Monday, December 29, 2008

Wealth Creation, or a Ponzi Scheme? By Dr. Michael Hudson

Picture Charles Ponzi

Decmber 23, 2008

Last week the Good Lord evidently realized that not enough people had been reading Hyman Minsky’s explanation of how financial cycles end in Ponzi schemes – the stage in which banks keep the boom going by lending their customers the money to pay interest and thus avoid default. So He sent Bernie Madoff to dominate the news for a week and give the mass media an opportunity to familiarize newspaper readers and TV watchers with just how Ponzi Schemes work. What Mr. Madoff did was, in a nutshell, what the economy as a whole has been doing under the moniker “wealth creation.”

If the media were able to wait until as late in the financial collapse as last week to provide helpful diagrams about how Ponzi schemes need to keep on growing exponentially, it is simply because bad foreign financial news is not deemed newsworthy in North America. But Europe has been having its own run-throughs, headed by Spain – which by no coincidence is now experiencing the biggest real estate bust outside of the post-Soviet economies.

The best case study occurred two years ago. On May 9, 2006, Spanish police raided 21 homes and offices of Afinsa Fienes Tangibles SA, the world’s largest postage-stamp dealer, and rival firm, Forum Filatélico. They charged eleven men with running a $6.4 billion pyramid scheme that took in some 343,000 investors – 1 percent of Spain’s entire population, making the fraud one of the largest in Spanish history.[1]

An economy either is in trouble or has lost its sense of balance when investors shy away from tangible capital formation in favor of buying postage stamps and similar collectibles. Unlike machinery and technology, stamps do not produce real goods and services. They have long since been printed and sold by the government, and will never be used actually to mail letters. However, stamps have shown themselves to be a great vehicle to attract savers who think that buying them can produce an exponential earnings growth – or more technically, “capital” gains, if we can stretch economic terminology far enough to call a stamp collection “capital.”

If value resulted merely from scarcity, then postage stamps, coins and master paintings all would seem to increase almost automatically over time, just like most land does. But these trophies of wealth do not promote rising production, consumption or living standards. As stamps do not earn money by employing labor to produce goods and services, their price gains are neither profit nor capital gains as classically understood. They are what economists call a windfall.

The Spanish postage-stamp scheme seems to have taken off in 2003, the year in which Spain’s free-market conservative government deregulated public insurance and oversight for non-financial investment funds. Afinsa Group bought two-thirds control of the New Jersey stamp and coin auction house Greg Manning and merged it with the Spanish auctioneer Auctentia to create Escala as the world’s third largest auction house (after Sotheby’s and Christie’s). Escala moved its operations to New York City and listed its stock on the Nasdaq over-the-counter market. Despite the stock market’s lethargic trend, the company’s earnings showed such rapid growth that in just three years its share price soared from under $5 to $35, tripling in 2005 alone.

Afinsa’s purchases accounted for 70 percent of Escala’s profits, thanks largely to the fact that as its Spanish parent’s sole supplier, Escala marked up its stamps by a reported 1,150 percent, out of all proportion to the usual 25 percent. Afinsa thus was carrying stamps for which it paid 58 million euros on its books at €723 million, over ten times their catalog values – which are fictitiously high in any case, being published mainly for the benefit of stamp dealers to give their customers the idea that they are getting a good buy. But as Forum Filatélico’s chairman, Francisco Briones, explained to a reporter from London’s Financial Times: “It was ‘normal’ to charge clients such inflated prices because of the services provided . . . including the custody and conservation of stamps.”

Afinsa paid its stamp investors an annual rate of 6 to 10 percent interest, beating most competing yields as the global financial bubble was pushing interest rates steadily downward. (Spanish government bonds paid only 3.5 percent.) To build up trust, Afinsa gave its clients post-dated checks for the gains that were promised. It also promised to buy back the stamps it sold, at the original price. This gave an appearance of liquidity to the normally illiquid market in stamps, fine arts and other collectibles, where 25 percent commissions to auction houses are normal. These ploys convinced the majority to simply re-invest the money to buy yet more stamps, which the company held in its offices ostensibly for safekeeping and preservation.

Money poured in, giving stock-market investors in Escala much higher returns than the stamp-buying customers nominally were receiving. As one news report remarked, why buy stamps and coins when you can invest in companies dealing in them?[2] But within a week of the arrests, Escala’s stock plunged below $4 a share.

The denouement came shortly after Lloyd’s of London withdrew from a €1.2 billion policy to insure Afinsa’s stamps. One of its experts noticed that if $6 billion really had been invested, it would have bought up all the investment-grade stamps in the world many times over. The fact that stamp prices did not reflect any such extraordinary buying implied that few bona fide stamp transactions occurred at all, and there had been a massive over-billing.

As matters turned out, most of Afinsa’s stamps had no investment value. This explained why there were no receipts for transactions with Escala. The police found €10 million in €500 banknotes (worth about $650 each at the exchange rate of $1.30 per euro) by breaking open a newly plastered wall at the Madrid home of Afinsa’s main stamp supplier, Francisco Guijarro. What they could not find were any receipts for the stamps that he allegedly bought. And despite the remarkably high markups charged for curating the stamp collection, it was rife with phonies, as Lloyd’s had suspected. Concluding that the bills Senor Guijarro had sent to Afinsa were just a cover for a money laundering operation, the prosecutors charged the family members and officers who controlled Afinsa with embezzlement, money laundering, tax evasion, fraudulent bankruptcy, breach of trust and forgery.

The arrests recalled memories of a more famous U.S. fraud involving postage stamps some 86 years earlier, in 1920, by Charles Ponzi – the man who bequeathed his name to history in the form of Ponzi pyramid scheme. He is reported to have arrived in Boston in 1903 with only $2.50. Not speaking much English, he took menial jobs. Fired as a waiter for shortchanging customers, he moved up to Montreal and became an assistant teller in an Italian immigrant bank. It grew rapidly by paying double the normal 3 percent rate of interest on savings accounts, but failed when its real estate loans began to go bad. The bank’s attempt to give the impression of solvency seems to have given Ponzi the idea of paying interest out of new deposit inflows rather than actual earnings.[3] As long as clients felt they were receiving interest regularly, they tended to be calm about the principal balance.

Ponzi was sent to a Canadian prison for forgery, and then was jailed in Atlanta for trying to smuggle Italian immigrants into the United States. After his release he moved back to Boston and got a job selling business catalogs. A Spanish customer sent him a postal reply coupon, which allowed its holder to buy stamps in foreign countries for return mail rather than using domestic currency to buy a stamp.

Prices for these coupons were long out of date, having been set in 1907 by the International Postal Union. World War I drastically shifted exchange rates, enabling buyers to pay a small amount in Britain – or even less in Germany with its depreciated currency – and obtain a return stamp order that was good in the United States.

The markup on these tiny postal orders was large. An American penny could buy foreign stamp orders that could be converted into six cents in U.S. stamps, for a 500 percent profit. The problem was that it would take a truckload of such postal orders to make serious money. A million-dollar investment would involve a hundred million penny coupons – which then would have to be converted into stamps and sold in competition with the U.S. Post Office, presumably at a discount, mainly in immigrant neighborhoods.

Focusing on the principle of arbitrage rather than such laborious implementation, Ponzi explained that he could make a 400 percent gain after expenses. He promised that investors could double their money in 90 days, pretending to take due account of the costs and shipping time from Europe to America. When his Securities Exchange Company paid early investors the high returns he had described, they spread the word to others. Ponzi’s inflow of funds rose from $5,000 in February 1920 to $30,000 in March, and $420,000 by May. By July an estimated $250,000 a day was flowing into his firm, mainly from small investors who let their book credits build up rather than taking out their money. Some people put their life savings into the plan, and even borrowed against their homes.

Ponzi spent most of the money on himself, buying a mansion and bringing his mother over from Italy. The financial reporter Clarence Barron (publisher of Barron’s) noted that if he really had invested the money as he told his investors he had done, Ponzi would have had to purchase 160 million postal reply coupons. Yet the post office reported that few were being bought at home or abroad, and only 27,000 were circulating in the United States.

Federal agents raided Ponzi’s offices in August, but did not find any postal reply coupons, just as Spanish police did not find investment-grade postage stamps in the scheme’s 2006 replay. Ponzi was sentenced to prison yet again, but jumped bail and tried to make some quick money selling Florida real estate. He soon was recaptured, and was deported back to Italy upon his release in 1934.

What Ponzi sold was hope, pandering to peoples’ unrealistic desire to believe that a new way to make easy gains had been discovered, with no visible upper limit as to how long gains can persist in excess of the economy’s own rate of growth. It is a measure of how much harder it is to make returns in today’s world – and hence, how little hope needs to be excited – that whereas Ponzi promised to double his investors’ money every three months, the Spanish stamp scheme paid only a 6 to 10 percent annual return. Neither fraud actually made any trading gains or profits, but simply paid investors out of new money coming in from fresh players. New inflows were treated as earnings. That’s how pyramid schemes work.

It was almost as if the Spanish operators had read one of the biographies of Ponzi that began to appear as observers noticed the common denominators between the global financial bubble of the 1990s and earlier bubbles. These bubbles provide a classic contrast between the real wealth of nations and what the business press these days calls “wealth creation” that simply takes the form of rising asset prices – “capital gains,” most of which are land-price gains.

No doubt stamp collectors would have viewed the bidding up of stamp prices as wealth creation if it actually had occurred. But all it would have achieved was to inflate the price of old stamps, much as the world’s growing ranks of billionaires were bidding up prices for master paintings and modern art, designer furniture and beachfront homes. If all the economy’s savings went into Rembrandts and Picassos, their price obviously would soar, just as putting $6 billion into postage stamps would have established higher plateau levels for stamp prices.

The flow of funds into any category of assets bid up their prices. This is true most of all for land, one of the most universal economic needs and conspicuous- consumption status measures. But does this really “create wealth”? Do market prices reflect use values, living standards and the progress of civilization?

The requisite characteristic for such price gains is indeed scarcity, but not so much that there is not enough for large numbers of buyers to make a market. If psychological utility is the key, “scarcity” has value only as a compulsive acquisitive character – wealth addiction. It means having what other people lack, with connotations of denial. Most money in search of mere scarcity is not going into trophies of the nouveau riches, but into the world’s most abundant yet also most universal scarce resource: land. Nature is not making any more of it, and global warming in fact threatens to take away thousands of miles of prime seashore sites. Yet everyone needs land to live on, making it the object of personal and business saving par excellence. Even in today’s postindustrial economies, land and its subsoil wealth represent the largest components of national balance sheets.

But inasmuch as land cannot be manufactured, savings cannot increase its supply by active investment. This poses a traumatizing problem for economists. National income statistics count any money spent that is not consumed as saving. Following John Maynard Keynes, they define saving as equal to investment. This sows the seeds of confusion with regard to the character and preconditions of economic growth. Can we really call it “wealth creation” when society directs its savings merely into speculation rather than into building up productive powers or living standards?

Classical economists vacillated over treating land as a factor of production or as a legal property right to extract a tollbooth around a given site and levy an access charge much like a user-tax. A factor of production contributes to production and income as more income is invested in it. A rent-yielding property reduces the economy’s flow of income. In the latter case land is part of the institutional property system, not the technologically based production sector of the economy.

What is beyond dispute is that real estate is highly political at the local level. Urban development tends to be shaped by insider dealing and public infrastructure spending to increase local property prices and lobbying to obtain low tax appraisals. It is axiomatic that the more economically powerful a source of wealth becomes, the greater its political power to lobby for special tax advantages. At the national level, real estate uses part of its revenue to back politicians who give it a widening wedge of special income-tax favoritism.

In the financial sphere, every bubble has been led by governments. Bubbles need to be orchestrated by opinion makers, topped by public officials giving a patina of confidence. The “madness of crowds” is a euphemism designed to divert blame away from governments onto the public. In the United States, Alan Greenspan played the role of public bubblemeister similar to that which Walpole had played in England’s South Sea bubble and John Law in France’s Mississippi bubble nearly three centuries ago, in the 1710s.

Today’s balance sheets confuse bubble wealth with real capital formation. “Investment” has become whatever accountants say they are. So have asset and debt values, given today’s leeway for financial fiction. The practice of “marking to market” permits accountants to project hypothetical gains at astronomical rates of interest, or trivializing by discounting, applying purely mathematical functions that have lost all connection to realistic rates of growth. The result is that the financial sector itself has become decoupled from the “real” economy.

The tragedy of our time is that saving today is being diverted in ways that are decoupled from real capital formation, but merely add to the economy’s debt and property overhead. To distinguish wealth from overhead, this book starts with real estate, and then reviews the stock market, advance saving for pensions and health care via a flow of funds into the stock market to create capital gains. My aim is to show how different the actual economy is from what economic textbooks teach. Economic statistics have been hijacked to the cause of special-interest pleading. All but lost from sight is the common weal.

Suppose that Ponzi actually had bought International Postal Orders, and that the Spanish stamp companies actually had invested $6 billion in rare philatelic items and coins, driving up their price to create paper gains for the investors. To whom would they sell, in order to take their gains? (This is the proverbial “greater fool” problem.) More to the point, how positive would have been the broad economic effect of such asset-price inflation?

The recent stock market and real estate bubbles are much like pyramid schemes in the sense that what is bidding up stock and property prices is an exponential inflow of new money from pension plans and mutual funds (for shares) and bank credit (for real estate). Venture capitalists are “cashing out” while corporate managers exercise their stock options.

Suppose that mortgage-packaging companies are honest in their appraisals of current price trends. The real estate bubble is nonetheless speculative and postindustrial. The analogy is found when financial managers endorse government policies that encourage the inflation of price for stocks and bonds, stamps and coins, Rembrandts and modern art by claiming that this creates wealth and hence, by definition, pulls living standards and culture onward and upward.

What is wrong with this picture? For starters, it fails to define value as distinct from price, windfall and capital gains as distinct from earned income. It also neglects the fact that market prices rise and fall, but the debts remain in place. And when debts cannot be paid, savings are wiped out.

On May 9, 2006, the price of Escala shares fell by half as news of the police raids spread. By Friday its stock was down almost 90 percent. On Monday it jumped by 50 percent, from $4.34 at Thursday’s close to $9.45 a share. Hedge funds were making and losing money hand over fist, dwarfing the gains and losses made from stamp trading. A veritable market in crime, punishment and beating the rap was in play.

What does this have to do with true capital formation? Individuals are getting rich while the economy is polarizing between creditors and debtors, property owners and rent-payers. Unproductive investment occurs when it takes the form of windfall “capital” gains, and when it involves going into debt for real estate, stocks or bonds, or “collectibles.” Unproductive credit occurs when commercial banks make loans that merely finance the purchase of property, companies or financial securities already in place.

Two centuries ago, French followers of Count Henry St. Simon outlined an industrial system that was to be based mainly on equity financing (stocks) rather than debt (bonds and bank loans). Their idea was to make industrial banking a kind of mutual fund, so that claims for payment (and hence, the value of savings) would rise and fall to reflect the economy’s earning power. The industrial banking that developed largely in Germany and central Europe differed from the short-term Anglo-American collateral-based trade credit and mortgage lending. But since World War I, global financial practices have been more extractive than productive.

The consequence has been that debts on the economy-wide level have grown more rapidly than the ability to pay. Instead of reducing this debt overhead by earning their way out of debt, economies have sought to inflate their way out of debt. However, the mode of inflation is not the familiar rise in consumer prices, much less wage inflation. Rather, it is asset-price inflation, emanating largely from the United States. Since the gold-exchange standard gave way to the paper dollar standard in 1971, the U.S. economy has become unique in being able to create credit – and foreign debt – without constraint. The result has been an unparalleled growth in debt relative to income, production and wages. This “debt pollution” has been likened to environmental pollution. It is the financial equivalent of global warming.

We have entered an era in which financial markets resemble the stamp-buying funds. Governments have replaced industrial growth with purely financial wealth creation in the form of a real estate and stock market bubble. This has turned the economic universe upside-down relative to what the classical writers expected to result from the technological progress unleashed by the Industrial Revolution and its parallel agricultural, commercial and financial revolutions. Property and credit have become costs instead of a benefit, institutional forms of rent- and interest-extracting overhead rather than helpful inputs.


[1] “Spanish dealers raided in stamp probe,” “Fears grow for lifetime savings” and “World of collecting comes into focus,” Financial Times, May 10, 2006, and “Stamp groups ‘ran Spain's biggest scam,’” ibid., May 12, 2006. See also “Stamp-Selling Firms Charged With Fraud By Spain Authorities,” The Wall Street Journal, May 12, 2006.

[2] Escala Trades Up,, May 16, 2006: Rich Duprey, “Investors buy into the auction house’s claim that it avoided criminal charges”; THE MOTLEY FOOL, MSNBC, May 10, 2006: Rich Duprey, “Escala Is Stamped Out: The company’s stock falls more than 50% after a raid by Spanish authorities,” and “Afinsa denies ‘insolvency’ claim,” BBC, May 11, 2006.

[3] See Wikipedia, “Charles Ponzi,” based mainly on Mitchell Zuckoff, Ponzi's Scheme: The True Story of a Financial Legend (Random House: New York, 2005).

My Declaration of Withdrawal from the Party

My name is Zhang Laushi, born in 1928 April to a common peasant family on Gaozhou Peninsula, Shandong Province. At age 14, as a youth brigade leader, I joined the war to resist Japanese aggression and in the mid of the Huihai campaign when I was 20, I joined the Chinese Communist Party. It has been more than half a century now.

In the eyes of today’s young generation, I also can be counted as an old revolutionary.

After the Huihai campaign, I again participated in the Cross Yangzi River Campaign (Against KMT forces). At that time I was a corporal.

In the Anti-US-Help-Korea War, I served in the 68th Army as a communication corporal, got wounded, transferred to western Henan Province a mountainous county to be Director of Post and Telephone

Department and Party Secretary. I held that post for 20 years and retired as a technical category cadre. Several decades of life in revolution and war have allowed me to do a little work for the people and the Party. The Party and the people gave me more than a little honor. During the liberation war and the Korea War I have several times served with distinction and merit, received commendations and military medals which decorated my chest of my uniform. Even now I treasure my uniform of war, often taking it out to reminisce with deep emotion.

I say this not out of self satisfaction or self aggrandizement. Thinking of my comrades in arms, half of whom were sacrificed. Their lively faces still fresh in my eyes, getting stronger as time passes. Erbi, Anxum, Yuedi and there was another one we called Older Brother, were all lost to us forever in one minor action. The Huihai campaign was victorious, but our minor action in it was very tragic and our sacrifice huge. During the Korea War, in the Battle of Flying Tiger Mount, our unit became lost from division headquarters because of dense fog and headed for the wrong direction and suffered over 50% loss. I was wounded in that battle. Compared to the sacrificed comrades, I was much more fortunate. I have lived 50 some years longer than they. Compared to them, I feel ashamed that I was not together with them. What good fortune it would be to be with my life death comrades, to talk about our aspirations, our beliefs, our struggles. What else do I have to be self satisfied? I only regret that I contributed too little to the Party and the people, unworthy of the sacrifice of my departed comrades. So why Am I withdrawing from the Party?

In the past, how did I come to join the Party. It is with deep heart-felt hurt and sorrow that I write this tearful declaration. In life, not all are sunny and bright flowers, there are also darkness and thorns. Our comrades in arms in the Korea War, there are some that are now of general rank. There is even one Lieutenant Zhang who is now a Vice Chairman of the CPC Military Commission. But they are they and I am I. I am still a tiny Department head. I also serve the people. In the past several decades, I have not been in contact with them. What is the point? Compared to my sacrificed dead comrades, I have more than 50 years of longer life.

My wife is already retired. My oldest son works in the municipal electricity department and my second son post and telephone department. My three daughter are all happily married and joined the work force. I have grand children and enjoy a happy family life. So I should have nothing that is not satisfied?

But today, despite the organizations’ repeated gentle and harsh warnings, despite advice from friendly comrades, desperate entreaties from family members, I firmly decided to withdraw from the Party. Why am I withdrawing from the Party? First I need to tell why I joined the Party.

During the Huihai campaign, the people of Shandong, women, old men, children, coming from all directions, pushing small carts, carrying should sticks, riding on trucks, all rushed to the front, following the sound of cannons, delivering food, bullets, removing the wounded, like picture of waves in a sea of a people’s war. Some common people fainted from hunger along the road, yet they would not eat a single mouthful of food destined for the soldiers at the front. This sight made me cry like a child. This was a picture of the people, the People’s Liberation Army and the Party united as one. The Communist Party is the savior of the people. the people hold up the Communist Party and the people’s own soldiers as their our roots of life. The Communist Party is planted deeply among the people. Such a people’s party would surely overthrow the corrupt reactionary KMT.

At that time, I decided to join the Communist Party. I swore that I would offer all I have to work for the independence of the Chinese people, their freedom and liberation. I swore that everyone must have food, clothes, without people oppressing other people, exploiting other people and to the creation of a new society, I offer my entire life struggle. I joined the Party just before I was assigned a task of scouting at the front. Several of us joined in a group ceremony. The pledge was simple: “I pledge to join the Chinese Communist Party voluntarily, to obey party organization, observe party regulations, to struggle for communism and never betray the party.” I was extremely excited. From then on I, Zhang Lushi, born of Shandong, became a party person.

Wherever the Party puts me, I shall be there. “I pledge to struggle for communism, never to betray the Party” That is my life commitment. I have had my share of confusion. Since the Korea War, I was transferred to local work. People like us who should have died nine times over, participated with great enthusiasm to build socialist motherland with revolution and construction. “Land Reform”, “Anti-threes and Anti Fives”, Rectification and Anti-Right Campaign, The Main Route, Great Leap Forward, People’s Communes, Three Red Banners, Four Cleansings and Sino-Soviet Decade. There were so many movements and struggles. We sang loudly at the top of our voices, fearlessly facing enemies with invincibility. Our socialist motherland moves steadily toward prosperity and bright future. But in all this revolution, I was a natural force revolutionizing other people’s lives, until the Cultural Revolution when I became a target of revolution, criticized by revolutionary masses.

One day, I put on my old military uniform with all my medals, and attended a criticism meeting. I declared: “In the past I had risk death to fight for socialism. Many of my comrades died for socialism. You tell me who is a capitalist roader, I will struggle with him until I die” The Revolt Clique chair of the meeting smiled at me and said: “Comrade Zhang, you do not need to show your military medals. We are not criticizing you medals. Inside the Party are capitalist roaders who want to follow the capitalist road. That is factual. They want to revive the old society. When the socialist revolution touch their head, they resist and oppose. They want to promote a peaceful democratic new phase, oppress the masses, to promote bureaucratism to become lords. The Communist Party is being subverted. Chairman Mao started the Great Proletariat Cultural Revolution to oppose and prevent Revisionism and to avoid repeating the Soviet error of revival of Capitalist revival. You have to have a correct attitude toward mass movements.” From that day on, I was not criticized further. I went home to continue to study Mao’s theory of continuing revolution through the dictatorship of the proletariat.

The Cultural Revolution ended 25 years ago. The doctrine of the dictatorship of the proletariat has been smashed to bits.

Our once great and glorious and correct Chinese Communist Party, by losing blood tie to the people and supervision by the people, has gone through radical transformation. Now its corruption is the world’s worst. Our nation is divided into two classes and the gap between the classes is also the world’s worst. Is this because my joining the revolution and the Party is merely an irony?

Does not twenty-five years of lesson prove that the Cultural Revolution was correct and timely? Does it not prove that Chairman Mao’s demand for continuing revolution under the dictatorship of the proletariat correct? Does this not prove that the Revolt Clique meeting Chair correct?

For the country, for the nation, for the people, for countless revolutionary martyrs we suffer personally, became falsely accused, unfairly convicted, judged, sent to May 7 Reform School for Cadres, what is the big deal? This only shows Chairman Mao’s true love and care for revolutionary cadres.

Many good cadres were falsely accused and died. I saw with my own eyes during the Cultural Revolution, some members of the Power Clique, because of personal problem, could not face mass movement, and diverted attention to split the masses into to factions, to turn the masses against the masses, leading to armed struggle, then put the blame on the Revolt Clique.

I now formally apologize to the Revolt Clique meeting chair. Because during the investigation, I testified against him. It is a pity he is now no longer living. so I cannot directly say to hem: “You judgment was correct.” For the country’s long term stability. For the fortune and welfare of the people, for the great future of communism, our personal honor and shame is nothing. Now the condition of our country is sad indeed.

People’s commune and collective economy are thoroughly dismantled. Peasant/farmers are all bankrupt. State-owned enterprises are also finished. Massive unemployment is the fate of workers. The corruption of the Communist Party is frightening. On some levels, it is worse that the corrupt KMT. Because of divisionism, workers and farmers suffered twice and condemned twice. A fire is burning underground, society is pregnant with instability and tumult.

Even though my cultural level is not high, I only have an elementary school education. Although I do not have high level theoretical understanding, I know that communism is the collective ownership of the means of production, which mean common sharing of wealth. The road we are traveling is pure capitalism.

Where is the root of all this? Is it not the result of Communist Party promoting Revisionism? If we continue, is it not against my pledge to join the Party? My Party pledge echoes in my ear, the condition that led to my joining the Party is still vivid in my eyes. Therefore, I can not remain passive, otherwise, for a hundred year I will face our past martyrs with shame. I have been a Party member for more than 50 years. To negate myself, it is very painful. But without this rejection, there can be no rebirth. I am not willing to betray my pledge in my twilight years.

Recently, my health is not good. Doctor says my kidney has problems. In the hospital, I listen to Jiang Zemin’s speech of July 1:

“Capitalists, being also workers, supportive of socialism with Chinese characteristics, are permitted to join the Party.” He also said that communism is a impractical fantasy. We do not need to delineate it. Marxist theory of surplus value needs to be deeply analyzed. The founders of Marxism could not possibly know about conditions after their death.

Listening to Jiang’s speech, I spit blood. This clear says that Jiang’s Revisionism is now an official doctrine. His speech has smashed all my fantasies.

This Revisionist, in the past he only acted quietly. Now it is official.

So let you beloved capitalist join the Party. Today, in my sick bed, while I can still write, I solemnly declare that:

1) On this date I resign my Old Cadre Secretary post, and withdraw from the Communist Party.

2) I still firmly believe in communism. Marxist-Leninists-Mao Zedong thought, and carry on a lifelong struggle for the realization of communism in China.

3) Being old and sick and having not long to live, I call for, if after my death, China should see the reemergence of a true Mao Zedong continuing revolution under the dictatorship of the proletariat party organization, my readmission as a full member of such a Party organization.

I have been not been rich but I am pure. I only have very little savings. I have RMB 30,000 intended to be my Party due, in the event I am admitted to such a new Party organization. The above declaration is effective July 1, 2001.

Signed Zhang Lushi

July 19, 2001

SOURCE: Frank Ka of Kasama

Tuesday, December 23, 2008

There is no alternative to socialism - interview with Samir Amin


Interview with Egyptian economist Samir Amin.


Samir Amin: “It was the financial corporations that asked the governments to step in and ‘nationalise’ them. The rescue package was drafted by them, and they are in control of most of the bailout money.”

THE financial crisis continues to spread rapidly across the world, crippling banks, stock markets and manufacturing industries and leaving hundreds of thousands jobless in its wake. Two days after the much hyped meeting of the Group of 20 in Washington, D.C., economist Samir Amin shared his insights into and analysis of the arduous road ahead for economic globalisation and the urgent need for a course change from capitalism and the possibilities of a new internationalism in the form of a Bandung II initiative.

The dominant view in the media and in policymaking circles is that the current financial crisis is the result of undue deregulation and the greed of a few in Wall Street. We feel that we need to go beyond the superficial and descriptive framing of the crisis and understand it historically and politically. What is your analysis?

The financial collapse is only the tip of the iceberg. Under the surface there is a deep crisis of accumulation of capital in the real productive economy, and deeper even there is a systemic crisis of capitalism itself. Let us look at the tip of the iceberg first – the so-called financial crisis. This is not the result of mistakes or irresponsibilities of the banking system operating freely in a deregulated environment. This flawed analysis gives the impression that if regulations are put in place the crisis will be corrected. This has been the expected response of the G-20 in Washington, D.C. And this should not be surprising since the G-20’s feeble declaration has been prepared beforehand by the International Monetary Fund [IMF] in concert with the G8.

I would like to submit another vision of this crisis, and for this we have to get rid of the notion of seeing this as a result of neoliberal globalisation. This is limiting because it is descriptive and not analytical. The reality of the current system is the extreme centralisation of capital and a limited number of large oligopolies, some 5,000 in number across the world, that control power at the global, regional and national levels. It is their decisions that are shaping the world. We are at a level of centralisation that is far higher and stronger than we were just 50 years ago. This extreme centralisation of capital has led to a fundamental shift in the logic of the management of the system – instead of investing in the productive economy to produce surplus value, of course with the exploitation of labour, the focus is now on the struggle to redistribute the profits of that surplus value between the oligopolies. This redistribution of profits among them is done through financial investments. Each one of them tries to widen its sphere of financial investment in order to redistribute the profits in its favour. These profits are of another nature – they are monopoly rents. And this is what is being called “financialisation”. And deregulation is essential in this struggle by the oligopolies for more profits through financialisation. And deregulation is not being fundamentally questioned as one can see from the new rules articulated in the November 15 G-20 communique.

The attempt of the oligopolies and their Western governments is to restore the system as it was, and this is not impossible in the short run. Let us assume that the injection of billions of dollars will avoid the breakdown of the major financial institutions and restore a minimum credibility of the monetary and financial system. The second condition for the system being restored is that protests of the victims of this crisis will be manageable. Through inflation, unemployment and reduced pensions, common people will pay, and their protests will be manageable, fragmented and will not disrupt the system. The third condition is that the global South accepts and plays by the rules of the game – that is, the need to maintain the globalisation of the monetary and financial system by being part of it. And that restoring the monetary and financial system needs the inclusion of the monetary and financial systems of the South into the global integrated one. That is the target of the meeting of the G-20 – to bring key emerging economies such as China, India, South Africa, Brazil and others into this project of restoring the system to what it was. Without having these countries on board, any restoration will not last long. Without having a crystal ball, I would say that even if it is restored it will not be for long. We will have another and deeper crisis within a few months, a few years, not much more than that.

What needs more research and more debate among us, people of the Left, is that the current breakdown is not the result of mistakes on regulation, etc. (which is the mainstream view), but a logic that is innate by the very centrality of the struggle for the redistribution of profits among the oligopolies. So the solution to this problem requires radical change, is long term and will come about when the oligopolies are nationalised with the objective of socialisation. This is, of course, not on the present agenda. And, therefore, we continue to be in a serious and continuous crisis of capitalism and imperialism, and not just of the financial markets. And this need not be the last one, and capitalism could come out of it sooner or later, but as long as cosmetic changes are applied, the world will continue to go from crisis to crisis.

There is an impression that this crisis offers new possibilities for the global South. Prime Minister Manmohan Singh claims that a significant shift is taking place, and emerging economies such as Brazil, China and India now have an equal standing at the high table of geopolitics. He has also claimed credit for anticipating the global crisis, stating that several protective measures have been put in place in India. And in this context, the reformist calls for the reorganisation of the World Bank and the IMF so that they reflect the current global stature of developing countries have gotten louder. Will the presidency of Barack Obama listen to any of this and be any different?

The last question first. For sure, Barack Obama is better than a John McCain. Also, from the point of view of the evolution of U.S. society, it is something positive for an African American to be elected President. But from the point of view of policies and politics of the U.S. vis-a-vis the rest of the world, little will change. Perhaps the tonality, the language will change but the targets will be the same. Remember that during the campaign, while Obama promised many changes on the domestic social front, he did not say anything important in respect to the U.S.’ global geopolitical strategy. So I do not expect any major shift in policy with regard to Iraq, Afghanistan nor for that matter with China and Russia.

Now to the earlier set of questions, which are more important and complex. On the G-20, there is no need to go into details of the communique. I hold that the set of policies which aims to restore the system was already decided on at the onset of the financial crisis a few months ago. And this was not decided by the governments of the U.S., Japan and Europe (the triad) but by the oligopolies themselves and accepted later by the former. It was the financial corporations that asked the governments to step in and “nationalise” them. The rescue package was drafted by them, and they are in control of most of the bailout money.

And simultaneously the calls for reform of the IMF are essentially moves to help the organisation function in a changed environment. In the past 10 years or so, several Southern countries have exited from IMF programmes because they got rid of their debt through export surpluses, etc. So the IMF became irrelevant, and the language of reform is now being used to integrate key emerging economies into the financial system. This way, the countries of the South will pay their share for restoring the system when they should logically be using the opportunity of the crisis to decouple and move out of the system. So you find the masquerade of the G-20 and the key countries of the South rubber-stamping the decisions of finance capital.

Let’s look at why China agreed to the G-20 measures. The G-20 communique is unimportant for China. It does not want a political conflict with the West and the U.S. in particular. China is not integrated in the global monetary and financial system and it is unlikely that it will move towards integration, so the decisions taken in the November 15 summit will have little consequence for it. There will be pressure on China to integrate with the system but it is unlikely to, and government officials have repeated this in the recent past.

But that is not the case for other countries of the South. Take India which is partially integrated with the global monetary and financial system. It has maintained exchange control, does not have capital account convertibility, has a number of major nationalised banks and has limited the operations of foreign banks. Instead of taking the opportunity of the crisis to move out of the system, the choice of the Government of India has been the opposite, that is, to move deeper into the system and accept empty flattery from the West of being an emerging global power with a seat at the high table. This is also related to political issues such as the nuclear cooperation agreement with the U.S. and the ambition of India to be a counter force to China in Asia with the support of the U.S. This is the choice of the ruling class in India. Whether this decision can be challenged by the Left and progressive forces and maybe even some sections of the ruling Congress party remains to be seen. If this remains unchallenged, it is very dangerous.

With respect to other countries in the G-20 such as South Africa, South Korea and Brazil, they are completely integrated with the system. Their only hope is that the system will not have them pay too much because of the current crisis. Malaysia did move out partially after the 1997 Asian financial crisis and could be in a situation similar to India’s.

This situation is indicative of the loss of legitimacy of the ruling classes in the South. One more related point on Prime Minister Singh’s statement that he had anticipated the crisis and had taken precautionary measures: this is pure political rhetoric, and to say that the crisis was expected is a lie. In terms of precautionary measures, the fiscal stimulus initiated by the Government of India is exactly what finance capital and big business wants.

All the conventional economists and therefore governments did not expect such a crisis. Even among the Left economists, there were very few who saw this coming. I wrote in 2003 in Obsolescent Capitalism that this continuous search for a redistribution of profits will lead to a breakdown of the financial system, but I also wrote that I did not have a crystal ball to predict when that would happen.

Even before the crisis broke out, trade liberalisation was having a rough time. The World Trade Organisation’s (WTO) Doha Round of negotiations continue to flounder into its 8th year. The WTO plus bilateral and regional free trade agreements are being negotiated but at a very slow pace. The crisis is likely to see a wave of protectionism in the developed world. President Obama will inherit an anti-trade U.S. Congress. Given this context, what do you see as possibilities for alternative frameworks outside of free trade such as the UNCTAD (United Nations Conference on Trade and Development)-led General System of Trade Preferences (GSTP) and the Latin American experiment with the Bolivarian Alternative for the Americas, or ALBA?

At a conceptual level we should distinguish trade from free trade. Being against free trade does not mean that you are against any kind of trade. Delinking from the free-trade paradigm does not mean moving to the moon. Unfortunately, for most Southern governments, speaking of trade has become synonymous with free trade. Free trade can be multilateral, regional or bilateral and it is undesirable in all three scenarios for the countries of the South. A third point is that the U.S. has been pro-free trade both at the multilateral and bilateral level, not for them but for their trading partners. The current U.S. Congress is opposed to free-trade rules being applied to the U.S. but it wants the same rules to access markets in the global South. This is very typical behaviour of a hegemonic power, that is, “you have to comply with international law, but I won’t”.

In all cases, free trade – multilateral or bilateral – is being questioned for a number of years. The blind alley into which the Doha Round has moved is just one example. The conflicts on agriculture subsidies and exports and services liberalisation will continue. So the current crisis is also a very good opportunity to move out of the concept of free trade to regulated and negotiated trade. This negotiation must be asymmetric because there is an objective asymmetry between the North and the South. This reminds me of a joke about the fisheries agreement between France and Senegal. “The French fleets are allowed to fish in the Senegalese waters and vice versa.” [Laughs] This kind of hypocrisy is not acceptable.

Indeed, UNCTAD has always suggested principles for global and regional trade negotiations. Among the proposals from the South, ALBA is the best and most advanced of the lot. ALBA is a project not of economic market integration of South America but of building complementarities that are planned, decided and negotiated by governments. This, importantly, also includes a common political stand. Unfortunately, ALBA is not effective yet because Brazil rejects the logic of ALBA. And an ALBA without Brazil means Cuba, Venezuela, Ecuador and Bolivia and this is not enough to change the balance of forces in Latin America.

You have been talking about the need for a Bandung II. Bandung I was underlined by a deep sense of idealism, with the participating leaders influenced by different kinds of socialisms. There is also a decline of the Left and its role as an emancipatory political force forging an alternative to capitalism. How do you see these processes?

When you say that there was a moral content in Bandung I, I would qualify it as nationalist. There was a nationalist feeling precisely because the states of Bandung were coming out of an emancipatory history of struggle for national independence, associated with radical reform like in China, or with semi-radical reform in some other countries, or with very little reform but still, nationalism. We can call it positive nationalism. But that was the limit of Bandung because it meant that nationalism was operated by the ruling classes, in the larger sense.

Today, most people have lost their confidence in nationalism. Bharat? What does it mean for an Indian child? Nothing. Other identities – Hinduism, regionalism, etc. – have become more important. This is a proof that the good nationalism which played its positive role in bringing together the peoples of India against the British is now losing credibility, but what is replacing it is not internationalism of working people; it is illusions of pseudo-nationalism, we could call them new nationalisms. This is a very dangerous trend.

This is what I am calling the liberal virus. The Left must get rid of this liberal virus. The liberal virus is the belief in two or three things. One – that there is something called a market system.

There is nothing which would qualify as a market economy. Markets exist, but there are capitalist markets, there could be socialist markets. There were markets even before capitalism as in India and elsewhere. There are market subsystems in an overall system, and we are dealing with capitalist markets, not markets. That is one dimension of the virus – accepting the language of the dominant powers that there are two types of economy, planned, that is, administratively managed, or market managed. There is nothing of the two. These are two ideological pictures of reality. Let us get rid of that and understand that there is nothing called the market economy. There is a capitalist economy, of course with markets, but markets are submitted to the logic of accumulation of capital. It’s not a market which produces, as a by-product, capitalist accumulation. Capital accumulation commands and controls the market.

The second belief is democracy separated from social questions. Today, democracy is being defined through parties, elections, fair elections more or less and some basic political rights. There is less concern about whether it is leading to social progress. What we need is democratisation of society, associated with social progress, not disassociated from it – associated with the task of giving full importance to social rights, to the right to food, to shelter, to employment, to education, to health, etc. This does not mean only putting them in the Constitution but creating the conditions where the exercise of those rights in order to achieve social progress limits the rights of property. The right of property can be recognised but [should be] submitted to the social rights.

This is a real revolution in the concept of democracy. Even the Left today accepts that pattern of, let’s call it bourgeois democracy if you want, or representative democracy or some caricature of democracy or masquerade. It accepts it as if socialism should be submitted to the absolute recognition of property rights. There is an absolute contradiction there. Socialism is socialisation of property; it’s not the absolute respect of property rights.

There are other dimensions to the liberal virus. The liberal virus is also working at the global level – that there is no alternative but to operate within the global system as it is dominated by imperialism; we have to unilaterally adjust to it.

That is part of the liberal virus, which has also been called structural adjustment; which is structural adjustment of India today to the requirement of accumulation of capital in the United States and not the opposite, of course. Not the adjustment of the United States to the needs of development in India. Now that is also something the Left has to get rid of.

You have been saying for several decades now that capitalism is on the decline – with indicators such as the polarisation of wealth, the loss of productive capacities of peoples and the destruction of the environment – but the fact is that it is still hegemonic. So where do you see the impulses of a people-centred socialism coming from in this hegemonic environment?

I am optimistic because I think we are moving towards the possibility of a Bandung II. That is, of a common front, an alliance, a rapprochement and a convergence of most of the countries of the South against the North or independent from the North at least to a certain degree. The content of such an alliance should be the following. One, it should move out of the current monetary and financial system as far as possible. Some countries will be able to do this. China is an example and perhaps Malaysia too. Perhaps, this will encourage other countries to move in this direction.

Second is to give priority to shift their internal development policies from outward-oriented export strategies towards the domestic popular market or the masses as far as possible. This is easy for continental countries such as China and India. There are signs that China is already doing this by moving out of the logic of global markets. India can do this but it is doing the opposite. China has six-odd special economic zones [SEZs] and they are highly regulated, and India is on the flawed path to set up some 500 SEZs, which will be practically open and unregulated. The other countries that are not as big as these two should give priority to regional cooperation instead of focussing on the markets of the North. Regional cooperation is not easy in South Asia because you have India, which is big, and the rest are small countries. And there is a rightful fear of Indian sub-imperialism in the region. But if you take Asia with China, India, South Asia and South-east Asia, then you get a more balanced picture and there is more room for genuine trade and economic cooperation. Such a response with key countries from Africa and South America is what I would like to call Bandung II.

And this will be different from the first Bandung conference with Asian and African states in 1955. The focus now can also be on issues like technology. These states, especially China, India and Brazil, are now in a position to develop technologies by themselves. This is a huge difference from the 1955 meeting because at that time these countries had hardly any industries and the level of technical and scientific knowledge was very low. So despite the lofty goals of the conclave, they had to import technologies and submit to the conditions of the West. UNCTAD did try to set up initiatives to absorb and learn from technologies and some countries did benefit.

Now the situation is different, and the challenge of the monopoly of technologies by the North can now be countered by the South. It is therefore no surprise that the WTO (through the Agreement on TRIPS [trade-related aspects of intellectual property rights]) is being used by the North to overprotect that monopoly. I think China is de facto using mechanisms to overturn this monopoly, and this is why you hear protests on China not protecting intellectual property rights. India could also do this but it is not. The city of Bangalore is a services powerhouse but sadly not geared towards the development of India but for the primary benefit of transnational corporations and raising their monopoly rents. And this is done with cheap but highly educated Indian professionals.

So Bandung II should be conceived very differently even at a political level. Bandung I was a meeting of the states and its peoples. China had just come out of a revolution, and India, Indonesia and Egypt were newly independent from colonialism. So to a large extent, these governments were legitimate in the eyes of their own people and there was a progressive nationalistic outlook. But now we are faced with ruling classes that are much more comprador and that benefit from their integration with the global system. And, therefore, they have little legitimacy, and Bandung II must be a Bandung of the people. If this popular mobilisation of the people can happen, maybe some governments will change.

In other words, this means it has to be a Bandung of the Left. And this obviously means that the Left does not act like it does now, that is, that there is no alternative to capitalism. What I am trying to say here is that the clear message should be that “there is no alternative to socialism” in the long run. And this is where the importance of internationalism comes in. If a new internationalism does not happen we will be faced with more of the crisis situations of the rise of political Islam, political Hinduism, political ethnicism and the like. This is an imminent danger because when people lose confidence in the power structures they will be easily manipulated by those illusions. And we should bear in mind that this is absolutely acceptable by imperialism, provided they don’t go too far into so-called “terrorism”.

The World Social Forum is entering its ninth year. It is going to be held in Belem. You have been quite critical about the WSF. What are your thoughts on that, as well as the role the WSF should be playing given the current crisis? Given that across the world, even in pockets, even if it is fragmented and disorganised, there is growing resistance to capitalism, how do you see us building the transitions? Institutionally, politically, organisationally, in terms of a new internationalism – somewhere you called this the fifth international?

Well, this also relates to the question of the World Social Forum. I think the gloomy years were very short. The first half of the 1990s, from the breakdown of freely existing socialism, the move on the capitalist road by China. Then movements of resistance and of protest started again. Everywhere in the world, in the North and in the South, in the East and in the West. Because the consequences of the implementation of the so-called neoliberal – it’s not neoliberal, its ultra reactionary, full stop.

Whether it was growing pauperisation, growing inequality, growing unemployment, growing precariousness, etc., it’s only normal that the people started resisting and organising themselves and protesting. It’s also absolutely normal that the resistance and its beginning is one, fragmented; because everyone is fighting on the immediate front to which he or she is confronted. Two, that they remain basically defensive that they want to defend what was acquired before, whether in the North defending the social democratic welfare state or in the South defending land reforms or the rights to education, free public health and free education or against privatisation and all that.

Now, the World Social Forum came naturally as a result of that growing protest and resistance as a forum open to all movements of protest. I’m not negative about it. I’m considering that it is positive to the extent that we, the World Forum for Alternatives, existed before the World Social Forum and played a role in it and will continue to do so. But, we believe that this is not enough, and that the challenge is far more serious than many of the social movements believe. They believe that through their fragmented resistance they can change the balance of forces.

I feel that this is wrong. The balance of forces cannot be changed unless those fragmented movements forge a common platform based on some common grounds. We, the World Forum for Alternatives, call it convergence with diversity, that is, recognising the diversity, not only of movements which are fragmented but of political forces which are operating with them, of ideologies and even visions of the future of those political forces; and that this has to be accepted and respected. We are no more in the situation where a leading party alone was creating the common front with transmission belts, etc. etc. It’s very difficult building that convergence in diversity, but unless this is achieved, I think the balance of forces will shift in favour of the popular classes.

In India, there is a growing trend of religion playing a more strident and aggressive role in politics, often deciding its course. And there is, therefore, a growing shift towards the Right, towards greater social conflict and violence, towards the kind of fragmentation that we are seeing. We are also witnessing a marriage of convenience between this religious Right and the forces of economic globalisation. Where do you see the potential for democratic political forces to intervene in this, to bring some constructive political outcome?

That’s a very difficult question. My judgment on this political Islam, political Hinduism is very negative. They are reactionary. It’s not because they are religions. It’s because of the content. And they are manipulated by the ruling classes.

I don’t think that this political Islam, political Hinduism has been the spontaneous product of the popular classes. To a great extent, they are operated and mobilised in order to avoid the Left. With a view to creating a wall which prevents the Left from penetrating the popular classes. It’s an illusion. It has worked precisely because the political elite has lost its credibility and its legitimacy. And these forces appear as alternatives.

If we look within their programmes, these are not only socially and culturally, in most cases, reactionary but they are economically and socially reactionary. They accept, de facto, existing capitalism, existing imperialism, and they compensate their submission to them by creating an internal enemy. Whether the Muslims here, the Hindus there or the Christians elsewhere. And this is really dangerous.

Now, how do we deal with this reality? It’s not easy for the Left. It’s a real challenge. And the Left cannot just remain at the level of principles. To say that the alternative is a secular state which separates itself from religion is not enough. It has also to develop how the influence of those reactionary forces on the popular classes can be defeated. Through the Left moving into the masses to defend, not in rhetoric but in fact in action and through action, their real economic and social interests. This is the only way to marginalise the centrist and reactionary forces. As long as the Left is doing nothing within the popular classes, as long as most of their analyses and programmes are only on paper or in their political rhetoric, they will continue to be a marginal force. Nothing more than that.

Thursday, December 18, 2008

Saturday, December 13, 2008

China Engine of World Economy ?

JUST how worrying are the figures, published on Wednesday December 10th, showing that China’s exports and imports plunged in November? Exports fell by 2.2% last month from a year ago; imports plummeted by an astonishing 17.9%. One analyst sums up the news as “a shock figure”.

The gloom is spread all over the place. Exports dropped across all big traded goods and all parts of the world. Exports to America fell by 6.1%; those to the ASEAN countries, which had grown by 21.5% in October, fell by 2.4%. The faster decline in imports meant that China’s monthly trade surplus reached a record $40.1 billion. Exports last fell in 2001.

Such numbers would be nasty enough for any big economy, but they are particularly shocking because China’s racing trade has been an engine of world trade, and thus global growth. During the 1990s China’s exports grew at an annual average of 12.9%; from 2000 to 2006 that growth nearly doubled to 21.1% each year, according to the World Bank. China's rapidly rising imports have also driven growth elsewhere. The chief economist of a Chinese bank calls the latest figures “horrifying”.

The rapidity of the decline is as striking as its extent. Trade growth in October was similar to preceeding months; exports grew by more than 19% from a year earlier. A sudden drop in just a month has surprised even the most pessimistic economists. Some analysts point out that a global shortage of trade finance in November may have exaggerated the decline, but the Chinese juggernaut is definitely stumbling.

The consequences for the Chinese economy, which has seen dizzying rates of growth since economic reforms began in 1978 (growth in the 1990s averaged 10.5%), could now be dire. Its growth is unusually driven by its exports, which have made it the world’s factory. According to the World Bank, 27% of world GDP in 2006 came from exports (up from 21% in 1990). The corresponding figures for China that year show it to be particularly dependent on exports: 40% of its GDP came from exports in 2006, compared with 11% for highly open America and 29% for Britain. Thus the potential for a drop in exports to drag down China’s growth is correspondingly greater.

The World Bank’s latest growth predictions were released on Tuesday. These predict that the Chinese economy will expand by 7.5% in 2009, well under its own calculation of 9.5% growth that it reckons China needs to keep unemployment stable. But even these calculations may prove to be overly optimistic. The Bank’s prediction rests in part on the expectation that China’s exports will rise by 4.2% next year. In fact many analysts expect the slump in trade to continue and possibly worsen; UBS, a Swiss bank, predicts that Chinese exports will not grow at all in 2009.

Chinese workers, who are already restive, may find the new year increasingly difficult. Labour disputes almost doubled in the first ten months of 2008 and sacked workers from closed toy factories rioted. If export growth ceases entirely, and jobs are threatened, social responses could be more severe. An estimated 130m people have moved from the countryside to the cities, many for jobs in factories that make goods for export. Zhang Ping, the country’s top planner, has given warning of the risk of social instability arising from massive unemployment.

The latest trade figures also worsen the already gloomy outlook for the rest of the world. Some were counting on China to prop up the global economy, as much of the rich world falls into recession. Merrill Lynch had expected China to contribute 60% of global growth in 2009. But the dramatic fall in imports suggest that the Chinese can not be relied on to be the consumer of last resort.

Analysts at Goldman Sachs expect several more months of shrinking exports. Speculation that China will devalue its currency is rife, but this would have little effect if world demand is simply collapsing. The experience of South Korea is instructive: its currency has fallen by a third against the dollar this year, but this did not prevent its exports from dropping by 18.3% in November, compared with a year ago. Unfortunately, this may not be enough to deter the Chinese government from trying to push down the yuan, which has appreciated significantly on a trade-weighted basis.

Fiscal stimulus is much more important; efforts to boost domestic demand would help both China and the world. Most analysts expect announcements about new measures on top of the $586 billion package already announced. Interest rates and taxes are likely to be cut further.

Source Economist

Monday, December 8, 2008

Hillel Ticktin's editorial in the new issue of Critique


The most important ongoing event is the spectacular implosion of the
financial system and the ongoing downturn. We will be having a number
of articles on the subject in the next issue. These notes have
conducted a running theoretical and empirical commentary but we will
have more articles to supplement those in the April 2008 issue in the
next issue-due to come out at the end of January.

The Implosion of Finance Capital-Depression and Deflation

It is almost impossible to open a newspaper without some reference to
the historically important nature of our times. It is clear that we
are living through a period comparable to that of the Great Depression
in its political economic importance, even though it is unlikely to
reproduce its length, depth and misery. These same establishment
newspapers and journals find it necessary to defend and justify
capitalism as a system, when there is no important movement
challenging it. Marx is frequently quoted, both to support and
criticise capitalism.1 Nor is it only the media who are enamoured of
Marx and gripped with self-doubt. Bankers and other establishment
figures have excused themselves for not taking Marx seriously. Banks'
advice now includes the caution that Marx may be right about
capitalism collapsing under the weight of its own contradictions. 2
Although, we may assume that the authors are not entirely serious, it
is nonetheless a sign of the times.

Karl Marx appears then to have made a return from the grave to which
he had been assigned in the nineties. Marxism has been declared wrong,
irrelevant and worse for one and half centuries, only to return with
renewed force. The suddenness of the conversion was unexpected. After
all, far-left parties are marginal at best and detested at worst. The
economics profession is, as ever, pro-market. Why then has there been
this criticism of capitalism itself?

It was almost an orthodoxy that capitalism could always re-invent
itself. That has been repeated by the historian Tristram Hunt 3 He
points out that Engels had repeatedly expected a crisis to crack the
system. He derives his material from Engels' letters to Marx and
concludes that capitalism gets through its crises. There is no doubt
that capitalism is not at an end not least because there is no working
class movement for socialism. However, Tristram Hunt has missed the
point. We are now living in a period of instability, and the
instability is that of the system itself. When someone argues that
capitalism has survived, the question is always by what means. After
all, the system has survived through repression, imperialism, and war
as well as through the welfare state. We have never had a peaceful
capitalism in the developed countries, without exploiting peoples
beyond its borders. In the third world, the situation was and remains
dire, with certain exceptions.

It is not accidental that Marx can be quoted and that the system
itself be questioned by those at the heart of the system. This is in
part because those personages know the weaknesses of the system in
some detail but it is also in part because the Cold War is over and
Marx is no longer tarnished with the taint of Stalinism. It is of
particular note that these writers and commentators see capitalism as
a system even if they argue that there is no replacement. Once
capitalism is perceived as a system, its limitations can also be
discussed and then it is a short step to perceiving capitalism itself
as in evolution from its birth to its dotage.

Defence of Capitalism in the Downturn

The wave of questioning has led to three lines of defence. We are told
that in the end we will be back where we were before the downturn or
perhaps before the speculative rise in asset prices from 2004. Simon
Jenkins, a liberal commentator, has argued that all the discussion of
the limits of capitalism is just hot air.4 The failure lay in the
regulators and the politicians who removed the regulation or who urged
banks to extend their lending. Rationally considered, it can be argued
that the financial crisis was an accident of history caused by the
greed or incompetence of bankers or lack of regulation over a market
which has to be regulated in order to function properly. In fact,
there are three theses being put forward here.

Firstly, it is argued that capitalism is necessarily cyclical, but
eternal, and hence the economy will recover and be better than ever,
having learned its lesson. Secondly, it is maintained that the market
requires regulation and regulation was systematically reduced over a
period of more than twenty years, notably through the repeal of the
Glass-Steagall Act in 1999 in the USA, allowing commercial banks to
operate as investment entities as well as continue their everyday
functions.5 Thirdly, it is held that things might not have gone awry
had not a number of individuals been so greedy for ever higher
rewards. A fourth thesis could also be put forward. The contradictions
of capitalism are showing themselves but the system will continue as
long as there is no political movement to replace it. The first view
merges with the fourth. Much of the organised left effectively
supports the last view, having given up on the idea of capitalism
entering a systemic crisis. Tristram Hunt's argument fits in here.

Clearly, none of these arguments says much for the capitalist system
itself but then `the danger of meltdown' has been a constant refrain
in all the media. It would appear that both the capitalist class and
those who manage their operations have been seriously frightened.
Indeed, the two weeks that followed the nationalisation of the
mortgage companies was described in graphic detail in the media,
`Nightmare on Wall St' being probably one of the best headline.

At the same time, although there is no organised left of any
importance in the USA or Europe, the population is both worried and
angry. It is one thing for a factory owner to receive a subsidy but
another for bankers to be bailed out. Most people do not see bankers
as anything but parasitic, receiving huge salaries for receiving other
people's money and lending that money out at exorbitant rates of
interest. While financial capital is necessary for the capitalist
system to function, the dominance of finance capital and the huge
rewards it receives are a function of the present stage of capitalism
itself and that view is widely held. Outside of the Anglo-Saxon
countries, industrial capitalism plays a greater role and finance
capital is often resented. As a result, Finance Capital and its
functionaries see themselves as beleaguered, and in a fragile
situation, both because of the threat to their `business' and because
of a possible systemic threat.

The Implosion of Finance Capital - A Turning Point in History

In these notes, we have made the point that we are living through a
turning point in history6. Finance capital itself has imploded and as
the USA is the heart of finance capitalism, the dominance of the USA
as the controlling world power is in decline, without a successor. One
author writes that it is "inevitable that the Anglo-Saxon model of
unfettered capitalism that has dominated thinking for half a century
will be much diminished. What will replace it is unclear, but it may
well look more like a form of state capitalism - perhaps not
full-blown, but something much closer to Chinese capitalism than would
have seemed conceivable just a month ago." 7 However, it is clear that
that the USA will remain the dominant power and China will continue to
be dependent on it for investment, for technology and for the market
for its goods. Another writes:"The autumn of 2008 marks the end of an
era......... ...To invert Karl Marx, investment bankers may have
nothing to gain but their chains". 8

At this point, it is worth defining Finance Capital. Finance capital
is a Marxist concept, which is often misunderstood and insufficiently
theorised. It is defined as abstract capital: that is to say,
abstracted from its conditions and locality and hence automatically
global as opposed to industrial capital, which is confined to a
locality or a number of localities. It is financial capital become
independent and dominant over the process of accumulation. It is
unproductive of value and so must extract it from the productive
sector. It is predatory and parasitic in that it transfers capital
from where it is originally accumulated to itself. It then invests
where it can obtain the maximum return in as short a time as possible.
It therefore invests in unproductive areas like property speculation,
commodity speculation, equity and bond speculation as well in itself
–in derivatives of all kinds. It invests in industry but in so doing
it distorts the economy and industry in its own interests in order to
obtain maximum returns as soon as possible. It therefore has every
incentive to bend the rules, change accounting practices, and avoid
tax. In the present period, it has extended the practice of asset
stripping enterprises, the most obvious examples being given by
private equity. It avoids investing in innovations that require
long-term involvement, preferring industry that will give high returns
quickly. Even where industry does not borrow capital, the norm is set
by finance capital. In general, finance capital is global and so
dominated by the major economic power-the USA, with the assistance of
the UK, but not all countries conform to the same degree-witness
Germany and France.

In the 1970s, finance capital returned to its former role, replacing
industrial capital as the dominant sector of capital. The theory of
monetarism was its economic policy while so-called `neo-liberalism'
was its political-economic strategy. This was a deliberate shift in
order to contain the working class, who were demanding more control
over production, higher wages and better conditions. Industrial growth
shifted downwards, unemployment rose, the government found itself with
a fiscal deficit and so reduced welfare and other government
expenditures. The levels of unemployment were hidden by shifting the
long-term unemployed onto new categories. For example, in the UK, they
receive disability benefit, over fifties receive pensions and the
young go onto various training schemes. The reality is that the number
of economic inactive rose from around 1 per cent in 1970 to figures
lying between 10 and 20 per cent, depending on the years involved. On
the other hand, profits rose, and management incomes rose many times.
As is well known, income distribution has never been so skewed since
the Second World War. On the one hand, there were large sums of money
to invest but on the other hand, there were limited investment
opportunities. This was all the more so once the Cold War came to an
end. Official military expenditure in the US budget as a percentage of
GDP fell to well under half of what it had been in 1986 by 1997. The
Iraq and Afghan wars have doubled the figure of military expenditure
but the budgeted military expenditure as a percentage of GDP is still
not much more than half of what it had been in 1986.

The point of the last two paragraphs is to provide the background to
the current implosion. Apart from the flows of money coming from
pension funds and insurance companies, the rich and seriously wealthy
have had huge resources looking for an investment. The Swiss Bank UBS
has the largest total of `Assets under Management' of any bank- some
3.2 trillion Swiss francs. One estimate argues that there is over 500
billion dollars of money per annum, looking for investment coming from
the third world, apart from official flows. While the Chinese and
Japanese governments have accepted the need to put much their money
into US government bonds, private investors prefer to get higher
returns. The pressure, therefore, on the investment houses was
enormous, given the competition, which exists among them. Capital,
therefore, turned to investing in itself. We have given the figures in
the previous Critique Notes,9 but it is enough to note that the total
over the counter derivatives rose five times from 2001, while credit
default swaps rose from almost 1 trillion dollars to 62 trillion
dollars. The Dow Jones index of shares rose 7 times from 1987. There
was a huge asset inflation during this period of revived finance
capital. The house price rise in the USA and the UK was just one
aspect of this asset inflation. At the same time, the rewards to
finance capital soared: "As the financial industry prospered, its
share of the American stock market climbed from 5.2% in 1980 to 23.5%
last year".10

Derivatives became an arcane way of extending credit on a huge scale,
as banks could `securitize' their loans and so extend new loans.
Combined with the expansion induced by the Iraq War, there was a
short-lived boom on a global scale. It was global because finance
capital both invested capital in China, which then expanded industry
on a vast scale, and vastly extended worldwide credit. The increasing
US balance of payments deficit temporarily boosted third world balance
sheets and so left the IMF with a weakened hand. The vast expansion of
derivatives, particularly credit swaps, could only end in grief, given
the limited base. Given the static nature of real incomes, demand for
goods and services, and Chinese industrial goods in particular, could
only reach a ceiling and go down. Without an extended war, the system
had to crack. The fact that it did so over house prices was not
coincidental since they embodied both the derivative expansion and the
limit on workers' incomes

The Current Crisis and Its Denouncment

The fall of commodity prices, including oil in particular, preceded
the threat of meltdown. Oil had dropped by almost half from 147 US
dollars in July to 70 dollars in October. We have asserted over a
number of issues in these Notes that the impetus behind the rise in
prices was the same as the reason for the credit crunch and overall
downturn-the very- the large surplus of capital over areas of
profitable investment. Finance capital has turned to derivatives,
wherever it looked a possible haven, and so implicitly to loan
packages of various kinds, as well. While the press has been divided
between the viewpoint that shortages forced up the prices and the
impact of speculation, it has become known that the Federal Reserve
played a role in helping to bring down commodity prices11. It is,
therefore, clear that speculation played a crucial role in the price
rises, even if shortage had some part to play. The division between
the West Europeans and the Anglo-Americans over the cause of the price
rises ran exactly between those where finance capital was dominant and
those whose economies remained primarily industrial.

It has to be said that there was every indication that the US
government needed to intervene in the world economy in order to ensure
its own stability both internally and internationally. So much for the
market bringing order or stability. The nationalisation of Fannie Mae
and Freddie Mac has made this point very clear. It seems that the Bush
administration did not want to do it and so took longer than was wise
to put the two firms into conservation, as it is put. The fact that a
conservative administration has had to intervene in saving Bear
Stearns and the two mortgage wholesale enterprises plus AIG has been
justified by arguing that these are temporary measures. However,
commentators, like Martin Wolff in the Financial Times, have pointed
out that privatisation will take a long time and certainly not two
years. 12

It is possible that the subsequent threat of meltdown would not have
happened if the US Government had acted faster and had it also saved
Lehman brothers. It is clear that market ideology prevented them
acting until too late. In a sense, it was too late because the end
result has been an extinction of the investments banks combined with
the prospect of a tight regulatory regime, over partly or wholly
nationalised banks. Finance Capital will not be able to play its
previous role.

The subsequent passage of the Troubled Assets Relief Program (TARP) by
Congress was assailed as being socialist by the right and the left has
had much fun with the ultra-montane Congressmen, who saw freedom
coming to an end with the advent of `socialist intervention' . There
is, however, a serious side to their complaints, in that government
intervention does limit the operation of the market and so the
functioning of capital. It does lead to the growth of government and
so of bureaucracy under capitalism. Without question, this is a far
better solution than a deep downturn or a depression. At the same
time, Congress and the capitalist class are faced with a choice of two
evils, from the point of view of capitalism, but only seriously stupid
or blinkered politicians could want to cut their noses off to spite
their faces, and refuse to bail out the banking system, so
precipitating a possible repeat of 1929.

The Effects of the Solution

There are two results that follow here. The first is the question of
ideology. The doctrines propounded by finance capital going under the
name of `neo-liberalism' now look dated at best and a failure at
worst. The market does not know best and in fact would collapse
without government intervention. As the downturn is likely to last
several years with further government intervention quite certain,
these issues will continue to come to the fore. Governments have been
pushed to intervene and will continue to be forced to intervene to
help those evicted from their homes and those living in fuel poverty,
while continuing to nationalise banks and probably industrial firms,
as well as to prevent a systemic collapse. Countries, particularly
those in the third world, will have to be helped to survive both for
their own sake and in order to avoid a domino effect.

Commentators talk of the socialisation of risk and the privatisation
of profit. In fact, this has always been the case, but the absurdity
of the Thatcherite claim that you cannot buck the markets has brought
reality to the fore. As the downturn continues, we might expect
`market fundamentalism' and even the concept of `lassiez faire' to
lose their dominance. Keynesianism has returned, at least in name. Sam
Brittan, a deputy editor of the Financial Times announced that:

"There will be no "glad confident morning" for free-market
principles for a long time to come."13

The second question concerns the extreme nature of the dangers facing
the capitalist system. Again, it is clear that without the
nationalisation of the two mortgage companies and AIG there was a risk
that many non-US banks, who had invested in these companies, would be
in grave trouble. Given the fact that banks, like the Swiss bank, UBS,
had already suffered huge losses this could tip them over the edge.
This situation would apply to hedge funds and other financial
institutions. The danger to the system as a whole was considerable and
had to be quickly dealt with. In fact, it took some time for the
government to make up its mind, and for Congress to pass the
administration' s preferred bill, so prolonging the risks and the
agony. The nationalisations combined with the proposed government
purchase of `toxic debt', supply of money to the money markets and
further purchase of shares in troubled banks have steadied the world
monetary and credit system for the time being. If the US government
had followed the advice of its right wing and let the market take
over, then the crash of 1929 would have looked like a picnic. Engels
dictum that every crisis is worse than the last would have been
proven. The failure to pass the initial bill had led to precisely such
fears: "Terrified of a catastrophic Wall Street meltdown, the House
Friday approved an unprecedented $700 billion bailout bill - and
President Bush quickly signed it into law". 14

Keynesianism and Social Democracy

While commentators may accept criticisms of capitalism, they remain
bound to the system itself. Will Hutton speaks for them when he argues
that the issue is not capitalism itself but the necessity of a fairer
and more redistributive form.15 However, the capitalist class will not
willingly return to the social democratic form of the immediate
post-war period, as it would be far too dangerous to the system
itself. Full employment, a high rate of growth, a rising standard of
living, free health and education and affordable housing provide a
springboard for the working class to demand greater control over its
own life, better working conditions and higher wages. In Marxist
terms, the abolition of the reserve army of labour and the removal of
the fetishism of the commodity leaves the system without control over
labour. It only worked in that period because the working class had
come through a much worse period of fascism, depression and war and
was still contained within a Cold War.

The frequent references to `moral hazard' indicate that that the
ideology of the market remains. The fact that dithering over
nationalisations due to worries around the `moral hazard' involved has
receded shows that market ideology is losing some of its hold.

The strategy of Finance Capital has gone into meltdown and there is no
replacement. We are at the end of the beginning of this downturn. The
next phase involves declines in industrial production, and overall
profits and a large rise in unemployment. Governments are talking of
investment in infrastructure. Will Hutton points out that it makes
sense to raise unemployment benefit.16 At the same time, contemporary
economic ideology dictates a balanced budget or at least the lowest
possible deficit. There is no question that governments could pour
money into the economy, nationalising failed concerns where necessary
and so limit the downturn. However, the concept of workers' wages
being raised in order to increasing spending power is unlikely to be
endorsed, as it would obviously reduce profits not just immediately
but for some time in the future.

The Military Solution - A New Cold War?

The usual alternative of increasing military expenditure is not an
option at this time because of the failure of Iraq war and the absence
of a Cold War. It is possible that the sabre rattling over the Russian
invasion of Georgia was seen as an alternative rallying point, raising
the spectre of a new Cold War. However, the idea that modern Russia
could conduct a Cold War is so absurd that one wonders whether the
British and US foreign offices knew what they were doing. Russia today
is a weak power. Its troops went into South Ossetia, in Georgia, in
large part because of its weakness. Its Southern borders are
permanently unstable. Chechnya remains under occupation there. The
Russian elite took the opportunity to raise its standing among one
section of the population in that area and warn off the rest. No doubt
the Russian elite harbours expansionist tendencies but that does not
mean that they are about to invade former Soviet countries. Russia's
military forces and thermo-nuclear weapons are not those of the USSR.
They have been run down and the military personnel remain demoralised.

The strong stand taken against Russia directly conflicted with Western
aims in the area of the former Soviet Union. Hitherto their aim has
been one of helping to remove the remnants of Stalinist forms and
replacing them with the market. Since that has turned out to be an
elongated and possibly unsuccessful process, Western governments, or
the capitalist class, have every interest in encouraging Russian
governments to participate in global market forms. Instead, there were
demands that Russia not be admitted to the World Trade Organisation.
Since the dominant section of the Russian elite does not want to join
the WTO, and is being pushed by the more liberal section of the
Russian elite as well as by the West that demand seemed absurd.

The Western campaign did lead to a massive outflow of money from
Russia. When the financial crisis emerged Russian finance capital was
badly hit. With the continuing decline in prices of raw materials, the
Russian economy will be in more trouble than most countries, other
than Iceland, to which it is, paradoxically, giving a loan. There is
every probability that at the end of the downturn Russia will have
achieved a more substantial return to state control of the economy.

Depression or Recession

What the downturn will now be called is a question of economists'
vanity. For some time, downturn was used rather than recession. Then
recession became acceptable. Today the question is whether one can
call this downturn a depression. In any reasonable discussion, it
would be called a depression, since the word recession was invented to
avoid the odious associations of a depression, of unemployment, hunger
and suicides but did not add any more meaning to the discussion. After
all one can have a shallow depression and a deep depression. Today
there are discussions whether the recession will be shallow or deep,
with many opting for the latter. As Paul Krugman noted:

" Just this week, we learned that retail sales have fallen off a
cliff, and so has industrial production. Unemployment claims are at
steep-recession levels, and the Philadelphia Fed's manufacturing index
is falling at the fastest pace in almost 20 years. All signs point to
an economic slump that will be nasty, brutish - and long"17

One may add that the upturn, when it comes, is likely to weak.

As there is no comparison with any other downturn other than the 1929
depression it is clear that we are in a classic depression, with
somewhat more spectacular fireworks but with much more government
intervention. Whereas the downturns in the last century after the last
World War were largely a result of anti-inflationary measures, the
downturns of March 2000 and August 2007 are a result of surplus
capital not finding a profitable outlet.


1 One of many instances is that of John Plender: "Shut Out" in the
Financial Times, 18-10-2008, p.11, in which cites a very pertinent
paragraph from Marx: "Karl Marx was wrong about many things, but in
1893 he provided as good an account of today's financial implosion as
any living commentator. "To the possessor of money capital, the
process of production appears merely as an unavoidable intermediate
link, as a necessary evil for the sake of money- making. All nations
with a capitalist mode of production are therefore seized periodically
by a feverish attempt to make money without the intervention of the
process of production."

That passage from Das Kapital is a fine description of the
financialisation of the economies of the English-speaking countries in
recent years and of the resulting credit bubble." Das Kapital first
appeared in 1867, as is well known, and Marx died in 1883.

2 Eye on the Market - A commentary written for JPMorgan clients by its
Global Chief Investment Officer Michael Cembalest and Private Wealth
Management Chief Investment Officer Hans Olsen, New York: JPMorgan, 7
October 2008, Paragraph 6. "How will we ever get out of this mess?"

"Most of our professional careers were spent watching global central
banks fight (and then win) a battle against inflation. The tragic
irony is that if nothing is done to prevent this credit spiral, those
inflation gains will be for naught, with economic activity crumbling
in a deflationary spiral. The stakes are high, with each region having
its own visceral memories of what it's like to get it wrong. For the
U.S., the Depression of the 1930's. For Japan, the 15-year deflation
of the 1990s. Instead of history, the greatest fear for Europe might
be that Karl Marx was right: that capitalism is a system doomed to
destroy itself through its own internal contradictions. So to answer
the question, I think that global consciousness has been rudely
awakened: while the decision to build a market economy based on
massive amounts of debt was left to the private sector (see second
chart below), the consequences of unwinding it cannot be. The flurry
of public sector activity in the last 12 months and 12 days suggests
to me that by the end of the year, we will see more explicit plans to
safeguard the surviving banks, which will mark the beginning of the
long road back."

3 The Guardian, London, 20th September, 2008. Tristram Hunt.

4 Simon Jenkins: "The end of capitalism? No, just another burst
bubble.Those drooling over the free market's collapse are wrong: this
passing crisis is down to lax regulation and craven ministers"
Guardian, 15 October 2008, p.29.

5 A short history of modern finance, Link by Link, Economist, 16
October 2008, p.96-98

6 Critique Notes, Critique 44, p;1-4.

7 Andrew Graham, 'If China spends its trillions, recession could be
averted', Guardian, London, 15 October 2008, p.28:

8 A short history of modern finance, Link by Link, Economist, 16
October 2008, p.96.

9 Critique Notes, Critique 45, p.172.

10 A short history of modern finance: Link by Link, Economist, 16
October 2008, p. 97.

11 This report refers to the July 11th 2008 decision to support Fanny
Mae and Freddy Mac.

According to Mr. Coxe, the Fed's ultimate goal was to trigger a rally
in financial stocks, which would, in theory, help banks hammered by
the credit crisis raise fresh capital and repair their balance sheets.
To accomplish this, the decision to support Fannie and Freddie was
deliberately announced on a Sunday, which had the effect of maximizing
the reaction from thinly traded financial stocks on overseas markets.

Because many hedge funds were using massive leverage to short
financials and go long on commodities, when North American markets
opened and banks initially rallied, the funds were forced to cover
their short positions.

At the same time, the U.S. dollar was rallying because the risk of
holding Fannie and Freddie paper had diminished. The rising dollar, in
turn, made commodities less attractive, giving funds that were already
scrambling to cover their financial shorts another reason to dump oil,
grains and other commodities.

The losses were swift and dramatic. On the Friday before the July 11
announcement, crude oil closed at $145.18 a barrel. Over the following
five days, it plunged 11 percent. "Leverage was being unwound
dramatically, " Mr. Coxe said on a conference call last week. "We had a
true panic."

As oil and other commodities were tumbling, fears about the slowing
global economy were mounting, giving resources another push downhill.
This was also in keeping with the Fed's wishes, because lower
commodity prices would help quell fears about inflation.
http://ftalphaville 2008/09/11/ 15798/the- fed-is-long- financialsshort- commodities/
Accessed 11 September 2008.

12 Martin Wolff: Financial Times, 10 September 2008, p.2.

13 'Capitalism and the credit crunch' By Samuel Brittan, Financial
Times, 11 September 2008 18:33, Last updated: September 11 2008 18:33
http://www.ft. com/cms/s/ 0/b1e7adb2- 801a-11dd- 99a9-000077b0765 8.html?nclick_ check=1

14New York Daily News,
http://www.nydailyn 2008/10/03/ 2008-10-03_ house_of_ representatives_ passes_controve. html
, accessed 5 October 2008.

15 Will Hutton, Observer, 19 October 2008, p. 29.

16 Op. Cit.

17 Paul Krugman: 'Let's Get Fiscal', New York Times, 17 October 2008.