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Posts Tagged ‘monetary policy’

Where the fuck is the ‘revolutionary subject’ in the European crisis? (2)

April 2, 2013 2 comments

Humpty-Dumpski

Why the working class is not effectively defending itself actually is not a question posed by this crisis. Rather the question is:

“So what else did you expect?”

No matter how the working classes of Europe responded to this crisis politically, they were already effectively rendered politically defenseless before the crisis by the very structure of the euro-zone, which stripped the fascist states of Europe of their monetary sovereignty. So even before this crisis erupted into the open, the member states with their overwhelming proletarian majorities were already effectively kneecapped and rendered toothless. The very structure of the EU was nothing more than an attempt to rob the working class of any means to defend itself in a crisis. With monetary policy centralized in the European Central Bank the member states must follow procyclical policies during economic downturns. Essentially, they have no choice but to reduce their expenditures when the euro-zone experiences a depression.

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CLUELESS: QE to Infinity, or How national currencies die

November 16, 2012 Leave a comment

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.

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CLUELESS: Bernanke’s desperate gambit

November 14, 2012 2 comments

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.

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CLUELESS: “Deflation is bad. M’kay?”

October 21, 2012 Leave a comment

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.

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CLUELESS: How Ben Bernanke is managing the demise of capitalism

October 17, 2012 Leave a comment

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.

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How Quantitative Easing really works: Occupy Wall Street Edition (2)

October 10, 2012 Leave a comment

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.

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Fiat currency: “No more money than a theatre ticket is”

June 9, 2012 5 comments

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.

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Worthless money as a rational absurdity

June 5, 2012 3 comments

INTRODUCTION

For a while now, I have been trying to come to grips with the neoclassical theory of money, which states anything can serve as money and that money doesn’t have to be a commodity. The theory is patently theoretically absurd, contradictory and internally inconsistent as John weeks explains in the paper I discuss in my post. Despite these defects, however, neoclassical money theory not only maintains its dominance in economics, its alternative, commodity money theory, is ridiculed and marginalized even among Marxist theorists.

While reading the John Weeks paper, it began to dawn on me why this is true. I had been spending my effort trying to argue for the superiority of commodity money theory, when I should have been trying to understand the circumstances under which neoclassical money theory made sense. Weeks, in his paper, explains two assumptions which are necessary for neoclassical money theory: 1. the economy has to produce only one composite commodity; and 2. the state must be able to control the money supply.

Weeks thinks both of these conditions make neoclassical money theory wrong, but now I believe he is wrong on this. In the capitalist mode of production, the only true commodity is labor power — the single composite commodity required by neoclassical theory. Moreover, contrary to Weeks’ assertion, the state can control the money supply, if we a speaking of classical commodity money. It need only declare commodity money is not money and replace this money in circulation with its own token, i.e., impose an inconvertible currency in place of gold. This was done in the 1930s in the US and Europe. The state can control the money supply, if by “control” that term includes also setting that supply to zero.

The result was a bit of an epiphany for me, since Weeks is describing how Washington directly manages the US economy as a single giant corporation, despite the economy appearing superficially as numerous separate capitals.

The article was rushed and is in need of serious editing, but I welcome criticism and challenges to this idea.

*****

I want to recommend everyone read John Weeks’ paper, “The theoretical and empirical credibility of commodity money“, because he presents a key to the analysis of neoclassical economic theory that unlocks its inner logic. I missed the juicy goodness of his argument in my first read because I have an aversion to mixing math with social criticism. However, in his math Weeks uncover why money is not a commodity-money in neoclassical theory, and why it cannot be a commodity-money.

Weeks tries to make sense of a troubling rejection by neoclassical economic theory to admit to the obvious internal consistency of Marx’s commodity-money theory:

Th[e] theoretical superiority of commodity-based monetary theory has had little practical impact because of a perceived empirical absurdity of the commodity money hypothesis.

I came to my understanding of fascist state issued fiat money based on one closely held idea that neoclassical economics is not irrational, capitalism is. Yes, capitalism is as irrational as it has been declared by Marxists to be, however no one but an idiot would buy into the neoclassical argument unless it made sense in the context of fascist state economic policy. Since capitalism itself is irrational, a rational person looks like an idiot when he buys into its propositions; on the other hand, accepting the irrationality of capitalist relations of production as the basis for formulating fascist state economic policy is rational.

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The Trouble with Marxism (Part Two)

January 28, 2012 Leave a comment

The portion of the labor day that is socially necessary as a percentage of GDP

So, I got feedback from three people who, in one way or another, say they don’t understand my last post on my conversation with Andrew Kliman. One person posting on Reddit, complained it was too dense; another wondered if I was advocating a return to the gold standard; a third person, who I asked to read it and give me feedback, began to have difficulty with it about halfway through it. Specifically that person had difficulty understanding my discussion of the “transformation problem”.

This is three more examples of my “tin-ear”, which expressed itself in my disagreement with Andrew. I have not been able to explain “my point” in a way that is not abstract, or explain the relevancy of the various statements I make to real events within society. Part of this is because I am a “Marxist” in the same way I could be considered a “Darwinist” — I am not an expert on either. The theory makes sense to me, and I accept it as a reasonable explanation for how the world works.

But, if someone argued a eugenics distortion of Darwin, I could not argue against that person by quoting Darwin. And, if someone argued a Keynesian distortion of Marx, I probably could not argue back using quotes from Marx. Until recently I was more a leninist than a “Marxist”; having read a lot of Lenin, but little more of Marx himself than the Communist Manifesto. And, neither of them had I read for more than two decades.

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The Trouble with Marxism (Part One)

January 27, 2012 2 comments

Well, I have just about had enough of my conversation with The Andrew Kliman, so I thought I would try to assess what it accomplished instead.

My ‘tin-ear’ with Andrew began after a conversation with @skepoet on twitter about the odd divergence between gold and dollar measures of economic activity since the Great Depression of the 1930s. The dollar measure of US GDP has risen almost uninterrupted since the end of the contraction phase of the Great Depression; while the gold measure of GDP rose from 1934 to 1971, then fell until 1980, rose again from 1980 to 2001, and has been falling since.

Interesting enough, the gold measure of GDP exhibits a classic pattern of boom and bust typical of the economy prior to the Great Depression, but the dollar measure of GDP shows an almost disturbingly smooth continuous upward sweep, until the most recent difficulties of 2008. What I find most interesting about the two measures of economic activity is that, until 1933, both gold and the dollar measures of GDP exhibited the same behavior. However, this identical pattern broke down in 1934.

What accounts for this sudden divergence?

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