Commentary on Political Economy

Saturday 28 July 2012

Balance-Sheet Recessions: The Systemic Risk of Bourgeois Rule

A "balance sheet recession", as the phrase coined by Richard Khoo suggests, is a recession precipitated by the need of capitalist firms that have "over-leveraged" their balance sheets in the attempt to boost revenue to "de-leverage" once the expected revenue on the leveraged part of the investment falls to levels that (a) are or will soon be unprofitable and (b) will therefore result in a revision of the carrying value of the leveraged assets and (c) will bring about a loss on the initial investment that was "leveraged" once those assets are "marked-to-market". This is the well-known "Wile E. Coyote moment" when capitalists who had "artificially" or speculatively over-bid their investments finally realise that their "fictitious capital" held less "value" than they imagined.

As we have explained often in this Forum, what so-called "economic scientists" - including even the more liberal progressive types such as Paul Krugman - fail to explain is what is the real relation between the "nominal price" of investment assets and what is their "real value". Understanding the dif-ference (the different practical political effect) of these two notions is vital to understanding how profoundly and absurdly "ideological" the notion of "balance-sheet recession" is. Because what this phrase indicates is that somehow the current recession of capitalist finance is caused by "accounting irregularities" or "mistakes" rather than by the "systemic" nature of capitalist enterprise and finance - that is, its need to control politically as much living labor as possible through the repressive "exchange" imposed by the capitalists' violent control of "dead labor" - of social resources.

The stories that I have appended here, one from Martin Wolf at the FT on balance sheet recessions, another by James Surowiecki at The New Yorker on the Libor scandal and fraud, and the last one from the Times about the widespread violence in American (now spreading rapidly to the "civilised" world of the bourgeoisie, including European cities from London to Marseille, and then to the peripheries of Egypt and Syria) - these stories trace, even in a thematic way, the obvious but unnoticed link between (a) capitalist speculation, (b) the element of fraud and dishonesty and corruption that it carries inevitably, (c) the impotence of collective capitalists (our "governments") to police it and, finally (d) the growing and rampant "law-lessness" of the entire capitalist "system" that poses....yes, "systemic risks" to the very survival of our society - "the society of capital". As Weil notes in the final story selected here: "If big capitalist enterprises are too big to fail, then they are too big to exist!"


  1. Regarding 'Draught for Final Chapter of "Krisis": Notes on Minsky': Princeton is in New Jersey not New England you pretentious twat.

  2. New Jersey is in New England - you ignorant moron!