Based on what I have described of Bernanke’s policy failure so far, is it possible to predict anything about the future results of an open ended purchase of financial assets under QE3? I think so, and I share why in this last part of this series.
I stopped my examination of Bernanke’s approach to this crisis and the problem of deflation after looking at his 1991 paper and his speech in 2002. I now want to return to that series, examining two of his speeches this to discuss the problems confronting bourgeois monetary policy in the crisis that began in 2007-8.
The world market had been shaken by a series of financial crises, and the economy of Japan had fallen into a persistent deflationary state, When Ben Bernanke gave his 2002 speech before the National Economists Club, “Deflation: Making Sure “It” Doesn’t Happen Here”. Bernanke was going to explain to his audience filled with some of the most important economists in the nation why, despite the empirical data to the contrary, the US was not going to end up like Japan.
So I am spending a week or so trying to understand Ben Bernanke’s approach to this crisis based on three sources from his works.
In this part, the source is an essay published in 1991: “The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison”. In this 1991 paper, Bernanke tries to explain the causes of the Great Depression employing the “quantity theory of money” fallacy. So we get a chance to see this argument in an historical perspective and compare it with a real time application of Marx’s argument on the causes of capitalist crisis as understood by Henryk Grossman in his work, The Law of Accumulation and Breakdown.
In the second part, the source is Bernanke’s 2002 speech before the National Economists Club: “Deflation: Making Sure “It” Doesn’t Happen Here”. In this 2002 speech, Bernanke is directly addressing the real time threat of deflation produced by the 2001 onset of the present depression. So we get to compare it with the argument made by Robert Kurz in his 1995 essay, “The Apotheosis of Money”.
In part three, the source will be Bernanke’s recent speech before the International Monetary Fund meeting in Tokyo, Japan earlier this month, “U.S. Monetary Policy and International Implications”, in which Bernanke looks back on several years of managing global capitalism through the period beginning with the financial crisis, and tries to explain his results.
To provide historical context for my examination, I am assuming Bernanke’s discussion generally coincides with the period beginning with capitalist breakdown in the 1930s until its final collapse (hopefully) in the not too distant future. We are, therefore, looking at the period of capitalism decline and collapse through the ideas of an academic. Which is to say we get the chance to see how deflation appears in the eyes of someone who sees capitalist relations of production, “in a purely economic way — i.e., from the bourgeois point of view, within the limitations of capitalist understanding, from the standpoint of capitalist production itself…”
This perspective is necessary, because the analysis Bernanke brings to this discussion exhibits all the signs of fundamental misapprehension of the way capitalism works — a quite astonishing conclusion given that he is tasked presently with managing the monetary policy of a global empire.
As a contribution to Occupy Wall Street’s efforts against debt, I am continuing my reading of William White’s “Ultra Easy Monetary Policy and the Law of Unintended Consequences” (PDF). I have covered sections A and B. In this last section I am looking at to section C of White’s paper and his conclusion.
Back to the Future
It is interesting how White sets all of his predictions about the consequences of the present monetary policies in the future tense as if he is speaking of events that have not, as yet, occurred. For instance, White argues,
“Researchers at the Bank for International Settlements have suggested that a much broader spectrum of credit driven “imbalances”, financial as well as real, could potentially lead to boom/bust processes that might threaten both price stability and financial stability. This BIS way of thinking about economic and financial crises, treating them as systemic breakdowns that could be triggered anywhere in an overstretched system, also has much in common with insights provided by interdisciplinary work on complex adaptive systems. This work indicates that such systems, built up as a result of cumulative processes, can have highly unpredictable dynamics and can demonstrate significant non linearities.”
It is as though White never got the memo about the catastrophic financial meltdown that happened in 2008. If his focus is on the “medium run” consequences of easy money that has been practiced since the 1980s, isn’t this crisis the “medium run” result of those policies? Why does White insist on redirecting our attention to an event in the future, when this crisis clearly is the event produced by his analysis.
To Mr. Tsipras of the Greece party, Syriza,
I read your letter to Angela Merkel today the Guardian and was not impressed. Frankly, I expected a guy who just might be running Greece next year to have a better argument than the one you gave. You stated:
As Angela Merkel visits Athens on Tuesday, she will find a Greece in its fifth consecutive year of recession. In 2008 and 2009, the recession was a spillover from the global financial crisis. Since then it has been caused and deepened by the austerity policies imposed on Greece by the troika – of the International Monetary Fund, the European Union, the European Central Bank – and the Greek government.
These policies are devastating the Greek people, especially workers, pensioners, small businessmen and women, and of course young people. The Greek economy has contracted by more than 22%, workers and pensioners have lost 32% of their income, and unemployment has reached an unprecedented 24% with youth unemployment at 55%. Austerity policies have led to cuts in benefits, the deregulation of the labour market and the further deterioration of the limited welfare state that had survived a neoliberal onslaught.
Yes. The financial crisis and austerity is taking its toll on Greece, but is that piglet Merkel unaware of this? Is she living in a cave? She knows exactly what the toll is on the population — she intends that austerity take that toll. So whining about it like some emoprog is not helpful in the least.
What the fuck are you prepared to do about it?
It is nice to know that Syriza, “respects the ordinary European taxpayer who is asked to shoulder loans to countries in distress, including Greece.” The question, however, is how Syriza proposes to end this burden, since Greece is now Europe’s AIG — a convenient pass-through account for a backdoor bailout of Europe’s banking system. In this shell game, Greece gets all the blame and the banksters get all the fucking money. How do you propose to end this fucking shell game?
And what are you offering to Greece as an alternative to participating in this monstrous scam?
What would you do different?
Europe, you state, “needs a new plan to deepen European integration”, but how does your idea of integration differ from the idea of removing fiscal control completely from the Greece state and handing it to an as yet undetermined new authority? Moreover, how does this differ from “neoliberalism” agenda that is already stripping European nation states of fiscal and monetary sovereignty?
You had a lot of rhetoric about placing priority on the needs of workers, pensioners and unemployed but — really — what does this mean? Do you or do you not intend to let the banks fail? Please, spare us all the Leftist rhetoric about “placing priority on the blah blah blah…”, and “popular struggles radically blah blah blah…”
I mean, really ARE YOU GOING TO LET THE FUCKING BANKS FAIL OR NOT! And if you let them fail, how do you propose to protect the Greece public from the effects of the financial system’s collapse? All in all, your message to Merkel is meaningless trash and bizarre given the fact you will actually have to run the country shortly.
Let me say this to you: the European Left are just a bunch of pussies. To put it in the words of Mobb Deep, an American rap group:
“You’re all up in the game and don’t deserve to be a player.”
The muthafuckas behind the crisis have been running Europe since the days of Rome. Do you seriously believe you are going to appeal to their humanity? These muthafuckas slaughtered 1,000,000 Iraqis — you think they care about Greece suffering? Frankly, Mr. Tsipras, I can’t understand it. Folks on the European Left think there are rules and keep calling for the ref. You are dumb fuckers. Let’s here what the guys behind the scenes think of your rules:
“That’s not the way the world really works anymore. We’re an empire now, and when we act we create our own reality.” –Spokesperson for the Bush administration
If that is not enough, Draghi told you today what the rules are:
RULE NUMBER ONE: “Revitalizing the cycle of debt is crucial to recovery.”
RULE NUMBER TWO: “It is necessary to reassure banks over the quality of their assets.”
What part of “Fuck You” don’t you folks on the European Left get? You just let that horrid little fucking piglet waltz into Greece like she is visiting one of the provinces. And your only fucking response is,
“This plan will succeed only if popular struggles radically change the balance of forces. These struggles have started already and have led to the rise of left and resistance movements throughout Europe. They keep alive democracy, equality, freedom and solidarity, the most important values of the European political tradition. These values must prevail. Otherwise Europe will regress to a dark past we thought gone for ever.”
What fucking balance? What fucking plan? Holding your fucking dick in your hand and jerking furiously is not a fucking plan. These muthafuckas got a plan for Greece — and it ain’t “democracy, equality, freedom and solidarity”.
Which is to say, Mr. Tsipras, we all know how this ends, if Washington has its way. Frankly, you will be dead or in hiding six months after you take office; so whatever the plan, it better be quick, painful as hell for capital and irreversible. That means, no matter what, you kill the banks first, and divide their carcasses among the population — you have to keep Germany, France, Britain and the US busy trying to save those fuckers on Wall Street, while you wipe out unemployment. It only takes two steps to do this:
- Renounce all Greece’s debt, public and private, and
- reduce hours of work by half.
Those two moves will immediately trigger the collapse of stock and bond markets world-wide and send those fuckers scrambling. You have to make these fuckers think they are staring into the face of GOD — and that she is pissed beyond all belief. Your aim should be a 1000 point loss on the SP500 the first fucking day in office.
Then you immediately turn to the question of producing contagion — the crisis cannot be limited to Greece; it must spread to Spain and Portugal, Ireland and Italy. Every time they think things can’t get any worse, you have to fuck them again. If a big stick will work in this situation, then you have to use a fucking sledgehammer.
Getting rid of public and private debt is absolutely critical to killing the banks — not one bank should survive anywhere. So, repeat after me
- RENOUNCE THE DEBT,
- SLASH HOURS OF LABOR,
- CREATE CONTAGION
That’s a fucking plan.
I am adding additional comments to my reading of Weeks’ paper, “The theoretical and empirical credibility of commodity money” (PDF). In my first reading, I identified a problem with Weeks’ presentation of what he asserts is empirical evidence supporting a link between commodity-money and price. In my second reading I explained how Weeks’ real contribution to my understanding is his analysis of the neoclassical theory of money. In this reading, I am trying, based on Weeks’ argument to define exactly what the dollar and other fiat currencies are; and their relation both to commodity money and the circulation of commodities.
The problem posed by most Marxist attempts to analyze fiat currency is that state issued fiat is treated as if it is money when it is not; and prices denominated in a fiat currency are treated as if these prices express the value of commodities, which they do not. For years now Marxists have been asking if money can be a valueless piece of paper in Marx’s theory — the answer is no. This answer is unpalatable to many Marxists because they think it suggests Marx’s theory of money is invalid for purposes of analysis. My assumption in this post is that Marx’s theory is and remains valid AND this valueless currency is not money.
So if the dollar is not money, what is it? Why is it used for transactions? To answer these questions, we have to begin by understanding exactly how the currency works according to neoclassical theory.