Commentary on Political Economy

Thursday 11 August 2011

Remarks On Bondholders

As I have said "too often", finance capital - call them "bondholders" or, with the French, "le mur d'argent" (the wall of money) that engages in "capital strikes and flights" whenever it disapproves of government policies - this time "Finanzkapital" has very few "refuges" left where it can seek "safe harbour". - Least of all the Chinese "princeling" dictators, really, because China is one of the "least safe" places on earth where to hold your capital right now and for the receding future.

Because of growing social antagonism, of which government deficits is only a "symptom" and an "escape route", capitalist States have no choice but to engage in "financial repression" for two "circuitous" reasons: - first, public debt and deficits are needed "to keep the patient (the capitalist economy) alive", and second, higher public debt can be paid "only" by siphoning off social resources from capitalists - and all this results inevitably in "transfer payments" to the rest of society (that means "us") which means that capital loses more "power" (political and financial) and so forth!

"The Great Moderation" was made possible by the opening of "China Inc." - but this one, like Japan Inc., will soon go "to the wall" (see the FT Lex Column today "lamenting" the immovable tendency of Japanese capital... "to sit on its hands". Stagnation is the future of capital. In the meantime, though, Western capital has fed the biggest monster since the Soviet Union in the Chinese dictatorship - and now, in order "to slay the Dragon", Western nation-states are having to feed it with a lot of "green paper" to which some heroic "Sigfried" will light fire until the monster chokes on the inflationary puff of smoke! (This is happening as we speak - even as I gobble a delightful Maltese pastizzi.)

Again - there is no need for "capital controls" to discipline "bond vigilantes" because they have nowhere left to run, as Samuel Brittan reminded us in his last Column, and Paul Krugman keeps shouting from his Olympus.... And last... Oh, the central banks! Well, they have "mandates enshrined in statutes", but these can be "circumvented" with a little "Rooseveltian Resolve" (just ask our friend Ben - see his various advices to the BoJ) - and in any case there is a growing consensus that "price stability" means ALSO "avoiding debt-deflation" or even "price deflation" (just check Bernanke and Mishkin and even Woodford's works of the last few years - not to mention our own beloved Posen at the BoE!). On the "political economy" of capital movements, here are two links that elucidate what is "at stake" in all this, and the "cat-and-mouse" games entailed therein: - Maurice Obstfeld,

And here is a paper from one of my erstwhile teachers at Cambridge, John (now Lord) Eatwell, which I will discuss next in connection with "capital movement" or so-called "financial globalisation":

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