Short Course on Overproduction, Lektion Acht

The Wall Street Journal, Friday, January 29, 2016

  Slowdown in China Chills Germany 

German exports to the important Chinese market are suffering their sharpest drop in a quarter of a century, casting a shadow over Europe's biggest economy and showing the global impact of China's slowdown.

With new order from China and other emerging economies sagging, German businesses fear the bad news is only beginning, data and surveys released in recent days suggest.

Two charts complement 1000 words, more or less.  In this case less.

Russia, we know about.  Sanctions.  Price declines for natural gas and oil, which account for 1/3 of Russia's GDP.
China, the big chill.
Brazil, last century's China, in deep recession.
Eurozone, a domestic market, more or less, for Germany.
The UK, the benefits to Germany of an uncommon currency.
The US, see above. Vielen Dank, Herr Draghi...und Frau Yellen

And the difference  in China's imports:

Metals, autos and auto parts, machinery all down.  Some decline due to China's own development? Due to production from foreign direct investment?  Perhaps some, but certainly not to at these volumes, at these rates.

Clothing, pharmaceuticals, food up.  Pharmaceuticals a bit higher on the value chain.  Food and clothing?  Despite the rhetoric repeated periodically since 2008, about China developing its domestic market, that consumption will replace exports as the driver of the economy, the reality is that the domestic market is severely circumscribed by low productivity in agriculture made manifest in the small size of the average agricultural production unit.  

 German exports to the US and many other markets are still growing.... But with much of Europe still licking its would from the eurozone debt crisis, business confidence in Germany is vulnerable to continued cooling in Asia.

"The overall situation in China is depressed," said Ulrich Reifenhäuser, a management board member at machinery Reifenhäuser Group..."I see very few orders in the near future."

...Barring an improbable spike in December, German exporters took a bigger hit than during the 1997 financial crisis when exports to China fell 2.4%.

Above all, capital-goods sales to Chinese factories are down, as overcapacity there takes its toll on investment spending.  And German and other European companies say they expect exports to weaken further...

"China is suffering from massive overcapacities," said Olaf Stalfort, head of sales and marketing at SMS group which builds steel plants and rolling mills.  "The consolidation of the Chinese steel industry is still ahead of us," he said....

At DELO, a company near Munich that makes adhesives for electronic devices, exports to China have risen about 10% since April.  "The Chinese would rather cut back on food than make do without their smartphones," said DELO managing partner Sabine Herold.

You wanna bet?  See latest sales figures for the IPhone 6.

Ms. Herold said complacency about China's economy would be a mistake and her company is trying to expand elsewhere.  "We are targeting Vietnam, Indonesia, the Philippines and Thailand."

Clever. Going after the same territory that Japan went after for its the Greater East Asia Co-prosperity Sphere.

Meanwhile:

China's Workers Fall Back on the Countryside They Left

As jobs dry up in Chinese cities, migrant laborers are bearing the brunt of the country's economic downturn

In years past, China's rural economy has soaked up unemployed returnees as they bided their time for another urban stint.  This time, however, Beijing is struggling to prop up growth that has sputtered to its slowest pace in a quarter century.  Worse, as China has pushed to urbanize, rural areas are no longer able to absorb so many returnees.  Roughly 55% of China's 1.37 billion people now live in cities, compared with just under 18% in 1978.

Older workers say that they can't live off the unproductive farmland they still own and have neither the skills to switch jobs nor the capital to start businesses...

The disparity between rural realities and urban dreams has "created a peculiar dilemma for migrant workers," said Wu Guijun, a migrant worker turned labor activist in the industrial Shenzen.  "They find themselves caught between cities that are too costly to live in and villages that are impossible to return to."

One consequence is rising worker unrest.  Job losses and unpaid wages, particularly in China's construction and manufacturing sectors, have fueled thousands of protests over the past year.  The turmoil has worsened in the weeks before the New Year as migrant workers press their deadbeat employers for unpaid wages before heading home....

"In this day and age, it's impossible to just live off the land," said Yu Dengliang, a 43 year old construction worker from a small village in central Henan province, whose earnings have fallen by more than two-thirds in the past year.  His small cornfield typically yields a few thousand yuan in revenue a year, grossly insufficient for his family of four.

"We have no pension, no savings.  What business can we start?  Who would lend us the money?" said Mr. Yu as he waited outside a railway station in Beijing for a 10 hour train ride home."

Not long ago, journals, electronic and print, were reporting on the looming shortage of labor in China; on the downside of the one-child policy; on depleting the supply of labor from the countryside which in turn was creating upward pressure on wages.

There is no shortage of labor.  No pension, no savings have been the social basis for China's economic "miracle,"  and this "broken rice bowl," replacing the iron rice bowl, has given all it can to the accumulation of capital.  China's emerging, and emergent bourgeoisie, now face the problem the bourgeoisie have been incapable of resolving for one hundred years; the problem which, whenever capital makes even a feeble gesture towards, explodes in class war; the problem of revolutionizing the relations of agricultural production, of emancipating labor from subsistence, starvation, scarcity-- emancipating labor from capital itself.

S. Artesian
January 31, 2016

Lesson 7: Écoute et répète

Not so long ago many were marveling at the "economic miracle" that was China.

Many noted China's immense accumulation of foreign currency reserves, most of which were in dollars.

Many asserted that China's outsize holdings of US Treasury debt instruments, and holdings of US government sponsored agencies debt, made China the banker for a declining, decaying, US capitalism that was parasitic not just upon the labor of workers inside and outside its borders but parasitic on the "emerging market" capitalisms-- the BRICS-- with China the biggest brick in the bloc.

A few disagreed. 

A few argued that China held US currency reserves, that it invested those holdings in US debt markets; but...

In reality, China owned almost none of those currency reserves.

A few argued that China's holdings of US debt securities were nothing more than reserves against claims made upon it, China, by capitalists foreign and domestic for their hard currency earnings generated through foreign direct investment, through production for export.

A few argued that the People's Bank of China held in essence demand deposits.

A few argued that China invested in US debt securities because those securities were liquid, that China's currency reserves were, in essence, friable, requiring but little pressure to crumble and become a river of dust, draining away.

 Écoute et répète:


The Wall Street Journal, Thursday, January 28, 2016

Beijing Moves to Slow Money Outflows

China is ramping up efforts to halt a flood of money leaving the country in response to an economic slowdown, moves that risk undermining Beijing's ambition to elevate the yuan's profile on the world stage.

Its latest steps involve curbing the ability of foreign companies in China to repatriate earnings, shrinking the pool of Chinese yuan available for banks in Hong Kong to make loans, and banning yuan-based funds for [sic] overseas investment, people with direct knowledge of the matter said. 

The measures, most of which haven't been publicly disclosed, follow efforts by China's central bank to discourage investors from betting against the yuan and to crack down on overseas money transfers.  They're sparing no effort to prevent capital outflows,' said a senior Chinese banking executive close to the the central bank..." 

The people with direct knowledge said the People's Bank of China, the central bank, also is considering ways to lure money back to the country, including letting foreign residents and companies buy certificate of deposit for fixed periods.  Currently they are restricted to ordinary deposit accounts....

In its latest efforts, the central bank instructed banks on the mainland to require more detailed documentation from corporate customers to remit profits back to their home countries...

Écoute et répète

S.Artesian
January 28, 2016

This is Where It Gets You....

This where all the puffery about "saving Europe," about the nobility of the project for a united Europe; where all the sham (self-)advertising for a "real movement" for a "true" European union; where all the gasbags passing all that wind about "European democracy" gets you...if  you're not one of them, those noble, puffing, evangelizing, gasbags spewing the noble gas...

It gets you penned in Turkey or Jordan; or it gets you drowned between Turkey and Greece; or it gets you penned again in Greece; or it gets you turned back at the borders of a supposedly borderless Europe; or it gets you separated from your valuables, from any valuables you might have happened to salvage from your home before it was pulverized, bulldozed, bombed, torched, willy-petered,  by the great noble united, democratic Europe with the value realized to "offset" the cost of.......keeping you penned.

You wealthy bastards fleeing ISIS, or Assad, or the government of Iraq, or the Taliban, or Mubarak, Morsi, or el-Sisi or the government of Afghanistan, or the decimation of subsistence economies in Africa, courtesy again of those great western democracies, hand it over. 

Welcome to Denmark: Up against the wall and empty your pockets.  Now strip.  You need a shower.  After that, you will see our camp dentist who will remove any gold fillings you may have in your teeth.  You will receive a bill for his services, which you can pay in installments, or with that boatload of diamonds you swallowed on your way through Macedonia.

Or it gets the mass of you...expelled, mass expulsions being so humane that Donald Trump hasn't even thought of it.  Yet.  But since he knows what he knows from watching cable or satellite news-- soon to be unveiled by the Make America Great Again candidate, mass expulsions of those who weren't in the US when it was great.... whenever that was.  Never?  Never say never, or you'll get expelled too.

This where the whole shitload of "democratic politics" of "labor politics" of "left-winging" it, of "socialist" parties of the old type, of "people's parties" of the new type, gets you-- paying Jacks-the- Rippers for the costs of their razors.

S.Artesian
January 28, 2016

Short Course In/On Overproduction, 6

From the horses' mouths, The Wall Street Journal, January 21, 2016:

Dry-Bulk Shipping Firms Struggle to Ride Out Crisis

"Things have just stopped in China," said George Logothetis, chairman and chief executive of the Libra Group, an international shipping firm, speaking...at the World Economic Forum in Davos, Switzerland.  He described the situation as 'Armageddon level.'

The shipping industry's pain has been especially bad for dry-bulk shipping companies--whose vessels carry much of the raw materials of global trade...The Baltic Dry Bulk Index, sometimes viewed as a proxy for global trade, peaked out just before the 2008 financial crisis at 11000 points.  On Wednesday, it closed at 358.  The index has hit fresh record lows every day since the beginning of the year.

That is forcing some shipping companies to offload vessels at bargain basement prices.  Many of those same firms were expanding just a few years ago, confident the global economic crisis was behind them.

"We've never seen anything like this," said Emanuele Lauro, chief executive of New York-listed shipping major Scorpio Bulkers Inc.  "We never thought we would find ourselves in this situation when we were buying ships in 2013 and 2014 at historically low levels.  But in the past few months, the priority has been to create a liquidity runway [by selling ships] and keep zero value off the table."

Scorpio Bulkers...spent $1.5 billion for 28 "capesize" vessels, the biggest general cargo ships in the water, between November 2013 and March 2014.  As the prices of the commodities that Scorpio transports have tumbled, it has sold all the vessels at a loss of $400 million.

"It's a bloodbath, which calls into question the survival of many dry bulk shipping companies," said Basil Karatzas, a New York-based maritime adviser.  He said the number of capesize vessels in the water exceeds demand by more than 50%.

Daily general-cargo freight rates for newly built capes are around $3000.  Owners need rates of $6000, or as much as $12,000 for vessels with financing costs, just to break even.  For older vessels, the daily operating cost, including financing, can be up to $23,000.

Mr. Karatzas said big players such as Scorpio and fellow major Star Bulk Carriers Corp. can withstand the difficult conditions has long as they have access to capital markets.  Nasdaq-listed Star Bulk, which is majority-owned by US private investor Oaktree Capital Management LP, recently sold four capes still under construction raising $148 million.  Its shares closed at 40 cents Wednesday compared with a high above $228 in October 2007. 

Nasdaq notified Star Bulk this month that it has six months for its stock to reach a minimum bid of $1 for 30 consecutive trading session or it will face delisting. 

Star Bulk didn't reply to requests for comment.

Everything you need to know about the interpenetration of finance and industrial, or transport, capital.  Everything you need to know about asset backed securities-- all securities are asset-backed securities, and when the assets cannot transfer the capital accumulated in them to value expanding, expanding rapidly, expanding profitably, assets and securities are devalued.  "Fictitious capital" exists, but not in counter-position, in contradiction to "real" capital.  It exists as real capital's doppelganger, it's self-image.  It's the reflection that doesn't appear in the mirror as capital shaves its own throat.

So we have 28 capesize sold for $1.1 billion, or about $39 million each.  And we have 4 capes sold for $148 million or $37 million.  In 2007 capesize vessels cost $180 million each.

In 1992, they cost $40 million each.   

S.Artesian
January 24, 2016

 

Criticism, Self-Criticism

Louis Proyect writes, referring to Ellen Meiksins Woods' article "Eurocentric anti-Eurocentrism,"

She wrote this attack on Jim Blaut six months after he had died of pancreatic cancer. That is when I figured out she was a political coward.

shortly after her death thus demonstrating the full measure of his political cowardice.

The unexamined life is not worth living, Proyect, so do us the favor...


Word.


S.Artesian

January 24, 2016

New York Strong!

Checking out my neighborhood in New York City, before the wanker governor choked in the face of a few inches of snow and ordered the MTA to shutdown; before the wuss mayor panicked and ordered private citizens in their private vehicles to get off the public streets-- can you imagine that?  A government bureaucrat, worse, a politician, worse, two politicians, ordering private citizens to keep their private vehicles off the public streets...remember SDS?  "The streets belong to the people!," Mr. Scaredy-Cat Mayor.  You can't take away our large clip assault rifles, so now you're going after our SUVs?  Our Hummers?  Our four-wheel drive steel belt radial studded snow tire gun-racked ram-tough pick-ups?...

Anyway, where was I?  Oh yeah, checking out the 'hood during this minor 2 foot snowfall.  The French bakery was open.  The Portuguese deli...open.  The Korean grocer... open.  The Italian wine shop...open.  The Mexican taqueria...open.  The Syrian falafel place...open.  And scores of men from various Central American,and Middle Eastern countries out shoveling snow so restaurants of all sorts, taking good old US advantage of poverty, coups, civil wars, drone attacks, and barrel bombs, can employ more Central American and Middle Eastern men and women of all sorts to clean, prepare, serve, and deliver food...

So I say........fuck you, Donald Trump.  Open the borders.  Without immigration there is no New York, and maybe no Seamless, no Grubhub, no Caviar!!! No beacons of entrepreneurship, no icons of a digital economy. 

And I say, here's to you Bill/Hillary/Barack Obama/Clinton.  You go, you cruise-missile humanists,you.  Keep those drones in the air.  Create 2,3, many drug wars. 

Otherwise, I'll have to shovel my own fucking snow, and that might kill me.

S.Artesian
January 23, 2016

Short Course in Overproduction, 5

From the Financial Times, Tuesday 19 January:

Iran sanctions lifted, 500,000 barrel/day increase in production planned.  Pre-sanctions production 2011 at 2.5 million barrels/day; 2015 at 1.1 million barrels/day.

"If Iran does not increase its oil production, neighbouring countries may increase their production by the next 6 months or one year and take Iran's share,"  Rokneddin Javadi, Iran National Oil Company.

Meanwhile Brent crude price below $28/barrel

The Wall Street Journal, Wednesday, January 20:

China-- Sinosteel extends debt payment deadline for 3rd time.

Oil price collapse forces belt tightening in Asia:  Petronas (Malaysia) plans $11.37 billion reduction in capital and operating budgets over next 4 years.  Cnooc (China) cuts capital expenditures 44 percent versus 2014.

Maersk-EEE class container ships, (capacity more than 18000 teus) $185 million each, coming on line when existing overcapacity is estimated at 30% of the total. Freight rates start 2014 at $1765 per container, fall continuously, and average $620 per container for 2015.

Nothing encourages overproduction like overproduction.

Journal publishes special section targeting the World Economic Forum.  Articles:

"Global Economy Loses Steam,"  "Welcome to the Crisis Economy, Where Tumult Reigns," "A Clouded View From the Commanding Heights," "An Era of Seismic Shifts," "Market Rout Starts 2016 Off on Wrong Foot," "China's Debt Binge Isn't Over Yet, and That's the Problem," "US Comes to Grips with Slow Growth," "Dear Business Leaders:Invest in Optimism, Not Buybacks," "Behind the Rise of Populism, Economic Angst," "Shifting Alliances, Sectarian Strife Dot the Middle East Landscape," "Slow Growth Clouds Fight Against Poverty," "Brics' New World Order is Now on Hold," "An Emerging Mismatch in Global Growth Picture," "Sharp Slump In Goods Trade Seen Lingering" "Oil's Long Plunge Upends Global Order," "Uneven Growth Vexes Africa," Behind Latin America's Woes Stands China," --and closes with the article, "The Future is Here.  It Just Needs a Big Push" (as the executioner said to the condemned man).

None of this is, or should become, schadenfreude. The bourgeoisie are in power. Their power is not threatened.  Capital rules. That rule has not been attacked.

The rich make it better through poor times than the poor.

S. Artesian
January 22, 2016

Short Course on Overproduction 4: News Roundup

From the Financial Times, 15 January 2016:

Rio Tinto freezes wages as metal prices plummet

Conserving cash is a business imperative says CEO.

Metal prices at 2005 levels.

 "This situation is not temporary,"  Rio Tinto CEO Sam Walsh.

From The Wall Street Journal, January 15, 2016:

West Canadian Select oil (tar sands oil) discounted to $17.97 per barrel

Meanwhile, the 2012 count of oil rigs in North Dakota averaged 205 rigs in service per month.  In October 2015, the number of rigs in service declined to 68.  Production however has not declined so dramatically.  In 2013, monthly production in North Dakota averaged 35 million barrels.  In October 2015, monthly production was 34.5 million barrels.

The FTWeekend, 16/17 January 2016:

Oil price troubles flare for biggest US banks

Lenders disclose leap in bad loans to energy sector...

Three of the biggest US banks revealed the damage wrought by a plunging oil price this week, disclosing big jumps in costs for bad energy loans and fears of contagion to other portfolios.

[Remember that word "contagion"? Now where have I heard that before? Greece?  Mortgage-backed securities? "Bad" banks?  Good banks?  All banks?  Governments? World markets?] 

Citigroup, the fourth biggest by assets, announced yesterday it had recorded a 32 percent rise in non-performing corporate loans in the fourth quarter from the previous year, mainly related to its North American energy book.

[The "book" is the record or aggregation of financial positions, exposures-- loans, assets, etc-- that the bank has engaged in the conduct of its business, except of course when such positions are "off the books" or are "off-balance sheet" structured investment vehicles]

Wells Fargo, the number three by assets said that net charges came to $831 million in the period up from $731 in the third quarter mainly due to oil and gas.

A day earlier JP Morgan Chase, the number one, "said it was watching closely" for spillover effects.  If oil stayed around present levels of $30 a barrel, it said it would be forced to add up to $750 million in loan reserves this year-- roughly one-third of the benefit it expects from higher net interest income.....

Jamie Dimon, chairman and chief executive of JP Morgan [which has agreed to some $33 billion in fines and penalties for violations of banking and securities regulations] was on the back foot responding to a barrage of energy-related questions...."Remember," he said, "these are asset-backed loans.  A corporate bankruptcy doesn't mean your loan is bad."

Priceless, no?  "These are asset-backed loans..." says the man, reading from the Bear Stearns, Countrywide, Merrill Lynch, Wachovia, Washington Mutual, AIG, RBS, Banca Monte Dei Paschi di Siena, AngoIrish, Banco Espirito Santo, playbook.  Anybody recall all the loans all those institutions did NOT have on their books?  All those asset-backed loans? 

When the assets cannot be accessed profitably, turned-over, guess what, Jamie?  Your loan is bad.  Bad to the bone.

But let's be clear, this is not a replay of 2007-2008.  Energy loans make up about 4 percent of the bankers' "book."   Increasing loan loss provisions to 2 or 3 or 10 billion dollars involves serious money, but the mass of non-performing loans 8 years ago was measured in the hundreds of billions, and even at the one trillion mark in the US alone.

This also doesn't mean that another recession isn't going to occur.  It will, and will have its origin in the same forces that produced the contraction of 2007-2009.  But this one will manifest itself differently.

Finally:

"People hate banks and they want to see them suffer," said Dick Bove, analyst at Rafferty Capital Markets.

Yeah, ain't that the truth?  Me, I'm a humanist.  I don't want to see them suffer.  I just want to see them dead. 


S.Artesian
January 17, 2016

Short Course in Overproduction 3

From the Financial Times, Thursday 14 January, 2016:

Delayed oil projects near $400 billion

Energy groups have shelved nearly $400 bn of spending on new oil and gas projects since the crude price collapse, pushing back millions of barrels a day in future  output from areas including the Gulf of Mexico, Africa and Kazakhstan.

In an authoritative study published today, the energy consultancy Wood Mackenzie says development of 68 significant projects, or 27 bn barrels of oil equivalent reserves, has been put back as companies scramble to curtail costs and protect dividend payouts.

OK, points to remember:

1. protect dividends 
2. $400 billion is the cost to access 27 billion barrels of oil equivalent, equal more or less to what the industry terms "finding costs."  The finding costs then work out to be about $15/boe.
3. Since 2002, "lifting costs," the actual production costs after projects have been developed, have been much less than finding costs.  However, let's estimate the lifting costs at 80% of the finding costs or....$12/boe.   
4. So, the approximate cost-price, to use Marx's term, for each of the 27 billion barrels of oil equivalent is...$27.
5. Mystery of the collapse in oil prices to the $30 mark solved.  The $30 is the money price approximately equivalent to the socially necessary labor time for the reproduction of the commodity. 

Overproduction is capital revaluing capital by capital's own criteria.

The figures show that the amount of deferred capital spending on projects awaiting approval has almost doubled since June, from $200bn to $380bn with 2.9m barrels a day of liquids production--equivalent to Kuwait's crude output--now not due to come on stream until early in the next decade.

Nice choice of examples to indicate the impact on production-- "equivalent to Kuwait's crude output."  Last attempt at taking Kuwait's output off the markets was back in 1991 by the dearly departed Saddam Hussein.  Who says history isn't a jokester?

The roll call of  delayed projects includes developments such as Statoil's Johan Castberg field in the Norwegian Arctic, BP's Mad Dog 2 [not to be confused with the fortified, flavored, and colored "wine,'' Mad Dog 2020,  a product of the Mogen David wine company] in the Gulf of Mexico and the second phase of the Kashagan field in Kazakhstan, which is being developed by a consortium.

The list has grown by a third in the past 6 months, with the average "break-even" price of the projects being $62 a barrel.  Deepwater fields account for more than half of the new deferrals, up from 17 six months ago to 29. 

Such developments have been hit hardest because of their high break-even prices, heavy upfront capital needs and "relative inflexibility," says the report. 

 (thanks to JAI)

S.Artesian
January 15, 2016

Short Course in Overproduction 2

From The Wall Street Journal, January 13, 2016:

Faltering Asset Sales Drive Vale to Borrow

Brazilian mining giant Vale SA said Tuesday it would borrow $3 billion in emergency financing, a sign of distress from the world's largest iron ore producer.

Vale said the revolving credit line would "increase liquidity and bridge potential cash flow needs."  It didn't disclose the interest rate it received, and said another $2 billion was available

Cold feet on a bridge too far:

The miner, which needs capital to pay for expansion projects, is tapping the line of credit partly because it hasn't been able to garner as much as expected through the sale of assets.  Banks have gotten cold feet about financing commodities deals amid a deep rout in prices, throwing a wrench into the plans of mining companies to shore up their balance sheets as they struggle to pay for mine expansions undertaken during the boom.

For our British comrades throwing "a wrench into the plans" is the same as throwing a "spanner into the works." 

Vale has been unable to obtain project financing to complete a 2014 deal to sell a stake in its Mozambique coal operations to Japan's Mitsui & Co.  That transaction, originally scheduled for completion in the second half of 2015, would have boosted Vale's cash flows by $3 billion.

Seeing the parts, bridges and dams, but never the whole:

In addition, Vale faces the stigma of being Brazilian at a time when international capital markets have largely shunned the country's companies amid a sweeping corruption scandal and economic crisis. A major accident on Nov. 5 at Samarco, Vale's joint venture with BHP Billiton Ltd., further rattled investors. 

The accident at Samarco was the failure of a tailings dam that inundated villages with mud and water, killing 19 people.

Like BHP Billiton and Rio Tinto Ltd., Vale has invested aggressively over the last decade in building massive new mines and expanding old ones.  One reason Vale needs cash is to finish S11D, a $16 billion mine in the Amazon region that will increase its iron ore output by more than 25%.

Creating 2,3, many Samarcos.

The mining majors' strategy was to fully capture the profits generated by China's frenetic steelmaking, while pressuring their competitors with lower prices.

What a plan.  Sheer genius:

Instead, demand in China has tapered off, and iron-ore prices have fallen to $40 a metric ton, less than a quarter of their peak in 2011 when many of the mine expansions were ordered up.  In addition steel prices around the world have plummeted as China continues to export excess supply. 

Overproduction is triggered by the fall in the rate of profit, and the attempt to counteract that fall, through reducing the cost-price of production, and claiming a larger portion of the total available profit.  It, overproduction, appears as "excessive exuberance" in pursuit of expanding profits.  In reality, overproduction is inherent in, and essential to, capital accumulation.  The compulsion to increase the increment of expansion of capital, the increased extraction of surplus value, overwhelms the increment of profit.

 What that means is that the big three iron-ore companies have ended up pressuring themselves, squeezing cash flows while they still have bills to pay-- forcing them to borrow money and sell or shut mines.

"They've invested enough capital in these expansions to be past the point of no return [!]," says David Wang of Morningstar, Inc.  "So they have to keep spending, but with prices this low, a company's not going to be able to have all its mines operating at a cash profit."  Vale has already announced plans to shut production at some of its older mines in southeastern Brazil.

Actually, they have invested enough capital to bring the accumulated capital to the point of no return.

The pain in mining has been widespread.  Shares in copper and oil producer Freeport-McMoRan Inc., the US's biggest mining company closed 4.6% lower Tuesday.  Freeport has shut mines, laid off workers and cut production.  Anglo American PLC is laying off 85,000 workers.  Glencore PLC last year secured $15.25 billion in revolving credit.

Vale has been able to get some money.  It sold $3 billion in assets last year, including minority stakes in infrastructure assets and a number of gigantic iron-ore ships that it commissioned during the commodity boom.

It is still trying to sell off 11 ships, which have been valued at around $100 million apiece.

...The situation marks a stunning turnaround from just a couple of years ago...

Overproduction is always overproduction of the means of production as capital, as value extracting. The capital accumulated and enlarged, engorged, in the intensified the exploitation of labor power, no longer exploits the labor power intensely enough to maintain that expansion.

S. Artesian
January 14, 2016

We regret to inform our readers of the death of Ellen Meiksins Wood.

 

Short Course in Overproduction

From The Wall Street Journal, Tuesday, January 12, 2016

Nothing compels overproduction like overproduction; overproduction and the transition from accumulation to disaccumulation:

Energy companies that took on huge debt loads to finance their slice of the US drilling boom have no choice but to keep on pumping to generate cash for interest payments.  As they do they are drilling themselves into a deeper hole....

...Even those producers with better balance sheets say they will keep pumping more.  ConocoPhillips and Pioneer Natural Resources Co., two of the most successful shale operators in the US, plan to boost production this year.

Scott Sheffield, chief executive at Pioneer, said pulling more oil and gas out of the ground makes sense even though prices are low because the company's most efficient wells still make good returns.

The devaluation of assets-- overproduction trumps ground-rent; overproduction always trumps ground-rent:

Companies that drill themselves into a hole so deep they cannot escape will be forced to sell assets or tap revolving credit lines.  That is a tricky proposition given that many energy players expect to see their borrowing bases cut as debt limits are reduced in light of the plunging value of oil and gas reserves in the ground.

Every cloud has a silver lining, so let a smile be your umbrella-- asset liquidation and devaluation, wishful thinking, cannibalizing the carrion, and other countervailing tendencies.

More than $100 billion from private-equity firms is waiting to scoop up assets that are sold either before, or after, bankruptcy, experts say.  But major corporate mergers and acquisitions remain unlikely, because any buyer would have to pony up voluminous amounts to cover the debts of a seller.  Instead, opportunistic firms are waiting for the wave of bankruptcies to arrive.  Once debt is wiped out, oil-and-gas fields will be cheap.  The longer the oversupply sticks, depressing prices, the more companies will falter, leaving their assets ripe for picking at a discount.

...

If an array of US shale companies go bankrupt or assets fall into new hands and bondholders get crushed, bankruptcies will wipe the debt slate clean and lower the oil price need to fetch a profit.

As oil goes so goes the world... of capital:  Financial Times Wednesday 13 January 2016.

Nickel, zinc and copper follow in crude's wake

The price of nickel fell to its lowest since 2003 and zinc plumbed a six-year low yesterday as the rout in global commodities deepened.

Copper...hit its lowest level since May 2009...

...About 80 percent of global nickel production is losing money and miner have failed to cut production substantially.  Vale, the Brazilian miner, plans to boost nickel production this year...

S.Artesian
January 13, 2016

This is the Modern World, and.....

What kind of fool do you think I am? -- The Jam, 1977

He's back and he's at it again.  He being Yanis Varoufakis, former finance minister of Greece, current member of Syriza (as far as I can tell), once upon a time dead lock cinch for the role as Dos Equis' most interesting man in the world.

If he were a bit younger he'd be every yuppie's ideal yuppie, that is to say, well-compensated, well-educated, taking advantage of rent hikes and/or property value declines to purchase a spacious, renovated condominium in what used to be a working-class neighborhood until... well, until landlords and brokers and institutional investors, that troika of troikas, made it a safe place to shop by displacing, dispossessing, driving out, and immiserating the working class people.  Which, btw, is what has been preserved and extended in  Greece itself, thanks to Varoufakis' skill at negotiation, obfuscation, equivocation, distortion; and thanks to Syriza, the party to which he still belongs (as far as I can tell).

Having accomplished so much in Greece, and in so short a period of time, Yanis has decided to take his act on the road.  Like Maria Callas, Frank Sinatra, Sting, Pavarotti, Miss Universe, Elton John, Diana Ross, and Liza Minnelli before him, Yanis packed the house at the Odeon of Herodes Atticus (noted sophist, of course and appropriately), and needs a bigger stage.  "Yesterday, Greece; Today, all of Europe," is his, and Wolfgang's, slogan.

Varoufakis has announced through interviews in several newspapers, and in his own blog, that on February 9, 2016 in Berlin he will launch the movement for united European democracy.  Yanis says the movement will have a simple goal, and explains it simply thusly:

To counter this de-politicisation of political decision making, which reinforces the economic crisis and the crisis of legitimacy facing Europe, we need a movement that rises up throughout in Europe, at once, with the same agenda everywhere to re-politicise political decisions and to democratise the decision making process. There is no other means by which to arrest the awful feedback between authoritarianism and failed economic policies – a feedback that, left unchecked, will wreck Europe and help ultra-nationalism triumph.

Say what? Europe is in the clutches of depoliticized political decision making which can only be countered by repoliticising political decisions and democratising the decision making process?  What's that mean?

Nothing.

   

Yanis is so very optimistic.  He assesses the recent events in Greece as a "splendid episode" and proclaims: 

What makes me optimistic about a pan-European movement? That it will be pan-European!  That we shall exert pressure on every Parliament [sic], every government, every head of state at once.  That when the Troika is squeezing let's say the Madrid government, it will know that the electoral process, in, say Germany or France or Portugal will punish any local politician who does the Troika's bidding.

Sure thing. Count on it.  Bet the condo, Yanis. Gonna happen.  Get out of the way, Wolfgang, Christine, Mario, Jean-Claude.  The Varoufakis Democratic Electoral Process Steam Roller ain't takin' no prisoners!

Yanis is, once again, being clever.  He thinks that "the task" is to change the narrative of "neo-liberalism," where the so-called "economics" of the market is the repository of all liberty, of freedom, of democracy.

Too clever by half. Yanis thinks by changing the narrative so that the ideology of neo-liberalism is identified as authoritarian, "anti-democratic," the great majority of the people of Europe will be mobilized against austerity.  As if...the issue is one of "changing a narrative."  As if push hasn't already come to shove.  As if  we didn't we just see how that worked in microcosm in Greece. 

Of course we did, but that's the point.  This is the repetition compulsion in the service of failure that doesn't just torment the "left," but is its very existence.  The "left" isn't the victim of some sort of obsessive-compulsive disorder, it is the embodiment of obsessive-compulsive disorder.

Look, we've known for years that the identification of "free markets" with "democracy" was a scam; that "neo-libralism" was the cover for death squads.  We knew because we heard it all before, in Chile, in Argentina, in London,  Honduras, in New York.

Yanis is late to the game, and he can't keep up.

Pre-emptive counter-revolution will go to any lengths to prevent the articulation, the material articulation, outside the parliaments, outside the electoral process,  in the streets, workplaces, hospitals, neighborhood councils, of class struggle.  So we get proclamations for democracy, for the electoral process, for the parliaments.   Varoufakis is in the vanguard of that pre-emptive anti-process, a regular organizer of defeat.

Short version:  Yanis, I don't give two fucks for your review (The Jam, "This is the Modern World").

Yes, this is the modern world, and..........I'm just a modern guy. Of course I've had it in the ear before (Iggy Pop, "Lust for Life").

S.Artesian

January 9, 2016