production and create shortages until enough pressure is put on the government to lift the controls.

But because China’s government and workers’ party have so much control over the banks and corporations, even private ones, such production cutbacks can be and are prevented.

Karl Marx lays out the way forward.

Today we are witnessing a tremendous upsurge in the class struggle. From the militant defense of tenants in Detroit to the union organizing struggles at Starbucks and Amazon, from the increasing wave of education worker strikes to the demonstrations and strikes in Germany, to the now epic weekly general strikes in France, our class here and in Europe, which has been near dormant for decades, is awakening. Edwards’ massive “social unrest” is on the horizon.

Although union membership in the U.S. is only a fraction of what it was before the powerful 1980s Reagan-led corporate anti-union campaign, unions are now more popular among our class here than they have been in decades. The stage is set for a massive struggle against the Federal Reserve-spawned austerity program.

As these struggles unfold and draw in more and more of the workers and oppressed, progressives of many “stripes” will be drawn in to not only support these struggles, which is essential but also to compose programs to guide them forward. Unions are fundamental and crucial, but they are limited essentially to the goals of protecting members from abuse and job losses and of increasing the share of the surplus value that we produce to enhance our standard of living.

“Reform” socialists like the Democratic Socialists of America (DSA), taking a class-wide outlook, may prepare political programs to affect capitalist distribution to benefit the working class. That is worthy and essential. But it leaves the class structure intact with the billionaires still in power, ready to dismantle whatever hard-won gains are won.

Revolutionary socialists must unite and prepare our class to carry the struggle even further.

In the heroic 1871 Paris Commune, workers and soldiers led by revolutionaries took control of the city of Paris. The workers organized and took control of all the major factories and other workplaces. So empowered, they enacted laws and regulations that bettered the lives of the working class rather than fill the pockets of the business owners. Though their struggle was defeated in a little over a month, organizers and theorists like Karl Marx drew many lessons from that experience.

In 1875, Marx wrote a letter to a group of activists meeting in the German town of Gotha. In order to create a “unified” German workers’ organization, the group adopted a reformist socialist program. Marx’s letter became known as the “Critique of the Gotha Program.”

Marx explains that capitalist distribution stems directly from capitalist production:

Any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production themselves. The latter distribution, however, is a feature of the mode of production itself.

Marx then states that the hardship that the workers face from capitalist distribution (i.e., the outrageous price of goods and services, the impoverishment of the unemployed, and so on) is because of the private ownership of capitalist production:

The latter distribution, however, is a feature of the mode of production itself. The capitalist mode of production, for example, rests on the fact that the material conditions of production are in the hands of nonworkers in the form of property in capital and land, while the masses are only owners of the personal condition of production, of labor power. If the elements of production are so distributed, then the present-day distribution of the means of consumption results automatically.

Then he writes the solution to this that is as relevant today as the day the words were written:

If the material conditions of production are the cooperative property of the workers themselves, then there likewise results a distribution of the means of consumption different from the present one.

Marx is saying that the only solution to end all the suffering caused by deprivation and impoverishment the workers and oppressed face today and more so tomorrow, sky-high inflation, foreclosures and evictions, the absence of health care, the low wages and lack of benefits, all of this can only be finally resolved by placing productive property under the ownership and control of the workers and oppressed.

Marx contrasts this point with the program of the “reformers”:

Vulgar socialism (and from it, in turn, a section of the democrats) has taken over from the bourgeois economists the consideration and treatment of distribution as independent of the mode of production and hence the presentation of socialism as turning principally on distribution. After the real relation has long been made clear, why retrogress again?

It should be pointed out that Marx and his comrade Frederick Engels didn’t make this letter public for 17 years in order to not create disunity in the broad workers’ movement, just as today revolutionary socialists support calls for reforms, particularly coming from organizations of the oppressed. That is why, for example, we favor permanent community-controlled price controls of essential goods and services needed by our class as well as reparations for the oppressed communities.

But we want banker Albert Edward’s dream, or rather for him, his nightmare of the “end of capitalism” fulfilled, to make these reforms unbreakable. And that’s what defines revolutionary socialism.

https://www.struggle-la-lucha.org/2023/ ... apitalism/

Calling it 'Greedflation' gives the impression of exceptionalism to our current situation whereas it is only due diligence' practiced with a keen edge and building upon itself in a historical manner.
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Re: The crisis of bourgeois economics

Post by blindpig » Wed May 03, 2023 3:18 pm

HOW THE US NATIONAL DEBT HAS GROWN IN THE LAST 20 YEARS
May 2, 2023 , 4:05 p.m.

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The US currently spends about $1 trillion more each year than it collects in revenue (Photo: File)

The United States debt reached 31 trillion dollars. The Washington Post recounted how the amount has grown in the last 20 years, as well as the four responsible presidents, the 10 sessions of Congress and the two wars that contributed to the increase.

The outlet reports that it now spends about $1 trillion more each year than it collects in revenue, forcing the Treasury Department to borrow to make up the difference. Which means that the national debt continues to grow; Treasury Secretary Janet Yellen warned of the possibility of the United States defaulting next June.

*2001: The Bush tax cuts. Total debt was $5.7 trillion. In that year, President George W. Bush signed into law the first of two major tax cuts. In 2012, the Congressional Budget Office estimated that the Bush tax cuts added approximately $1.5 trillion to the national debt. After the Iraq war, there was an increase in spending on the Pentagon and veterans. The conflicts in Iraq and Afghanistan cost the nation between $4 trillion and $6 trillion.
*2006: Expansion of prescription drugs. The Medicare expansion raised the debt to $8.4 trillion. Subsequently, the crisis in the financial markets triggered the great recession of 2008. After this, the debt reached 11.1 trillion dollars.
*2013: Obama-Republican agreement to extend the Bush tax cuts. With this maneuver, the amount owed reached 16.8 trillion dollars. At the time, the Congressional Budget Office estimated that the deal would cost approximately $4 trillion over 10 years.
*The Trump era: The tycoon president signed a sprawling tax cut bill centered on a plan to lower the rate paid by large American corporations from 35 percent to 21 percent. The Congressional Joint Committee on Taxation estimated the measure would cost approximately $1.5 trillion over 10 years. At that time the debt reached 27.7 trillion dollars.
*Biden's $31 Trillion: The current US president announced a $400 billion plan to cancel student debt, which is quickly suspended pending review by the US Supreme Court. Meanwhile, Biden is pushing Congress to spend more on veterans' health, physical infrastructure and government agencies. Biden's Cut Inflation Act spends more on a variety of other programs, including the Internal Revenue Service.

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First Republic: The collapse and the crisis
Eugene PuryearMay 2, 2023 84 7 minutes read
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The collapse of First Republic Bank is the second largest bank failure in U.S. history. The first was Washington Mutual during the 2008-2009 economic crisis. Despite that alarming precedent, economic authorities in the US are moving forward with plans to deliberately cause more bank failures, put millions of people out of work and generally tank the economy. Even more, they are trying to claim they are doing this to help the economy. On top of that, the working class doubly pays the cost since the ultimate responsibility of the increasing cascade of bailouts also falls on the shoulders of workers. Not to mention the fact that Congress and the White House are on the verge of a crisis over the debt ceiling that is likely to result in deep cuts to social programs at the exact time they are most needed.

In other words, the collapse of First Republic Bank is a sign of the rot at the center of capitalist economics and politics; the response to its collapse speaks directly to the class war being waged right out in the open by the capitalist class. Most importantly, it serves as a crucial opportunity to make clear that these problems in the banking sector are features, not bugs, of capitalism, and only by uprooting the entire system of “boom-bust-bailout” that fails so miserably at providing a decent living for tens of millions in the U.S. can workers truly improve their lives.

Why did they go under?

First Republic is a victim of the “bubblenomics” most notable for its ultra-low interest rates that has ruled the financial realm since the “dot com collapse” at the turn of the century. First Republic built its model on the status quo of this era. (Why First Republic Collapsed-Wall Street Journal) They cultivated clients with higher incomes and in turn used their deposits to speculate on mortgages. They prided themselves on having great customer service, something designed to offset the fact that they paid very low interest rates on their checking accounts. As long as interest rates stayed super low, there was not much of a problem. The wealthy depositors valued the customer service, and weren’t looking for that much money in interest from their checking accounts. As interest rates rose, however, the bank was in a double bind.

On the one hand, depositors were moving their money looking for higher rates of return than what a First Republic account offered. That is, they increasingly wanted their money out. On the other hand the bank was deeply caught up in fixed-rate mortgages. These lose value as interest rates rise. This meant First Republic had access to less money in real life than it did on paper. This became a major problem as depositors started asking for large amounts of their money, all at once. At the end of the day, the bank cracked under pressure and after borrowing huge sums from the government and some private banks to try to avoid the worst, finally collapsed, leaving the Federal Deposit Insurance Corporation to pick up the pieces.

Big banks get bigger

The government dealt with the bank collapse by facilitating the consolidation of the banking sector. The FDIC, which manages the resolution of failed banks, worked out a deal with JPMorgan, the nation’s largest bank, to take over all of First Republic’s assets. As the Wall Street Journal notes, the purchase “boosts the New York bank’s massive loan book and dominant deposit franchise. It gives the megabank a new crop of rich customers at a time when it is trying to expand its wealth-management operation.” Even better for JPMorgan the bank will “share losses…on First Republic’s loans.” So in other words, JPMorgan gets all the upside, but taxpayers are on the hook for some “share” in the downside. (WSJ)

This will do nothing whatsoever to address the ongoing crisis in the banking system, mainly because the Federal Reserve is deliberately pursuing policies that will create more bank runs and failures. Without a doubt, this “solution” has also made one part of the problem worse, creating an even larger “too big to fail” sector of the banking industry that thrives by gambling recklessly and passing off the losses to working-class people by demanding bailouts.

Encouraging banking consolidation as a “solution” to these various bank runs, the government is enshrining the principle that big business can do whatever it wants and never face the consequences. And the potential consequences are real. The 25 largest bank holding companies in the U.S. control $247 trillion in derivatives — Wall Street bets — many of them that no one even knows the terms of. These banks have just $18 trillion in assets. (Wall Street on Parade) Clearly, the possibility is very real for more bets to go bad than even the biggest banks can cover.

Enter the Fed

The financial press is reporting that the Federal Reserve will conduct at least one more interest rate hike this year. They are, of course, aware that the current banking crisis was caused by their rate hikes so far, that, however, is the plan. The Federal Reserve is currently carrying out a plan to address inflation that makes sure workers, not capitalists, bear the brunt of the pain. The plan is based on a set of false premises about what causes inflation. Mainly, that workers simply had too much money due to the various COVID relief measures and rising wages. Simply put, the evidence does not bear this out. Nonetheless, the Federal Reserve and its defenders have used this as an excuse to raise interest rates to bring on a recession.

This, of course, is bad for certain individual capitalists, but, for capitalists overall, it’s far less painful than the alternative, and for the JPMorgans of the world it also opens up lucrative opportunities to gobble up rivals at bargain basement prices.

In reality, however, inflation is not caused by anything like higher wages or stimulus checks. Instead it’s a combination of the war in Ukraine, massive corporate price gouging and the COVID-19 pandemic. (Wall Street on Parade) Addressing inflation, then, would imply ending the war and the massive sanctions associated with it, enacting high taxes on the wealthy to decrease incentive to price gouge and continuing to improve public health services. Included in this could be further measures like price caps. All of this puts the burden squarely on the ruling class. Requiring a climb down from their Imperial adventures and agreeing to a redistribution of wealth through taxes and increased social spending.

Make the rich pay! Nationalize the banks!

Inflation policy is simply just another arena of class warfare. The working class has to go on the offensive, but how? One critical way is to demand actual solutions that put the burden on capitalists be enacted immediately. We can go a step further however and demand that the monopoly core of the banking sector be nationalized. This is easier than one might think, because just a handful of banks, about 25, control 69% of all U.S. bank assets.(Wall Street on Parade) Among the United States’ largest 100 companies there are seven banks; combined they control roughly 44% of all banking assets.(Wall Street on Parade) That would mean taking over just a handful of banks — 0.59% of FDIC insured banks — would make the bulk of the banking sector a public utility. (Quarterly Report on Bank Trading and Derivatives Activities-Dec. 2022)

Practically, this would massively democratize capital allocation, the heart of capitalist investment and could make the difference between investing tens of billions of dollars in affordable housing as opposed to the trillions big banks invest in opaque, poorly regulated “derivatives” that are essentially just insurance for Wall Street gamblers. Rather than investing for maximum profit, investment would be based on maximum social value.

Broad social categories could transform not just investment, but innovation. Projects would have to foreground their relationship to broad societal priorities. An app that helps keep the water clean is going to draw more investment than one that better addicts people to sports betting, for instance. Nationalization is still, essentially, in a broader marketized framework. Some things will work out, some won’t, and since the banking system would be largely controlled by society writ large, we’d all bear the costs of any failure.

The framework of said failures, however, would be massively shifted. It would be our basic livelihoods, the strength of our built environment, the health of the planet and the quality of our essential services that would be “too big to fail,” not corporate profits. Not to mention, managers and executives would no longer have an incentive to gamble in order to artificially pump up earnings statements, and would instead be rewarded for real benefit and long-term durability.

However, even this modified version of our current reality opens up space to ask deeper questions about how our economy is organized.

Socialism Is the future, build it now!

Why, for instance, are markets considered the best way to allocate goods and services when they are obviously doing such a poor job of it now? Why not start from a different premise? Consider people’s needs first and foremost. Instead of worrying primarily about capital allocation, we worry about resource allocation. If we know we need a certain amount of housing, why not simply plan with the steelmakers, bricklayers, appliance makers, HVAC installers and so on to make sure we have enough of all the various elements to assure we can build the requisite amount of housing? If we know we need more rural hospitals, how many doctors, nurses, MRI machines and so on do we need?

How do we align our educational, manufacturing and construction processes to make sure the buildings, the machinery and the people exist to make possible our goals? In this different, better, world, our jobs and our education are linked to a plan to continually grow and improve society. In other words we would have an economy built on directly linking the existing human and material resources to the needs of society.

This is the type of society we write about in our recent text “Socialist Reconstruction.” This book was written specifically because it can be hard to envision a world radically different from our own. It can, however, be done, and the current fears of an economic meltdown are the perfect opportunity to start taking steps to change the world for the better.

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Re: The crisis of bourgeois economics

Post by blindpig » Sat May 06, 2023 2:41 pm

The End of an Era

Why do the International Monetary Fund (IMF), the World Trade Organization (WTO) and the World Bank-- three of the most highly regarded international economic organizations-- project a bleak road ahead for the global economy?



Ominously, the World Bank warns of the possibility of a coming “lost decade” for economic growth.



In January of this year, the World Bank dropped its global growth projection for 2023 to 1.7% from its June of 2022 projection of 3%. To put some perspective on the number, during the era of high globalization before the 2007-9 crash, global growth averaged 3.5%. Since the crisis, growth has averaged 2.8%. And just three months after the January projection, the World Bank warns of an entire decade of lowered growth expectations. As quoted in The Wall Street Journal: “it will take a herculean collective policy effort to restore growth in the next decade to the average of the previous one.”



Likewise, the WTO projects the volume of world merchandise trade to expand at only 1.7% this year from the 2.8% average growth experienced since 2008.



On the heels of the April World Bank alarm, the IMF has announced its worst medium-term growth forecast since 1990.



Accordingly, all three major international organizations have offered challenging, if not dire predictions for the global economy.



Clearly, the capitalist ship that has been buffeted by a global pandemic, raging inflation, a European war, and bank failures is taking on water. While there is no reason to expect the ship to sink, serious alarm bells are going off.



The pundits, policy-makers, and economics professors assured us that the orgy of price increases battering household budgets was only temporary, due to disruptions in global supply chains caused first by the pandemic, then by the war in Ukraine. Those promises were made over two years ago.



Since then, explanations have given way to prayer. The policy tools-- a bitter potion of Central Bank interest rate hikes-- have proven less effective against inflation than promised. The previous long decade of unusually low interest rates encourages consumers to freely use credit when income is under stress, as it is with rampant inflation. As interest rates soar, those same consumers are slow to recognize their exploding debt load from high interest payments, adding to an already deteriorating standard of living. Reliance on credit thwarts the dampening effects of interest-rate increases upon consumer demand.



Media Pollyannas rejoiced over the March Consumer Price Index numbers, with growth down to 5% over the level of the year earlier (the Fed target is 2%). While the drop is significant, the media neglected to mention that they had been persistently reminding us that the Federal Reserve relies on the core rate over the overall rate in its policy decisions. That rate-- the core CPI-- actually rose in March (its components-- core services and core goods-- were both up from February). So much for the power of faith.



Thus, the Federal Reserve will likely raise interest rates again in May, further increasing the cost of newly incurred debt.



And why would inflation ease when consumers are still rushing towards Armageddon by continuing to tolerate price increases? Proctor and Gamble, one of global economy’s biggest consumer-product monopolies (Tide, Charmin, Gillette, Crest, etc.) has raised prices by 10% with little loss in sales volume and with growing dollar revenue. P&G has no incentive to stop or slow price increases as long as revenue (and profits) continue to grow. In fact, why would they? They are in business to make money.



Simple as it may seem, that’s the answer behind the “puzzle” of inflation: “‘The only way to explain this in relation to what we’ve seen in some of the commodity price indices for food is that margins are being expanded,’ said Claus Vistesen, an economist at Pantheon Macroeconomics” as quoted in The Wall Street Journal. Yes, that’s price gouging.



It’s not a “wage-price spiral” as corporate flacks like to opine. Instead, as Fabio Panetta, European Central Bank board member, confesses, it’s “opportunistic behavior” capped by “a profit-price spiral.”



Liberal and social democratic economists decry the Federal Reserve’s strategy of putting a wet blanket on consumption to discourage price rises, but they have no alternatives to offer. They are content to leave the management of the capitalist economy to the capitalists, while denouncing their remedies.



Similarly, the once loud advocates of Modern Monetary Theory (MMT) are strangely quiet. During the pandemic, the idea of running large, stimulative deficits without fear of igniting inflation became popular. Left-wing pundits thought that they had found a pain-free method of funding social reforms without tapping the accumulated wealth of the obscenely rich-- a magical political elixir. The arrival of spiraling inflation has stifled that talk.



If three major capitalist institutions are foretelling economic uncertainty and instability, it is because we are exiting a distinctive era of capitalist restructuring. Associated with the popular term of “globalization,” the accelerating mobility of capital, the opening up of new areas of capital penetration; a revolution in financial instruments; the release of huge new low-wage, skilled-labor reservoirs; modern, efficient shipping techniques; the removal of trade barriers and the streamlining of regulation; new formerly public areas opened to private development; and the adoption of trade agreements embodying these changes are among the more important and novel features of the era that we are leaving.



That era gave capitalism a new lease on life, with growing profits, hyper-accumulation, and vastly expanded speculative investments. Little of that enrichment was shared with the masses, resulting in unprecedented inequalities of income and wealth.



The great economic collapse of 2007-2009 exhausted the vitality of the epoch of globalism-- capitalist internationalism-- that lasted over two decades. Vast sums of hyper-accumulated capital channeled into riskier and riskier speculation, a process that eventually collapsed from its own arrogance.



Rather than surrender to the inevitability of the “creative destruction” that always naturally follows a crash-- the natural process of sweeping away the toxic “assets” left in the wake of a crash-- the great financial wizards in the financial centers of New York, London, Paris, Zurich, etc. sought to isolate, protect, and sustain the garbage of the disaster and “inflate” a deflated economy through “creative restoration.”



Popularized by economist Joseph Schumpeter, the term “creative destruction” refers to the wreckage left after an economic crash-- the deflated and fictitious “values” associated with bank and enterprise failures, overpriced, unrealized goods and services, lost jobs, bad investments, ruined securities, etc. For Schumpeter and his followers, this destruction was essential for a reset of the economy, a new, fresh beginning, sweeping away the waste products of the crash.



Historically, the pain of a crisis is borne excessively by poor and working people, but the rich and powerful and the corporations are set back as well. The more severe the downturn, the less able the elites are to push all of the consequences onto those less powerful and more vulnerable. And the worse the downturn, the greater the political resistance to business-as-usual.



But after 2007-2009, working people’s institutions were extraordinarily weak, the mainstream party systems offered little advocacy for the victims of the crash, and the policy makers were determined and confident that they could avoid or buffer the period of creative destruction. They believed that they possessed the financial tools that would stabilize and resuscitate the global economy without a period of retrenchment and the accompanying economic setbacks. Central banks spent trillions to buy the worthless "assets" and place them in a lockbox until values could be restored and sold back into markets. And they embarked on an unprecedented decade of free money (ultra-low interest rates) to allow sickly, unprofitable, and marginal enterprises to live on life support and to compete another day. The discipline of the market-- of winners and losers-- gave way to state intervention to keep everyone in the game.



They only succeeded in postponing the inevitable. Today, the effort to forego creative destruction is failing and global institutions know and recognize that failure with their dire projections.



What will follow the collapse of globalism remains a matter of conjecture.



However, we can see that we are entering a period of growing uncertainty and conflict. The rise of rightwing populism has spawned a strong dissatisfaction with conventional answers and a rise in nationalism and protectionism. Governments in Europe (Hungary, Poland, Italy, the Baltics, etc.) in Asia (India, Turkey, Taiwan, Japan, etc.) have taken a decidedly rightward turn, embracing militarization, sectarianism, anti-liberalism, and nationalism. The US and its allies are no longer the champions of free markets, employing tariffs, sanctions, and other aggressive, winner-take-all measures.



The alliances and the rules of the game that were established in the 1990s and the first decade of the twenty-first century are now crumbling. Global leadership is now contested, with the war dangers that ensue. The win-win illusions of globalization are mutating into the voracity of grab-whatever-you-can.



We have not seen in memory a period where the US and its allies simply steal the financial assets of a country like Venezuela or Russia with impunity. All signs point to not a world order, but a world disorder, with alliances coming and going between old allies and old enemies. Turkey can attack Russian planes over Syria and sell drones to Russia to use against Ukraine. Saudi Arabia can assist fundamentalists in killing Russians in Syria and then broker a global oil deal with Russia. Russia can sell weapons to both Peoples’ China and India, as tensions rise between the two. The US can destroy pipelines that offer cheap Russian energy to Germany with impunity, while the UAE sells sanctioned Russian oil back to Germany. And so it goes. Increasingly, the only principle behind international relations is absence of principle.



Understandably, the highly-educated-- normally Pollyannaish-- minds diligently working for The World Bank, the IMF, and WTO foresee a rough road ahead for global capitalism. The rest of us should take notice.



Greg Godels

zzsblogml@gmail.com

http://zzs-blg.blogspot.com/2023/04/the-end-of-era.html

**********

STUDY: NEARLY 190 US BANKS COULD FAIL
May 5, 2023 , 4:48 p.m.

Image
A Wall Street sign outside the New York Stock Exchange (Photo: Reuters)

San Francisco, California-based PacWest Bancorp is considering a sale of its assets. And last week First Republic Bank became the third bank to fail since last March, the second-biggest bank failure in US history after Washington Mutual, which collapsed in 2008 amid the financial crisis.

After the demise of Silicon Valley Bank and Signature Bank in March, a study into the fragility of the US banking system found that 186 more banks risk failing even if only half of their uninsured depositors decide to withdraw their funds. Uninsured depositors may lose a portion of their deposits if the bank fails, potentially giving them incentives to flee.

Uninsured deposits are owned by customers who exceed the Federal Deposit Insurance Corporation's deposit insurance limit of $250,000.

A number of banks are failing because the Federal Reserve's aggressive interest rate hikes supposedly to contain inflation have eroded the value of bank assets such as Treasury bonds and mortgage-backed securities, among other financial instruments.

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Re: The crisis of bourgeois economics

Post by blindpig » Tue May 09, 2023 1:59 pm

Over 2,000 US Banks Are Insolvent – Telegraph[
MAY 8, 2023

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Image taken on May 1, 2023 shows a branch of First Republic Bank in New York. Photo: Global Look Press/Michael Nagle.

The US banking sector has recently been hit by a major crisis

Almost half of the 4,800 banks in the US are nearly insolvent, as they have burned through their capital buffers, The Telegraph reported earlier this week, citing a group of banking experts.

According to Professor Amit Seru, a banking expert at Stanford University, around half of US lenders are underwater.

“Let’s not pretend that this is just about Silicon Valley Bank and First Republic,” he said. “A lot of the US banking system is potentially insolvent.”

Last week, First Republic was seized by US financial regulators and acquired by JPMorgan, the country’s biggest bank. The San Francisco-based lender had previously received a $30-billion rescue shot from a group of Wall Street banks in the form of deposits. The sale of First Republic Bank followed massive deposit runs in March, which caused two regional lenders, Silicon Valley Bank and Signature Bank, to fail within days.

On Thursday, shares of Los Angeles-based PacWest and Arizona’s Western Alliance were suspended after their prices fell dramatically. Earlier in the week, shares of several regional US lenders plunged by at least 15%, triggering investor concerns about the financial health of other mid-sized banks.

Around 2,315 banks across the US are currently sitting on assets worth less than their liabilities, according to a Hoover Institution report by Professor Seru and a group of banking experts, as cited by the.

Over $100 Billion Withdrawn From US Banks in a Week Amid Bankruptcies and Closures


The market value of the loan portfolios of these lenders is reportedly $2 trillion lower than the stated book value.

Professor Seru raised questions over the steps taken by US financial watchdogs to tackle the problems faced by crisis-hit mid-sized lenders. The regulators can contain the immediate liquidity crisis by guaranteeing all deposits temporarily, according to Seru, who said, however, that this would not address the greater solvency crisis.

https://orinocotribune.com/over-2000-us ... telegraph/
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Re: The crisis of bourgeois economics

Post by blindpig » Tue Jun 13, 2023 1:55 pm

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Modern supply-side economics and the New Washington Consensus
By Michael Roberts (Posted Jun 13, 2023)

Originally published: The Next Recession on June 8, 2023 (more by The Next Recession) |

Last month, the U.S. National Security Advisor, Jake Sullivan, outlined the international economic policy of the U.S. administration. This was a pivotal speech, because Sullivan explained what is called the New Washington Consensus on U.S. foreign policy.

The original Washington Consensus was a set of ten economic policy prescriptions considered to constitute the “standard” reform package promoted for crisis-wracked developing countries by Washington, D.C.-based institutions such as the IMF, World Bank and the U.S. Treasury. The term was first used in 1989 by English economist John Williamson. The prescriptions encompassed free-market promoting policies such as trade and finance ‘liberalisation’ and privatisation of state assets. They also entailed fiscal and monetary policies intended to minimise fiscal deficits and public spending. It was the neoclassical policy model applied to the world and imposed on poor countries by U.S. imperialism and its allied institutions. The key was ‘free trade’ without tariffs and other barriers, free flow of capital and minimal regulation—a model that specifically benefited the hegemonic position of the U.S.

But things have changed since the 1990s—in particular, the rise of China as a rival economic power globally; and the failure of the neoliberal, neoclassical international economic model to deliver economic growth and reduce inequality among nations and within nations. Particularly since the end of the Great Recession in 2009 and the Long Depression of the 2010s, the U.S. and other leading advanced capitalist economies have been stuttering. ‘Globalisation’, based on fast rising trade and capital flows, has stagnated and even reversed. Global warming has increased the risk of environmental and economic catastrophe. The threat to the hegemony of the U.S. dollar has grown. A new ‘consensus’ was needed.

The rise of China with a government and economy not bowing to the wishes of the U.S. is a red flag for U.S. strategists. The World Bank figures below speak for themselves. The U.S. share of global GDP rose from 25% to 30% between 1980 and 2000, but in the first two decades of the 21st century it fell back to below 25%. In those two decades, China’s share rose from under 4% to over 17%—ie quadrupling. The share for other G7 countries—Japan, Italy, UK, Germany, France, Canada—fell sharply, while developing countries (excluding China) have stagnated as a share of global GDP, their share changing with commodity prices and debt crises.

The New Washington Consensus aims to sustain the hegemony of U.S. capital and its junior allies with a new approach. Sullivan: “In the face of compounding crises—economic stagnation, political polarization, and the climate emergency—a new reconstruction agenda is required.” The U.S. must sustain its hegemony, said Sullivan, but “hegemony, however, is not the ability to prevail—that’s dominance—but the willingness of others to follow (under constraint), and the capacity to set agendas.” In other words, the U.S. will set the new agenda and its junior partners will follow—an alliance of the willing. Those who don’t follow can face the consequences.

But what is this new consensus? Free trade and capital flows and no government intervention is to be replaced with an ‘industrial strategy’ where governments intervene to subsidise and tax capitalist companies so that national objectives are met. There will be more trade and capital controls, more public investment and more taxation of the rich. Underneath these themes is that, in 2020s and beyond, it will be every nation for itself—no global pacts, but regional and bilateral agreements; no free movement, but nationally controlled capital and labour. And around that, new military alliances to impose this new consensus.

This change is not new in the history of capitalism. Whenever a country becomes dominant economically on an international scale, it wants free trade and free markets for its goods and services; but when it starts to lose its relative position, it wants to change to more protectionist and nationalist solutions.

In the mid-19th century, the UK was the dominant economic power and stood for free trade and international export of its capital, while the emerging economic powers of Europe and America (after the civil war) relied on protectionist measures and ‘industrial strategy’ to build their industrial base. By the late 19th century, the UK had lost its dominance and its policy switched to protectionism. Then by 1945, after the U.S. ‘won’ WW2, the Bretton Woods- Washington consensus came into play, and it was back to ‘globalisation’ (for the US). Now it’s the US’ turn to move from free markets to government-guided protectionist strategies—but with a difference. The U.S. expects its allies to follow its path too and its enemies to be crushed as a result.

Within the New Washington Consensus is an attempt by mainstream economics to introduce what is being called ‘modern supply-side economics’ (MSSE). ‘Supply-side economics’ was a neoclassical approach put up as opposition to Keynesian economics, which argued that all that was needed for growth was the macroeconomic fiscal and monetary measures to ensure sufficient ‘aggregate demand’ in an economy and all would be well. The supply-siders disliked the implication that governments should intervene in the economy, arguing that macro-management would not work but merely ‘distort’ market forces. In this they were right, as the 1970s onwards experience showed.

The supply-side alternative was to concentrate on boosting productivity and trade, ie supply, not demand. However, the supply-siders were totally opposed to government intervention in supply as well. The market, corporations and banks could do the job of sustaining economic growth and real incomes, if left alone. That too has proved false.

So now, within the New Washington Consensus, we have ‘modern supply-side economics’. This was outlined by the current U.S. Treasury Secretary and former Federal Reserve chair, Janet Yellen in a speech to the Stanford Institute for Economic Policy Research. Yellen is the ultimate New Keynesian, arguing for both aggregate demand policies and supply-side measures.

Yellen explained: “the term “modern supply side economics” describes the Biden Administration’s economic growth strategy, and I’ll contrast it with Keynesian and traditional supply-side approaches.” She continued:

What we are really comparing our new approach against is traditional “supply side economics,” which also seeks to expand the economy’s potential output, but through aggressive deregulation paired with tax cuts designed to promote private capital investment.

So what’s different?

Modern supply side economics, in contrast, prioritizes labor supply, human capital, public infrastructure, R&D, and investments in a sustainable environment. These focus areas are all aimed at increasing economic growth and addressing longer-term structural problems, particularly inequality.

Yellen dismisses the old approach: “Our new approach is far more promising than the old supply side economics, which I see as having been a failed strategy for increasing growth. Significant tax cuts on capital have not achieved their promised gains. And deregulation has a similarly poor track record in general and with respect to environmental policies—especially so with respect to curbing CO2 emissions.” Indeed.

And Yellen notes what we have discussed on this blog many times.

Over the last decade, U.S. labor productivity growth averaged a mere 1.1 percent—roughly half that during the previous fifty years. This has contributed to slow growth in wages and compensation, with especially slow historical gains for workers at the bottom of the wage distribution.

Yellen directs her audience of mainstream economists to the nature of modern supply side economics. “A country’s long-term growth potential depends on the size of its labor force, the productivity of its workers, the renewability of its resources, and the stability of its political systems. Modern supply side economics seeks to spur economic growth by both boosting labor supply and raising productivity, while reducing inequality and environmental damage. Essentially, we aren’t just focused on achieving a high top-line growth number that is unsustainable—we are instead aiming for growth that is inclusive and green.” So MSSE-side economics aims to solve the fault-lines in capitalism in the 21st century.

How is this to be done? Basically, by government subsidies to industry, not by owning and controlling key supply-side sectors. As she put it: “the Biden Administration’s economic strategy embraces, rather than rejects, collaboration with the private sector through a combination of improved market-based incentives and direct spending based on empirically proven strategies. For example, a package of incentives and rebates for clean energy, electric vehicles, and decarbonization will incentivize companies to make these critical investments.” And by taxing corporations both nationally and through international agreements to stop tax-haven avoidance and other corporate tax avoidance tricks.

In my view, ‘incentives’ and ‘tax regulations’ will not deliver supply-side success any more than the neoclassical SSE version, because the existing structure of capitalist production and investment will remain broadly untouched. Modern supply-side economics looks to private investment to solve economic problems with government to ‘steer’ such investment in the right direction. But the existing structure depends on the profitability of capital. Indeed, taxing corporations and government regulation is more likely to lower profitability more than any incentives and government subsidies will raise it.

Modern supply economics and the New Washington Consensus combine both domestic and international economic policy for the major capitalist economies in an alliance of the willing. But this new economic model offers nothing to those countries facing rising debt levels and servicing costs that are driving many into default and depression.

The World Bank has reported just this week that, economic growth in the Global South outside of China will fall from 4.1% in 2022 to 2.9% in 2023. Battered by high inflation, rising interest rates and record debt levels many countries were growing poorer. Fourteen low-income countries are already at high risk of, debt distress, up from just six in 2015.

By the end of 2024, per-capita income growth in about a third of EMDEs will be lower than it was on the eve of the pandemic. In low-income countries—especially the poorest—the damage is even larger: in about one-third of these countries, per capita incomes in 2024 will remain below 2019 levels by an average of 6%.

And there is no change in the lending conditions of the IMF, the OECD or the World Bank: indebted countries are expected to impose austere fiscal measures on government spending and to privatise remaining state entities. Debt cancellation is not on the agenda of the New Washington Consensus. Moreover, as Adam Tooze put it recently that “Yellen sought to demarcate boundaries for healthy competition and co-operation, but left no doubt that national security trumps every other consideration in Washington today.” Modern supply-side economics and the New Washington Consensus are models, not for better economies and environment for the world, but for a new global strategy to sustain U.S. capitalism at home and U.S. imperialism abroad.

https://mronline.org/2023/06/13/modern- ... consensus/
"There is great chaos under heaven; the situation is excellent."

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