Its possible that the crisis in the financial markets is over. The bailout had a large effect. But obviously things are still rocky and another wave of panic could come very easily. My prediction is and has been for the last few weeks that what happens next depends on Obama. He took a very pro-worker line in the election and has commited himself to universal health care, reforming enviromental policy, the introduction of The Employee Free Choice Act, cutting taxes on the working class and increasing them on earners of over $250,000 and talked about increasing Capital Gains Tax. If he does all these things, or if the market comes to believe that he will fulfill some or most of his election promises there will be a panic and the financial markets will go into chaos, again. So far Obama’s major decicions the TEAB he’s announced, and his chief of staff are both ‘safe’ choices. But it is clear that the markets did not react happily to his election. In the two days following his election the stock market, as measured by the Dow Wilshire 5000 Index, lost $1.2 trillion in the two days following the election.

Terry Savage on The Street writes:

The stock market is always right. Nonetheless, I must admit to being more than a little annoyed that the stock market greeted the election results with a two-day nosedive, the worst two-day decline since the crash of 1987. Even Friday’s 250-point gain was little solace.

 

It smacked of Wall Street pique that the next president appears to be no friend of “the Street.” But the economic platform of our new president came as no surprise, so why the selloff?Yes, he promised to tax capital gains at the same rate as ordinary income, which would represent a huge hit to those who still have any capital gains remaining. But the smart money had already priced that fact into the stock market, selling earlier in the campaign as the candidate’s momentum picked up.

Certainly, President Obama will take a more populist approach to digging America out of its economic mess. But realistically, how much more could Wall Street have expected in the way of aid from the government? More than a trillion dollars has already been injected directly into the banking system by way of guarantees and capital stock purchases.

On the below linked blog there is an article by the new Brighton based group ‘Endnotes’.The breakdown of a relationship? Reflections on the crisis

In it they say nothing that particularly new. But do use a rather strange flip flopping between the real economy and productive capital.

This relation between finance and productive capital, or between finance and the real economy,while it has always existed in some form in the capitalist mode of production, has not remained unaltered. Since the global crisis of profitability of capital, or looked at another way since the crisis in the capitalist class relation in the late 60s and early 70s (marked by a wave of class struggle, industrial and social unrest), financialisation has been an integral element of the capitalist restructuring and counter-offensive – i.e. of the global restructuring of the relation between capital and proletariat.

The real economy is basically the economy with out inflation. So to look at real economic growth you’d look at nominal economic growth and multiply it by some deflator. However, productive capital, a marxist term, refers to capital that is productive of surplus value. Its a phrase that has caused huge problems for marxist theory, see The power of Women and the Subversion of the Community for one interesting if flawed engagement in that debate. It has also caused a major problem with the emergence of physicalism on the left and the festishisation of manufacturing or more gernerally ‘material labour’.

However later Endnotes go on to say:

The present financial crisis has its roots partly in the subprime loans and mortgages which were predicated on the continual upward trend of the housing market, and the inflation of asset prices (after the collapse of the previous asset bubble – the dot.com boom), with vast amounts of fictitious capital being generated by the leveraging practised by financial institutions (banks, investment funds, private equity funds etc). The finance-led boom ultimately outran the ability of the real economy – i.e. productive capital – to extract surplus value through the exploitation of workers in production(whether this production is ‘material’ or ‘immaterial’). As a consequence we are witnessing a massive ‘correction’ – the falling stock markets, housing market – in Marxian terms the devalorisation of capital (expressed in write-downs, defaults, bankruptcies, mergers and fire-sales of financial institutions, and now their part-nationalisation by capitalist states across the board).

I’ve highlighted the curious bit. They seem to be aware that production and exploitation, i.e. the extration of surplus labour, is not cofined to ‘material’ production. Significantly what this means for the article is that ‘immaterial’ labour such as accounting and finance would be included in the category of ‘productive capital’.  (They are ALWAYS included in the category of ‘the real economy’.)

This reduces what they are saying and brings it out of discussions of ‘productive’ versus ‘unproductive’ capital and into a rather standard statement that the cause of the crisis was the over-expansion of the financial sector of the economy. An over expansion that cannot be dealt with in the standard way of letting the business cycle take its course because as we saw with the collapse of Lehmans’, banks can’t go broke or it’lll only exacerbate the crisis.

Its irratating that revolutionary analysis of the crisis is so often clouded in the arcane lexicon of marxism, where it is often difficult to work out what people are actually saying. And this is another example of it.

In tems of difficult marxism, I have to promote Endnotes first publication: Endnotes no.1

It compiles the debate between Troploin (Gilles Dauve and Karl Nesic) and Theorie Communiste (Roland Simon) in France. It is well worth getting a copy of. Its kind of heavy going, but so is most lefty stuff, and this stuff is actually saying something new and challenging. Anywat I might blog about it a bit more in the forthcoming weeks.

Ok this is number two of what will probably be many posts on the Obamarama. I’m blogging now that I have internet. I said I would.

Obama’s first political act since getting elected was the appointment ofRahm Emanuel as Chief of Staff. Rahm Emanuel is a prominent member of the Democratic Leadership Council

What’s that? It a right wing pressure group within the Democrat part that advocates the Democrats should shift further to the right and abandon populism.

So Obama the populist gets elected and the first thing he does…abandon populism.

It all seems soooooooooooooo familiar.

Paul Volcker came out in January in support of obama. And he’s just been rewarded with a position on Obama’s Transition Economic Advisory Board (TEAB) Along with Warren Buffet, literally the richest man in the world!!! I’d explain what the TEAB is supposed to do but well, its Obama’s board of economic advisors for his transition into office. A Transition Economic Advisory Board if you will.

Any way for those of you who don’t know who Volcker is check outthis article by, ahem, a very close comrade.

Or just read the relevant section below

Smashing the Unions, the ‘Volcker Shock’ and the Emergence of Neo-liberalism On August 6th, 1979, President Jimmy Carter appointed Paul Volcker as head of the Federal Reserve. Immediately Volcker made clear his intentions as head of the Fed: he would do whatever it took to bring inflation under control and stabilise the currency. (This commitment became associated in the popular mind with the monetarism of Milton Friedman, although this is slightly inaccurate.) Volcker pushed the short term interest rate up 5% to 15%, eventually bringing it above 20%. Persistent in his drive to bring down inflation, he kept interest rates at these astoundingly high levels until 1982. For Capital, these interest rate increases, known as the ‘Volcker Shock’ were like putting brakes on the economy as it began to spin out of control. In order to regain control, the Fed deliberately drove the economy into two successive recessions over this three year period. This raised unemployment to nearly 11%, drove down manufacturing output by 10% and drove down the median family income by an equal 10%.

This attack on working class living standards was secured in 1981 with Ronald Reagan’s electoral victory. In this election, the Professional Air Traffic Controllers Organisation (PATCO), along with the Teamsters and the Air Line Pilots Association, had departed from tradition and backed Reagan, a Republican, and not Carter, the incumbent Democratic candidate.

On August 3rd, 1981, PATCO went out on strike for higher pay, better working conditions and a 32 hour week. This strike was technically illegal as government unions are not allowed strike in the US, however, a number of government unions had struck before without repercussions. This time was different and Reagan ordered the PATCO workers back to work, threatening dismissal if they continued the strike. Few complied with these orders and on August 5th, President Reagan fired the 11,345 striking PATCO workers.

The PATCO strike and the ‘Volcker Shock’ marked the defeat of the working class in the long cycle of struggles that had begun in the mid 60s, turning the economy definitively in the interests of Capital. High interest rates massively increased the return on capital. Financial investors who previously could barely earn rates of return equal to the rate of inflation could now earn the highest profit rates in memory. With the end of inflation and the inspiration of the PATCO strike employers took a hard line when it came to wage increases. Workers, they held, could no longer demand wage rises in line with inflation so no more increases would be forthcoming. Between 1978 and 1983 real wages in America decreased by over 10%. This decline in real wages was continuous until 1993, by which time real wages were 15% below 1978 levels.

This transformation had international ramifications. Due to the creation of the global financial market through the growth of the Eurodollars market, other countries were forced to follow suit in raising interest rates. Otherwise, they risked the migration of capital to the higher interest rates of the US. Investors would not buy German government bonds at 7% interest if US government bonds had a rate of 15%.

The transformation was also matched by political shifts in Europe. Just prior to Volcker taking charge of the Fed, Thatcher had been elected Prime Minster of the UK. In Germany, for the first time since the mid-sixties, the Social Democrats lost the election in 1982 and the Christian Democrats came to power. In France, Mitterand’s Socialist Party had come to power in 1981 amidst much fanfare, but had to abandon their program for government within two years as Mitterand launched the ‘Franc Fort’ policy following the 1983 French macroeconomic crisis. As Jeffrey Sachs and Charles Wyplosz noted in 1986, “the government of the left has in the end introduced a tougher, more market oriented programme than anything considered by the previous centre-right administration.”

It would be cavalier not to mention here the impact that these interest rate increases had on the developing world, Latin America in particular. As mentioned above, billions of petrodollars were lent to Latin American states in the 70s through the newly global financial markets. When interest rates increased, Latin American countries had difficulty meeting their debt obligations and, one after another, defaulted, causing the 1982 Latin American Debt Crisis. Latin America has yet to recover fully from this crisis, as in the years following, investors were no longer willing to invest in the region. This prolonged recession is referred to as ‘the lost decade’. It was this debt crisis and the associated crisis of confidence in the Third World economy that caused and provided justification for the infamous IMF Structural Adjustment Programs of the 80s and 90s