Thursday, 18 August 2011

Comment on Gavyn Davies Column

http://blogs.ft.com/gavyndavies/2011/08/18/what-went-wrong-with-the-global-recovery/#axzz1VM8gmTKq

If we keep going around in circles from 'households' not wishing to spend to 'firms' not having the demand to invest as a result - and then from 'firms' not wishing to invest to 'households' not having the income to spend as a result.... we will soon be dizzy like those Turkish dervishes (just the mere thought of them makes me vaguely faint!).
It seems obvious that (capitalist) 'firms' will not invest because they are doubtful that the capital would yield a 'profit' - so it is 'safer' to sit on cash or treasuries. The 'crisis' is one of 'profitability'. It began as a 'financial' crisis because for long years asset-price speculation and inflation served 'to mask' the decline of profitability in advanced industrial capitalist economies from the capital 're-cycled' from mainly China in the Great Moderation. When the financial bubble burst we had States 'socialising' the losses made by Finanzkapital in its speculative lending to workers ('households') who were kept happy with 'fictitious' capital gains while nominal and real wages stagnated - so that cost-of-living inflation remained minimal.

But now that nation-States have inherited this 'private-now-public' debt, they are in a quandary as to how 'to liquidate' this debt - either through default or via inflation. In the meantime, the stagnant advanced economies and growing unemployment cause political tensions within countries and between them as capitalist elites decide who is going to bear 'the burden of adjustment', in terms of 'austerity' (domestically) and exchange-rate devaluation (inter-nationally). And that is where we are now.
(It is interesting, in this context, that the 'malign neglect' of the Fed is beginning to hurt Germany - 'the first of the class' - now that the dollar and exported inflation from US and UK quantitative easing are making eurozone economies, including Germany's, 'uncompetitive'. It will soon be the turn of European banks to succumb to their US rivals.)

Finally, social antagonism (we saw it in Greece, then Spain, now in England) prevent the nation-State from excessive 'austerity'. This 'democratic deficit' in reverse is bemoaned today by an Editorial in the Italian 'Corriere della Sera' (which is discussed at eforum21) which attributes the 'unsustainable public expenditure' by nation-States to the growing 'consumerism and spendthrift attitude' of Western publics that have abandoned 'older, more frugal' ways of living.... You would expect it in a country that hosts the Papacy, wouldn't you? (I thought it was worth a laugh!)

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