Tuesday, 10 February 2009

More Greenshoots?

Further reports in recent days show that the credit crunch appears to be coming to an end. Rates have been falling, and a number of Corporate Bond issues have been well taken up. The latest inflation data out of China shows a significant decrease, giving the Central Bank further room for easing monetary policy. In fact, it already looks like the Chinese slowdown bottomed at the end of last year even before recent monetary and fiscal measures together with some centrally directed measures take effect.

Last month, for the first time ever car sales in China exceeded those in the US. It was thought that the Chinese car market would not exceed that in the US until around 2014. Although, this month's figures are likely to be a one-off - they still represented a slow down sales in the US fell by more than 30%, whereas in China by only 8% - it now looks likely that the speed of advance of the Chinese economy is faster than first thought, and with it, the advance of Chinese consumers, who account for a large part of Chinese production.

And although, its often thought that China now represents the workshop of the world, recent figures show that Germany remains the world's leading exporter.

Meanwhile, it was just reported on CNBC that Intel is planning to invest $7 billion over the next two years in research and development to produce the next generation of smaller, more powerful and more energy efficient chips. The investment will largely be in areas that will employ more high value, high wage workers.

See: Intel To Spend $7 billion

A couple of weeks ago I wrote about the fact that there had been rumours about British Banks being nationalised, rumours that coincided with the reintroduction of short selling for Bank shares. At the time it led to big falls in bank shares as shareholders got out. At the time with RBS shares falling to 10p, I forecast that some of the smart money, indeed perhaps some of those spreading the nationalisation rumours, would make big bucks if those shares rose to their former highs or even, as I argued if RBS rose to just £1, which is only a 6th its former high. In fact, in the couple of weeks since then those Bank shares have already risen sharply. Within a week RBS had doubled to 20p. It now stands at around 26p. That's a 160% increase in about two weeks, which makes my original suggestion of 1,000% in a year look like an underestimation. Compare that with the 1% a year or less savers are getting on their hard earned money.

As I said then the Banks remain one of the biggest cash generative businesses in the country. Although they have all these toxic assets on their books which hav led to the Credit Crunch, they also have millions of debtors, 90% plus of whom are day in day out filling the banks' coffers with their loan repayments, mortgage repayments and even more lucratively their credit card repayments. While, the cost of money to the banks from the Central Bank has now fallen to almost zero, those banks are still receiving up to 6% on mortgage repayments, 6% plus on loan repayemnts, and over 20% on credit card repayments. No wonder that Barclays last week announced that amid all the gloom and doom it had still made more than £7 billion profits, and ws to icnrease its dividends by 10%.

See: Barclays .

Despite all the hysteria all the signs are that despite the sevrity of the financial crisis, this downturn is just a normal cyclical recession like those of 2001-3, and 2005-6. Workers should take the lesson from the refinery wildcat strikes and not be cowed into accepting pay cuts or other measures that allow the bosses to take advantage of the current situation. Indeed, as I wrote recently when the economy begins to expand again towards the end of this year, the massive injection of money tokens into the economy will lead to huge inflation - Dr. Marc Faber has even suggested inflation in the US could reach 200%, though I think that is overdoing it somewhat -

See: Marc Faber Video

Towards the end of the 19th century the German Government was bailing out with subsidies German industry. In a letter to August Bebel, Engels said thatthey were doing this with worekrs money paid in taxes. He went on that he and Marx had always seen Co-operatives playing a central role in the transition between Capitalism and Communism. The Communists he argued should advocate the establishment of such Co-ops where Capitalist industries went bust, in agriculture in place of the large estates of the landlords and should ask for the same kind of subsidies for those Co-operatives that the bosses were giving to private Capitalists. At a time when the bosses state is again handing out workers money to the bosses in the bank and other bail-outs Engels suggestion is one which Marxists should take up. We need workers to establish Co-operatives, which enable them to have control of the means of production and over their own labour process - which they can never have under the meaningless demand for workers control under Capitalist or State Capitalist enterprise - and for them to call for the same kind of support from the State that that State is giving to the bank bosses that caused the current crisis.

See:See: Second Letter .


Anonymous said...

I'm not sure I see these green shoots. This crisis seems greater than a normal cyclical one.
House prices are expected to keep falling and even if banks start lending again, they will, I suspect, have to prioritise business over individuals, which will mean less credit and less demand.

In the long run workers will pay for all of this of course, only a move to socialism could solve all these injustices and contradictions.

Boffy said...

Green shoots doesn't mean rampant growth anytime soon. But, the fact is the Credit Crunch is loosening, interbank rates are falling, lending does seem to be increasing. Now, as I said in my blog last July, which warned that this cris was about to erupt Severe Financial Warning, that could all change. If, all of that avalanche of other debt, not the sub-prime mortgage deby, but some of the pime mortgage debt, the commercial debt as businesses default, the Credit Card debt etc. hits those institutions, then all bets are off.

But, at the moment that does not seem to be the case. Although, negative equity is rising, it is only a problem if you have to realise the loss, that is if you are a forced seller of your house. If you move to a bigger house what you lose on seeling you more than gain on buying, for instance. But, most people are deciding to simply stay put, so negative equity is really an irrelevance.

Provided you can pay the mortgage you let yourslef in for it doesn't change anything. And in both the US and UK - Europe really doesn't suffer this problem - mortgage repayments have been slashed. One bloke on the TV last week spoke about his mortgage repayments falling from £900 a month to just £300 a month. That's £600 a month extra he has to spend on consumption, and that is probably typical of many who've taken out mortgages in the last few years. That's a hell of a consumer stimulus, and its perhaps no wonder then that retail sales figures continue to surprise on the upside.

The other thing would be if you lost your job. But, although unemployment is rising, so far its not rising massively. Besides even in the 1930's the majority of people were only out of work for a matter of months, it was different people who kept replenishing the dole queus.

There is a significant problem, which I will write about when I've dealt with some pressing current matters. Its that of disproportionality. The market SHOULD average out prices, profits etc. Within a market it tends to do that except for the fact that modern Capitalism is Monopoly Capitalism so monopolies go outside that framework. Although, we have a global market that averaging out doesn't work smoothly because of Monopoly because of frictions.

So, although the wags of US Car workers are 30 times those of Chinese Car workers GM, Ford and Chrysler have been able to continue producing millions of cars for several years when in reality the Capital and labour that went into them should have gone to produce something else, and those cars should - if they were produced at all rather than being overproduced - have been produced in China or elsewhere. Alternatively, the wages of US car workers should have come down and Chinese wages gone up to the an equilibrium level.

But, it is the fact that this avergaing out does not take place on a globalised market, which produces such disproportionality, which in turn leads to a missallocation of Capital on a global scale, which leads to massive over productions in some areas and udner productions in others, and the huge tradde imbalances.

But, I continue to beleive that we are still in the rapid growth phase of a Long Wave Boom similar to that after the War, and that these problems are likely to be resolved within that context. I could be wrong, Capitalism really could have reached the end of the road and become absolutely incapably of developing the productive forces, but looking around at all the reent developments which have yet to find full application I very much doubt it.