Archive for August, 2010

VIII. The collapse of capitalism, Minsky and the Great Financial Crisis

August 31, 2010 2 comments

The idea that Marx’s prediction of a complete breakdown of capitalism could be triggered by something as innocuous as a recession may seem far-fetched. After all, recessions are as ubiquitous to post-war capitalism as inflation, bubbles, and military interventions by Washington. Indeed, most recessions in the post-war period were deliberately triggered by Washington to slow growth by cutting off the availability of credit — the mother’s milk of superfluous economic expansion.

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VII. Superfluous labor and the collapse of capitalism

August 28, 2010 2 comments

If we now return to the definition of depression offered by the wiki, we can see how inadequate it is:

In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by economists as part of a normal business cycle.

Considered a rare and extreme form of recession, a depression is characterized by its length, and by abnormally large increases in unemployment, falls in the availability of credit— quite often due to some kind of banking/financial crisis, shrinking output and investment, numerous bankruptcies— including sovereign debt defaults, significantly reduced amounts of trade and commerce— especially international, as well as highly volatile relative currency value fluctuations— most often due to devaluations. Price deflation, financial crises and bank failures are also common elements of a depression.

The definition is not only inadequate; it contains assumptions about both depressions and recessions that are misleading and altogether an obstacle to understanding the current economic disturbance we call the Great Recession.

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VI. Prices and superfluous labor

August 24, 2010 Leave a comment

A depression erupts when further investment by businesses becomes unprofitable; this lack of profitability results solely from the fact that labor is so productive that consumption is the overriding limiting barrier to further investment. Once this “insuperable” limit was encountered, money was withdrawn from circulation by the owners of gold who could find no profitable use for it. In response to this, government devalued the national currency against gold and then altogether debased it.

The debasement of the national currency severed the connection between gold and the national currency; and, therefore, between value and price; and between socially necessary labor time and labor time actually expended. On the one hand, there is gold: the expression of the value contained in the output produced. On the other hand, there are dollars: the denomination in the prices of that same output of the labor time actually expended.

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V. Debasement and prices

August 22, 2010 Leave a comment

There is a syndrome known to afflict people who have undergone surgery to relieve terrible bouts of seizures called split brain. The wiki explains how this affliction expresses itself:

Split-brain is a lay term to describe the result when the corpus callosum connecting the two hemispheres of the brain is severed to some degree. The surgical operation to produce this condition is called corpus callosotomy and is usually used as a last resort to treat intractable epilepsy. Initially, partial callosotomies are performed; if this operation does not succeed, a complete callosotomy is performed to mitigate the risk of accidental physical injury by reducing the severity and violence of epileptic seizures. Prior to callosotomies, epilepsy is treated through pharmaceutical means.

A patient with a split brain, when shown an image in his or her left visual field (the left half of what both eyes take in, see optic tract), will be unable to vocally name what he or she has seen. This is because the speech-control center is in the left side of the brain in most people, and the image from the left visual field is sent only to the right side of the brain (those with the speech control center in the right side will experience similar symptoms when an image is presented in the right visual field). Since communication between the two sides of the brain is inhibited, the patient cannot name what the right side of the brain is seeing. The person can, however, pick up and show recognition of an object (one within the left overall visual field) with their left hand, since that hand is controlled by the right side of the brain.

The same effect occurs for visual pairs and reasoning. For example, a patient with split brain is shown a picture of a chicken and a snowy field in separate visual fields and asked to choose from a list of words the best association with the pictures. The patient would choose a chicken foot to associate with the chicken and a shovel to associate with the snow; however, when asked to reason why the patient chose the shovel, the response would relate to the chicken.

The split brain syndrome is an altogether apt analogy for what happened when the dollar was debased from gold.

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IV. Devaluation and debasement

August 20, 2010 2 comments

Depressions are real events. No amount of currency devaluation can halt or prevent one. A depression arises when the capacity of a society to produce exceeds, either temporarily or permanently, any possible productive use for that output. It occurs, in other words, when, under the given economic circumstances, hours of work are longer than is required by society. This cannot be altered, nor in any way meaningfully effected, by the devaluation of a nation’s currency.

But, devaluation can shift the burden of a depression. This is clearly evident when one nation devalues its currency to a greater or lesser extent than other nations; it is also evident in the case where one nation devalues earlier or later than other nations. The country that devalues earlier, or devalues more severely can enjoy additional growth at the expense of its peers. But, despite this, there is no net effect on the depression.

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Israel strike on Iran imminent?

August 20, 2010 Leave a comment

We wonder why rumors are now being actively floated that Israel and Palestine are set to enter talks. We’re not saying this is the reason, only that we so distrust Israel’s motives it could be the reason. Netanyahu has absolutely no intention of ever giving up control of Palestine. Thus, in our view, talks rumors are being floated as a smokescreen, and Abbas is playing the role of useful idiot:

WASHINGTON—The United States invited Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas to meet in Washington on Sept. 2 to launch long-stalled direct talks on a peace agreement.

U.S. Secretary of State Hillary Clinton said the renewed negotiations aimed to “resolve all final status issues, which we believe can be completed within one year.”

President Barack Obama has invited Egyptian and Jordanian leaders to Washington to take part in the launch.

Middle East envoy George Mitchell said Mr. Netanyahu and Mr. Abbas would decide for themselves how and when in direct talks to address thorny final status issues—the fate of Jerusalem and Palestinian refugees, and the borders of a Palestinian state.

Greece: Death Spiral

August 18, 2010 Leave a comment

For what it’s worth, these are not our words. They are taken from a mainstream European newspaper…

From Spiegel Online:

The entire country is in the grip of a depression. Everything seems to be going downhill. The spiral is continuing unabated, and there is no clear way out. The worse part, however, is the fact that hardly anyone still hopes that things will improve one day.

The country’s unemployment rate makes this trend particularly clear. In 2009, it was 9.5 percent. This year it may rise to 12.1 percent and economists expect it to reach 14.3 percent in 2011. Those, though, are only the official numbers, which were provided by Angel Gurría, secretary general of the Organisation for Economic Co-operation and Development (OECD). The Greek trade union association GSEE considers those numbers far too optimistic. It considers 20 percent to be a more likely figure for 2011. This would put the unemployment rate as high as it was in 1960, when hundreds of thousands of Greeks were forced to emigrate. Meanwhile, purchasing power has fallen to its 1984 level, according to the GSEE.

Categories: Off Blog

III. Depression and devaluation

August 11, 2010 Leave a comment

We examined the difference between a depression and a recession, arguing that the former is a real contraction of economic activity, and the latter merely a contraction of monetary activity. We also examined the connection between the two forms of economic contraction, and discovered both historical and material links between them. Now, we will examine how recession emerges as a distinct and separate form of economic contraction by focusing on the relation between depression and currency devaluation.

The fact that the end of the Great Depression in 1933 and the beginning of the recovery is linked by economic studies to the  end of the gold standard and devaluation — not just in the United States, but in all industrialized countries — should raise a question in your mind.

What magical quality does devaluation possess to rejuvenate an economy?

The answer to that question is, “None”.

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II. Understanding the connection between depression and recession…

August 9, 2010 1 comment

In the previous post we discussed the difference between a depression and a recession, and we asserted that a depression and a recession are two very different creatures — the first being a contraction in real economic activity, and the second merely a contraction of monetary activity.

Since 1933, a depression is typically visible only when we take the price of gold into account when we measure US gross domestic product. A recession can be seen simply in the dollar denominated raw data. It is pretty simple to show that depressions and recessions are very different animals — in fact, the reluctance of the National Bureau of Economic Research to offer a definition of a depression indicates to us that they are deliberately trying to conceal something of great importance to you and your family.

But, if we were to leave it at that — if we simply declared that a depression and a recession are two entirely different animals — we would be failing in our task. What is more important is to show the connection between these two very different economic events. We have to show why depressions and recessions, despite being very different, are, nevertheless, closely connected to each other. And to this task we now turn.

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I. Understanding the difference between depression and recession…

August 8, 2010 2 comments

The saying goes, “When your neighbor is unemployed, that is a recession; when you are unemployed that is a depression.”

There is some good old down home wisdom in this aphorism. We tend to measure the severity of an event by its impact on us personally. This is also probably behind a recent observation by some media personality (we forget who) who observed last week that the only way to get the media interested in an African war crimes trial was to force the testimony of a fashion supermodel.

To avoid falling into the trap of subjectivity on things like recessions and depressions we would like to introduce our new and improved definition of recessions and depressions.

We promise, this will only hurt a little bit, and there is a point to be made by making a distinction between the two by proving they are very different creatures: only by making this distinction will we be able to show how dangerously ominous the present economic environment is for you and your family.

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