Following yesterday's blog, about Marc Faber's comments, about Capitalist collapse, and my recent posts, about the likelihood of house price collapse, in the UK, as a result of the recession, induced by the policies of the Liberal-Tory Government, last night's Newsnight was very interesting.
The programme, a report by Peter Marshall looked at the plight of America's New Poor. Focussing on Nevada, it looked at the continuing high levels of unemployment despite the massive amounts of money pumped into the economy, and the huge stimulus programme started by Bush, and intensified by Obama. It puts into perspective the fears being expressed within Capitalist circles, the concern within the federal Reserve about the potential for deflation, and the calls coming from within the ranks of the Administration for yet more stimulus spending.
But, part of the problem is that the stimulus has not been working. Vast sums went to bail-out the banks, further sums went to bail-out the auto companies, but little of the stimulus seems to be finding its way into the pockets of America's poor, including those workers and middle class people featured in the programme who now find themselves homeless. At the same time the States themselves are suffering from a shortage of funds, and without adequate State funding many of the Federal Government programmes for work creation cannot get going. The data shows that little of the stimulus designed for such spending has actually been spent. That is in contrast to China, where the Stalinist Government just gave vouchers to everyone to spend, which had an automatic effect on stimulating demand.
As the report showed one consequence of the financial crisis and recession was that previously affluent people found they could not pay for their houses. In the US as here Banks attempted to avoid foreclosure for as long as possible, in the knowledge that foreclosure in the current conditions would mean they would be unlikely to get their money back, and the further consequence would be that the houses on their books would be devalued as a flood of cheap property hit the market in a series of firesales. In fact, the Obama Government has introduced several packages to try to support mortgage payers and keep them in their homes for that reason. But, as people interviewed said, the money seems to have found its way into the banks coffers not to those who need to stay in their homes. As a result house prices have crashed and continue to fall. $300,000 homes now selling for $125,000 (£79,000). And its not just the low and medium priced houses the report showed that even $1 million mansions are being foreclosed on, and typically the banks are selling foreclosed homes for a fraction of the mortgages on them.
The UK housing market has many similarities with that in the US, because of the similarity of home ownership, and the way home ownership is financed. In much of Northern Europe the percentage of home ownership is much lower. In Germany, for instance renting is much more the norm, and tenants have far greater rights as a result than in the UK. One result is that Germany does not suffer the kinds of swings in house prices typical of the UK. In the US house prices have crashed in a way that they have not done in the UK - they fell, but quickly came back up on the basis of very low interest rates, and vast amounts of money pumped into the economy along with the other stimulus measures introduced by the Labour Government - and continue to fall. The recovery in the US is clearly faltering, and future indications increasingly point down. Unlike the Liberal-Tories the US Government continues to beleive it can grow its way out of trouble - though similar to the UK, the Republican Right with the mid-term elections in sight see electoral advantage in pushing a populist message of spending cuts - and as Faber says, they will push through further stimulus, and whoever wins in the Autumn, the federal reserve will use its independence to act in the interests of US Capital to push through further Money printing, and buying of Government debt.
By contrast, the Liberal-Tories will be cratering the economy with their spending cuts, and messages that can only have a depressing effect on consumer and business confidence, and the bank of Engalnd has interest rates pretty much as low as it can, with inflation going up - and likely to rise quickly in coming weeks as food prices rise with world wheat prices having risen 40% in the last month alone - and the need to constrain it. In a discussion on UK CNBC the other day, one presenter, almost it appeared in hope rather than beleif, argued that while house prices and incomes were out of whack, could it not be that house prices remained stable while incomes caught up. But, as I showed recently, wages would have to rise by 45% to come back into line. That would be likely to take 10 years to achieve, and no serious economist would beleive that hosue prices would remain static for that long. The proprty market simply doesn't work that way, it moves in fairly exaggerated cycles of booms and slumps. As in the US, a house price slump looks inevitable. As the Independent described recently, UK Banks and Building Societies have been holding off foreclosures in the belief that the market might improve. Once it begins to fall, that is likely to snowball very quickly, and will have a consequent effect on economic activity.
If the UK and europe adopted the same kind of stimulus policies the US, China, Brazil and others have followed, a serious crisis could be averted. But politics is getting in the way of such a solution as right-wing populism rules the day for parties trying to get elected. At some point Capital will have to intervene to reign in the Populists, or else a crisis will unfold along the lines described by Faber.
2 comments:
Bit puzzled by your "right-wing populism" line. The most distinctive fact about the Tory and Lib-Dem campaigns were that they were at pains to claim cuts would not affect frontline services, etc.
I would argue that the expectation amongst capitalists was that Labour could not be relied upon to do the necessary (for them) job of staying hands-off with the banks, boosting corporate profits with corporation tax cuts, etc. I recall on election night when the bond markets opened at 1am and the mediated response to the strong showing (at that point) by Labour - and the early expectation of a Labour-Liberal coalition - was that "the markets" were not happy.
(By the way, would you email me - I've compiled a .pdf format ebook which collects your two major essays on co-operatives. doranj AT live.co.uk)
James,
Yes, I'll e-mail you. I don't see that the commitment to defending frontline services contradicts a right-wing populist position. No one would be likely to fight a populist campaign on the basis of saying to people we are going to slash the services you depend on. But, they have attempted to claim that they can be Small Staters, on the side of the "Little Man" against bureaucracy, and powerful organisations - banks, trades unions and so on.
I think its necessary to understand that Capital is not homogenous. Not only are their contradictory interests between Money Capital and Productive Capital, but there are differing interests between Big Capital and Small Capital, between Capital (generally small) that is focussed on the national economy, and Capital focussed on the EU.
On the Bond markets, as I pointed out in an e-mail to Paul Mason recently, yields have hardly been at high levels at any point. As some analysts have pointed out the insurance costs on British debt have been ridiculous, because no one seriously beleives that Britain is going to default. The small variations there have been on Bond Yields are due to one simply reason - 'O' Level economic theory, Supply & Demand. Tory plans implied less issuance i.e. reduced Supply. So prices must rise, and yields fall.
I suspect that large sections of Capital had the same view I did before the election, which was that Tory rhetoric was just that, and that once elected the permanent State would reign them in, as would the multiple back channels that Capital has into the Tory Party. However, the Tories rely on that large mass of "Small" Capital, whose views are generally more reactionary, whose interests are more UK than EU focussed etc. Although, Big Capital is dominant from an economc and social perspective - and its interests are probably more aligned to those of New Labour's position - and its views predominate within the State, the actual political pressure, the class pressure that bears down on the Tories and the Ornage Book Liberals comes from that larger number of small and medium size business people that make up their core vote, and backbone of their Party membership.
That is why they are trapped. Its why we should exploit the contradiction they are in.
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