Paper, Scissors, Tiger, Dragon.

1. Dragon

Faced with the dramatic decline in direct foreign investment [26% Jan-Feb 09 vs Jan-Feb 08], declining exports [-21% Jan-Feb 09 vs Jan-Feb 08], declining profits [as much as -50% in shipping and containerization], China announced a stimulus program of some 4000 billion yuan aimed at creating a domestic market capable of absorbing and reproducing surplus accumulation at a profitability sufficient to ... well, to absorb and reproduce surplus accumulation beyond the existing limits of the world and domestic markets.

2. Scissors

Capitalism achieves what it achieves in all its glorious misery and vice-versa, by separating the means of labor from the conditions of labor-- by reproducing the classes that give its dead weight life. While capital, to exist as capital, requires access to wage-labor, wage-labor itself can only exist throught its dispossession, its detachment from the means of production so that the labor appears as useless save for its value in exchange for wages, in its exchange with capital.

It is dispossession that creates the domestic market-- the dispossession, the expulsion, of wage-labor in the production process and the dispossession of the subsistence agricultural producer. All of capital's "productivity" amounts to dispossession and expulsion.

Now what capitalism is compelled to do by its internal, abstract organization, and what it actually does do in the concrete conditions in which it finds itself enmeshed are more than two different things . They are two different things that are one and the same. Whatever conflict capital finds with the already or pre existing property relations, becomes the conflict within itself, with its organization of production as private property.

Whatever the limits, constraints capital encounters in its need to cut the ties that bind labor from land, to access detached labor; whatever the obstacles capital finds to its need to distinguish the laborer from the instruments of production through the wage form, obstacles that exist in the plantation, the hacienda, the manor, the great house, capital recognizes itself in those limits and obstacles. Value, the "as if" quality of the commodity-- as if value exists as a quantity, a thing, and not a relation, as if it possesses a life of its own and does not expropriate the lives of others, as if behind every "free market" there wasn't a death squad-- finds an image of itself, projects an image of itself unto every product obtained through every form of exploitation and brought to market. It, capital, bestows the as if quality through exchange onto all those products, treating them as if they were commodities, as if they were produced by wage-labor.

And the as if quality of value is conveyed also to the products of small-scale individual production, "subsistence +" production.

While the hacienda, the plantation, the manor, the great house and subsistence production cannot and do not create capitalism, capitalism can and does recreate the hacienda, the plantation, the manor, the great house. Capitalism can and does absorb all these forms in the limits to its own expansion, namely private property and profit. At the same time, capital is compelled by its own organization to interrupt that transformation, as it interrupts itself and its accumulation. Capital is compelled to undermine all of these forms of property as it undermines itself.

History is not a "on the one hand, while on the other hand" process. History is co-incident processes. If Marx and Engels played the card of capital's revolutionizing the method and relations of accumulation-- the card that had capitalism bequeathing to the workers the whole world, albeit in market form; the card that had capitalism abolishing all other modes of accumulation; the card that melted all that was solid into the quicksilver streams of credit, finance, circulation; the card where the land itself had been capitalized with all living labor minimized, and all the minimized labor transient-- history itself had another card up another sleeve. And that was the card of capital bequeathing to all of humanity its inability to effect the transformations of land and labor. History held the two-faced joker. One face-- the hacienda, the plantation, the great house. The other face-- small scale subsistence production. Both faces-- labor tethered to the land; capital unable to realize itself quickly enough, massively enough with more than enough wage-labor.

So for more than a century, in more than one country, the struggle for the emancipation of labor has been burdened, buried even, by this inability. This failure gets identified at various times as "uneven and combined development," "the land question," "the role of the peasantry," and most often, "the unfinished tasks of the bourgeois revolution."

Well, first things first. The only task of the bourgeois revolution is to secure the opportunity for the bourgeoisie to turn a profit. There is no other task as important, as essential, as bourgeois, as that. Economic development, "free" soil farming, "free" labor, are at one and the same times extraneous and inherent, accidental and essential to the bourgeoisie's political power. These are items to be negotiated, compromised, bargained down, in the name of order and property if the price is right.

The struggle for the emancipation of labor from wage-labor, however demands, requires the struggle to emancipate the land itself from private property, to transform it [and in some instances restore it] as the basis for social production; not as an instrument for exchange, but as the platform for satisfaction of need.

Consequently, the revolutionary impulse itself is profoundly anti-bourgeois as it confronts capital's recreation of the conditions of "unfree labor," of labor impoverished by scarcity, deprivation. Any "unfinished tasks" are the finished products of the world market. In reality a revolution can only become bourgeois in its defeat.

3. Tiger (uneven)(combined)

China's growth the past three decades has been based based, not on Deng's "four reforms," but on a triangle of cheap labor, foreign direct investments and exports. If clothes make the man, the metrics by which an economy is measured, tailored, fitted, dressed, and turned out , make that strategy look so g-o-o-d.

Contracted foreign direct investment since 1984 amounts to more than $1.2 trillion. Utilized FDI [the amount actually deployed] exceeds more than $700 billion. Sixty percent of the FDI has been dedicated to manufacturing. Twenty percent to real estate.

In 2000, half of FDI funds were invested in electronics and telecommunications manufacturing, with FIEs accounting for 72 percent of total output

In 2007 the FIEs account for 30 percent of gross output, 11 percent of jobs, 57 percent of trade.

The impact on international trade has been massive, with the companies created by the FDI, called foreign invested enterprises [FIEs] accounting for approximately 56 percent of China's exports and 56 percent of its imports, and 86 percent of high-tech exports in 2008.

While the leadership of the CCP has achieved success in recasting industry in the image of the great helmsman, Milton Friedman, the transformation of agriculture has not been quite so substantial. Certainly, gross agricultural output has increased. Total government expenditures on agriculture quadrupled in the ten years between 1997 and 2006. Rural consumption of electricity doubled between 2000 and 2006. Total power of agricultural machinery doubled between 1995 and 2006. Driven by the increased focus on dairy and meat farming, the area in production spiked 40 percent between 1995 and 1996, falling back some 8 percent between 1996 and 2006.

Grain and rice production remained fairly level between 1993-2006, with the farming of "cash crops," fruits, vegetables, meat, and dairy increasing substantially in the latter part of that period.

The gross output [measured by value] of agriculture, forest and fisheries increased 17 percent between 1998 and 2003, spiking 21 percent between 2003-2004, and increasing another 30 percent to 2007.

Impressive numbers to be sure, but not so impressive when analyzed on the basis of labor productivity.

Agricultural employment peaked in 1991 at 391 million, falliing back to 325 million in 2006, a number that exceeds the number employed in 1984, 1985, 1986, 1987.

In 2007, China had 301 million acres under cultivation. By contrast, the United States had 406 milllion acres in production. US agriculture employed 2 million compared to China's 300+ million. For that year gross agricultural receipts per worker in China measured approximately $2000 compared to $170,000 per worker in the US.

Total portion of the population living/working in rural areas in the US measures 3 percent compared to China's 40 percent.

Average area cultivated per agricultural worker in China amounts to 1 acre or less; in the US 194 acres.

The expansion of agricultural output in China has not altered the basic configuration of rural property and production from the forms that the Chinese Revoluton inherited and proved so incapable itself of altering.

Chairman Mao to the contrary notwithstanding, the history of China, in particular the history of agricultural production relations, does not give evidence of an emerging "incipient" capitalism throttled in its crib by imperialist penetration.

In his studies of agriculture in China, The Peasant Family and Rural Development in the Yangzi Delta 1350-1988 and The Peasant Economy and Social Change in North China, Philip C.C. Huang concludes that much of China's agricultural production is characterized by involution, through which productivity of land is maintained and even improved through the application of greater amounts of labor. The productivity of labor actually declines. Yields then increase with the increase of population only through increased labor on small, and shrinking plot size as plots are divided and sub-divided to accommodate the maturity of children in the farm families. Production itself remains tied to the needs of family subsistence, or "subsistence +" production. While landlords, emperors, taxes, and rents took advantage of the fragmented and atomized nature of rural production, involution was itself inherently resistant to any change in the patterns of land-tenure.

Historically, then, increased output has been achieved through increased labor intensity, increased land "productivity" through multi-cropping, inter-cropping, at the expense of labor productivity. One of the impacts of this agricultural involution on China's development was that the continuous overavailability of labor that preserved small-scale farming, that allowed output to increase with population increases, also supported a commercial network of home industry, market exchanges, rents, and sub-contracting both land and labor that inhibited capitalist penetration of the countryside. With home industry involving less fixed cost, with surplus labor available at rates far below rates in urban areas, with subsistence preserved through increased labor application, that sine qua non of capitalism, the detachment, dispossession of labor from the land, from the means of its own subsistence, its ability to create the conditions by which it could aggrandize labor as wage-labor and expel wage-labor from production was unattainable. Capitalism couldn't compete.

So....so it is not the fact that agricultural output hasn't increased in China since the advent of the "household responsibility system." It is the fact that such growth has not transformed agriculture from small-plot "subsistence + surplus" production, to one of capitalized production, where the land itself has value only in its production of exchange values. It is not the fact that growth has not occurred, it is the fact that such growth is limited by the physical, that is to say, the social organization of production, and that China is coming to the end of a cycle based on the existing organization of land and labor.

An indication of this obstacle to agricultural expansion is the change to the agricultural data of 2006 that was originally reported in China's 2007 Rural Statistical Yearbook and revised by the 2008 Statistical Abstract. In that revision, almost all the metrics-- gross output, sown area, output, animal inventories, slaughter, meat output, aquaculture products-- measuring the individual items in the 2006 agricultural sector-- crops, livestock, forestry, fisheries-- were revised substantially downward for that year 2006. Of course, this allowed the 2008 Statistical Abstract to report a number of increases in the same metrics between 2006 and 2007, some substantial, some modest, but that's the beauty of statistics.

4. Paper (tiger)

With the reduction in exports and imports beginning in 2008 (continuing through 2009), China announced its stimulus program of 4 trillion yuan, aimed at turning production inward, creating a modern infrastructure of road and rail linking city to city and city to countryside, and tapping the forced savings of the rural population to support the expansion of domestic production of durable and consumer goods through increased consumption. A domestic market is to be created to replace the shrinking market of international trade.

The backbone of the stimulus program has been the expansion of lending by regional and local banks.

Again, China has posted impressive numbers, reporting increases in industrial output, and raising its estimated GDP growth for 2009 to nearly eight percent from earlier estimates of six to 6.5 percent. Inflows of foreign currency and China's purchase of US Treasury instruments have increased.

But the domestic market? Capitalism does not reproduce nor expand though consumption. It expands through capitalization, through the exchange of values. Capitalism, in China as everywhere else, can only establish a powerful domestic market through the capitalization of agriculture, the dispossession of labor from the land, so that capital can exchange itself profitability with wage-labor, and through relative expulsion of wage-labor from production, which we call labor productivity. If such productivity does not exist in agriculture, the domestic market cannot be expanded. If capital cannot exchange itself profitability enough with dispossessed labor, then the expansion of capital does not occur.

China cannot establish its domestic market without massive dispossession of the rural population and concentration and consolidation of land under cultivation. To do so, however, unleashes the class warfare so dangerous to the capitalization of land itself, to private property. To do so when the profitability of industrial production is declining, when millions of migrant laborers have been forced back to their villages, threatens both private and state property.

In the first half of 2009, China's banks have lent 7.4 trillion yuan. This is twice the amount lent for the entire year 2008. Estimates are that total loans for 2009 will approach 10 trillion yuan. There is no way such rapid increases in lending can be achieved without the radical reduction in standards of "credit-worthiness," without declines in the quality and quantity of collateral supporting the loans. This should ring a bell everywhere around the world. And the bell rung is called a bubble.

In the second quarter 2009, foreign currency inflows exceeded export earnings and foreign direct investment flows. The difference is the so-called "hot money" that flows into the stock exchanges, into certain real estate transactions, into financial plays. The hot money exerts on China that same pressure for convertibility of the currency exerted by international trade and foreign direct investment, but in a more virulent, liquid, form. China's complaints and concerns about the stability of the US dollar, the suggestion of a special drawing right system to replace the dollar, its worries about the value of its US Treasury holdings, are direct reflections of the increasing pressure for direct convertibility. Such convertibility will expose China to currency fluctuations outside its control, and to attacks on the yuan based on declining profitability, demands from the FIE's for hard currency to repatriate profits, and capital flight.

In this cage, caught between internal class struggle and the demands of the world markets, it is China, despite its holdings of $2 trillion in foreign currency instruments, that finds itself to be the paper tiger.


S. Artesian, July 21, 2009

address all comments to: sartesian@earthlink.net

While We're Waiting...

...for the other shoe to drop, or for me to get on with the analysis of China, I thought I would divert myself, and hopefully others, with the following items from the daily papers:

1.Those of you, us, who think overproduction-- not to be confused with underconsumption-- is the source of capital's current, and repeating, predicament will be interested in the NYT article on Micron and the semiconductor industry, available at: http://www.nytimes.com/2009/07/06/technology/business-computing/06micron.html?_r=1&ref=technology

A couple of juicy bits:

"The seeds of the industry's current financial straits were sown in 2006 and 2007, when memory makers went on a capital spending binge to expand capacity, said Jim Handy, a director of objective analysis, a chip industry research firm. "It takes two years from spending before capacity reaches full volume production, so the onset of the overcapacity was in early 2008, two years after the 2006 spending spree commenced...

As a result of the upheaval, the industry's capacity has shrunk about one-third, although some of that will eventually return..."

And my personal favorite:

"This is a horrible, terrible business that no one should be in, the way it's organized currently... You get some incremental profits for a little while, then everybody moves in and there's oversupply again."

Gee, sounds like something we could say about all of capitalism, doesn't it?

2. Stop Me If You've Heard This One Before. From the 6 July Financial Times:

Barclay's Capital has come up with an innovative way of reducing capital costs and capital requirements of their banking operations. In a burst of originality, BarCap decided to pool assets from several client into a secured financial product [which means backed by collateral] to be rated by a credit rating agency and then sold to other investors.

BarCap protested that no, no this new product was not the same-old, same-old CLO, CDO, ABS type of junk as before, because in this product, there was no securitization of new lending, just the securitization of the already existing assets on the bank's books.

So...so the assets [loans,debts] that the banks originally spun-off their books in order to maintain capital requirements; that they were then forced to back onto their books after values of the underlying assets plummeted and everybody was a counterparty and everybody was ready to sue, will now be packaged into special investment vehicles, rated by Moodys or S&P, and sold to ...

Oh, there's a sucker born every minute I guess.

Here's what I think the banks will try-- to spin these derivative products into the Treasury's TALF-PPIP program that has been such a stirring failure. In this way, the banks won't have to record a loss on the market-value of the underlying assets, and everybody get's to pick the public's pocket again.

7 July 2009

address all comments to: sartesian@earthlink.net

Papers, Dragons, Tigers, Scissors

1. Reasons To Be Cheerful

Speaking of blockheads, with or without Ian, on April 1, 2009, the US Federal Reserve, the US Treasury, and the US Federal Deposit Insurance Corporation-- that's Ben, Tim, and Sheila-- issued yet another in their line of joint get-happy-feel-good-the-worst-is-over-make-a-wish communiques designed to put the greed back into the fear and greed economy. Like all previous, and subsequent, communiques, this one was designed to prove that Ben, Tim and Sheila were no ordinary Toms, Dicks, or Harrys-- that they, Ben, Tim, and Sheila, knew what to do, how to do it, and when to do it; that they, Ben, Tim, and Sheila, were from the government and they were here to help us.

So standing shoulder to shoulder, the three proclaimed that henceforth now and forever April 1 would no longer be known as "April Fool's Day," but rather "Enlightened Responsible Patriotic Investors' Day," or for the sake of brevity, simply "April Bigger Fool's Day." April 1 would receive an upgrade, a "retention bonus' of a sorts, from a day of small pranks and minor deceptions to a day of gigantic tricks and spectacular deceptions, ranking second only to July 4th in the hierarchy of national holidays, and the refuge of scoundrels.

The announcement was hardly unexpected. More accurately, the announcement was overdue. After the creation of the Primary Dealers' Credit Facility, Maiden Lane LLC 1 and 2, the AIG Residential Mortgage Backed Securities Facility, the Term Security Credit Facility, the Asset Backed Commercial Paper Facility, the Money Market Investment Funding Facility, the Commercial Paper Funding Facility, Maiden Lane LLC 3 [the AIG Collateralized Debt Obligation LLC], the Term Asset Loan Facility...

After the Treasury's creation of the Troubled Asset Relief Program made up of the Capital Purchase Prgram, the Systemically Significangt Financial Institute Program [also known as the AIG program], the Targeted Investment Program, the Automotive Industry Funding Program, the Citigroup Asset Guarantee Program, the Homeowner Affordability and Solvency Program, the Credit for Small Business Program, the Automotive Supplier Support Program, the Capital Assistance Program, and the feather in this floppy-brimmed hat, the Public-Private Investment Program supplemented by the Legacy Loan Program...

After the FDIC's Temporary Liquidity Guarantee Program, and finally, after the ultimate, the program of programs-- the FDIC's quarantee of debt issued by the PPIPs participating in the FRB/UST TARP, TALF, TSCF, ABCPF, CPFF, Maiden Lane, LLP, programs, purchasing the troubled asset, legacy loan, asset backed, special investment vehicles of the banks so that every $1 of equity capital provided by private investors, matched of course by the public dollars, could be leveraged into $6, $12 of publicly guraranteed debt paid to the banks for taking over assets for which there was no market.

After all that, after that blizzard of acronym's that when read aloud sounded like the work of Gertrude Stein as interpreted by the Department of Defense, how else to celebrate the efforts of the few who have taken so much from so many except with a holiday? How else for the Fed, the Treasury, the FDIC to honor themselves as the biggest of the bigger fools? Happy Fools Days were here again, or just around the corner. For sure.

The government's show of holiday spirit was quickly embraced by those non-governmental bodies of standards, measures, weights, and thumbed scales. The Financial Accounting Standards Board revised its once lauded now dreaded mark-to-market rule to allow banks to list their SIVs, CDOs, CLOs, CMOs, ABSs, CMBSs, at notional, face, values rather than market values, thereby avoiding the irritating, exasperating, embarrassing, and troubling aspect of troubled assets-- that is the fact that there was no market, there was no need, no use, for the securities, thus there was no exchange, there was no value.

Bankers, fund managers, financial analysts, breathed a collective sigh of relief, offset of course by a sudden gasp from the bankers, fund managers, financial analysits, who were counterparties with counterpositions in these very same SIVs, CDOs, CLOs. CMOs, ABSs, CMBSs.

In fact, some bankers, fund managers, financial analysts didn't know whetere to breathe in or out, being at one and the same time on the same and different debt instruments, party and counter-party, with positions and counter-positions. Hyperventilation appeared as the only rational option.

The decision of the FASB was not likely to provide much relief to the financial institutions on either side of the debt instruments. Rather, the revised standard merely codifies what has been the market truth for over a year. The relief that the banks will obtain will be, like the assets carried on their books, impaired, and will in fact, work in oppositions to the clearing of troubled assets from the banks' balance sheets; will hinder the liquidation of illiquid instruments.

These debt vehicles are, first and foremost, derivatives, representing not value, but the image of the value of an underlying asset or pool of assets; representing the image of the exchange of property. That image of implied, imputed congealed substantive value of a parcel, a unit of ownership, of property, is debt. That image, that reflection that is a claim on value, allows debt to pose, represent, substitute, as value in the markets, that allows debt to be considered an asset.

All of these sophisticated, complicated, structured, tranched, layered, tiered investments exist only to be traded. Market velocity, the turnover of these instruments either through direct sale and purchase, or through further collateralization, functioning as security for other similar vehicles is the only mechanism for the image of value to achieve even a Mayfly's moment of earthly existence.

These are, after all, collateralized instruments, with terms, restrictions, obligations, covenants attached requiring the posting of specific, and increased, amounts of actual property, should the market value of the instrument, or the ratio of the face amount of the debt instrument to the valuation of the underlying assets, deteriorated. In establishing its non-mark-to-market rule, the FASB enshrined the dis-integration of asset from value and the impossibility of the reproduction of value.


Next: Part 2, China Moon

Was, Not Was; Is, Is Not 2: Political Economy's Last Stand

Leading Economic Indicators

1. The Singers, the Songs

So... it comes down to this on the way down to the way down below the lowdown-- over here, in front of the TV cameras, the bankers, financiers, the brokers, all of them pointing fingers in every direction but home, shaking their heads in a hundred different rhythms, rolling their eyes in asynchronization, but singing with one voice a drop-dead imitation of Shaggy-- "It Wasn't Me."

And over here, after the cameras are turned off, and the mikes killed, and the committee men and women have left the platform, then the bankers, financiers, brokers, all of them grabbing at the same time with every hand outstretched, all of them channelling Wreckless Eric, singing "Take the K.A.S.H," off-key of course, which is exactly the point when singing Wreckless Eric.

2. Hair[cut]s of the Dog

And it comes down to this too, that the Chairman of the Federal Reserve System, nostalgic for those salad yesterdays days of capital liquidation, that golden era of asset stripping, that happier time when dissolving hard assets in the acid bath of leverage was so innovative, has committed the Fed to lending money at leveraged rates of 10 or 20 to 1 to private equity investment firms, hedge funds, brokers, for the purchases of securities backed by the cash flow from student loans, credit card debt [prime and subprime], auto loans [prime, subprime, and floor plan], and small business loans backed by the US Small Business Administration.

In short, the Fed will take onto its balance sheet those ever reliable, highly regarded, tranched asset backed securities; those always popular collateralized debt obligations; the AAA-rated good-as-gold no risk structured investment vehicles which for some absurd reason can't find buyers in the free and rational marketplace where the wisdom of the invisible hands supposedly always weighs things out just so, always assigns just the right value to the right commodity, always provides the right reward to the right risk.

The Fed will offer its, your, cash at par or market value of these securitized loans, minus a haircut of course, to anybody and everybody with a minimum of ten million dollars worth of the securities; the Fed, with commitments from the US Treasury, will offer these loans at the LIBOR rate plus 50 or 100 basis points, for three years, with the collateralized securities themselves the only collateral the borrower need provide-- in effect, allowing the borrower to walk away from the securities with the K.A.S.H. at any time, for any reason, without any recourse on behalf of lender-- the Fed.

So as not to frighten our intrepid financiers from this pot of gold in the middle of the black rain, participants in the TALF will not be subject to the limits on executive compensation that the Congress so thoughtlessly, callously, cruelly imposed on those taking the public's money.

Obviously, the latest version of Federal Reserve monetarism is derived from both the sophistry of Milton Friedman and the legendary larceny of Eddie Antar retailing stereos and VCRs to New Yorkers in the 1980s.

At 2 Maiden Lane in New York City a banner appeared over the Fed's battery of special lending windows: " Welcome to Crazy Feddie's. Prices So Low, We're Practically Giving It All Away! Our Prices Are INSANE!"

When the immanent critique that capital is of itself overtakes the process of accumulation, when the shadow overtakes, actually becomes the substance, the plans and programs for recovery stumble, falter, freeze rather than float, suspended in time while time runs out.

The Fed failing to enrol enough investors to launch the TALF as scheduled, has run up against this immanent critique. Investors rejected the terms of agreement with the Fed's agents, the Wall Street banks, terms stipulated in the enabling documents of the program. Nobody wants a haircut when Sweeney Todd is in the barber shop.

In response, the primary dealers, with agreement of the Fed, are creating special investment trusts that circumvent the terms and restrictions in the program. Under the new TALF roundabout program, the dealers would borrow the money from the Fed to buy the securities, package the securities into investment trusts as the trusts' assets, and then sell units-- portions, shares, ratios in the trusts. And of course, inevitably the dealers will issue debt instruments, collateralized by the cash flows of the investment trusts. All of capital's great innovations amount to little more than repetition compulsions.

3. Barking up Trees while the Forest Burns

Meanwhile, the scientists of the dismal science of political economy, circling the wagons around the pit that is called finance capitalism, fill the print, video, and digital media with their favorite theories of what, where, how, and why things went more than just wrong-- how capitalism has made its own existence so problematic.

True and non-believers in the perfectibility, not of men and women, but of commerce, the monetarists and Keynesians, social-democrats, populists, utilitarians, free market socialists and state capitalists produce their derivative theories upon derivative theories in a perfect reproduction, a fractalization, of capitalism's own output of derivative values; recirculating as insight, explanation, analysis the obsolete, obfuscatory political economy of the past.

So the political economists proclaim that the predicament of capitalism is the result of excess speculation, unbridled greed, overfinancialization, super-securitization, unabashed swindling and looting-- and all of the preceding reduces itself to the latest, most favorite, buzzwords-- fictitious capital.

Now comes the parade of professional political economists whose most important credentials, whose critical researches, into the predicament of capitalism can be condensed into four sentences: 1. "I told you so." 2. "I told you so before that impostor/my colleague, standing next to me, told you so." 3. "In fact, I told you so even before excessive speculation, unbridled greed, unrepentant fraud, unabashed looting, and/or excessive credit, even existed." 4. "My fee is $400. An hour. In K.A.S.H."

The sum total of the value in the first three statements is zero, of course, for it is the specificity of this predicament, its emergence at just this time, in these places, that is at issue, not a prediction that can be made and exists regardless of .... history. And it is just that history that political economy cannot, dare not, apprehend. Economics is nothing but concentrated history, and history is nothing but the metamorphoses of the social relations of production. So the political economists, true ideological warriors of their class, encounter crime, excess, fraud, but never history-- never the relations of classes, the organization of labor and the means of production that makes the crime, the excess, the fraud, at one time so inconsequential, at another time so overwhelming.

The capitalization, the securitization, of cash flows from debt payments, the stripping and repackaging of cash flows from debt instruments as instruments of value accretion in their own right, as distinct from the function of cash flow as payments on debt, can be traced at least as far back as the administration of that idiot/hero in the pantheon of political economy, Ronald Reagan. Then and there, taking heart from the double-dip recession of the early 1980s, the LBO merchants took to stripping assets from corporations bought with debt that was secured by the very corporations taken over in the buy-out process. Of course, the usual first act of the newly acquired company was, besides assuming the debt of the acquirer, was to authorize direct cash payments to old and new executive "management teams." The debt, and the cash payments, were secured by the cash generated through asset liquidation.

During this same period, the initial securitization of credit card debt was floated through collateralized debt obligations and collateralized mortgage obligations of the credit card and mortgage issuers. Collateralizing mortgage debt was not a new technique as GNMA, FNMA, FMAC, and the FHLBs had been issuing debt backed by pools of mortgages prior to this "privatization" of debt securitization. But privatization of this technique gave it a depth and breadth far beyond that achieved by the GSEs.

This "capitalization" process represents nothing so much as accumulation through deconstruction; accumulation through dispos-ition; wealth not through expanded reproduction, but through transfer; getting rich not by producing wealth, not even by pocketing the already produced wealth of others, but by disposing of the previously accumulated assets of all-- through the decomposition of capital. Liquidity through liquidation. There is nothing fictitious about the capital generated, or degenerated, through financialization. Or, more precisely there is nothing more fictitious about this capitalization then there is in all the capitalization of private property under capitalism-- which is to say, all capital becomes fictitious when it cannot reproduce itself quickly enough.

This process of capitalization however does in fact change the rate and the mass of decomposition and collapse of capitalist accumulation. "Real, productive" assets in capitalism have no existence separate and apart from their ability to support the apportionment, the rationing, the parsing, of profit that is represented by debt and debt obligations. Once that ability wanes, then these air mountains of debt weigh more than the Alps on the impaired vital processes of capital.

The financialization process does not diminish the ability of capitalism as a whole to achieve its all important rate of return, nor does it create a fictitious the rate of return in capitalism as a whole. It, the financialization process, is by definition derivative. It, the financial flows, are part of capitalism's mechanisms for establishing a general rate of return.

Every step of this way was, and is, measured by and with the change in the price of oil, from the price spikes of 1979 serving to announce the double-recession, forming the overture and the coda to asset liquidation; with the collapse in oil prices reverberating throughout the financial structure, bringing an end to the leveraged certificate of deposit method of tapping into accumulated savings of the public, the housing construction boon of that decade, leading to the S &L crisis at the end of the decade and making the first invasion of Iraq a dead cinch lock.

The recovery from the 2001-2003 contraction, brought about through dollar depreciation, reduced wage rates, and rapid inflation of oil prices through the second invasion of Iraq, magnified the use of leverage to liquidify, and liquidate, the existing reserves of the general public. Recalling the pain of the capital investment hangover of the 1993-2001 period, industry consumed capital at rates greater than a 1:1 replacement ratio. Annual capital investment fell below the amounts claimed in depreciation until 2005, while cash and marketable securities held by industrial companies increased. Even after the increases in capital spending of 2006 and 2007, and during the ongoing depression, US corporations continued to generate, and preserve cash, at record levels. Estimates are that in 2008, the non-financial companies in the S & P 500 index had accumulated reserves of more than $800 billion in cash and marketable securities in the United States.

With profitability generating more and more cash, with capital spending severely restricted, with oil prices flushing money into that great big pipeline called foreign reserves, with the US pulling the entire network of capitalism in its wake, there existed only one market large enough, liquid enough, to absorb the cash flows and achieve what capital must always achieve-- the distribution, rationing of profit-- and there were only the asset-backed portions, the commercial and consumer real estate portion of those capital markets, the US consumer debt markets, the US mortgage debt market, and the leveraged loan private equity portions available.

The importance of "financialization's" contribution in establishing a general, and satisfactory rate of return in industry grew throughout the 2003-2007 period. As cash assets expanded an increasing portion of US industry income was derived from non-operating sources, including interest, dividends, royalties, licensing fees, etc. Between 1996 and 2000, income from non-operating sources grew from 11.5 percent of operating income to 42.5 percent of the operating portion, but for the recovery years 2003,2004, 2005, 2006, and 2007, non-operating income measured 66, 64, 69, 72, and 70 percent of the operating contribution.

The increases in operating and non-operating income combined with the continued constriction on fixed asset accumulation produced a spike in the rate of return on net property, plant, and equipment for US industry. That rate measured 22 percent in 2003; 40.3 percent in 2004; 45.6 percent in 2005; 51 percent in 2006, before falling to 35 percent in 2007.

2006 was the peak in the rate of return for US manufacturing, and that peak and its decline were marked on the part of the ideologues, dismal scientists, and artists of flim-flam capitalism with euphoria. T hose actually compelled to engage in the reproduction of capital, those who form the living, breathing source of capital-- those wage-laborers-- marked that turn with increased class struggle. In the United States, that class struggle was led by the immigrant workers, whose uncompensated labor had been, and remains, so essential for controlling the overall wages, the general ratio of wages paid out out to the class as a whole, who poured into the streets of cities around the country on May Day. These demonstrations were the tangible proof that capitalism had indeed overproduced capital and had run up against its own ability to exploit labor at a rate of greater intensity enough to offset the decline in the rate of return.

A year or so after the workers had demonstrated the limit's to capital's reproduction, the US oil industry again pushed forward its own plan for offsetting its decline in the rate of return, triggering a run up in oil prices that took the economy from fever to convulsions and then directly into hypothermia.

4. Meniere's Capitalism

There are those dismal scientists who, believing that everything in nature must balance and that capitalism is most assuredly a force of nature, maintain that the predicament of capital is essentially the predicament of imbalance between US capital and the rest of the world, and by rest of the world they mostly mean mostly Asia, and by Asia they mostly mean China.

The source of this disequilibrium in capital is, supposedly, the balance, or lack of balance of trade between the US and China, indeed between US and the world. The excess of its imports over exports, leading to current account imbalances; the purchase of US debt instruments by foreign central banks making the US not just a, but the largest debtor country in world accounts, supposedly marks US capitalism as parasitic, enfeebled, sustained in its leadership role only by its military power, and the advantages accruing to the dollar as a reserve currency. These massive imbalances have disturbed the equilibrium of exchange that capitalism supposedly achieves during, and requires for, profitable accumulation and expansion.

Nothing in capitalism, either on the local, the national, or international scale is based on balance, on an equilibrium. The equality of exchanges in the market is an equality on in the measure of value, not in its accumulation, nor in its reproduction. Nothing in the origin and maintenance of capital, the exchange between the means of production organized as private property, and labor organized as wage-labor, is based on balance, or equilibrium. Nothing in the creation of domestic markets, in the exchange between city and countryside, between industry and agriculture requires balance or equilibrium. On the contrary, it is exactly imbalance that marks the accretion of value, the growth of the means of production, the development of differing industries with different rates of profit, the accumulation of capital.

Agricultural areas within a country will "export" more to the urban areas, in value, than they "import" from industrial areas located in and around cities. There is no necessity for balance or equilibrium in this exchange. There is no cumulative equality of exchange between developed and less developed areas. How could there be, given the meaning of developed and less developed? The "developed" areas of capitalism do not "balance" their payments to the less-developed areas by exporting equal quantities of values. The developed areas realize the profits accrued in production within their own, or other, developed areas.

The funds that accrue as foreign reserves in the People's Bank of China, in the Banco Central do Brasil are indexes to their own lack of development, their own weakened domestic markets, in particular their impaired agricultural productivity, to their roles as suppliers to the developed areas of capitalism; to the uneven and combined development of capitalism in its local and global networks.

The designation as the balance of trade, or payments, as a proxy for the actual conditions of capital reproduction, the actual rates of return, the actual exchange between the means of production and wage-labor, is not new to this era of late capitalism. This is a neo-mercantilism, linked to the mercantilist ideology of merchant capitalism that still maintains its dead fingered grip on capitalist political economy. Examining political economy in 1843-44, Engels wrote in DeutschFranzösische Jahrbücher :

Political economy came into being as a natural result of the expansion of trade, and with its appearance elementary, unscientific huckstering was replaced by a developed system of licensed fraud, an entire science of enrichment.

This political economy or science of enrichment born of the merchants' mutual envy and greed, bears on its brow the mark of the most detestable selfishness. People still lived in the naive belief that gold and silver were wealth, and therefore considered nothing more urgent than the prohibition everywhere of the export of the "precious" metals. The nations faced each other like misers, each clasping to himself with both arms his precious moneybag, eyeing his neighbours with envy and distrust. Every conceivable means was employed to lure from the nations with whom one had commerce as much ready cash as possible, and to retain snugly within the customsboundary all which had happily been gathered in.

If this principle had been rigorously carried through trade would have been killed. People therefore began to go beyond this first stage. They came to appreciate that capital locked up in a chest was dead capital, while capital in circulation increased continuously. They then became more sociable, sent off their ducats as callbirds to bring others back with them, and realised that there is no harm in paying A too much for his commodity so long as it can be disposed of to B at a higher price.

On this basis the mercantile system was built. The avaricious character of trade was to some extent already beginning to be hidden. The nations drew slightly nearer to one another, concluded trade and friendship agreements, did business with one another and, for the sake of larger profits, treated one another with all possible love and kindness. But in fact there was still the old avarice and selfishness and from time to time this erupted in wars, which in that day were all based on trade jealousy. In these wars it also became evident that trade, like robbery, is based on the law of the strong hand. No scruples whatever were felt about exacting by cunning or violence such treaties as were held to be the most advantageous.

The cardinal point in the whole mercantile system is the theory of the balance of trade. For as it still subscribed to the dictum that gold and silver constitute wealth, only such transactions as would finally bring ready cash into the country were considered profitable. To ascertain this, exports were compared with imports. When more had been exported than imported, it was believed that the difference had come into the country in ready cash, and that the country was richer by that difference. The art of the economists, therefore, consisted in ensuring that at the end of each year exports should show a favourable balance over imports; and for the sake of this ridiculous illusion thousands of men have been slaughtered! Trade, too, has had its crusades and inquisitions.

The eighteenth century, the century of revolution, also revolutionised economics. But just as all the revolutions of this century were onesided and bogged down in antitheses -- just as abstract materialism was set in opposition to abstract spiritualism, the republic to monarchy, the social contract to divine right -- likewise the economic revolution did not get beyond antithesis. The premises remained everywhere in force: materialism did not attack the Christian contempt for and humiliation of Man, and merely posited Nature instead of the Christian God as the Absolute confronting Man. In politics no one dreamt of examining the premises of the state as such. It did not occur to economics to question the validity of private property. Therefore, the new economics was only half an advance. It was obliged to betray and to disavow its own premises, to have recourse to sophistry and hypocrisy so as to cover up the contradictions in which it became entangled, so as to reach the conclusions to which it was driven not by its premises but by the humane spirit of the century. Thus economics took on a philanthropic character. It withdrew its favour from the producers and bestowed it on the consumers. It affected a solemn abhorrence of the bloody terror of the mercantile system, and proclaimed trade to be a bond of friendship and union among nations as among individuals. All was pure splendour and magnificence -- yet the premises reasserted themselves soon enough, and in contrast to this sham philanthropy produced the Malthusian population theory -- the crudest, most barbarous theory that ever existed, a system of despair which struck down all those beautiful phrases about philanthropy and world citizenship. The premises begot and reared the factory system and modern slavery, which yields nothing in inhumanity and cruelty to ancient slavery. Modern economics -- the system of free trade based on Adam Smith's Wealth of Nations -- reveals itself to be that same hypocrisy, inconsistency and immorality which now confront free humanity in every sphere.

But was Smith's system, then, not an advance? Of course it was, and a necessary advance at that. It was necessary to overthrow the mercantile system with its monopolies and hindrances to trade, so that the true consequences of private property could come to light. It was necessary for all these petty, local and national considerations to recede into the background, so that the struggle of our time could become a universal human struggle. It was necessary for the theory of private property to leave the purely empirical path of merely objective inquiry and to acquire a more scientific character which would also make it responsible for the consequences, and thus transfer the matter to a universally human sphere. It was necessary to carry the immorality contained in the old economics to its highest pitch, by attempting to deny it and by the hypocrisy introduced (a necessary result of that attempt). All this lay in the nature of the case. We gladly concede that it is only the justification and accomplishment of free trade that has enabled us to go beyond the economics of private property; but we must at the same time have the right to expose the utter theoretical and practical nullity of this free trade.

The nearer to our time the economists whom we have to judge, the more severe must our judgment become. For while Smith and Malthus found only scattered fragments, the modern economists had the whole system complete before them: the consequences had all been drawn; the contradictions came clearly enough to light; yet they did not come to examining the premises, and still accepted the responsibility for the whole system. The nearer the economists come to the present time, the further they depart from honesty. With every advance of time, sophistry necessarily increases, so as to prevent economics from lagging behind the times. This is why Ricardo, for instance, is more guilty than Adam Smith, and McCulloch and Mill more guilty than Ricardo.

Even the mercantile system cannot be correctly judged by modern economics since the latter is itself onesided and as yet burdened with that very system's premises. Only that view which rises above the opposition of the two systems, which criticises the premises common to both and proceeds from a purely human, universal basis, can assign to both their proper position. It will become evident that the protagonists of free trade are more inveterate monopolists than the old mercantilists themselves. It will become evident that the sham humanity of the modern economists hides a barbarism of which their predecessors knew nothing; that the older economists' conceptual confusion is simple and consistent compared with the doubletongued logic of their attackers, and that neither of the two factions can reproach the other with anything which would not recoil upon themselves.

This is why modern liberal economics cannot comprehend the restoration of the mercantile system by List, whilst for us the matter is quite simple. The inconsistency and ambiguity of liberal economics must of necessity dissolve again into its basic components. Just as theology must either regress to blind faith or progress towards free philosophy, free trade must produce the restoration of monopolies on the one hand and the abolition of private property on the other.

The only positive advance which liberal economics has made is the elaboration of the laws of private property. These are contained in it, at any rate, although not yet fully elaborated and clearly expressed. It follows that on all points where it is a question of deciding which is the shortest road to wealth -- i. e., in all strictly economic controversies -- the protagonists of free trade have right on their side. That is, needless to say, in controversies with the monopolists -- not with the opponents of private property, for the English Socialists have long since proved both practically and theoretically that the latter are in a position to settle economic questions more correctly even from an economic point of view.

In the critique of political economy, therefore, we shall examine the basic categories, uncover the contradiction introduced by the freetrade system, and bring out the consequences of both sides of the contradiction.

He wasn't kidding. And he wasn't wrong.

6. Was, Not Was; Is, Is Not

Capitalism exists in a condition, not a state, of continuous and dynamic disequilibrium. It "manages" this disequilibrium by maintaining its reproduction as capital. To do that capital must engage, exchange itself with wage labor. The more capital accumulates, the more of itself it must exchange with this opposite-identity in order to increase its accumulation. Yet in order to increase its accumulation, its rate of aggrandizement capital must continuously expel from the production process that proportion of living labor necessary to its reproduction, so that more of itself, its accumulated mass, can be animated by less of its-other-self, living wage labor. Consequently, the more capital exchanges itself with wage-labor, the relatively less of itself capital exchanges with wage-labor, and so its profitability falls. The faster it goes, the slower it gets. The more it reproduces, the more it reproduces itself as the enemy of its reproduction, and thus it embarks on asset-stripping, liquidation, devaluation, and destruction.

The resolution of capital's immanent critique of itself is not in bailouts, nationalizations, "stimuli"etc. For the bourgeoisie, the resolution is, and is only, in destruction of both identities-- the means of production, and wage-labor. For the working class the resolution begins, only begins, with the opposition to bailouts, nationalizations, etc. The resolution advances through and by acts of solidarity with those most intensely exploited in the build-up to the decline in the rate of return. The critical second step-- May Day 2006 was the first step-- is for all workers to oppose all attacks upon, all discrimination of immigrant workers. The class as a whole must insist that unemployment benefits include amounts for remittances to immigrant workers' families. Now that would be stimulating.

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Intermission

In Between Shoes Dropping.. Thumbnail reviews of the 2009 Rendez-vous with French Cinema, organized by the Film Society of Lincoln Center.

1. Faubourg 36-- Opening Night! US premiere! At the new Alice Tully Hall! What a buildup. What a letdown. Moulin Rouge meets The Cradle Will Rock as interpreted by Disney.

2. La Fille de Monaco-- NY Premiere. An insult to people of all sexual persuasions. Unbridled, unrepentant, emancipated female sexuality must die so that homoeroticism can go about its business of ... business and murder. The female lead, Louise Bourgoin, is without a doubt the sexiest person to hit the screens since... maybe forever.

3. With a Little Help from Myself-- NY Premiere. Outstanding. The long hot summer of 2003 in the banlieue of Paris-- love, immigrant labor, aging, oppression, and death. With a shovel. Love will find a way. Pleasure will never quit. Doesn't change anything, but beats the hell out of abuse and loneliness. Perfect answer, and antidote to the Vicky Cristina Barcelona garbage from Woody Allen. Felicite Wouassi is brilliant. The scenes between her and her neighbor, Robert [Claude Rich], are of aching need, understanding, and cautious tenderness.

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Was, Not Was; Is, Is Not, 1

1. Cousins, British/American, Kissing/Idiot [with apologies to the elephant]

They sat there, on both sides of the Atlantic, facing select committees of inquiry, enduring criticism, scorn, condemnation, from the very men and women they had lobbied, wined, dined, junketed; the very same men and women they, the bankers, had bought and paid for the old-fashioned way, the only way they, the bankers knew how-- using other people's money. And now as an index to the declining power of money to paper over all the tears, rips, antagonisms in the fabric of capital, they, the bankers had to sit there, feigning humility as only the very rich can, wasting the time they could have better spent spending, again, as only they know how-- other people's money.

Indignity. That these Gullivers of finance should be forced to appear contrite, to accept the slaps from the greasy hands, the once and future open palms of these parliamentary lilliputians. In public, no less. On television. On the web. A spectacle.

On one side, the actors in the drama of fools pretending to care, and on the other side, other actors pretending to want to know. The bankers, advisors, economists, executives, legislators, regulators stumble about a stage, peforming in this play of 11 chapters, bumping into repossessed furniture destined to be chopped into firewood or pulped into paper, pretending to be blindfolded so they won't have to describe to each other the 20,000 pound elephant in the room. The play's the thing all right. And in this play, all the players and the elephant are of that thing, that thing is the whole, the whole is the truth, and that truth is that capital is its own immanent critique; that....

....that as the accumulation of value expands, the rate of profitability of that accumulation necessarily declines.

....that as the rate, the ratio of profitability, slows, all that once was a source of prosperity, an asset, becomes a loss carried forward.

....that as profit slows and liability expands, the production of and for value requires the devaluation of the products which embodied value.

....that as the the usefulness of the commodities can no longer carry the burden, the dead weight, of profitability, devaluations of the financial instruments are simply the precursor to the wholesale destruction of the means of producing useful objects, industrial plant and wage-labor.

....that this immanent contradiction of capital is the historical limit to capitalism, that the limit is made manifest in the uselessness of bailouts, stimuli, capital injections, lending facilities, and nationalizations..

At the same time.... A calliope of clowns and criminals, murderers and morons, spins between government and business around its single recombinant axis of greed, incompetence, and brutality, the building blocks of the entrepreneurial economy, with the music tellings its tale of woe, that...

Everybody had an explanation, and nobody had an answer.

The bankers could express their remorse, but would accept no responsibility.

The bankers could offer their apologies, but provide no accountability.

The bankers would submit to criticism, but never to culpability.

And why should they accept responsibility? What's a corporation for, if not to avoid personal responsibility, particularly when engaged in the looting the public treasury? The corporation is the legal form for avoiding legality.

And who better to represent capitalism in all its uselessness than its bankers, the living agents of capital's immanent critique-- perfectly educated in their ignorance; well-spoken in their incoherence; nattily attired in their rags and riches; upright in their underhandedness; who better than those who had facilitated the transformation of liquidity into liquidation?

2. Meanwhile...[meaning at the same time]

Facing the parliament's Treasury Select Committee, the knights and lords of the Royal Bank of Scotland and HBOS acknowledged that among them they possessed not a single banking qualification. When asked by a committee member if any thought such qualification was important, this gang of four could not answer, although later, in the men's room, one sir was overheard saying to another sir, "Banking qualification? Does the captain of a pirate ship need a qualification in knot-tying? Does a slasher have to have a qualification in metallurgy?"

Across the Atlantic, where that diploma mill called Harvard Business School granted banking qualifications to any rich idiot's idiot son with a credit card and a laptop, the bankers choked on a mixture of rage and panic when the US Congress, at the last minute, attached a provision to the omnibus stimuli/bailout bill restricting the size of the bonuses that the bankers could award each other using the public's money. Here these artists of the deal worried that the negative impact of the restriction would make it difficult to recruit, reward, maintain the talented individuals so important to circulation of junk. Where would the United States find its Richard Fulds; its John Thains; its Kerry K. Killingers? "Give us bonuses, or give us death," squeaked the new Patrick Henrys, proving yet again how little banking qualification is required in banking as clearly the financially responsible course was to give them the latter.

At the same time, while in Dillon, South Carolina the boyhood home of the current chairman of the Federal Reserve System was sold at auction after foreclosure, the governor of the Fed chairman's boyhood home state, with unemployment and poverty rates almost twice the national average, spoke courageously against accepting the stimulus grants from the national government as he did not want the hard-working but unemployed people of his great state to become dependent on a "saviour based economy." Faith-based initiatives, however, would be maintained by the state.

Next: Part 2. Political Economy's Last Stand

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Word, Sounds

1. That word is Depression, with a big D. The sound you don't hear is is the sound of the other shoes falling. The silence is due to the shoes not yet hitting bottom.

2. Move over Iceland, make room for Ireland. Move over Ireland, make room for Britain. Move over Britain, make room for Belgium, Latvia, Estonia, Lithuania, Greece, Spain, Ukraine, Romania, Hungary, Bulgaria, France, Germany. Move over Europe, make room for Russia. Move over Russia, make room for Korea, Taiwan, Thailand. Move over Korea, Taiwan, Thailand, make room for Japan. Move over all, make lots of room for China. Move over China, make room for Mexico, Brazil, Argentina, Chile, Venezuela, Ecuador, Bolivia and Algeria, Kuwait, Iran. Duck everybody, here comes the United States, entering a room in the only manner it knows, by crashing into it.

3. The other shoes falling from the feet of this millipede called capitalism:

a)increasing commercial real estate failures

b)collapse of export in Asia and Europe

c)abject failure of capital injections, asset and loan guarantees, special loan facilities to stem financial contraction

d)return of the "bad bank" rescue fantasy when in fact the UK, the US, Japan have already converted their central banks into bad banks, with their national treasuries as the co-signers

e) the beginning of the great capitalist flip, from stimulus to austerity-- as Ireland, Poland, and Russia attempt to cut budgets and attempt to restrain bailout support. In the US, this takes the form of the individual states reducing budgets which will, collectively, exceed the amounts provided by the national stimulus program to the states.

f)accelerating layoffs as industrial production shrivels

g)Extension by the US Federal Reserve of all the special term lending facilities, special funding vehicles and the uncapped currency swap lines that have been so ineffective.

4. Beware the Ides of February, Ben Bernanke. Chrysler and General Motors must submit their reorganization programs, including union givebacks by 17 February. The UAW can agree or not to anything. It will not matter. The workers themselves will not accept the concessions. The cheer the bourgeoisie voice: "Trillions for the banks, not one red cent for wages!" will be smothered mid-cry by more than strikes, more than picket lines, by the actual seizure of plants and property, the occupation of offices, and institutions.

S. Artesian

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