Saturday, November 29, 2008

Democracy and Class Struggle TV

There is a link to this channel on the right side of this page under comrades and friends

Andrew Kliman on Keynesianism

Q. One feature of the crisis has been a renewed interest in Keynes; the Financial Times called him ‘the man in the news’ but warned against a return to Keynesianism. Is there a return to Keynesianism and are those on the left who welcome this development, such as Eric Hobsbawm, right?

A: Keynesianism is basically concerned with measures to stimulate production and employment, to head off, get out of, or lessen the severity of economic slumps. That’s not what has been taking place thus far, in part perhaps because the slump is not yet very long or severe. The recent interventions are instead intended to restore “confidence” and get credit flowing, in order to prevent economic collapse. The goal is very different and the measures being taken are, accordingly, very different.

There’s an ideological return to Keynesianism, there has been for some time, among some on the left. They’ve given up on the possibility of socialism, so they desperately cling to the quasi-Keynesian notion of a “rising tide that lifts all boats” as something that can make people’s lives better within capitalism. I think the historical record speaks clearly here. Welfare-state capitalism failed miserably. Its supposed gains were unsustainable once the postwar boom ended. The failure of Keynesian policies to deal with the simultaneous inflation and stagnation of the 1970s-stagflation-basically put an end to Keynesianism as theory, except among ideologues desperate for a progressive alternative to socialism. The quasi-Keynesian notion that, by raising wages, governments can stimulate spending and create such prosperity that even the capitalists will be pleased with the results-rather than triggering a flight of capital to the Third World and other low-wage regions-has been disproved in practice. It’s also far-fetched theoretically. Capitalists make more profit when they pay lower wages, not when they pay higher wages. To the extent that Keynesian policies were ever able to work at all, if they did indeed ever work, it is because, as Keynes himself recognized, we had “closed economies” shielded from international competition and international financial markets. But we live in different times.

In any case, Keynesianism was meant to deal with economic slumps, to get out of them and to avoid them. Keynesian “pump-priming” was never intended as, and it cannot successfully be used as, a way of stimulating economic growth in the long run. The pump is primed with borrowed funds. But in the long-run, borrowed funds must be repaid.

Q. One response of the left to the greater state intervention has been to call for more, fuller nationalisation; do you think this an adequate response to the crisis?

A: No. I don’t see how or why it matters who holds the titles to property. If the issue is regulation, I don’t think that capitalism can successfully be regulated in the long run, as I said earlier. And events like the savings and loan crisis, the failure of Keynesianism to deal with stagflation, and the failure of welfare-state capitalism everywhere certainly don’t suggest that regulated capitalism is more successful than deregulated capitalism. If the issue is planning, I don’t think a capitalist economy can really be planned. The economy of the ex-USSR was certainly no success. The law of value asserts itself, it calls the shots, and policymakers adapt to it. To call that “planning” is a rather nice euphemism.

First published in the Commune

Political Economy Research is from a different Marxist tradition from Andrew Kliman and our views of the Soviet Economy and Planning are contained in our History of Market Socialism( see August 2008 Posts) , nevertheless despite differences over history Political Economy Research holds in high regard Andrew Kliman's current work Reclaiming Marx's Capital.

Friday, November 28, 2008

Mounting concerns about deflation

Extract from article by Bill Powell in TIME Magazine

At a high-powered international financial conference in Beijing over the weekend, a senior People's Bank of China official acknowledged to TIME that "if anything, we now need to fight against falling demand and possibly even falling prices."

At the core of the mounting concerns about deflation is this: the global financial system is going through a vicious process of deleveraging. Financial institutions are reducing debt and raising capital, either directly from governments or from private-sector sources. By desperately trying to rebuild their battered balance sheets and regain some semblance of investor confidence, banks and investment banks are not doing much lending. Indeed, the definition of deleveraging is reducing debt relative to assets. Assets, for banks, are loans. And these days pretty much everyone is deleveraging.

That doesn't bode well for global growth prospects. David Roche, president of Independent Strategy, an economic consultancy in London, notes that throughout most of this decade "the world economy has been used to using $4 to $5 of credit for every $1 of GDP growth." Even if this "profligate use of capital is halved," Roche argues, "it still means credit expansion of 10% to 15% is needed to achieve real growth of 2% to 3%." The problem: credit, far from expanding, is still contracting around the world — despite governments' efforts to salvage the financial system.

As Merrill Lynch economist King argues, it's likely that the deflationary forces will intensify as the result of a vicious cycle. As economic conditions deteriorate, bank lending naturally declines because the number of credit-worthy borrowers — whether corporate or individual — shrinks. In other words, financial institutions that got into their current egregious situation by making bad loans aren't going to recover by making more bad loans. Thus a declining economy leads to contractions in lending, which further dampens demand.

What's astonishing about the current cycle is how quickly the global economy got into this situation. Governments — from Ben Bernanke, chief of the U.S. Federal Reserve Board, to the Chinese communists to pretty much everyone in between — all know more or less that the only policy response available to them is to flood their economies with money. China announced a big stimulus package nearly two weeks ago, and in Beijing last weekend, government policymakers acknowledged that more is probably coming. In the U.S., another economic-stimulus plan seems inevitable; the Federal Reserve, meanwhile, is probably headed toward what in 1990s Japan became known as the ZIRP: zero-interest-rate policy. The Fed funds rate is already down to 1%, and the economy is still sinking. Rates have nowhere to go but down — all the way to zero. And by the time President-elect Barack Obama takes office in January, it's likely the U.S. will be debating what sort of tax relief to individuals and businesses might be best — mimicking policy discussions that are already occurring along the same lines in Europe and Asia.

The ferocity of the downturn under way, and the downward pressure it is putting on prices, cannot be underestimated, argues Shanghai-based independent economist Andy Xie. "The world doesn't need to just throw the kitchen sink at this to avoid a disastrous deflation, it needs to throw the bathroom sink, and the garage sink, and any other sink it can find." And it needs to hurry.

Time Magazine 21st November 2008

Wednesday, November 26, 2008

Financial Collapse, Systemic Crisis? Illusory answers and necessary answers

by Samir Amin

Paper introducing the World Forum of Alternatives, in Caracas, october 2008

The financial crisis could not be avoided

The violent explosion of this crisis did not surprise us; I mentionned it a few months ago while the conventional economists were ignoring its coming development and consequences, especially in Europe. In order to understand it we must get rid of the conventional definition of the system which qualifies it as “neo-liberal” and “global”. This definition is superficial and masks the essential. The current capitalist system is dominated by a handful of oligopolies that control the basic decisions making of the world economy.

These oligopolies are not solely financial; such as the banks or the insurance companies, but include enterprises involved in industrial production, services, transports and the like. The way they are financiarized is their chief characteristic. We must understand here that the main source of economical decision has been transferred from the production of surplus value in production towards the redistribution of profits between the oligopolies. To that effect the system needs the expansion of financial investments. In that respect the major market, the one which dominates all other markets, is precisely the monetary and financial market. This is my definition of the "financiarization" of the global system. Such a strategy is not the result of independent "decisions" of banks, it is rather that the choice of the “financiarized” groups. These oligopolies hence do not produce profits; they just swipe the monopolies’rent through financial investments.

This system is extremely profitable for dominating sectors of the capital. Thus, the system should not be qualified "market economy" (which is an empty ideological qualification) but as a capitalism of financiarized oligopolies. However, financial investment could not continue indefinitely, while the productive basis was growing at a low rate. Consequently, we have the logic of a “financial bubble”, the sheer translation of the financial investments system. The gross amount of financial transactions reaches two thousand trillion alone, while the world GDP is 44 trillion only. Quite a huge multiple! Thirty years ago, the relative volume of such transactions did not have this extent.

[French] Le volume des transactions financières est de l’ordre de deux mille trillions de dollars [en français, 1 trillion = 1 milliard de milliards; en anglais, un trillion = 1000 milliards; l’auteur fait référence ici au sens anglais, NDLR], alors que la base productive, le PIB mondial est de 44 trillions de dollars seulement. Un multiple gigantesque.]

As a matter of fact, those transactions were directed in general and expressly to cover the operations linked to production, and internal and external trade. The overall outlook of this financed oligopolies system was – as I said previously- the Achilles’ heel of that capitalist structure. The crisis was doomed to be initiated by a financial collapse.

Behind the financial crisis, the systemic crisis of the aging capitalism

To attract the attention on the financial collapse is not enough. Behind it, a crisis of real economy is standing out, since the financial drift was continuously asphyxiating the growth of the production basis. Solutions brought to the financial crisis can just lead to a crisis of the real economy, i.e. a relative stagnation of the production with its side effects: regression of wages, growth of unemployment, growing precariousness and aggravation of poverty in the Southern countries. We must speak now about depression and no more about recession.

Behind this crisis, the systemic crisis of capitalism is looming right after. The pursuit of the model based on the growth of the real economy –as we know it- and of the consumption attached to it, has become, for the first time in history a real threat for the future of humankind and the planet.

The major caracter of this systemic crisis is related to the natural resources of the planet, now less abundant than half a century ago. The North-South conflict constitutes for that reason the central axis of coming struggles and conflicts.

The production and consumption-waste system at the moment forbids the access to the world natural resources for the majority of the planet, i.e. the peoples of the South. Previously, an emergent country could take its share of these resources without questioning the privileges of the affluent countries. But today, it is no more the case. The population of opulent countries -15% of the planet’s population- has to monopolize for its own consumption and waste 85% of the world resources, and cannot tolerate that newcomers may reach these resources, since they would provoke shortages for rich people’s standard of living.

If the USA has formulated an objective of military control of the planet, it is because, without it, they cannot secure the exclusive access to these resources. As we know: China, India and the South as a whole need them as well for their development. For the USA, they must limit the access and ultimately, there is only one mean: war.

On the other hand, to preserve energy sources of fossil origin, USA, Europe and others develop production of bio-fuel projects to a large scale, to the detriment of food production, still accusing the rise of prices.

Illusory answers of the governing powers

Governing powers, under the rule of financial oligopolies, do not have any other project except to restore the same system. However, their success is not impossible, if they can inject enough liquidities to restore the credibility of the financial investments, and if the reactions of the victims –working classes and nations of the South- remain limited. But, in this case, the system steps back to better jump and a new financial collapse, still deeper, is unavoidable, since the “adjustments” for the management of financial and monetary markets are not wide enough, because they do not question the power of oligopolies.

Furthermore, answering the financial crisis by injecting phenomenal public funds to re-establish the security of the financial markets is amusing: first, profits were privatized, if they are jeopardized, the losses are socialised! Reverse, I win, head, you loose.

Conditions for a genuine positive answer to the challenges

To say that the State’s interventions may change the rules of the game, lessen the drifts, is not enough. We must define the logics of that intervention and its social purpose. Of course, we could come back in theory to the formulas associating public and private sectors, to a mix economy as it existed during the glorious thirties in Europe and at the time of Bandoung in Asia and in Africa, when State capitalism was largely dominant, accompanied by strong social policies. But this kind of State intervention is not on the agenda. Also, are the progressive social forces able to impose such a transformation? Not yet to my viewpoint.

The other choice is the toppling of the oligopolies’ exclusive powers, unthinkable without, finally, their nationalisation leading progressively to the socialisation of their management. End of capitalism? I do not think so. Yet, I submit that changes in classes' relations are possible, imposing adjustment to the capital, in answer to the demands of working classes and peoples. The conditions for such an evolution to occur imply the progress of social struggles, still fragmented and on the defensive position altogether, moving towards a political coherent alternative. In that perspective, the long transition from capitalism to socialism becomes possible. The advances in this direction are obviously always uneven from one country to the other and from one phase to the other.

The dimensions of this desirable and possible alternative are numerous and concern all aspects of economical social and political life. I will recall here the general lines of this necessary answer:

(i) The re invention by the working people of adequate organizations allowing the construction of their unity, bypassing the fragmentation due to the forms of exploitation (unemployment, precariousness and “informal”).

(ii) The awakening of theory and practice for democracy associated to social progress and respect of people’s sovereignty, not dissociated from them.

(iii) The emancipation from the liberal virus based on the myth that the "individual" has already become the subject of history. Frequent rejects of ways of living associated to capitalism (multiple alienations, patriarchal relations, consumerism and destruction of the planet) signal the possibility of this emancipation.

(iv) To get rid of atlantism (NATO) and militarism, associated to it, aiming at the organization of the planet on the basis of apartheid on the world scale.

In the countries of the North, the challenge is to avoid that the general opinion adopts a consensus in support of privileges unacceptable by the peoples of the South. The necessary internationalism goes through anti imperialism and not the “humanitarian”.

In the countries of the South, the strategy of the world oligopolies is to transfer the weight of the crisis on these peoples (devaluation of money reserves, fall of the export raw resources prices and rise of import ones). In counterpoint the crisis presents the opportunity for the renewal of national, popular, democratic alliance of working classes, and on that basis the move from a pattern of capitalist dependent development with growing exclusion of majorities towards an alternative pattern of inclusive development, in other words "delinking". This involves:

(i) The national control of monetary and financial market (moving away from the integrated global monetary and financial "market").

(ii) The control of modern technologies, accessible now (defeating the exclusive monopoly of the North, overprotected by WTO rules on industrial property).

(iii) The recuperation of the use of natural resources.

(iv) The defeating of global management, dominated by the oligopolies (WTO) and the military control of the planet by the USA and their allies.

(v) The liberation from the illusions of an autonomous national capitalism system as well as of passeist myths (para religious or para ethnic).

(vi) The agrarian question lies in the heart of decisive choices in Third world countries. An inclusive pattern of development needs an agrarian radical reform, that is a political strategy based on the access to the soil for all peasants (half of humankind). On the opposite, the solutions proposed by the dominant powers –to accelerate the privatization of arable soil, and its transformation into merchandise- lead to massive rural disintegration. The industrial development of the concerned countries being not able to absorb this overabundant manpower, this one crowds together in shantytowns or risks its life trying to escape in dugouts via the Atlantic Ocean. There is a direct link between the suppression of access to the soil and the migratory pressures.

(vii) Can regional integration, while encouraging the emergence of new development poles, constitute a resistance and an alternative? Regionalisation is necessary, maybe not for giants such as China, India or even Brazil, but certainly for many other regions in South-East Asia, in Africa or Latin America. Venezuela has rightly chosen to create ALBA (Bolivarian Alternative for Latin America and the Caribbean’s) and the Bank of the South (BANCOSUR), long before the crisis. But ALBA –an economical and political integration project- has not yet received the support of Brazil or even Argentina. However, BANCOSUR, whose aim is to promote another development, gathers these two countries, even though they still have a conventional conception about the role of this bank.

Progresses in this or that direction, North and South, the basis of workers and peoples internationalism, constitute the only guarantees for the reconstruction of a better, multipolar democratic world, the only alternative to the barbarism of the aging capitalism. More than ever, the struggle for the 21st century socialism is on the agenda.

Translated from French by Daniel Paquet for Investig'Action

Production conditions and sets limits to what occurs in the market.

"Those of us who attempt, following Marx, to understand capitalism’s economic crises as disturbances rooted in its system of production—value production—always face the problem that the market and production are not linked in a simple cause and effect manner.

As a general rule, it is not the case that an event within the sphere of production causes an event that takes place in the market, such as an economic crisis. Instead what occurs in the sphere of production conditions and sets limits to what occurs in the market.

And it is indisputable that, in this sense, the US housing crisis has its roots in the system of production. The increases in home prices were far in excess of the flow of value from new production that alone could guarantee repayment of the mortgages in the long run. The new value created in production is ultimately the sole source of all income—including homeowners’ wages, salaries and other income—and therefore it is the sole basis upon which the repayment of mortgages ultimately rests "

by Andrew Kliman - A Crisis for the centre of the system

Steep rate cut in China by central bank

BEIJING (AFP) - China's Central Bank announced on Wednesday a steep cut in its interest rates -- by four times the usual margin -- in a signal that it would pull out all the stops to boost weakening economic growth.

The benchmark one-year lending and deposit rates will both be reduced Thursday by 108 basis points, compared with the usual 27 basis points in Chinese rate cuts, the People's Bank of China said.

"It means the government is moving on more fronts to stimulate growth," said Stephen Green, a Shanghai-based economist with Standard Chartered Bank.

It was China's fourth interest rate cut since mid-September.

Political Economy Research says what China needs is a massive redistribution of income from the Princelings to the People to boost the domestic market. However the Chinese nouveau rich are famous for one thing the tenacity to which they hold onto their money even if it wrecks the economy for the rest of us. If you need a recent example just look at Wall Street and the government give away to the super rich, in the current world view this helps the Economy - what has it done the cartoon below tells you.

Tuesday, November 25, 2008

Larry Summers the view of Naomi Klein

That is where Larry Summers comes in because he was the last treasury secretary under Clinton. He along with Alan Greenspan and Robert Rubin were the key architects of the policies of deregulation that created the crisis that we’re living now. And those key policies are the killing of Glass-Spiegel that allowed a series of very large but mergers that created these institutions that are too big and too intermingled to fail we’re told again and again.

The deliberate decision to keep the derivatives out of the reach of financial regulators- that was also a Summer’s decision. And also allowing the banks to carry these extraordinary levels of debt. 33 to 1 in the case of Bear Sterns.

Now, in my book the Shock Doctrine I started chapter with a quote from Larry Summers in the context in which he says it was 1992 and it was when he was making World Bank economic policy as it related to Russia, in the midst of a financial crisis. What he said and this is why I quoted him because it really shows the extent to which he is truly an ideologue and a follower of the very ideology- not just a follower but a propagator of the very ideology that Obama ran his campaign against. And here’s the qoute.

This is Larry Summers in 1992: “Spread the truth. The laws of economics are like the loss of engineering. One set of laws works everywhere.” And then he laid out those laws a little bit later.

He referred to the three “ations”, and those were privatization, stabilization, and liberalization. So he has been preaching the doctrine. He is by no means an innocent bystander. He is a dyed-in-the-wool privatizer, free trader. And he along with Tim Geithner, his deputy play key roles during the economic crises.—along with Timothy Geithner.

They preached more deregulation, more privatization and economic austerity to disastrous results. I think this is really troubling. One thing that Obama said is that Larry Summers set the terms of the debate for this financial crisis and that once again is very worrying. Because if Barack Obama thinks that these are the only terms, the parameters of the debate, then there’s very very narrow…

Source: Democracy Now 25/11/2008

Big capital would have no problem with an Obama presidency

"Big capital would have no problem with an Obama presidency. Top hedge fund honcho Paul Tudor Jones threw a fundraiser for him at his Greenwich house last spring, “The whole of Greenwich is backing Obama,” one source said of the posh headquarters of the hedge fund industry. They like him because they’re socially liberal, up to a point, and probably eager for a little less war, and think he’s the man to do their work. They’re also confident he wouldn’t undertake any renovations to the distribution of wealth"
Doug Henwood - Left Business Observer

Political Economy Research says with Larry Summers on his team a literal family member of Paul Samuelson we can continue to see the top down world view of the Economy with the belief that it is rich people that create the wealth and value rather than working people.

Larry Summers during the Clinton Administration as Treasury secretary contributed to the wholesale deregulation of the financial sector and is a embeded neo liberal - while the rhetoric of Obama was for new firm regulation - he has appointed Larry Summers who was one of the principal authors of deregulation. Rhetoric as always is exposed by the reality of the Obama act.

The continuation of the Bush tax cuts for the super rich under Obama is an early indication of the class character of the Obama Administration not that we had any doubt who he would serve.

We agree wholeheartly with Doug Henwood when he says about Obama :

"Never did the possibility of disappointment offer so much hope. That’s not what the candidate means by that word, but history can be a great ironist"

Saturday, November 22, 2008

Economists - most of them teach a theoretical framework that is useless

New York Times, 11/2

Questions For James K. Galbraith

Q: There are at least 15,000 professional economists
in this country, and you’re saying only two
or three of them foresaw the mortgage crisis?

A: Ten or 12 would be closer than two or

Q: What does that say about the field of economics,
which claims to be a science?

A: It’s an enormous blot on the reputation of
the profession. There are thousands of economists.
Most of them teach. And most of them teach a
theoretical framework that has been shown to be
fundamentally useless.

Source: Progressive Labor party

Visit Democracy and Class Struggle TV


Friday, November 21, 2008

China - the current situation is grim

Since October, our country's employment situation has been affected along with changes in international economic conditions," Human Resources and Social Security Minister Yin Weimin said.

"The current situation is grim, and the impact is still unfolding," Yin said.

The global financial meltdown has dealt a body blow to China's vital export industries that account for 40 percent of the economy, causing thousands of factories making toys, shoes and cheap electronics to fold. Millions of laid-off migrant workers have flocked back to their rural homes and local governments nationwide have found themselves deprived of key sources of tax revenue.

China's economic growth fell to 9 percent in the latest quarter after expanding 11.9 percent last year, and economists warn of further declines in the new year.

Political Economy Research says the offical figure of 4% unemployed in China is a serious underestimate of the unemplomnent situation has it only includes urban residents with ID in the towns and cities and not the 150 million migrant workers who do not appear in the unemployment statistics

China, India Rising, But Face Bumpy Ride - US Intelligence

WASHINGTON (AFP)--A new U.S. intelligence forecast identifies China and India as rising heavyweights in a coming multi-polar world but says both face a potentially bumpy ride to the top.

"Although we believe chances are good that China and India will continue to rise, their ascent is not guaranteed and will require overcoming high economic and social hurdles," the report by the U.S. National Intelligence Council said.

Titled "Global Trends 2025 - A World Transformed," the 121-page report was released Thursday to stimulate debate and thinking as a new U.S. administration prepares to take power.

It warned that U.S. security and economic interests could face new challenges if China becomes a peer competitor with a strong military and a dynamic, energy-hungry economy.

"Few countries are poised to have more impact on the world over the next 15-20 years than China," the report said.

"If current trends persist, by 2025 China will have the world's second largest economy and will be a leading military power," it added.

"It could also be the largest importer of natural resources and an even greater polluter than it is now."

But it said China's economic growth will certainly slow, or even recede.
Mounting social pressures arising from growing income disparities, a fraying social safety net, poor business regulation, hunger for foreign energy, enduring corruption, and environmental devastation also lie in its future.

"Any of these problems might be soluble in isolation, but the country could be hit by a 'perfect storm' if many of them demand attention at the same time," the report said.

But it didn't foresee social pressures forcing real democracy in China by 2025.
The report said India will probably continue to enjoy relatively rapid economic growth, but the growing gap between rich and poor will become a more acute political issue.

"Indian leaders do not see Washington as a military or economic patron and now believe the international situation has made such a benefactor unnecessary," the report said.

"New Delhi will, however, pursue the benefits of favorable U.S. ties, partly, too, as a hedge against any development of hostile ties with China," it said.
In a discussion about Japan, the report said its policies in the future will be shaped by those of China and the U.S.

It said Tokyo would stay close to Washington whether it developed closer economic ties with Beijing or faced a hostile China.

But if the U.S. security commitment to Japan weakened or if Washington moved significantly closer to Beijing, Tokyo would move closer to China.

The report also identified three potential up and coming powers, all from the Muslim world but not from its Arab core. They are Indonesia, Turkey and Iran.

Political and economic reform in Iran, along with a stable investment climate, "could fundamentally redraw both the way the world perceives the country and also the way in which Iranians view themselves."

"Under those circumstances, economic resurgence could take place quickly in Iran and embolden a latent cosmopolitan, educated, at times secular Iranian middle class," it said.

Thursday, November 20, 2008

Bob Buckle of APEC talks up Chinese and Indian Economies

LIMA, Nov. 18 (Xinhua) -- A steady and robust economic growth of China and India is vital to help the world economy tide over the ongoing financial crisis, Bob Buckle, chairman of the Economic Committee of the APEC Secretariat, said Tuesday.

China and India have been "a crucial engine of growth" for the world economy, and a continued strong economic growth in the two countries would be vital to help restore market confidence during the global financial meltdown, Buckle told reporters during the APEC Leaders' Week that began in the Peruvian capital Lima on Sunday.

In the past decade, China has maintained a strong economic growth while steadily integrating into the regional and global economy, and economies in the Asia-Pacific region have benefited greatly from China's economic growth, he noted.

Unlike the Great Depression in the 1930s, the current financial crisis would not lead to similar dire consequences thanks to robust growth and enormous economic potential in emerging economies like China and India, Buckle said.

Still, these economies would have to reform their economic policies to be more resilient to market shocks, he said.

The APEC forum provides a great opportunity for the member economies to share experience in addressing such grave challenges as a sharp drop in global demand and investment, he said.

Buckle said the financial crisis has threatened to affect the real economy due to a sharp fall in global demand and foreign investment. Therefore, measures taken by governments should aim to minimize the fall in domestic demand, he said.

Earlier this month, the Chinese government announced a 586-billion-U.S.-dollar stimulus package amid rising concern about a sharp slowdown in the world's fourth-largest economy, a move cheered both at home and abroad.

China's gross domestic product ended its two-digit growth in the third quarter, rising by 9 percent, down from 10.1 percent in the second quarter and 10.6 percent in the first quarter, according to official figures.

Buckle also highlighted the importance of sound financial regulations and effective competition policies in improving economic performance in the region.

The Economic Committee of the APEC Secretariat will release its annual economic policy report on Thursday ahead of the APEC summit that begins Saturday, which will mainly explain the importance of competition policies as part of APEC structural reforms based on diverse economic, institutional and legal conditions of each economy.

Established in 1989, APEC groups Australia, Brunei, Canada, Chile, China, China's Hong Kong, Chinese Taipei, Indonesia, Japan, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, South Korea, Thailand, the United States and Vietnam.

Wednesday, November 19, 2008

China moves to stem mass layoffs

China fears fast-rising unemployment could trigger social unrest

Companies in two Chinese provinces, Shandong and Hubei, have been told they must seek official consent if they want to lay off more than 40 people.

The order highlights the Chinese authorities' concern over mounting job losses.

As China's main external markets plunge into recession and export orders shrink, layoffs have multiplied in the country's big manufacturing regions.

In Shandong alone, nearly 700,000 people have lost their jobs this year.

In southern Guangdong, tens of thousands of firms have closed, sparking off reverse migration to the countryside by redundant workers.

China's economic growth has slowed sharply this year to around 8 percent - high by world standards, but much less than the double-digit figures seen for years.

If the one-off boost from the Olympics is factored in, even that number may be further reduced.

Drastic wage cuts

China's manufacturing index contracted dramatically in October, indicating an abrupt slowdown.

It is kicking in at a time when the country's factories normally rev up production to serve western markets in the run-up to Christmas.

If the government doesn't agree to my layoff plans, what can I do? I can't afford to pay them all

Shandong factory manager

The Chinese authorities are keen to avoid social instability, seen as a source of labour and political unrest.

The human resources controls imposed in Shandong and Hubei are an attempt to put bureaucratic obstacles in the way of mass layoffs.

But it is unclear how effective they will be.

"The factories are not getting enough orders, so some workers have nothing to do," Chinese media quote a Shandong factory manager as saying.

"I have been thinking of getting rid of some of them to cut costs. But if the government doesn't agree to my layoff plans, what can I do? I can't afford to pay them all."

The alternative may be drastic wage cuts.

In one factory in Guangdong, salaries have been reduced by up to 75%.

Although that is hardly a sustainable pay level for most workers, they may have to wait until the economic climate improves in China's foreign markets.

The crisis has helped expose the extent to which the country has become dependent on the outside world - a far cry from the Mao-era slogan of self-reliance.

source: BBC News

Monday, November 17, 2008

Naomi Klein on the Bailout Profiteers and the Multi-Trillion-Dollar Crime Scene

“The more details emerge, the clearer it becomes that Washington’s handling of the Wall Street bailout is not merely incompetent. It is borderline criminal,” says Naomi Klein, author of The Shock Doctrine.

AMY GOODMAN: World leaders from nearly two dozen countries met in Washington over the weekend to discuss plans to increase regulation of international financial activity. They acknowledged that a failure of market oversight in countries like the United States had precipitated the financial crisis.

Meanwhile, here at home, it’s been a month into the Bush administration’s more than $700 billion bank bailout. Last week, Treasury Secretary Henry Paulson outlined a new bailout strategy intended to boost consumer borrowing and promote financing for companies that give out loans. President-elect Obama’s transition team is reportedly working on improving the management of the bailout come January 20th.

But that’s two months away and according to the Washington Post, with $290 billion already committed, the Bush administration has taken no action to fill congressionally-mandated independent positions to oversee how the bailout is used.

According to Naomi Klein’s latest article in The Nation, “The more details emerge, the clearer it becomes that Washington’s handling of the Wall Street bailout is not merely incompetent. It is borderline criminal.” The article is called “In Praise of a Rocky Transition.”

Naomi Klein, investigative journalist, author of The Shock Doctrine, joins us now from Toronto, Canada.

Welcome to Democracy Now!, Naomi.

NAOMI KLEIN: Thanks so much, Amy.

AMY GOODMAN: “Criminal”? Explain.

NAOMI KLEIN: Well, there’s a few elements now that are being described as illegal that we’re finding out. First of all, the equity deals that were negotiated with the largest banks and also some smaller banks, representing $250 billion worth of the bailout money, this is the deal to inject equity into the banks in—to inject capital into the banks in exchange for equity. The idea was to address the so-called credit crunch to get banks lending again. The legislation that enabled this was quite explicit that it had to encourage lending.

Barney Frank, who was one of the architects of that legislation, has said that it violates the act if the money is not going to that purpose and is instead going to bonuses, is instead going to dividends, going to salaries, going to mergers. He said that violates the acts, i.e. it’s illegal. But what we know is that it’s going precisely to those purposes. It is going to bonuses. It is going to shareholders. And it is not going to lending. The banks have been quite explicit about this. Citibank has talked about using the money to buy other banks.

Then there’s other aspects of this that are borderline illegal. We found out that in the midst of the crisis, the Bush—the Treasury Department pushed through a tax windfall for the banks, a piece of legislation that allows the banks to save a huge amount of money when they merge with each other. And the estimate is that this represents a loss of $140 billion worth of tax revenue for the US government. Many tax attorneys who were interviewed by the Washington Post said that they felt that the way in which the Treasury Department went about this by unilaterally changing the tax code was illegal, that this had to be—this had to include Congress. Congress only found out about it after the fact.

There’s another piece of this puzzle that is also borderline illegal, which is that in addition to the $700 billion that we are discussing, the $700 billion bailout, there’s another $2 trillion that’s been handed out by the Federal Reserve in emergency loans to financial institutions, to banks, that actually we don’t really know who they’re handing the money out to, because, apparently, it’s a secret. They could be handing it out to a range of other corporations—I think they are—but they’re saying that they won’t disclose who has received these taxpayer loans, because it could cause a run on the banks, it could cause the market to lose confidence in the institutions that have taken these loans. Once again, that represents an additional $2 trillion.

The other thing that the Fed won’t disclose is what they have accepted as collateral in exchange for these loans. This is a really key point, because, of course, at the heart of the financial crisis is—are these so- called distressed assets. The value of these assets is enormously controversial. They may be worth very little. So if the Fed has accepted distressed assets as collateral in exchange for these loans, there’s a very good chance the taxpayers aren’t going to be getting this money back. So Bloomberg News has launched a lawsuit in federal court to find out who has received the loans and what has been accepted as collateral, because they believe that this lack of transparency is illegal. So that’s why we’re calling this the “trillion-dollar crime scene” or the “multi-trillion-dollar crime scene.” And they’re really challenging lawmakers to call them out, the Treasury is.

And I think, you know, Amy, the last time I was on Democracy Now!, we were talking about Henry Paulson’s original three-page proposal, the $700 trillion stickup, where he basically said, “Give me $700 trillion. Don’t ask any questions. I can never be challenged by any arm of government or any court of law.” Now, that aspect of the bailout was supposedly dealt with, and we were all reassured that there was going to be transparency, accountability, legality. But now we’re finding out that, in fact, Henry Paulson has achieved his original goal by stealth, because there is no accountability, and lawmakers are very hesitant to challenge this, because they’re afraid of causing a run on the banks, of causing more market instability. So, essentially, what the Bush administration has done is said, you know, “We dare you to challenge us and be responsible for the great depression.” And the Democrats, not known for their firm spines, have so far failed to challenge them in anything other than rhetoric.

AMY GOODMAN: And what’s very interesting about this, of course, as I talked to you before the election, but now the election is over, and the Democrats are not in a weaker position, but in a far more powerful position, and they are meeting this week.
NAOMI KLEIN: Right. They actually—they have a lot of leeway in which to act on this. You know, if Barney Frank means what he says, that this violates the act, then of course they can challenge the deals that have already been signed, these terrible equity deals that are so much worse than what Gordon Brown negotiated in Britain. I mean, let’s remember, Gordon Brown got voting rights at the banks that they bailed out, seats on the boards, 12 percent dividends for US tax—for UK taxpayers, as opposed to the five percent negotiated in the US and no voting rights and no seats on the board. Other thing Gordon Brown did is he got it in writing that the banks had to start lending, as opposed to Henry Paulson, who didn’t get it in writing, and the banks are not lending.

So, there is room to move, but, you know, the logic that has really gripped lawmakers is that they can’t rock the boat. And we hear this across the board, really, in the talk of, you know, who to appoint as Treasury Secretary, how to approach economic policy in this period. We hear all these phrases—you know, continuity, smooth transition. And really, that’s code for more of the same, because what the market wants is for there not to be tough regulation, is for the free money to keep flowing. What will upset the market, what will create a rocky transition, is if it’s clear that there’s a new sheriff in town, that they’re going to have to follow the law, that they’re going to cut off all of this corporate welfare, there’s going to be real accountability, real conditions attached to the money. You know what? The market really doesn’t want that.

Unfortunately for the market, voters have just voted for change. They voted for a candidate who really turned the election into a referendum on this economic policy of rampant deregulation. So you’ve really got a problem here. How do you reconcile the market’s desire for status quo with the voters’ demand for real change? There is no way to do that without a few bumps along the way. And I’m quite concerned that what we’re seeing from Obama’s team is an accepting of this logic that they need to give the market what it wants, which is continuity, smooth transition, which is really just code for more of the same. And when you hear names like Larry Summers being bandied about for Treasury Secretary, that’s feeding the market exactly what it wants, which is more of the same.

AMY GOODMAN: Naomi Klein, I wanted to go more to these—what you’re calling “borderline criminal” deals, the Washington Post revealing as part of the bailout, lawmakers changed Tax Code Section 382, which limits the kinds of tax shelters companies can use to—during corporate mergers, created to stop companies who avoid paying taxes by acquiring shell companies valued by the losses on their stocks. And then, going on in the piece, it says congressional aides admitted lawmakers agreed to keep the change hidden to avoid public outrage. Staffers with Senate Finance Committee chair, Max Baucus, a Democrat, reportedly asked that an administration briefing on the tax code change be kept secret. One congressional aide said, “We’re all nervous about saying this was illegal because of our fears about the marketplace. To the extent we want to try to publicly stop this, we’re going to be gumming up some important deals.”

NAOMI KLEIN: Right. I mean, this is—that’s an incredible statement, Amy, because really what they’re saying is, we can’t afford to enforce the law, because there is an economic crisis, that somehow, because there’s an economic prices, legality is a luxury that Congress can’t afford. That is a very scary statement. But this is what I mean by this logic that you have to—you know, the market, particularly a bear market, has the temperament of an ill-tempered two-year-old. I mean, it throws temper tantrums whenever it doesn’t get what it wants, whenever it is frightened. So it is really dangerous to pander to the tastes of the market in this period. It needs a little bit of tough love. That’s what people have voted for. But there will be a temper tantrum if there is a clear message that the law is going to be followed. So, we find out that there has been this backdoor, illegal tax break handed over to the banks.

And, by the way, Amy, this is an example, a classic example, of what I call disaster capitalism or the shock doctrine—right?—where the banks had been pushing for this tax break for many, many years, they weren’t able to get it through during normal circumstances, but in a crisis they push it through the back door when everybody is focused on—well, at the point that they pushed this through, which was September 30th, this was the worst of the economic crisis and people were focused on the collapse of Lehman, and they were focused on the fact that they couldn’t get the bailout legislation through. So nobody even noticed this until it was too late. And so, this is what I mean by the strategy of the Bush administration, is now they are saying to Congress, “We dare you to stand in the way of these bank mergers, because if you do that”—because the tax break that they handed out is what encouraged a wave of bank mergers.

And I really do think it is worth pausing to question this idea that what Treasury should be doing at this point is encouraging very large bank mergers, because one of the other problems that, you know, is at the root of this crisis, and certainly at the root of this unprecedented bailout, is that you have so many banks that are considered too big to fail, right? So why is it that we are not questioning this solution, the so-called solution to the crisis, which is creating even bigger banks, banks that will, once again, be too big to fail?

We’re really heading to a future where there will be, you know, three or four large banks, all of them too big to fail, which means that if they take more—they take more and more risks, which nobody is asking them not to. It’s important to understand that in exchange for the bailout money, the banks are not being told that they can’t carry the incredible leverage rates that we saw, for instance, at Bear Stearns, thirty-three to one. They aren’t being told that they can’t invest in these high-risk, complex financial instruments. They can still do whatever they want, but now they’re even bigger, which means that if they get themselves into trouble again, they will be bailed out again. So why is it that the government is cutting their taxes to encourage these mergers? The Democrats are saying, “Well, we can’t do anything now, because if we do, we will gum up these deals.” So I think we should question all of it. Across the board, I think the assumptions are faulty.

AMY GOODMAN: Naomi Klein, we have to break. but we’re going to come back to this discussion. I also want to talk to you about your piece in the Rolling Stone, “The Bailout Profiteers.” And after that, we’ll be joined by a former CIA analyst and the president of the Center for Constitutional Rights to talk about President-elect Obama’s transition team, when it comes to intelligence, deeply involved in the whole issue of the politicization of intelligence in the lead-up to war and in justifying the renditions. This is Democracy Now!,, the War and Peace Report. We’ll be back with Naomi Klein in a minute.

AMY GOODMAN: […] We’re also broadcasting across Canada on community radio stations, where Naomi Klein is, in Canada, in Toronto, the award-winning journalist, syndicated columnist, author of the bestseller The Shock Doctrine: The Rise of Disaster Capitalism. Her last piece in The Nation is called “In Praise of a Rocky Transition.” And the piece before that is in Rolling Stone; it’s called “The Bailout Profiteers.” Naomi Klein, lay them out.

NAOMI KLEIN: Well, what I do in the Rolling Stone piece is talk about the really uncomfortable parallels between what we saw in Iraq in the Green Zone and what we’re seeing in the US Treasury. It’s sort of the Green Zoning of the US Treasury. If we think about the way the Bush administration handled the occupation of Iraq, the working assumption was that everything that could be privatized, everything that could be outsourced, would be outsourced.

And it has been very much a corporate war, as you well know. But at the same time, the handing out of the contracts in the early days was done very, very quickly, because, of course, there was this manufactured emergency that we all know was based on lies, in retrospect. But that was used, that state of emergency was used to justify no-bid contracts, to justify the fact that there was very little oversight of the contractors.

And we’re seeing all of this repeat now, but just on such a massive scale, such a larger scale. First of all, when Henry Paulson and Neel Kashkari, his deputy, announced the $700 billion bailout, they also announced that they would be outsourcing all of the work. They have handed out the work to many of the banks and Wall Street law firms that really created the crisis in the first place. But in the same way, there’s also been very little competition for these contracts. They were handed out very quickly. And at the same time, as we were discussing earlier, there is very little oversight over the process.

So, just to give you one example that I discuss in the Rolling Stone piece, there’s the general contractor, the really big contracting—it’s kind of the Halliburton of Treasury contracts—went to the bank, Bank of New York Mellon. Bank of New York Mellon, by the way, is one of the nine banks that got the equity deals, the cash injections in exchange for equity. And they are also very deep in this derivatives mess themselves, but they have been hired to handle a huge part of the bailout. So what I argue in the piece is that we actually have it backwards. It’s not the banks that have been partially nationalized; it’s Treasury that has been partially privatized by the very banks that created the crisis in the first place.

One of the things that’s really extraordinary about the Bank of New York Mellon contract is that, unlike the Halliburton contract or the Bechtel contract or the Blackwater contract, we actually don’t know how much it’s worth. It’s quite extraordinary. It’s redacted. The part of the contract that would tell taxpayers how much of their money is being given to this bank and how they’re calculating the payment for Bank of New York Mellon is all blacked out. I was reassured by Treasury three weeks ago that they would be disclosing that information within days. They still haven’t disclosed it.

Another contract that I look into in the Rolling Stone piece is for the first law firm that received a contract to advise Treasury on the equity deals, on those key equity deals that we’ve now found out are such bad deals, the ones that didn’t get it in writing that the banks were supposed to start lending, the ones that only got five percent dividends for US taxpayers when Britain got 12 percent. Well, the bank that got the—sorry, the law firm that got the contract to advise Treasury is called Simpson Thacher Bartlett. This is a Wall Street heavy-hitter firm. They’ve negotiated some of the largest bank mergers in recent years. And what we discovered in researching this piece is that Bank of—is that Simpson Thacher had represented seven of the nine banks that received the equity deals that they were advising Treasury on. And, you know, what’s important to understand is that these banks that Simpson Thacher represents on other matters represent far more of their revenue than US Treasury. So what I am arguing is that they are in a very large conflict of interest, because they really are a bankers’ law firm, not a public interest law firm.

AMY GOODMAN: Naomi Klein, can you talk about what is happening right now in Washington, what took place over the weekend, the meeting of the G20?

NAOMI KLEIN: Well, you know, this was an epic lost opportunity, Amy, because I think a lot of people assume, certainly assumed originally, that what would come out of this catastrophe, what would come out of this crisis, would be a re-examination of some of the thinking that has underpinned so much of economic policy in the past thirty years. And, as I said earlier, Barack Obama turned his election campaign into a referendum on the mania for deregulation and free trade and really less trickle-down economics.

He said the idea of giving more and more to the people at the top and waiting for it to trickle down to the people below, and that really resonated with voters, and they elected him on that platform. And let’s remember, Amy, because this really is about democracy, that his campaign turned around when the economic crisis really hit Wall Street. He was losing ground to McCain when the crisis hit Wall Street, and Obama started using this language of really putting the ideology of deregulation on trial. That’s when his numbers turned around. That’s when he went on his winning streak that took him all the way to Election Day. And so, I think that there has been this assumption that, OK, now we’re going to fix it.

But if we look at what just came out of the G20 summit, it’s really been a reassertion of the very—this very ideology of deregulation. On the one hand, you have the statement that you started the program with, where the world leaders said that this crisis was born of the shadow banking industry, not enough oversight, not enough regulation, too much complexity. At the same time, when they talk about solutions, they’re calling for resurrecting the failed World Trade Organization talks that collapsed this summer. And we heard, if you recall, this summer, when the Doha talks collapsed, that globalization and the Washington Consensus were dead, because developing countries had rejected it.

The other thing that they’re calling for is a greater role for the International Monetary Fund. And it’s important to understand that the reason why the International Monetary Fund and the World Trade Organization and the whole free trade agenda, generally, has been in collapse in recent years is because countries around the world are no longer willing to accept the conditions attached to joining this club, the conditions attached to an International Monetary Fund loan. In reasserting a greater role for the International Monetary Fund, in calling for the World Trade Organization talks to get back on track, these world leaders are actually calling for more financial market deregulation, more of the same.

I’ll give you one example: the Doha talks. Although much of the focus has been on agricultural subsidies, part of the Doha talks is about financial sector deregulation and the push, particularly from Britain and the United States, for countries like China and India to open up their financial services markets to US and British and European companies who want into these markets. And what’s really striking is that you hear this language of anti-protectionism, you know, that we can’t turn away from free trade.

What this really means, Amy, is that Citibank and Barclays want to go into China, want to go into India, and they want to buy up Chinese and Indian banks, they want to get into these markets. But what’s so incredible in this moment is the hypocrisy, just the rampant hypocrisy, because Barclays and Citibank and all of the other banks that would benefit from this type of free trade are of course the very banks that are receiving massive state protection from their own governments in the form of the bailouts that we’ve just been discussing. So these sort of corporate welfare bums now want to use the language of anti-protectionism to go into other countries and buy up their assets, but, of course, they are being subsidized so heavily by their own taxpayers. So it’s a moment of high hypocrisy.

It’s also a moment of, as I said at the beginning, lost opportunities, because—just to give you one example, think about what these leaders could do if they really wanted to, in terms of collaborating to harmonize regulation, so that banks were no longer able to pit governments against each other for who could offer the lowest taxes, who could give them the best tax havens, who could offer the lowest regulation. There was just a hearing on Friday about hedge funds that Henry Waxman convened. And before those hearings, we heard from one of the wealthiest hedge fund owners in the country, Ken Griffin, who’s actually an Obama supporter.

Ken Griffin, a billionaire hedge fund owner—he owns Citadel Investment—was asked by the committee whether he believed that hedge funds were sufficiently regulated and whether they should be more highly taxed. What Ken Griffin said was that if that happened, there would be even more jobs in the financial industry in the United States lost to Britain. And he talked about how his heart breaks when he goes to Canary Wharf in London and sees how many good jobs have been lost to Britain, which has, in many ways, lower—less regulation of hedge funds.

But what’s so striking about that, Amy, is that it would be so easy in this moment for the US government and the British government to actually harmonize their regulations so that they could—so that companies like Citadel Investment and other hedge funds would really have nowhere to run. And when you have a crisis like this, which so clearly shows the need for those types of regulations, when you have an election like there just was in the United States, where people have said clearly that this is a priority, the leaders have an opportunity to act and to close down these tax havens, to prevent this ability of governments to be pitted against one another, and have a race to the top as opposed to a race to the bottom. But they blew that opportunity, and they actually called for less regulation.

AMY GOODMAN: Just underscoring what you wrote on the whole issue of the difference in the bailouts, the British Prime Minister Gordon Brown extracting meaningful guarantees for taxpayers, voting rights on banks, seats on their boards, 12 percent in annual dividend payments to the government, a suspension of dividend payments to shareholders, restrictions on executive bonuses, a legal requirement banks lend money to homeowners and small businesses. Here in the United States, Washington Post reporting major US banks are on pace to spend more than half their bailout money on rewarding their shareholders. The thirty-three banks are set to receive some $163 billion in government bailouts; half of that sum will go to paying off shareholders over the next three years.

NAOMI KLEIN: Yeah, this bailout is really not a bailout at all; it’s a parting gift to the people that the Bush—that George Bush once referred to jokingly as “my base.” You know, in one of my columns recently, I likened it to what European colonial rulers used to do when they finally realized they had to hand over power; they would loot the treasury on the way out the door.

And the reason why there has been this dramatic change in policy just in recent days, where Henry Paulson has said, “OK, well, we’re not going to do what we originally had said at all,” which is use the bailout money to buy distressed assets, to buy bad debts, “Now we’re going to go from these equity deals with the banks to bailing out credit card companies”—the reason for that is that that first $250 billion was essentially money down the drain.

They are admitting that it didn’t do what it was supposed to do, which was increase lending. So, now they’re making it up as they go along. It’s take three, take four, take five. But we’re supposed to somehow not notice that $250 billion, an astronomical sum, was just wasted, going to bonuses, going to shareholder payouts, going to CEO salaries. And now they’re trying another method to get lending going. But it really was the parting gift, Amy.

And if we think about what this money means, and this is—you know, this crisis isn’t over, and the same people who justified this bailout, who clamored for this bailout, are the very people who are going to turn around and say to Barack Obama, “We can’t afford for you to make good on your election promises. We can’t afford universal healthcare. In fact, we can’t afford what meager services Americans get in exchange for their tax dollars, like Social Security payments.” We’re already hearing this lowering of expectations now in the national discourse.

So, the money—this really is, you know, reverse Robin Hood gone mad. The money has been given to the people who needed it least, and it’s going to be used to justify austerity measures imposed against those who need it most. It’s going to be used to justify cuts to food stamps. It’s going to be used to justify cuts to Social Security, to healthcare, let alone being used to justify why more ambitious plans for a national healthcare program, for green energy are not affordable. So people have to be ready for this. You know, the next shock is yet to come.

AMY GOODMAN: Your final thought, this, on the bailing out of the auto industry, the Big Three in Detroit, starting with General Motors?

NAOMI KLEIN: Well, obviously, it shouldn’t be a blank check. You know, I always think about what the International Monetary Fund does when developing countries come and ask for a loan. Think about what they’re doing right now. The International Monetary Fund says, “You want a loan? Well, here’s our list of conditions.” They used to call it structural adjustment. The same thing could be done to the auto industry. If they’re coming for a bailout, they should be structurally adjusted, and taxpayers should be playing IMF to the auto industry and insisting that they change the way they work, that they build green automobiles, that they protect jobs. It can’t simply be a blank check.

That said, what’s really disturbing is the way the Bush administration appears to be using the desire among Democrats to bail out the auto industry to horse trade the free trade deal with Colombia. You know, what we’re really seeing, Amy, is a resurrection of the entire free trade—discredited free trade agenda. This crisis being used—the shock of this crisis being used to resurrect all of these discredited deals. The Colombia free trade deal, the International Monetary Fund, the Doha round, they’re all coming back from the dead at precisely the moment that we should be actually burying, for good, this whole agenda of deregulation.

AMY GOODMAN: Naomi Klein, I want to thank you for being with us, award-winning journalist, syndicated columnist, author of the bestseller The Shock Doctrine: The Rise of Disaster Capitalism. Her latest piece is in The Nation; it’s called “In Praise of a Rocky Transition.” Before that, in Rolling Stone magazine, and that’s called “The Bailout Profiteers.” This is Democracy Now!,, the War and Peace Report. Naomi was speaking to us from the CBC TV studios in Toronto.

Source: Democracy Now

Japan's economy has entered its first recession since 2001

Japan's economy has entered its first recession since 2001 after shrinking by 0.1% in the third quarter.

The world's second-biggest economy had previous shrunk by 0.9% in the April to June quarter.

"The downtrend in the economy will continue for the time being as global growth slows," said Japanese Economy Minister Kaoru Yosano.

The eurozone officially slipped into recession last week, and the US is expected to follow.

Sunday, November 16, 2008

Henry C K Liu Letter to World Leaders

Open Letter to World Leaders attending the November 15 White House Summit on Financial Markets and the World Economy

Dear World Leaders:

The Winter of 2008-2009 will prove to be the winter of global economic discontent that marks the rejection of the flawed ideology that unregulated global financial markets promote financial innovation, market efficiency, unhampered growth and endless prosperity while mitigating risk by spreading it system wide. For more than three decades mainstream neoliberal economists have preached, and regulators have accepted, the myth of the efficiency of unregulated markets, ignoring the critical lesson provided by John Maynard Keynes’s analysis of interconnection of financial markets and the international payments system.

Those who do not learn the lessons of history are bound to repeat its tragedy. Neoliberal economists in the last three decades have denied the possibility of a replay of the worldwide destructiveness of the Great Depression that followed the collapse of the speculative bubble created by unfettered US financial markets of the “Roaring Twenties”. They fooled themselves into thinking that false prosperity built on debt could be sustainable with monetary indulgence. Now history is repeating itself, this time with a new, more lethal virus that has infested deregulated global financial markets with “innovative” debt securitization, structured finance and maverick banking operations flooded with excess liquidity released by accommodative central banks. A massive structure of phantom wealth was built on the quicksand of debt manipulation. This debt bubble finally imploded in July 2007 and is now threatening to bring down the entire global financial system to cause an economic meltdown unless enlightened political leadership adopts coordinated corrective measures on a global scale.

The US sub-prime mortgage problem that started in 2007 has developed predictably to a morass that has caused the abrupt failure of interconnected financial markets and threatened the viability of financial institutions worldwide as contagion spread at electronic speed via an antiquated, dsyfunctional international payments system.

To arrest the global financial meltdown, much can be learned from Keynes’s vision of how the international payments system should work to permit each country to promote a national full employment policy without having to fear balance of payments problems or to allow financial incidents in other countries to infect the domestic banking and non-bank financial systems.

Another Great Depression can be avoided if world leaders would reconsider John Maynard Keynes’s analytical system that contributed to the golden age of the first quarter century after World War II. The undersigned and others have long advocated a new international financial architecture based on an updated 21st century version of the Keynes Plan originally proposed at Bretton Woods in 1944.

This new international financial architecture will aim to create (1) a new global monetary regime that operates without currency hegemony, (2) global trade relationships that support rather than retard domestic development and (3) a global economic environment that promotes incentives for each nation to promote full employment and rising wages for its labor force.


Paul Davidson
Editor, Journal of Post Keynesian Economics
Visiting Scholar
Schwartz Center for Economic Policy Analysis,
The New School, New York

Henry C.K. Liu
Visiting Professor of Global Development,
Department of Economics,
University of Missouri-Kansas City

Political Economy Research while accepting Henry CK Liu criticisms of neo liberalism calls readers attention to a lecture by David Harvey on Enigma of Capital at top right of this page which amongst many things deals with the question of regulatory capture.

Regulatory capture is how capitalists capture the regulatory organisations because of the esoteric character of the financial instruments they create like complex derivatives.Hence regulation ends up as self regulation which leads to excess.

The banning of these derivative products is what is required not their regulation has that is a chimera.

We are Post Keynesians, yes but we want the renewal of Marxist Political Economy in the 21st Century. A Political Economy that understands class struggle, it is time we fought back against the class war that the captalist class has been waging against us instead of being its victims.

Thursday, November 13, 2008

The Transformation Problem ? Bye Bye Bortkiewicz

In 20th century discussions of Karl Marx's economics the transformation problem is the problem of finding a general rule to transform the "values" of commodities (based on labour according to his labour theory of value) into the "competitive prices" of the marketplace.

Watch Brendan M Cooney's videos to get an answer to this problem and how Bortkiewicz got it wrong !

I wish I had this video before reading “Reclaiming Marx’s Capital” by Andrew Kliman, however for those wanting to follow up on Brendan M Cooneys video Andrew Kliman's book will be a lot easier after watching this video..

The Transformation Problem ? by Brendan M Cooney

Wednesday, November 12, 2008

Paulson Shifts Focus of Rescue to Consumer Lending By John Brinsley and Robert Schmidt

Nov. 12 (Bloomberg) -- U.S. Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.

``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards'' Paulson said today in a speech at the Treasury in Washington . ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.''

Treasury and Federal Reserve officials are exploring a new ``facility'' to bolster the market for securities backed by assets, Paulson said. Officials are considering using a portion of the bailout money to ``encourage private investors to come back to this troubled market,'' he said.

The Treasury chief said the department is also considering having companies that accept new taxpayer funding get matching private capital.

Buying ``illiquid'' mortgage-related assets -- the reason the Troubled Asset Relief Program was established a month ago -- is no longer being considered, he said.

``Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role,'' he said.

Paulson has committed all but $60 billion of the initial $350 billion allocated by Congress to take equity stakes in banks and in insurer American International Group Inc. Lawmakers, who could reject Treasury requests for the remaining $350 billion, are pushing for aid to automakers including General Motors Corp. Paulson is resisting.

With less than three months left in the Bush administration, demands for assistance from foundering companies will likely escalate. The Treasury two days ago took a $40 billion stake in AIG. American Express Co. this week converted into a bank-holding company, making it eligible for funds.

Democrat Barack Obama assumes the U.S. presidency on Jan. 20. Obama last week said his economic team will ``review the implementation' ' of the rescue plan, suggesting he may have different priorities for its use.

In his remarks today, Paulson said that the Bush administration ``has taken the necessary steps to prevent a broad systemic event.''

Still, the secretary said that conditions remain ``fragile'' and that the stability of the financial system continues to be his highest priority.

Paulson also said that the Treasury will continue to look for strategies to help homeowners avoid foreclosure.

Political Economy Research says now that Paulson has given his Wall Street Banking friends money - they have just run with it and it has solved no problems.

Now they are coming futher down the money chain to consumer credit - any guesses who will benefit here ?

The economic theology guiding Paulson is that wealth is created at the top of society and he cannot conceive that it is working people and human labour that creates wealth at the bottom of society and that wealth under capitalism flows up from the bottom of society in the form of surplus value to the capitalist class at the top.

The economic rational approach would have been a rescue of mortgage debtors, or bottom up approach, but Paulson is has blind has Andrew Mellon was in the 1930's with just a variant on the same old free market anti labour ideology.

The bulk of credit created in a capitalist economy is created by private banks who have made a credit creation bubble in the battle for increased banking profits.

There used to be some supervison of this credit creation in the past, but that went with de-regulation, and we will now have to live with the consequences of deflating this credit bubble for a long time to come.

Tuesday, November 11, 2008

Fed Refuses to List Banks Drawing $2T in Federal Loans

A new controversy has erupted over the Bush administration’s refusal to identify banks on the receiving end of almost $2 trillion in taxpayer loans. The Bloomberg news company has sued the Federal Reserve to release a list of borrowing banks and the troubled assets they’re putting up as collateral. The Fed says it won’t release the list to avoid financial panic. The bank loans have come outside of the $700 billion Wall Street bailout package and don’t require congressional approval. The loans were made under the auspices of eleven different government programs. Eight of them have been created in the past fifteen months.


Former Kissinger Policy Planner, CFR Member Calls For New Global Monetary Authority

Former Wall Street exec wants bailout and more... much much more

A Council on Foreign Relations member and former policy planner under prominent Bilderberger Henry Kissinger has penned a piece in the Financial Times of London calling for a "new global monetary authority" that would have the power to monitor all national financial authorities and all large global financial companies.

"Even if the US’s massive financial rescue operation succeeds, it should be followed by something even more far-reaching – the establishment of a Global Monetary Authority to oversee markets that have become borderless." writes Jeffrey Garten also a former managing director of Lehman Brothers.

Garten, now a professor of business at Yale, served on the policy planning staff of Kissinger during his time as Secretary of State. He also served on the White House Council on International Economic Policy under the Nixon administration and went on to become the Undersecretary of Commerce for International Trade under Bill Clinton. Citing "globalization", a "clash of philosophies" and the "vacuum at the centre" of the current global institutional apparatus, Garten describes his vision for a new monolithic world authority to oversee all financial activity around the globe.

Here are some of the highlights (emphasis added):

A GMA (global monetary authority) would be a reinsurer or discounter for certain obligations held by central banks. It would scrutinise the regulatory activities of national authorities with more teeth than the IMF has and oversee the implementation of a limited number of global regulations. It would monitor global risks and establish an effective early warning system with more clout to sound alarms than the BIS has.

It would act as “bankruptcy court” for financial reorganisations of global companies above a certain size. The biggest global financial companies would have to register with the GMA and be subject to its monitoring, or be blacklisted. That includes commercial companies and banks, but also sovereign wealth funds, gigantic hedge funds and private equity firms.

The GMA’s board would have to include central bankers not just from the US, UK, the eurozone and Japan, but also China, Saudi Arabia and Brazil. It would be financed by mandatory contributions from every capable country and from insurance-type premiums from global financial companies – publicly listed, government owned, and privately held alike.

In a conclusion that smacks of problem, reaction, solution Garten adds "In terms of US and international politics, a Global Monetary Authority is probably an idea whose time has not yet come. That may change as today’s crisis evolves."

What he describes is nothing less than a global financial dictatorship, operating across borders and forcing nations and corporations to register and adhere to strict monitoring and obey the same regulations. The implementation of such a system would represent total interventionism and the absolute final nail in the coffin of the free market.

Garten's call for a GMA echoes a piece published in the FT back in June by Timothy Geithner, president of the Federal Reserve Bank of New York.

Fresh from attending the Bilderberg conference in Chantilly, Virginia, Geithner called for a globalized banking system with "appropriate requirements for capital and liquidity".
Source: Info Wars

Some Thoughts Regarding Our Future Revolution by a Revolutionary Old Guard

Some Thoughts Regarding Our Future Revolution by a Revolutionary Old Guard from Wei Wei

After 30 years of Reform it is time for the real Communist Party to draw its conclusions.

Changes in the past 30 have meant that capitalism has basically been restored in China.

The principal contradiction in our country is still the contradiction between the proletariat and the bourgeoisie, but the principal aspect of the contradiction has changed from the proletariat to the bourgeoisie. A new revolution is now facing the proletariat and the working masses.

The basis of the revolution before us is upholding the great banner of Mao Zedong's continuing revolution and carrying out the great socialist revolution against corruption, against selling out our country and against capitalist restoration. The dictatorship of the proletariat no longer exists; therefore, our continuing revolution is no longer one being waged with the dictatorship of the proletariat. Instead, our continuing revolution is being waged against the dictatorship of the bourgeoisie. The road ahead will be difficult and have many twists and turns.

Our revolution's main targets are the capitalist roaders and cliques of revisionist traitors within the Party who have seized the power from our Party. The revisionist groups are false communists who continue to hold onto the titles and stature of the Communist Party. They have not thrown it away, because by inheriting the Party's title, they fool people and legitimize their rule. During the 17th Party Congress they held up the Thoughts of Deng Xiao-ping, Jiang Ze-ming, and Hu Jing-tao as an independent theories and uses them as guiding principles against Marxism, Leninism, and Mao Zedong thought. The reason why they mentioned Marx, Lenin, and Mao in the Party Charter was because they feared that without using them as a cover they would lose their legitimacy, which would lead to their downfall. Therefore, they will continue to name and refer to Marx, Lenin, and Mao to use as cover until the end.

The targets of our revolution are the bureaucratic and comprador bourgeoisie – this is the essence of their class nature. They have wildly sold out the interests of our country and our people, and recently started opening up the financial sector of our economy, thus handing over the economic lifeline of our nation to the foreigners. What they have done is beyond what reasonable people can understand. Their behavior shows that their connection with foreign powers run so deep that their interests can no longer be separated. They have already moved their families and assets abroad. They have sold themselves and their country out completely to act as slaves of foreigners.

They launched large-scale privatization movements and sold off State owned Enterprises. Through the recently passed "Asset Ownership" law they raised the salaries of those in charge of the remaining State enterprises to very high levels. This means that qualitative changes have taken place. In terms of national consciousness they cannot even match (Russia's) Vladimir Putin. Putin has at least dared to stand up to the United States. These people have lost all national aspiration; the way they try to appease the foreigners is comparable to how the officials acted in the Qing dynasty.

The State apparatus is totally corrupt. After our revolution succeeds we can no longer use the old State apparatus. We have to completely smash the State apparatus just like Lenin said in the State and Revolution. However, we need to understand that there are still many un-corruptible and exemplary Communist Party members. They will be our main strength.

The proletariat or the working class is still the leading class of our revolution. Among them, migrant workers are new additions. Peasants and working intellectuals are still trusted allies of the working class. It has been proven from our social practice that the proletarian class has shown unshakable faith in socialism, because their fate is so closely connected to that of socialism. A worker poet, Wang Xue-zhong, wrote a poem called "The State Enterprise – Our Mother." Who else could write a poem like that? Only workers have such affection toward socialist State enterprises.

The Communist Party that the revolutionary Left wants to rebuild is a genuine Marxist revolutionary Communist Party which engages in struggle. We need to declare that the real Communist Party is the one that follows Marxism and Mao Zedong Thought. We are fighting against revisionists and bureaucratic and comprador bourgeoisie cliques. They are traitors who seized power from the Party and who have betrayed the revolutionary line of Marxism and Mao Ze-dong. They are false communists and are corrupted and qualitatively different from the real communists. This could lead to a problem. The masses in our country have been protesting against the many injustices they face – if a sudden incident inflames the people, the anger of the masses could bring the demise of both the real and the false communists. Such a danger exists, because the masses now regard the Communist Party as negative. However, what the masses want to destroy is the corrupted Communist Party, which has been selling out our country and is only interested in enriching itself. They do not want to destroy the Communist Party of Mao's era.

Therefore, in our propaganda to the masses we need to clearly distinguish the real Communist Party from the false Communist Party. We need to begin to use the terms "real" Communist Party and "false" Communist Party and explain the difference between them in our writingsand talks. Otherwise the masses may try to destroy the real with the fake, like what had happened in Hungary. If that moment arrived, it would be too late for us to try to explain. For example in the June 4th incidenct, the majority of students and masses were protesting against corruption, but the ultra right leader Fang Li-zhi used the masses and the protest ended in tragedy. Our slogan should be:

We are the real Communist Party which represents the suffering masses. We are not the false Communist Party which represents the corrupted bourgeoisie! What we want is socialism based on public ownership.

In the past, when we talked about returning to Mao's revolutionary line, some people misunderstood and thought that that we wanted to return to the past completely.We need to admit that in the past we were not able to fully realize the masses' right to supervision. Our goal now is to rebuild a new and even better socialist country following the principles of the Paris Commune.
We need to promote real socialist democracy at a high level. Only proletarian democracy is real democracy in the broadest sense. People and the masses should have the right to practice management, supervision, and elections, and have the right to impeach. We need to reduce the wage differentials and to limit bourgeois rights. These are principles of the Paris Commune.

In terms of forming a united front, we need to understand that our society is made up of three main forces. The first is revisionists who have the political power, the second is the proletariat and revolutionary masses, and the third is the ultra Right, which organized the Xi-shan Conference1. Because the bureaucratic and comprador bourgeoisie have been selling off our country, some people on the Left may think that we should unite those on the Right to fight those in power. We need to distinguish who our worst enemies are. The main difference between the revisionist clique and the ultra Right is the revisionists are still wearing the cloak of communism, and in doing so, sometimes write articles that on the surface sound correct. However, if the ultra Right seizes power, they will ruthlessly and bloodily suppress the masses. Those big capitalists, such as Wang Zhao-jun, who attended the Xi Shan Conference, hate communists in their bones and they are anti-communist to the end.

The current regime let these people get rich first and then welcomed them into the Party. They thought that doing so would win their gratitude. But the fact is, these people are full of hatred toward the Communist Party and they are hastily trying to construct legal proceedings to get rid of it.. The ultra Right is these people's political representatives. In the future we will be fighting the ultra Right to gain power. We on the Left are the common enemy of both the revisionist clique and the ultra Right. Our united front slogans should be:

Unite everyone on the left under the banner of fighting against capitalist restoration. We will communicate with each other to exchange our views and give mutual support and encouragement. We will find common ground and not to be bogged by minor differences.

All patriots untie under the banner of fighting against those who sell out our country.

All people unite under the banner of fighting against corruption.

Currently there is a strong tendency for government officials to deceive people.
They have the advantage of all of the power and run the propaganda machine. The media shows that they frequently visited miners' family when accidents happen shedding tears in the homes of workers and peasants.

Their acting has confused some young people. Acting is one thing but we need to pay attention to what they actually do. After the 17th Party Congress these people took another step toward the right .

They insisted on continuing the Reform and sold off the last few State owned enterprises. They forced more lay-offs, cut more workers' tenure, and further forced those who used to be the masters of the enterprises into wage labor. They are now going into realm of "labor laws". What they are doing is the same as American politicians who send soldiers to fight in Iraq and then go to the war front holding platters of turkey to thank them.

They choose not to make public or mention or criticize anti-communist articles written by Xie Tao, a leading anti-communist. They invited Li Rui, an open anti-communist, anti-Maoist to the 17th Party Congress.

They ignored four letters written by Wang Zhao-jun in An-hui Province challenging the Communist Party. On the other hand they arrested Zhang Qian-fu and sent him to jail for memorializing Mao Zedong. They shut down many websites on the Left. Isn't it clear what they really represent? What they call liberated thinking is in fact abandoning the three principles: abandoning Marxism and Mao Zedong Thought; abandoning workers, peasants and the masses; and abandoning revolution. On the other hand, what they are leaning on are: the private market economy, the selling off of our country and domestic and foreign bourgeoisie, and the corrupt State machine to carry their fascist (WE DO NOT AGREE WITH THIS CHARACTERISATION BUT UNDERSTAND THE FRUSTRATION THAT THIS GIVES RISE TO THIS CHARACTERISATION Political Rconomy Research ) dictatorship.

Some people say that old cadres are privileged among the proletariat, because they have benefited from Third Plenary of the 11th Party Congress. They have received higher wages and are enjoying a good life, satisfied with their good health and peaceful old age. This is also true of intellectuals and other white-collar workers; they are happy about the current situation and think it is better than the past. They are satisfied with the current regime.

It is true that the old cadres are being treated well. Their expenses are being paid, but they are also being isolated. They do not know how to use the internet and have trouble understanding the real situation in our country. We should do more propaganda work with them. After all, they lived through the struggles of earlier revolutionary times. They still have the ability to tell right from wrong. The majority of them are firmly against corruption and against selling off our country.

We on the Left basically agree on the nature of the Reform. Within us there are still differences on what the correct tactics should be. What are the correct tactics that will lead us to victory?

The correct tactics have to follow the correct overall strategy. Strategy is a matter of principle. We cannot go against principle, but tactics can be applied with flexibility. Revolution does not negate struggles within the legal system.

We on the Left should use every opportunity to fight the ultra Right in all battles. For example, people such as Li Rui, Xie Tao, and Duan Ruo-fei are shameless, poisonous traitors and spies. On the other hand we also need to firmly oppose the Reform.

Some suggest that we should make use of Deng and what he said – but Deng was a devious cheater and the root of all problems. We should not quote what he said anymore, lest we further confuse the masses and lead them in the wrong direction. We should, instead, expose and tear open the falseness and pretense of these cheaters. We should do this on the internet and anywhere we can express what we think and propagate our views in order to win over the masses and expand our battlefields. When we do our propaganda we should refuse to follow our opponents' lead and avoid arguing in the framework that they define and set forth.

Our Slogans: Because of the nature of our revolution, our slogans are clear and will create heart-felt excitement: We raise high the banner of Mao Zedong's continuing revolution. We will carry forward the great socialist revolution against revisionism, selling out our country, and the restoration of capitalism. (See point 6 for coalition slogans.)

Of course we do not just shout slogans. We need to do a lot of difficult work. In the past Deng Zhong-xia dressed himself as a worker and went to workers' homes to visit and to wait. Eventually he organized the big strike in Hong Kong that shook the world and turned Hong Kong (Fragrant Harbor) into a Foul Harbor. Another example is the heroic strike led by Lin Xiang-qian. The reason that the Left is weak and being ignored is because we have not connected with the proletarian class and the great masses. We still do not have strong leaders. A few years back when there was a group protest in Da-qing, workers demonstrated their extraordinary capabilities, organizing for an orderly occupy an office building in Da-qing. The economic status of the proletarian class determines that they are revolutionary and the most radical class. In order to move forward, intellectuals must ally themselves with workers and peasants.

We are now under the fascist dictatorship. We are not allowed to speak up. We need democracy. Lenin said that there is no pure democracy – there is only class democracy. We do not want bourgeois democracy. Americans say, " We can curse out our President in the streets." However, when the American government sent troops to fight in Korea and Vietnam, to bomb Iraq and send Americans there to die, they had to obey! What we want is democracy of the proletariat, the real democracy of the broad masses. The Communist Party is the vanguard of the proletariat and it must be supervised them. If the proletariat do not have the right to supervise and impeach Party representatives, then we are powerless when the Party Central Committee adopts revisionism. Who says that whoever becomes the Party Secretary will have a higher level of understanding of Marxism? It is a joke to think whoever becomes the Party Secretary will also be a theoretician and can equal Chairman Mao!

The position of Party Secretary is merely a job. The class as a whole needs to have power and political consciousness. Only class can supervise the Party and manage the Party. Only when we reach that level of democracy the proletariat can control the Party and is the Party able to lead the proletariat. Then we will no longer be afraid of the Party's Central Committee becoming revisionist. This is our great historical lesson.

They posses the machine of dictatorship on all fronts – the military, the political machine, the legal system and the media… First the arrest you and give you a talking to (the lightest penalty), then they put you under surveillance… We face many difficulties, and we need to again carry out revolution. This should be a ground up mass movement. We will organize the working class to smash those in power. If we do not succeed the first time, there will be a second time and a third time. We need to do painstaking mass work. People want revolution; if they do not yet have the political consciousness, they will develop it. They will want revolution in the future, and we need to trust the masses. Both the subjective and the objective conditions have not yet reached maturity, so we have to be careful and not become too anxious.

We need to work underground and establish various kinds of study groups in many locations and hold discussion sessions and forums. We will create favorable conditions and work hard on mass work to raise the political consciousness of the masses.. There will be a day when the conditions reach maturity we can connect all the different segments in society and become a Party. Once the loose groups are organized, there is no force that can stop us.

Source Left Trainspotters