Max B. Sawicky wrote:
>I finally got around to reading the Chossudovsky
>piece uploaded by LP and would like to invite
>reaction to a few comments (interspersed with
>the text).
>Nowhere is it mentioned that the Dow, its decline notwithstanding,
>remained significantly higher than the start of the year, a tipoff
>to some over-excitement on the author's part.
The whole piece, which I must have gotten about 15 copies of from various
sources, seemed a bit over-excited.
>> When viewed historically, the present financial crisis is potentially
>> far more devastating and destructive. In 1987 national currencies
>> remained relatively stable; in contrast to the crashes of 1987 and 1929,
>> the present financial crisis is characterised by the concurrent collapse
>> of national currencies under the brunt of large scale speculative
>> activity. An almost symbiotic relationship between the stock exchange
>> and the foreign currency market has unfolded: "institutional
>> speculators" are not only involved in manipulating stock prices, they
>
>How does this happen? I've read about stock pools in the 1930's.
>Currency trading is presumably done by sophisticated persons, so
>it should be more difficult to find idiots to bilk. By contrast, if
>so-called speculation merely reflects quicker recognition of changes
>in a nation's economic 'fundamentals,' then there is no issue of
>manipulation, just the natural volatility of markets.
It's possible to manipulate individual commodity markets (traditional
stuff, not financials), and individual stocks (as long as they're not too
big), but no one can manipulate entire currency and stock markets. This is
demented.
As for the supposed sophistication vs. bilkability of institutional
investors - don't overestimate their sophistication. They're just as
excitable as our author. See Frank Partnoy's F.I.A.S.C.O. for evidence of
just how rapacious the investment bankers can be, and how naive supposed
sophisticates can be. According to Partnoy, the motto of the Bankers Trust
derivatives department used to be "Lure them into the calm and totally fuck
them."
>> also have the ability to plunder central banks' foreign exchange
>> reserves, undermining sovereign governments and destabilising entire
>
>Anybody have figures on the extent of this, and for which
>countries?
Most of the countries that have had serious FX crises have had serious
fundamental problems. Some of those problems can be traced to excessive
capital inflows and excessively easy credit, but still, the mechanisms are
different from an Oliver Stone movie.
>> The realities are concealed, economic statistics are manipulated,
>> economic concepts are turned upside down. Unemployment in the US is said
>> to be falling yet the number of people on low wage part-time jobs has
>> spiralled. The stock market frenzy has taken place against a background
>
>Another tipoff to error, since there is no evidence for these
>assertions that I know of. Employment is relatively high now,
>even taking non-standard work arrangements into account.
Relatively high? The US EPR is at a record high, part-time employment has
actually fallen over the last year, temp employment hasn't grown at all
over the last six months even as overall employment has risen by about a
million, and real wages are rising at around 2% a year. Unless of course
the BLS is making this all up.
>> In the currency crisis of the last few months, billions of dollars of
>> official reserves have been plundered by institutional speculators.
>
>Same question as above: how much, where, and from
>what source is the information?
I think this means that countries have spent many billions in reserves in
doomed attempts to defend their currencies. This is probably a very unwise
use of reserves, since most of such battles are lost. I'm sure the IMF will
have some rough numbers in a few months; they did a very good report on the
1992 European crisis. "Plundered" is a sexy word, but it ain't very
accurate.
>> In contrast, the earnings of the direct producers of goods and services
>> are compressed; the standard of living of large sectors of the World
>> population including the middle classes has tumbled. Health and
>> education programmes are downsized; wage inequality has risen in the
>> OECD countries. In both the developing and developed countries, poverty
>> has become rampant; according to the International Labour Organisation
>> (ILO), Worldwide unemployment affects one billion people or nearly a
>> third of the global workforce (ILO, Second World Employment Report,
>> Geneva, November 1996). The accumulation of financial wealth resulting
>> from speculative transactions feeds on poverty and low wages.
>
>For this to go on indefinitely, it would seem that assets must
>be permanently and increasingly overvalued. At some point the asset
>price gets obviously out of whack with the cash flow from ownership
>of the asset. For a permanent bubble, there has to be an endless
>supply of idiots willing to take ownership. If the bubble breaks,
>there is some disruption and often some socialization of the losses,
>but life more or less goes on. Where's the apocalypse?
It may all come crashing down someday, and surely there are lots of bubbles
you can point to in the U.S. financial markets, but on the other hand,
doesn't it make excellent sense that markets should rally as "the earnings
of the direct producers...are compressed"? Such compression means higher
profits, which is good news for stocks, no? Ditto insecurity among the
working class. Financial markets are arenas of class struggle, and the
vertical ascent of the S&P is a measure of who's been winning the class
struggle. For the moment, that is.
>Why can't governments step in and throw money at the problem,
>as they have done since the 1930's?
They have, but then you have more bubbles, and even bigger socialized
bailouts. Validating threatened financial practices, in Minsky's phrase, is
a dangerous business. The bailout of Asia is the biggest challenge yet,
isn't it? Maybe 20 countries involved on both sides, some of them not
vassal states like Mexico, either. And BusinessWeek's $100 billion estimate
seems a bit on the low side, if Korea keeps sinking. I'm not saying they
can't do it, but it's a damn mess.
>> There are, however, no "technical solutions" to this crisis. Meaningful
>> reforms are not likely to be implemented without an enduring social
>> struggle. What is at stake is the massive concentration of financial
>> wealth and the command over real resources by a social minority. The
>> latter also controls the "creation of money" within the international
>
>I do think there is something to the malign autonomy of
>finance capital, but this article seems to hoke up the
>crisis elements, whereas the routine workings of the
>system are a more relevant object of attention.
No kidding. When was it that "real resources" were ever controlled by any
but "a social minority" (or anti-social minority, if you prefer)? The
constant evocation of apocalpytic crises that never seem to arrive isn't
very helpful in understanding the routine workings of the system, which are
apocalpytic and critical enough on their own.
Doug
