roya.jakoby on Wed, 17 Jul 2002 21:03:02 +0200 (CEST)


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[Nettime-bold] Re: <nettime> Deflation, anyone?



"America must get rid of the hangover that we now have as a result of the
binge, the economic binge we just went through. We were in a land of endless
profit.  There was no tomorrow when it came to the stock markets and
corporate profits. And now we're suffering a hangover for that binge."
-PRESIDENT BUSH

(Quote of the Day, NY Times Newsletter, 16th July 2002)


Brian Holmes wrote:

> Deflation, anyone?
>
> According to today's Washington Post, the dollar has fallen by 14
> percent with respect to the yen, and 16 percent  with respect to the
> euro, from the highs of earlier this year. These falls directly
> reflect capital flight from the US, principally the US stock markets.
> The spectacular rally of the Dow on Monday (hedge-fund pumping or the
> PPT?) is just a sideshow.
>
> For the past ten years and especially the past five, those markets
> have concentrated the  overaccumulated capital of the entire world,
> sustaining and reinforcing the exceptional position of the US as both
> a debtor economy (via its negative trade balance and its unparalleled
> levels of consumer borrowing) and as a profit-maker, uniquely able to
> offer 10 to 15% returns on investment. The Asian crisis of 1997-98,
> prolonged in Russia and Brazil, saw the repatriation of American
> capital and a general pull-back to the centers of the globalized
> economy, leading not to the global krach that many had predicted, but
> instead to the spectacular and euphoric heights of the hi-tech fever.
> In other words, the new economy bubble staved off the
> overaccumulation crisis that had declared itself with the Asian
> krach. It was a "temporal fix" for capital, projecting the crisis
> into the deferred world of new investment. With the tax inflows
> generated by all those companies lying and cooking their books to
> attract more investment, the US government was actually able to
> eliminate the formerly huge budget deficit and the speculative bond
> market that fed off it, effectively shifting that debt to a stock
> market swollen with foreign capital, and thus privatizing the
> Americans' propensity to live beyond their considerable means. But
> now the krach is happening, in the center of capital accumulation and
> therefore on a global, systemic scale. It is going to place enormous
> political pressure on the post-89 world system.
>
> Overaccumulation is that classic condition of capitalism at the end
> of a boom cycle, where resources (what the corps call "capacity")
> abound, even while markets shrink for lack of buyers. The typical
> result, in recent years, has been a more-or-less manageable recession
> (even if Japan, which was faced with the deflation of a speculative
> bubble at the outset of the 1990s, has sunk into an ongoing
> depression from which its government has been unable to extricate
> it). And the classic response to this kind of recession is government
> spending to jumpstart the economy. But since the neoliberals came in
> to smash organized labor and the welfare state, the only legitimate
> deficit spending is military expenditure - like Reagan's huge "Stars
> Wars" program of military R&D, which doubled (or maybe tripled?) the
> national debt in the eighties, and actually set the stage for the
> technological deployments of the nineties. Following Reagan, Bush
> senior staged the Gulf War as a perfect chance to drag the US out of
> a recession (the one following the 1987 krach) and thereby, to
> establish America as the single superpower in both military and
> economic terms, dissipating the notion which had gathered  in the
> eighties that Japan might take the position of economic leader. Now
> "little Junior" is gearing up for the same military-Keynesian
> program, with a projected $165 billion deficit for next year - and a
> projected invasion of Irak, whose people are again expected to pay
> with their flesh for the good life in the USA.
>
> Each time, the Americans get ideologically pummeled into accepting
> the total contradiction of a government that claims to be against
> intervention in the economy, while in fact it is only looking for the
> right moment to channel huge resources to specific private sectors,
> particularly military ones, which increasingly serve as the goons of
> the oil companies. Each time, the Americans relish it, because they
> know it's going to pay. But this time it may be a little different.
> Two reasons why. One, obviously, is political: Bush is so close to
> the corruption of the financial establishment that he may not be able
> to avoid a rekindling of the tremendous animosity that existed
> against him, after he stole the presidential election by fraud, and
> before he seized the golden opportunity of Sept 11 to become
> sacrosanct commander-in-chief of a country "at war" and the object of
> all kinds of media-driven "patriotic sentiments." But the second
> reason is that never (correct me if I'm wrong) has there been so much
> foreign capital invested in the US stock markets, capital which now
> may actually leave to take its chances elsewhere. Bush is so
> disgusting and dangerous, American unilateralism has become so crass
> under his rule, that the rest of the world may divest, for a while
> anyway. And so the fundamental issue, right now - and this is surely
> the explanation why the krach has been happening in slow-motion, with
> attempts at every phase to prop up the markets, through
> consumer-stimulation packages and probably also through interventions
> by a covert "Plunge Protection Team" or PPT, whose existence is
> widely suspected - is to retain the exceptional position of the US as
> the necessary, functional and profitable repository for world
> capital. If this cannot be done, the future is very uncertain.
>
> On the one hand, who will pay for the US deficit? Interest rates will
> have to go up in order to get the Treasury bond market back into
> shape to attract enough capital, and rising rates will further dampen
> the US economy. But worse: with a US recession, the black hole of
> Argentina is likely to spread upward through Latin America (Brazil is
> already in a recession, Mexico too), and political unstability may
> spread. Meanwhile Japan will have a hard time selling its products,
> as the yen rises against a sinking dollar, so it will have to
> continue the compression of prices that's already underway. Because
> given the general deflationary pressure that has existed in Asia and
> in the less-developed world since the 1997-98 krach, what you have
> had everywhere is competitive devaluation, countries lowering the
> value of their currency so their goods can compete against those
> produced by their neighbors. So that deflation is effectively
> exported to the US and the developed economies, in the form of goods
> that are being sold far beneath what production costs would be in the
> rich countries. But the rich-country products that are supposed to
> pay for all that cheap Asian production - hi-tech stuff like
> telecommunications and computer applications, weapons systems, big
> airplanes and nuclear power plants - can't be bought anymore as the
> Asian and so-called developing economies engage in this downward
> race. So the tendency is for deflation to beget deflation, in a kind
> of plague scenario.
>
> What about Europe then, and the Great White Hope of the Euro? Of
> course every good European is rubbing their hands and hoping that
> their chance is finally coming. For sure, Europe has to get some
> financial independence from the US if it's ever going to be able to
> pursue its supposedly more humanistic policies (but are they really
> more humanistic?). Only a measure of economic autonomy would allow
> Europe to escape the neoliberal vise-grip and pursue a different kind
> of regulation, based (according to the rhetoric anyway) on regional
> codevelopment programs extending to Africa and the Middle East.
> Trouble is, the complicated, quarrelling, repression-prone EU is an
> unlikely candidate to replace the centralized and perfectly
> articulated US market as a machine for the accumulation of capital
> (particularly to the extent that London is far more closely tied to
> New York than to the Continent). It will really be interesting to see
> if anything durable happens in the way of a shift of capital
> accumulation towards Europe.
>
> "Interesting" is not the word for what's on the horizon though. In a
> world where only profit is sacred, deflation is basically hell on
> earth. When you know that the overaccumulation of capital generated
> by the last great round of industrial innovation and globalization,
> in the late nineteenth and very early twentieth century I mean, could
> only be absorbed by the "creative destruction" of two World Wars,
> then you can measure the stakes of the game that's being played out,
> right now, as the krach on Wall Street continues and spreads through
> the world economy. Fifty years ago, only the literal destruction of
> the developed world's productive capacity could get the whole system
> rolling again, and defuse the tensions that had emerged, first from
> inter-imperialist rivalry, then from massive deflation and the
> long-term stall of the industrial system. What's variously known as
> the Wirtschaftswunder, les Trente Glorieuses or just the Postwar
> Boom, was built on the lovely void created by all those nice
> explosions.
>
> Fortunately the world has come a long way since 1914, 1929 and 1940.
> Far more is known about the way crises unfold, and this more-or-less
> shared knowledge makes very different kinds of negotiation possible
> among the big players. But capitalism, as we can observe, is just as
> irrational and corrupt as it has always been. And negotiation among
> the big players, as we can observe, still involves all kinds of
> belligerent posturing, all kinds of shooting in the dark, with real
> bullets. And the present incoherence of the American political system
> is hardly reassuring, in that regard. Already, what has been
> happening in the world since Sept. 11 has all been part of the
> globalized world system getting ready to face the first global
> recession, which had already begun, in an obvious way, in the second
> quarter of 2000. And we haven't reached the peak of the crisis yet.
> Personally, I can't see any way to predict the outcomes. All I can
> say is, get ready for a new ideology barrage, because there's a lot
> of big reorganizing that's going to have to be done, one way or
> another, over the next few years. Whether all that leaves any room
> for intervention from the left or radical-democracy forces depends, I
> guess - at least partially - on us. Be sure to enjoy the good parts,
> kids.
>
> Brian Holmes
>
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