meehawl

Back in 2007/2008, when the Capitalist banking system collapsed generally and globally, most pundits at the time who were broadcast widely proclaimed it as a “liquidity” crisis. Simply step in to socialise the losses, swap several trillion of private debt for public fiat currency and sovereign obligations to the bankrupt financial edifices, and business-as-usual would re-emerge (Ireland tried all those doctrinaire approaches, with notable failure). Emergence didn’t happen, the massive imbalanced outflows to China and other centrally planned economies continued, and we were then told we were experiencing a “debt” crisis. Now, with most Governments having effectively set their fractional lending rates at near-zero, global corporations caopable of arbitraging debt- and capital-ratios between economic blocs have reported eight or so quarters of historically exceptional soaring profits with several trillion dollars/euros retained on books and virtually no new investment in Western/developed infrastructure or job creation.

So now here we are in 2011. After 30+ years of the long, slow eradication of the public commons of regulations and compulsions erected during the 1930s and post-1945 and designed to force financial relations between developed nations into something approximating trust, we now have a situation where, simply put, the world’s largest financial edifices (banks, sovereign govts, hedge funds, bond funds) simply cannot trust each other. They have no common shared set of principles or accounting or ideology they can rely upon. Having fought so long to remove “regulatory oversight”, they huddle in the new light of utter freedom-to-dissimulate and can’t trust even exchange notes from each other. So they desperately seek trust in other forms – as quantified, “AAA” bond ratings. As Felix Salmon points out, as recently as a couple of years ago, “AAA” bonds (assumed to be effectively “risk-free”) accounted for 50-60% of all bond issuances by volume. As Salmon notes, to imagine that over half the bonds issued every year have no credit risk is absurd. Credit is risk. By trusting nobody, they have ended up trusting everybody. By eliminating sovereign oversight and regulatory compliance and basic trust, stratified risk has been blurred into globalised, systemic risk, yet again. We are all “AAA” now – except for Ireland…

Tags: economics by mike
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The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state

Tags: Adam Smith, economics, progressive taxation, The Wealth of Nations by mike
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It is clear that there is a shortage of means of payment during a period of crisis. The convertibility of bills of exchange replaces the metamorphosis of commodities themselves, and so much more so exactly at such times the more a portion of the firms operates on pure credit. Ignorant and mistaken bank legislation, such as that of 1844-45, can intensify this money crisis. But no kind of bank legislation can eliminate a crisis. In a system of production, where the entire continuity of the reproduction process rests upon credit, a crisis must obviously occur — a tremendous rush for means of payment — when credit suddenly ceases and only cash payments have validity. At first glance, therefore, the whole crisis seems to be merely a credit and money crisis. And in fact it is only a question of the convertibility of bills of exchange into money. But the majority of these bills represent actual sales and purchases, whose extension far beyond the needs of society is, after all, the basis of the whole crisis. At the same time, an enormous quantity of these bills of exchange represents plain swindle, which now reaches the light of day and collapses; furthermore, unsuccessful speculation with the capital of other people; finally, commodity-capital which has depreciated or is completely unsaleable, or returns that can never more be realised again. The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values. Incidentally, everything here appears distorted, since in this paper world, the real price and its real basis appear nowhere, but only bullion, metal coin, notes, bills of exchange, securities. Particularly in centres where the entire money business of the country is concentrated, like London, does this distortion become apparent; the entire process becomes incomprehensible.

Tags: banking, capitalism, Das Kapital, economics, Karl Marx by mike
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A boom in oil has [generally] led to a decline, if not a complete devastation, of conventional businesses … in Britain in the 1980s, after North Sea oil was discovered, the British industrial economy was virtually obliterated, leaving four million people jobless. Among oil economies, Norway … is almost alone in having avoided this fate. As oil has boomed, so has everything else, and it has boomed in areas that will continue to generate economic growth when the oil revenues are gone … while other countries have become apathetic and uncompetitive during petroleum booms, Norway appears near the top of every international index of competitiveness and entrepreneurship. … Only about 10 per cent of Norway’s $70-billion government budget comes from oil money. In order to finance their generous state services and social benefits, Norwegians’ income taxes are among the highest in the world, and their gas stations charge $2.30 for a litre of unleaded – the highest price in the world, in a country that is the world’s third-largest exporter of the stuff. But it’s hard to find Norwegians who consider this a burden. They have among the highest disposable incomes in the world (and the fairest distribution of income: Even the poor are comparatively rich). In every quality-of-life index, Norway ranks at or near the very top … the unemployment rate is currently 2 per cent.

Tags: economics, Norway, oil, social democracy by mike
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The cost of insuring against default on the bonds of Lehman Brothers, Merrill Lynch and other big banks and brokerages has surged over the last two weeks, threatening to reach the stress levels seen before the Bear Stearns debacle. Spreads on inter-bank Libor and Euribor rates in Europe are back near record levels … there are now concerns that the [US] Fed itself may be exhausting its $800bn (£399bn) stock of assets. It has swapped almost $300bn of 10-year Treasuries for questionable mortgage debt, and provided Term Auction Credit of $130bn.

Tags: Bear Stearns, economics, Euribor, Federal Reserve, Lehman Brothers, Libor, Merrill Lynch by mike
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