Well, I've more or less finished all the concreting, slabbing, landscaping and dry-stone walling. There's still a few more jobs to do, but I've been able to spend some time working on the details of why the recession is over. The trouble is that in the recent week or so there has been so much data coming out that backs up that thesis that no sooner have you looked at one than another comes out to replace it.
In the last few days the most important have been the fact that Japanese manufacturing industry saw a large increase in output. The Japanese Finance Ministry now says the Japanese economy has bottomed and is turning up. In Europe the Eurozone Purchasing Managers Index saw the largest rise on record. In the US Pending Home Sales have turned up sharply.
Rio Tinto signed a new contract for the sale of Iron Ore that was 30% below the previous price, but it has to be remembered that Futures prices for basic materials had fallen off a cliff over the last 8 months. In fact, basic materials prices are rising again, and the CRB Index, which measures all such commodities has turned up quite sharply. When the price of oil fell sharply at the end of last year with the sharp contraction of economic activity, I said that the fall would only be termporary, and that within months the price would rise back towards $90-$100. The reason for that is Peak Oil. The world has reached its maximum capacity for oil output, and the marginal cost of a barrel of oil is around $75. In other words, if oil companies are to be encouraged to spend money developing new oil wells they need a price higher than that before it becomes profitable. Some small companies might be able to develop wells at cheaper prices, but not on a sufficient scale to meet global demand. Existing producers will be able to continue producing profitably at a lower price, because their existing wells have lower costs - they can base their calculations not on the Mrginal Cost, but their average cost of production. But, once the surplus is taken out of the market, a surplus which had largely built up as a result of the specualtion that drove prices to $150, then producers will have their eyes on that marginal cost. OPEC has now said that it is looking for a price of around $90, and prices have already risen by more than 50%, to nearly $70 a barrel.
For reasons I'll set out in my more detailed analysis, that may not be true for other basic materials, which may have seen a peak in their prices, or else be close to it.
The other big developments look to involve the dollar. Last year, I argued that the Chinese and others would not push for the role of the dollar as reserve currency to end until such time as the world financial crisis, and recession was over. That is now more or less the case, and the Chinese and Russians are beginning to increase the demands for more currencies to play the role of reserve. China has already done deals with Brazil and other coutnries to deal in their own currencies rather than the dollar. The idea of using the IMF's Special Drawing Rights (SDR's) as a reserve currency is probably a non-starter for similar reasons that problems arose with the Euro during the current crisis. A currency needs a state standing behind it. The Euro at least has the EU, but the IMF could not fulfil the function of a state. Its lijkely that the task of acting as world currency will fall to the Euro, and that prospect is already causing concern in the Eurozone, because it will mean a consierable strengthening of the Euro against other currencies, and a fall in competitiveness.
Ultimately, that role will have to fall to China, but as yet China does not have the financial infrastructure, nor the confidence of financial markets to undertake such a role. But, China is flexing its economic muscles. It is using the falling dollar to buy up more basic materials on the cheap using its stache of dollars, it is again using those devalued dollars to buy up US based companies priced in those devalued dollars - a Chinese Company has just picked up Hummer from GM for next to nothing. Meanwhile, the US now afraid of what would happen to its economy if the Chinese stopped buying its Treasuries is in no position to refuse to allow Chinese companies to buy up US strategic assets. That is especially true now that China has said that its worried about the extent that the US debt is ballooning, and the Fed is monetising the debt. IN an interview today with CNBC's Steve Liesman, TReasury Secretary Geithner, said that there should be no fear that the US is going to monetise its debt, but as Rick Santelli pointed out, it was already doing precisely that, that is what Quantitative Easing is!!!
In fact, financial markets have already made that call. A number of rating agencies last week considered downgrading the US's creditworthiness, and in even before that cocnern at the US's ability to pay back its debt in the longer term had pushed long term interest rates up, even though the Fed has been pushing them in the other direction by buying them up with newly printed money!
In fact, its inevitable. The current restructuring of Capital taking place on a global scale of which the bankruptcy of GM and Chrysler is a part, will necessarily see the relative position of the US decline. Currencies are an indication of relative standards opf living. In the US both are going to decline relatively. The falling dollar will mean that the US pays more for what it imports both to consume and to re-manufacture. That means that US workers will have to work longer, and harder to buy those things. Within the confines of Capitalism, only the restructuring of Capital taking place - the movement of Capital and Labour away from those old inefficient areas like auto production, towards areas where US Capital and labour can compete on a global scale - will act to mitigate that process. As Marxists we have to make that truth clear to workers at the same time as we support their inevitable struggles to save existing jobs, and to ensure the rights and interests of workers as new types of industry arise. The real answer cannot be simply Trade Union action to defend those existing jobs in the longer term, because as was seen in Britain that process will simply mean a slow agonising death marked by some victories for the workers, but with many more compromises agreed by the Trade Unions such as those agreed at GM.
Only the establishment of industries in workers ownership, and under workers control can provide a solution, and even then only if those industries are in areas that can compete effectively on a global scale. The current deal whereby the United Auto Workers get a sizeable stake in GM are a sham. That stake will be used by the union bosses not the GM workers to exercise any kind of control. As a Minority stake the workers even were they to have any say would be outvoted. It will be used in a similar way to the Works Councils in Germany that effectively tie the workers into taking responsibility for the fate of the company without any real control over it. Only Worekr Owned Co-operatives under the direct control of their workers can provide workers with the kind of control to choose the best solutions under given conditions for them, including what to produce and how to produce it.
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