Tuesday, 12 July 2011

Gold – The Cost Of Production Argument

On CNBC this morning Peter Toogood, of Old Broad Street Research, argued that he could see no basis in terms of the store of value argument, for the price of Gold to be where it is, or to be rising. The reason for this, he argued, was based on the cost of production of Gold. The cost of production of Gold currently is around $1350 an ounce, whereas the current price of Gold is now approaching $1600.
If then we are to argue that people are demanding Gold because it forms a store of Value, its current price is already above its Value. Generally, Marxists would have some sympathy with this argument, although we would argue that it is the Price of Production (Cost of production plus the average rate of profit), which is the basis of an equilibrium market price. However, there are a number of reasons why his argument here is wrong.

The Marxist argument concerning market prices goes something like this. The fundamental basis of market prices is Exchange Value. The Exchange Value of any commodity is determined by the amount of average, socially necessary labour required for its production. Labour here is not the specific labour used in the production of the specific product, but abstract labour used as merely a unit of measure.
To understand this concept, think of the measurement of length. The unit of measurement we call “the foot”, is an abstraction. Originally, people's actual feet served as a basis of measurement. But, clearly all feet are different, just as all Labour is different – the labour of a Tailor is not the same as the Labour of a Bricklayer. Other measurements were similar, a Cubit the length from the elbow to the tip of the finger and so on. But, as it became more important to have more accurate, and commensurate measurements of length these names remained, but the actual lengths they represented became fixed, even though this fixed length might not represent the length of any person's actual foot. It was merely an abstraction. So with Abstract Labour as a unit of measurement. In just the same way that a foot might represent only 80% of the length of one person's foot, or 120% of the length of another's, so one hour of Abstract Labour might represent just 50% of an hour of skilled Labour, and so on.

On this basis every commodity can be objectively measured in terms of how much of this Abstract Labour is required for its production. That does not mean just in the actual Labour used to manufacture it, but also the Labour contained in the machines used up in its production (depreciation), and in the materials used in its production. But, Marxists argue that one of these components used in production is different from the others, and that is the actual Labour used to set the machines in motion, and to transform the materials into the finished product. It is different for this reason. The machines, and materials used in the production process have an Exchange Value determined as above. If they were sold on the market that is the Value they would have. They are incapable of increasing in value on their own account.
For this reason Marxists call them Constant Capital, because they can only transfer the Exchange Value they already have into the finished commodity. However, in order to set these machines in motion, and transform the materials, real living labour is required. The worker who represents this Labour, sells his/her capacity to perform it to the Capitalist. In other words what the worker sells to the Capitalist is not Labour – which would mean selling him/herself i.e. becoming a slave – but their capacity to perform Labour i.e. their Labour Power.
Labour Power then is also a commodity – which is why the claims of the Tories about the right to strike i.e. not to sell the commodity Labour Power unless a given price is paid for it, undermine the very principles of a market economy they claim to defend – in fact, it is the only commodity that workers have to sell, which always puts them in a disadvantaged position versus Capital. If, Capital is to be free not to buy Labour Power from workers when it chooses, and to make them unemployed, then workers too must have the right not to sell their Labour Power to Capital as and when they choose, if its price and other conditions are not met.

As a commodity this Labour Power also has an Exchange Value determined by the Labour-time required for its production. In other words, how much Labour-time is required to produce the food, shelter, clothing, healthcare, education that has to be consumed by a worker to perform the required Labour for a given length of time.
However, unlike the machines and materials which can only ever transfer their Exchange Value into the final product, the Labour-Power bought has the unique quality of being able to continue to perform Labour beyond the point at which its price has been repaid. This can be easily seen if we look at previous Modes of Production. In slave owning societies, the slave owner directly provides the slave with accommodation, food, clothes etc. But, he then expects the slave to continue to work, and to produce value beyond what has been laid out to enable the slave to perform that work.
There would be no point having slaves otherwise, and in fact, the holding of slaves only began after the development of tools and other productive forces had reached a stage where an individual could produce more than was required for their own subsistence. Similarly, under feudalism, the peasant worked half the week on their own land, producing the food and other products needed for the subsistence of their family, and in the other half of the week, worked for free on the land of the Lord of the manor, as payment of rent.

The position of the wage worker is essentially no different. They work for part of the week producing Value that repays the cost of producing their Labour-Power, and the rest of the week they work for free, the value of what they produce during this period being appropriated by the Capitalist as Surplus Value, which he shares with the Money Capitalist as Interest, the Landlord as Rent, and the Capitalist State in Taxes. For this reason, we call this part of Capital, Variable, because the amount of Value it creates is variable depending on the length of working day, intensity of the labour etc.
Unlike, the slave or the peasant, the wage worker believes that they are making a fair deal exchanging like for like, but that is only because the payment of their wages takes the form of money, and because they have the appearance of free sellers of their commodity, Labour-Power, within the market. As Nicholas Taleb puts it,

“Karl Marx, a visionary, figured out that you can control a slave much better by convincing him he is an employee.”

So, Marxists present the Exchange Value of any commodity as being formed as follows:

C 1000 + V 1000 + S 1000 = K 3000.

These quantities can be viewed as hours of Abstract Labour. But, if we assume that a Money Commodity exists, whose Exchange Value is also determined by the labour time required for its production, then these quantities can also be viewed as amounts of this commodity e.g. Pounds. In this example, the workers work for half the time to produce Exchange Value equivalent to the Exchange Value of their Labour Power (paid in wages), and the other half of their time is then producing Exchange Value, which is appropriated by the Capitalist as Surplus Value.

The total exchange Value is 3000 comprising the Exchange Value of the machines and materials used up in its production, and the Labour used to set those machines in motion, and to transform the materials. This latter value then being divided between the workers as wages, and the Capitalist as Surplus Value.
Its clear from this why the capitalists want to reduce the Value of Labour Power by making the things required to produce it cheaper i.e. food, education, healthcare, shelter, clothing etc., because by doing so, they can simultaneously raise workers real living standards, and increase profits.

But, imagine another company which uses the same amount of Capital, but which is composed differently.

C 1500 + V 500 + S 500 = K2500.

In the first instance, the Capitalist makes a Rate of Profit of 50% (1000/2000), but in the second the capitalist makes a Rate of Profit, of only 25% (500/2000), where Rate of Profit is S/C+V. But, in that case, because Capitalists will always invest their Capital where they can make the highest return, Capitalists would take Capital out of the second type of industry, and move it to the first. The consequence would be that Supply would contract in the second industry pushing prices up, as demand and supply adjust, and as a consequence increasing the Rate of Profit, whereas in the former the influx of Capital would increase Supply, thereby reducing prices, and profits. By this means the Rate of Profit across industries is constantly being adjusted towards an average level, which is itself always changing.

So, on this basis, we would tend to agree with Peter Toogood's argument that if the cost of production of Gold is $1350 an ounce, but its current price is $1600 an ounce, then we would expect that the higher rate of profit that this generates, would encourage more capital to be invested in Gold production, its Supply would then rise, driving down prices, and profits.
To some extent, that can indeed, be seen. In the last 10 years, there has been considerable investment in prospecting for new goldmines, and in establishing them in Kazakhstan and other Central Asian countries. But, there are a number of reasons why this will not determine the price of Gold now, or in the near future.

Firstly, the process by which Capital flows from one area to another is not instantaneous. It takes seven years to establish a Gold mine, and longer than that before it reaches peak production. In the intervening period Supply can fail to match demand, and so prices will remain above the Price of Production during that period. The production of commodities such as Gold, are not the same as for say Mars Bars, because it is not possible to quickly adjust production upwards to respond to an increase in demand.

Secondly, a commodity such as a Mars Bar, is bought and consumed. Gold, cannot be destroyed or consumed. Every ounce of Gold ever mined, is still in existence, and is stored in private and State hoards, or in the form of jewellery. Newly produced Gold, forms only a small proportion of the Gold that is traded on the markets, and, therefore, in periods when demand for Gold is strong, the price of production plays a smaller role in determining the market price.
Far more important, becomes the willingness of those with existing Gold hoards to sell them, which in itself becomes a function of whether they believe the price will continue to rise, or will fall. So long as the demand for Gold exceeds the Supply made up of that made available from existing hoards, and new production, its price will continue to rise.

Thirdly, Gold as store of value is an indication not of existing levels of inflation, but of what those demanding it, think is going to happen to inflation in the future. In 1971, the price of Gold was $30 an ounce, which was the price it had been set at in 1947 at Bretton Woods. During the 1970's, as inflation increased rapidly due to massive money printing in the US and elsewhere, and as it looked as though the international monetary system was on the verge of collapse, the loss of faith in paper currencies was reflected in a rise in the price of Gold, as real money.
By 1980, it had risen more than 25 fold to just over $800 an ounce. Current levels of inflation though rising, are in reality flattered. Over the last 20 years, massive money printing around the globe has not resulted in general inflation. That is because, that excess liquidity was soaked up in two ways. Firstly, it was soaked up by China, which became the workshop of the world. Large amounts of western currency went to buy Chinese manufactured goods, and some of that currency was recirculated in loans back to the West, whilst another large part of it went to building new production capacity in China, as well as in demand for massive quantities of raw materials from Latin America, Central Asia, and Africa.
The low production costs of those manufactured goods from China, reduced the Value of Labour Power in the West, and thereby facilitated a modest rise, or only slight decline in western real wages, despite growing uncompetitiveness of its economy. It meant inflation remained low.

But, the era of cheap Chinese imports is coming to an end. China is facing rapidly rising inflation itself, which is the manifestation now of the depreciation of all that paper money that has been printed. Wages are rising rapidly in China, driving up prices fast, and those prices will be transmitted into the global economy, as rapidly rising import prices.

The second, way in which the paper money was absorbed was in the bubbles in asset prices. Over that period, their were repeated bubbles blown up in Stock Markets, and in Property Markets.
As inflation rises, and more money is required from disposable income to pay for everyday things, such as food and clothing, so the ready supply of money to finance those bubbles will cease, and as they pop those markets will correct sharply downwards. As I've said previously, based on the OECD data, house prices in Britain are due for an 80% drop. But, as money moves away from these bubbly asset classes, so it will tend to move into where a real store of value is seen to reside. Rising commodity price inflation, will, in fact, rapidly push up the money price of production of Gold and all other commodities.
The cost of wages for gold miners, of equipment to mine etc. will rise sharply, and so that $1350 an ounce could in two years time easily have risen to more than $2000 an ounce, and that is where Gold can even be mined at something approaching current levels of productivity. Already in South Africa, the world's largest Gold producer, mines are having to go down to record depths to get out gold, and the lower you go, the higher the cost becomes.

Fourthly, and related to the above, in a world of global uncertainty, demand for assets that provide security goes beyond what might seem in the abstract as rational levels. For example, the Yield on the UK Ten year Gilt, has fallen from 3.8% to now hovering just above the 3% level in a matter of weeks. That is not because of confidence in the Government's austerity measures. On the contrary, Japan, which has a debt to GDP ratio of more than 130%, and is spending more due to the earthquake and tsunami, is paying just over 1% on the 10 Year JGB, whilst the US, which has far more debt than the UK, is paying less than 3% on the US 10 year Treasury. The reason for these low, and falling rates, is that Bond investors are concerned over the European debt crisis. They are trying to get out as quick as they can, from Greek debt, Irish debt, Portuguese debt, and now Spanish and Italian debt, with Belgium lined up too. They are doing so for fear that they might not get all or most of their money back, if these economies default, which in the case of Greece, everyone recognises as being inevitable.

Yet, on the face of it, this seems to be irrational. Bond investors are accepting 3% on the UK 10 year Gilt, whilst inflation is already at 5%, meaning that they are losing 2% in real terms on their investment every year! But, they are prepared to do that because, they think its better to lose 2%, than to lose 30, 40, 50% of their money by investing in Greece, Ireland, Portugal, Spain or Italy. Its on that basis that under current conditions, demand for Gold can continue to rise way beyond what might seem rational in terms of its current price of production.

At the moment, there are still plenty of people prepared to sell their bits of Gold, to the rip-off merchants, springing up on every high street, offering worthless bits of paper in return for real money. If anything, that is keeping the price of Gold down. But, at a certain point that will turn around, and all those people now giving away their Gold to the rip-off merchants will be trying to buy it back at much higher prices. Then the price of Gold will begin to soar.


vngelis said...

If the world economy was booming and growing then in practice the price of gold would reflect that. Instead we have a collapsing dollar and other fiat currencies and a turn by investors away from paper.

Boffy said...

The world economy is growing and booming, as the data illustrate. But, then we know that facts are merely an incumbrance to your prejudices.

Boffy said...

The world economy is growing and booming, as the data illustrate. But, then we know that facts are merely an incumbrance to your prejudices.

vngelis said...

So what you are saying is that world gold prices rise when there is a world boom and a not issues with the US economy?

The chart below shows otherwise as gold boomed in 1974-5 and in 1980 both periods of crisis in the US.... Its booming again now when default looms


Boffy said...

I said no such thing, as anyone reading what I have written here, and elsewhere can see. I only pointed out that your assertion that there was no global boom at the moment is like most of your claims not borne out or supported by the facts.

Gold, actually always DOES rise sharply in real terms during the initial period of a Long Wave Boom, as Kondratiev demonstrated. In real terms compared with the price of other commodities, Gold actually reached a peak in 1960, at the height of the post-war boom. The peak it reached in 1980, was a nominal peak, based on the depreciation of paper currencies during the late 60's, and 70's.

The price of Gold today is rising sharply due to the combination of the two factors. Gold hit a low of $250 an ounce in 1999. It has been rising sharply ever since, including during a period when no one could claim there was a global depression. It did so, because as with every previous such Boom, a powerful new demand for money arises, as economic activity increases rapidly, and as the demand for primary products rises sharply, and cannot immediately be met, as investment has been allowed to lapse during the downturn. But, that demand for Gold along with other primary products such as Copper, iron Ore, Food etc. is also accompanied by a depreciation of paper currencies, which has occurred.

There is no chance of a real as opposed to technical default by the US. If the Governing Parties in the US agree to a deal over increasing the debt ceiling, then even the possibility of a technical default - arising because the US State would have legally prevented itself from spending money on anything including interest payments on ist debt - would disappear immediately. That is not at all the same situation that Greece faces, or indeed that countries like Ireland, Portugal, Spain and Italy face.

But, your view of this crisis ion the US fits very oddly with your asserion that every other country on the planet including the EU is a colony of this same US! In fact, the things you argue are so wacky that I'm wondering whether you are in fact a serious person, or whether you are just some kind of dilletante sitting in Kensington, simply writing this ridiculous stuff just to amuse yourself.

vngelis said...

I aint that familiar with Kondratiev only what Trotsky wrote about him.
So in the chart I provided when gold rose this was part of a Long wave boom?
Ie in 1974-5 and 1980!!!
You then state the peak it reached in 1980 was linked to a depreciation in paper currencies. So that presumabely is not the case with the dollar today?

You then say that there is no possibility of default of the US. At least you know that, as most other people on earth dont.

What was the Marshall Plan and the gold reserves handed over to the US in the midst of the war by Britain and post-war by Germany? A sign of independence?

I could be in Kensignton, but then again I was for a long time in Athens where I was reporting from and as far as I know technology hasn't arrived enabling me to be in two places at once. But its you who are retired....

Boffy said...

If you are going to comment on people's blogs, you really ought to get into the habit of reading what people say before you decide to argue with it! The whole emphasis of the blog you are arguing with was on the fact that Gold is rising because paper currencies are being devalued!!! That has been a consistent argument I have made for several years. Yet, what is your argument - that Gold is rising because paper currencies are being devalued. In otehr words you are arguing against a blog whose main point you agree with!!! That sums up your whole approach.

So, no in 1974 Gold was not rising because of a Boom, but because of paper currencies being devalued. But, if you were able to stop thinking in dogmatic terms that the reason for a pheonomenon can have one and only one cause, or realise that the causes of phenomena can be different at different times you might understand that the cause of the rise in the price of Gold then was related to that devaluation of paper currencies, whilst in the 1950's it was due to the Long wave Boom which pushed up the price of all primary products, and raised the price of Gold relative to all other commodities. In fact, in 1980 the price of Gold relative to otehr commodities was not as high as in 1960, because the devaluation of paper currencies led to inflation, which raised the prices of those other commodities more than the price of Gold!

Every serious Economist DOES know that there is no chance of the US actually defaulting as opposed to a technical default due to not agreeing an increase in the debt ceiling!!! That is why the Yield on the 10 Year Treasury is below 3%, and has been falling!! By contrast no one will lend to Greece at any rate of interest.

No one denies that in 1945, and for some years after the US had hegemonic power. Even so, it was not exercising Colonial power over Britain, or France and other countries. In fact, France refused to put its nuclear deterrent under NATO control.

But, this is NOT 1945, it is 2011, and the US no longer has the power it had then. To suggest that the EU, or Japan, or most other countries are in some way colonies of the US is complete nonsense.

I have nothing against people who live in Kensington per se, but I doubt many socialists live there, and the reactionary nature of your writing has done nothing to dissuade me of that impression. If your total disregard for the facts is typical of journalism in Athens then its no wonder that stories about e600bn sitting in Swiss bank accounts circulate without anyone actually providing any real evidence for the truth of the statement, just like your other statements about the IMF stopping Greece trading with China, Russia etc., which you have still provided no evidence to support, or your statement about it stopping Greece developing its oil deposits, which again you have failed to provide any evidence to support, but which this article disproves. Perhaps the next time you are in Athens you might like to try doing some actual research into the facts rather than simply repeating tittle-tattle, and engaging in rampant conspiracy theory and catastrophism, something that Bill Jeffries at Permanent Revolution has also criticised you for.

vngelis said...

So what you are now saying if I understand it correctly is that currencies depreciate amidst a long wave boom? So what gives rise to a depreciation of currencies? Why has gold gone up so much in the last few years?
It serves you idea that US capitalism is healthy and in boom to talk about the rates of interests of its bonds which are minimal in relation to gold for instance and to erase its historical role of a world currency which gives it a certain bonus in terms of world trade. You then say the US will go into technical default not real as if the budget of California suddenly will go into surplus or the 50 million on food stamps aren't in reality bankrupt, but just technically not bankrupt. You are playing with words just like Papandreou in Greece who states Greece aint bankrupt but its bonds wont be paid on time but in the distant future, in other words a technical default aint a default as the world continues to loan to the USA. That is why I agree with the following that the USA is already bankrupt:

Boffy said...

You start by saying “so what you are now saying”, as though I am saying something different now to what I have said previously. I am not. No, I am not saying that currencies depreciate during a Long Wave Boom, which is clear if you take the trouble to read what I have said. There is no causal relation between a Long Wave Boom and currency depreciation. There is a causal relation between a Long Wave Boom, and the price of Gold, however, just as there is a causal relation with a Long Wave Boom, and the rise in prices of other primary products such as food, copper, iron or and so on. It is to do with the sharp rise in demand for these commodities, at a time when investment in their production has steadily declined during the Long Wave slowdown, meaning that Supply cannot quickly rise to meet demand.

The issue of currency depreciation is, as I have written many times over the last few years, the consequence of money printing from the late 1980's in the US and other economies, as part of the Monetarist solution to dealing with recessions. It facilitated the increase in the Rate of Profit during that period, through falling real wages, offset by the increase in private debt, and in so doing prevented western economies going through the kind of deep recession and depression that occurred during the 1930's, and facilitated a shift from manufacturing production – which was moved to the East where low wages meant higher profits could be made – and into service industries such as retail, financial services etc. But, when the Long Wave Boom began in 1999, it also meant that weaning these economies off this cheap credit, de-leveraging private and state Balance Sheets was never going to be an easy matter. In fact, as I wrote in my blog The Thieves Kitchen, the fact that Financial Capital became so powerful during the last thirty years in these countries, and that Governments were led to facilitate that development with the establishment of various schemes that encouraged stock market speculation, which also fed into other forms of asset price speculation, created a dynamic that diverted funds away from productive investment.

Only by investment in those kinds of high-tech, high value, productive areas, where these western countries could enjoy a Comparative Advantage, and thereby enjoy global competitiveness, whilst continuing to be able to pay relative high wages, could the structural imbalances between the West and the East be eradicated over time, as living standards in the east gradually approached those in the West over the next 25-30 years. The continuation of large deficits, and a slow depreciation of western currencies against those in the East would have to be a necessary component of any such rebalancing.

Bearing that in mind, and considering everything else I have written over the last ten years, about the declining power of the US economy, and of the dollar, I find your assertion that I am in some way promoting the idea of a healthy and booming US Capitalism rather odd, to say the least. But, to recognise that US Capitalism has considerable structural problems to address, that its strength is in relative decline and so on, is NOT the same as then jumping to the extreme that you adopt of continually seeing it as being on the verge of collapse. And, indeed the fact is that the US economy came out of recession rapidly – largely as a result of Keynesian intervention – and has continued to grow since, though now more slowly than it has been doing. Moreover, my argument has always been that Capitalism/Imperialism is a global system, and the fact is that as a global system, it IS in a period of Long Wave Boom, and the data on the growth of that global economy for the last 12 years demonstrate that to be true.

Boffy said...

Your comments on the yields on US treasuries in comparison do not make sense because the two things are non-comparable. Far from not considering the role of the dollar as global reserve currency, it has been central to many of the arguments I have made over the last ten years in relation to the US economy!

Your subsequent comments, I'm afraid, show that you have no grasp of basic Economic or Accounting terms. Your approach is similar to that criticised above where you can see things only in black and white terms. For you something that is not booming must be bust, it seems. So, for example, the idea you set forward that if California's Budget is not in Surplus, then it must be bankrupt. But, as everyone knows a Budget is only a statement of income and expenditure, not a statement of solvency, which is provided by an analysis of the Balance Sheet, of the ability to cover Liabilities by Assets. A Budget deficit is then in no way an indication that any organisation is bankrupt as I have explained to you on previous occasions. Any organisation, with a strong Balance Sheet i.e. with sufficient assets to borrow against, can fill a budget deficit with borrowing, and of course, that is what all such organisations, including Greece and California do. The crucial question, and the one which Markets are concerned with in determining the rate of interest they charge on such loans is can the borrower repay the loan. Greece cannot, which is why it faces exorbitant interest rates, California, and the US as a whole can, which is why they face very low interest rates. If Capitalists throughout the world, shared your view that the US was really bankrupt they would not lend to it at such low rates!!!

You then go on again about the 46 million people in the US on food stamps, and assert that this means that the US is bankrupt. That approach is wholly un-Marxist, and instead is simple bourgeois nationalism, equating a state with its people, rather than recognising that all societies are divided into classes. In fact, the issuing of food stamps to 46 million people in the US, along with the provision of other Welfare payments, the provision of free State education, of socialised healthcare for the elderly and poor etc., are indications of the exact opposite, of a state that is rich enough to provide the poorest section of society with a basic minimum of provision. If you watch Michael Moore's documentary - “Capitalism – A Love Story” - for example, you will see that some of those who receive food stamps are not at all “bankrupt” as you put it, but are airline pilots earning $20,000 a year.

In fact, it looks now as though the US will not even go into technical default, because it looks as though a deal will be done between Democrats and Republicans to raise the debt ceiling before the deadline date, so even your playing with words will be irrelevant, as the US continues to pay its debts, including the interest on its loans.

vngelis said...

You argue that I dont understand basic concepts of economics and accountancy and then go on to show me that a US pilot on $20k who is given food stamps to stave off starvation, is a wage which doesn't make you bankrupt as it translates into £12k for an airline ...pilot!!

If 50m Americans are like the pilot you quote then the economy is dead in the water or basically on life support machine waiting to drop dead. For short of paying rent and transport to and from work nothing else will be left over.
According to this study
the US labour force was 150million in 2005 so if now 50 are on food stamps that is almost 1/3 of the labour force. Food stamps are like our tax credits and an indirect subsidy to big business...

The issue of concernt isn't Americas technical bankruptcy but its real bankruptcy as the cost of 3 wars in a decade and the 100 overseas military bases are a drag on the economy and it has gone into an irreversible decline. Due to this decline they are trying to use Europe as an ATM machine hence the arrival of the IMF.

Boffy said...

More speculation, innuendo, the connecting of unrelated data, and catastrophism. Many people on foods stamps may well be retired and not, therefore, part of the 150 million labour force. They also receive other Welfare Benefits as of right such as healthcare through Medicare and Medicaid.

I only quoted, the $20,000 of an airline pilot as an example. The point is that is hardly a level of income that it is impossible to live on. Given the low level of taxes, and no National Insurance in the US, its unlikely that Net Pay would fall to just $12,000.

But, the point is that the US, IS a very unequal society. The fact that some workers or unemployed receive much less than others, therefore, does not at all mean that its economy is bankrupt. On the contrary, the fact that it CAN bail-out Capital by subsidising wage costs through Welfare demonstrates the opposite.

The US, is undoubtedly in long-term decline compared to China, Inida and other developing economies. But, that is to say nothing more than that the UK was in such a decline from the end of the 19th Century compared to the US, Germany, Japan etc. That did not mean that the Uk was beocming bankrupt. Its still here, its still a powerful economy.

You would have to explain what you mean by using Europe as an ATM machine. I think you'll find its the other way around. Europe lends money to the US, and gets interest on it. The only economies, in which the IMF has been involved has been in the periphery, and then only at the margins, the majority of the bail-out funds coming from the EU itself. Given that some of those private banks that have lent to Greece have just lost 21% of their Capital, you could say the ATM just ate their cards!

vngelis said...

When the IMF arrived in Greece a whole bunch of bond traders were on the same plane and they bought Greek bonds which at the time were issued with high interest rates. The ones that didn't come bought CDS's. Between them they want to milk Europe dry now they have their foot in the door.
When the Europeans buy US bonds and America embarks on constant rounds of QE this translates in a fall of the dollar hence a fall in the value of bonds to be matures.
But like the mafia racket with bars, if you dont pay protection money to Wall Street they hit at you in a myriad of ways.

When I spoke about the pilot I mentioned his equivalent salary in £ and this translated into around £1k a month. A salary where you could only live in a trailer park. So how low are salaries in the US apart from the banking cartels?

Boffy said...

Can you provide a reliable source for this story about the Bond traders? It seems very odd, as this is not the way Bonds are usually bought or traded. Bonds are usually sold via a Bond Auction, in which buyers apply to buy the Bonds at a particular price. Bonds are traded via the Bond markets, where anyone is free to buy existing Bonds, and existing holders of Bonds are free to sell them at the best price they can get.

In fact, no one has been buying Greek Bonds in the last year, because no one thought they would get their money back. As far as I am aware, for that reason, no new Greek Bonds have been issued in the last year! Instead, Greece borrowed the money from the EU's EFSF, with a small amount also coming from IMF funds.

For the same reason no one has been interested in buying Greek Bonds in the secondary market either, which is why the yield on these Bonds (as opposed to the Coupon, which is set at the time the Bonds are issued) has been so high, because the yield moves inversely to the price of the Bond. Because everyone beleived that they would lose a large chunk of any money they paid to buy the Bonds - estimated to be up to 30% - the price of the Bonds fell, and Yields rose to around 30% on 2 year Bonds as a result.

Europeans and anyone else does not HAVE to but US Bonds, so it is not at all like a protection racket. Euroepans could buy German Bunds, Japanese JGB's, and so on, and indeed they have been doing so. They choose to buy US Treasuries despite the fact that the yields are so low, and because of the potential for falls in the dollar - and I'd remind you that when it suits you, you claim that the US is trying to destroy or drive down the Euro against the dollar!!! - because they know that at least they will get their money back, without losing a large chunk of it due to the US not being able to repay. Moreover, for the reasons I've set out above, if you intend holding those Bonds for a few years, then its likely that if Bond prices rise, due to more QE reducing interest rates, you will be able to sell the Bond, at a higher price, thereby making a Capital Gain, which will more than offset the low yield.

I apologise for misreading your comment on the £12k. It doesn't change anything. There are lots of people in the UK whose income is around the £12k level. They are not bankrupt or living in a trailer park. In the US, because house prices are much lower, that is even less going to be the case. But, more importantly, as i pointed out, the US is a very unequal society, the fact that some people are on low wages, is not at all the same as the society being bankrupt. Last time I looked Chinese wages were about 1/2o those in the US, but China is far from bankrupt. Unlike China, the US also provides widespread Welafe Payments to cover Education, Health, retirement, and even Food stamps.

vngelis said...

This is what was occurring in Athens last May. The source is all the people I know there.
This is what a discussion was stating last year.


You then say no bond auctions occurred after 2010 when the IMF moved in. I have noticed at least two searching the net,and have read about them in the Greek press the last year. Maybe we are talking different things?

A greek take on the Euro-dollar crisis in English

The whole of the Greek Left has your take on the US crisis. It doesn't exist they state. Its just a form of capitalist restructuring and a new upturn round the corner.
Just as we noticed today again, though, reality hits all in the face. There is no growth.

Boffy said...

I could see nothing in the blog or comments you provided a link to that said anything about Greece issuing new Bonds that were bought directly by Bond Traders going to Greece with the IMF. All the discussion was about buying Bonds on the secondary market, and seemd to confirm the point I amde above that no one wanted to buy them even at low prices because of the risk of default.

You say you have seen two Greek Bond auctions in the last year. Evidence please. As far as i am aware, and I read the business and markets news avidly, there has been no such auctions precisely because there was no possibility of Greece selling such Bonds. Indeed, even Ireland has stayed out of the Capital Markets in issuing new debt for the same reason, as is Portugal.

You keep talking about the IMF going into Greece, but it is not the IMF, but the EU, which has gone into Greece. It is EU not IMF officials who are overseeing implementation of the austerity plans etc. That is because it is the EU, through the EFSF that has lent most of the money to Greece in the bail-outs, IMF involvement is minimal.

I realise that does not fit your conspiracy theory about the US ripping off Europe, but that is the fact.

There is no growth in the UK, but that is wholly down the illiterate economic policies being applied by the Liberal-Tory Government. There was increasing growth prior to them tanking the economy. There has been rapid growth in the US. It has slowed because of a variety of factors, not least of which is the austerity measures being pursued at local level by right-wing Republicans. But, growth is strong in Europe's largest economies such as Germany. It continues strong in the BRIC's, and in many other NIC's, as well as in many of the economies that are supplying them with materials, food etc. in Latin America, and parts of Africa.

Moreover, no one has said that the Business Cycle has been abolished. In evry previous Long Wave Boom, there have been repeated recessions, and as I've set out, even a Depression is conceivable within the context of such a Boom, the point is that the conditions exist for stronger growth over the longer term.

vngelis said...

Greek Bonds issued in 2011...


I told you what happened in May 2011 when Athens was full of American bond traders. You say they weren't there fine, I presume they must be like me cant be both in New York and Athens at the same time...

The EU has been in Greece since the early 80's when Greece joined. Its the IMF that dictates the full agenda and is implementing a total shutdown of the Greek public sector as they have done in around 40 countries worldwide, which you stated previously was a benign organisation which evens out the contradictions of capitalism-let us not forget that. You then call eveything which attacks America as a conspiracy but everything that America does as being capitalist ...progress even after California is now on crack finance in the form of bridging loans to survive and Detroit is a post-industrial hellhole...

Boffy said...

As the WSJ article says, these were 13 week T-Bills that just rolled over maturing debt for very short periods. As the last paragraph says there was no net new issuance.

I didn't say there were no Bond investors in Greece in May, I simply asked you to provide some evidence for it that could be checked. As the WSJ article says most Greek debt has been bought up by Greek Banks, and the way Bonds are usually sold is again as the WSJ con firms by auction, not by Bond investors going to Greece. I could buy Greek or any other Bonds, sitting here at my computer without going to Greece!

As it is the EU providing most of the financing for Greece, it is they which call the tune, notthe IMF. You say I have described the IMF as benign. Where did I say any such thing??? I said it was fiscally conservative, a term you didn't seem to understand, but which I explained meant usually calling for the implementation of Budget Cuts!!! Does that conflict in any rational way with the idea that its role like that of the Capitalist State is to attempt to deal with the contradictions of Capitalism? No, of course it does not!

I call your attempts to portray everything that happens as being based on manipulation by the US or some US dominated organisation, a conspiracy theory, because that is what it is! Let's not forget your comments about the arrest of Strauss-Kahn in that respect, for instance!

Where have I described everything that happens in the US as capitalist progress? On the contrary, I have written many, many posts describing the problems of the US economy, the need for it to restructure, the fact that the dollar would inevitably be repalced as global reserve currency etc., but a Marxist above others has a duty to analyse things honestly, and not just describe the normal contradictions that are inherent with Capitalism, as always being equal to the imminent collapse of the system. That as I and Bill Jeffries have told you on many occasions describes your approach. Over at the PR website you have been writing comments now for several years predicting that the US was about to collapse, and you have continually been proved wrong.

vngelis said...

Lets start back to front. Yourself and the PR dudes have been writing articles that capitalism is in a world boom when it is stuck dead in the water. There is no boom round the corner in the UK and all the talk of boom when any 'recovery' in the Western world is based on printing money and jobless recoveries, doesn't fit in with a healthy capitalist system but one which is openly discussing default of the major capitalist country on earth. You have repeatedly argued the rest of the world will carry America through and all that is occurring is nothing major. You describe catastrophism and conspiracy as a disease. I could pretend like the Greek left that Greek capitalism is restructuring and not collapsing, but then again I would be imposing theory on reality not the other way round, trying to explain reality with theory.

If capitalism could even out its contradictions as you argue it wouldn't be capitalism, so the IMF's role in the 40 countries it has been involved in the past, has done precisely what? Please do tell us, or does history not matter? A troika runs the show, the EU-EC-IMF and in the world pecking order America is top of the pile, even if you still might believe Britain is. All take orders from the Yanks.

Strauss Kahn is a Bilderberger. What happened? The whole thing was a sideshow to put the French woman in place who is known in French politics as the American, in charge. One wonders why?

Representatives of the world banks are arriving in Athens tomorrow for the rollover of the Greek bonds and essentially default which has occurred. So the Treasury bills that were issued this year weren't new but old ones being brought forward?

Boffy said...

Once again you provide no facts to back up your wild speculation and conspiracy. I could just let everyone judge on the basis of your wild statements about Strauss-Kahn, and so on, but let's take your other statements.

The facts provided by the OECD Here, comprehensively disprove your unsubstantiated claims about global growth. They even comprehensively disprove your claims about EU growth.

Once again your attempt to portray what is going on in the US as a default based on the inability of the US to pay its debts demonstrates just how dishonest your method is. Every ration al Economist knows that any such default by the US will have nothing to do with an inability to pay, but will be merely due to political wrangling, preventing the debt ceiling being raised. That is why the dollar has remained strong, and why Capitalists from all over the globe continue to pour money into US Treasuries.

I have not said that Greek Capitalism is restructuring rather than collapsing. I have argued that the current austerity measures are counter-productive, and preventing such a restructruring. However, it is quite likely that at some point the Greek debt will have to be more or less completely written off - or else Greece will in any case be left with no alternative but to default and leave the Eurozone, which will not be in the interests of Capital - and that such a restructuring will then become possible and necessary.

Of course capitalism evens out its contradictions, and far from such events making it NOT Capitalism, it is the fact that Capitalism proceeds and develops by continually resolving those contradictions via crises that makes it Capitalism. That is the eseence of Marx's analysis. Capitalism has been experiencing crises due to those contradictions since 1825, and were your catastrophism, and current theory correct it would have collapsed not long after that!!!

What has the IMF done? It has provided the necessary short term financing required by various states during crises, so that they were able to pay the immediate bills, and prevent defaults that would have caused much wider crises within the global economy. If you doubt that just look at the consequences of the Lehman's collapse, and compare that with if a sovereign state collapsed.

In your troika, who is the EC as opposed to the EU? The IMF is merely an international state organisation not a state in its own right. The US may be the most powerful State within the system of states, but that does not at all mean it can dominate powerful states, and proto states such as the EU. Opposition within the EU to the Iraq War, is a clear indication of that, as are repeated battles over trade.

If your theory were correct then Greece would not be defaulting and causing private Bondholders to be losing 21% of their Capital. The involvement of various Bond Funds, and Financial Houses has been precisely about trying to negotiate a settlement that does not cause a default that would send shockwaves through the global financial system.

vngelis said...

You give me an OECD projection of future growth as ...fact. Based on those predictions Britain has been out of recession for the last year when it is stuck dead in the water. If jobless recoveries and wage cuts and high inflation are evidence of 'recovery' then one wonders what slump is.

You then go on to say that a default in the US isn't based on an inability to pay but an ability to pay- in other words they just dont want to pay for some unspecified reason. This then flows on to your next argument that capitalism seeks to even out contradictions ie it can constantly perfect itself and has no inbuilt self-destruct buttons like companies do. They all prosper indefinitely and never go bust. The individual unit of capital is superceded by the collective ie small companies will always go bust if they are crap, and large transnationals will always take their place and everything will go round and round getting more developed as time goes by. So where is the barbarism inherent in the system or has it evaporated like Bernstein predicted? So is post-industrial Destroit a glimpse of the future or the past so we all know? Or will we all live in global version of Kensington? Or will we have both indefinitely forever as they have been around since the 19th century?

The EU only opposed the Iraq war as it didn't want body bags, but it did give money and they have all sent troops to Afghanistan and Libya. So the 'theory' of an independent EU is just a theory to pretend EU politicians aren't US puppets and that they could have a different economic and social policy to the USA, when they dont. They have embraced everything America has done in the last 3 decades:privatisations, globalisation, open borders, militarism, Hollywood etc. but not necessarily in that order. Their project is to create a mini-USA, that is what the EU is all about anyhow. This may indeed seem to be a conspiracy, but reality is hard to fathom, when one looks at the USA and sees perpetual economic growth and not indebtedness and inherent bankruptcy.

British Labourism became an open appendage of the Texan oil mafias and the Wall Street financial parasites and so did eseentially all the remnants of the old left.

Boffy said...

The figures for 2010, and for the first two quarters of 2011 were not projections!!! Moreover, the data is for pretty much all of the developed and developing world, showing growth in nearly all countries with just a few exceptions!!! You seem determined to not address reality, and instead to pick and choose examples of low growth simply to satisfy your prejudices.

As for, jobless recoveries, in most countries that has not been true. Employment in most countries has risen. In some countries such as India, and China it has risen substantially. Even in Britain Employment has risen. But, once again you pick and choose data to suit your prejudice rather than to make a Marxist analysis. In fact, a basic aspect of a Marxist analysis would be that in a period of rapid expansion based on a dynamic economy, raising productivity by the introduction of large amounts of new technology, we would expect to see workers being made redundant! That was certainly what Marx said about the nature of development during the 19th Century, when huge reservoirs of unemployed labour were created, when wages were driven down as a result and so on. Yet, Marx had no problem describing such a development of the productive forces as historically progressive.

Do you not read the newspapers, and are you determined to misunderstand what other people say? Every TV report, every newspaper article has set out the reason why the US may go into a technical default, so there is no reason even for you not to understand that reason. So when you say that if its not because of an inability to pay it must be for some “unspecified reason”, you are either displaying your own lack of intelligence in understanding the reasons for it, or else you are once again displaying your duplicity in pretending not to understand simply for the purpose of argument. And, in fact, I have already set out the reason so that it is not at all “unspecified”. That reason is that right-wing Republicans are using the vote of raising the debt ceiling, as a means of demanding a deal from the Democrats over reducing spending. It has nothing to do with being unable to pay. Indeed, as some commenters on CNBC said, mischievously today, the Government could raise funds by selling back Alaska to Russia, or Louisiana to France, or it could sell some of its Gold reserves, and so on. Obama could invoke the 14th Amendment giving him Emergency Powers to make payments. So, it is clear that with all of these possible alternatives the question is not about the ability to pay. Obama will not want to use these methods, because, in fact it will not, in the end be necessary to do so.

You talk about my assertion, in line with Marx, that Capitalism continues to resolve its contradictions. But, you do so in a mocking way, as though what we see around us, is not a verification of that very statement!!! Capitalism HAS continued to suffer crises since the 19th century, and that is indeed the element of barbarism within the system. That is what characterises it as a system. But, as Marx, said, and as I agree with him, and as the evidence of our own eyes attests, it HAS also continued to resolve its contradictions via these crises, and it is in doing so that Capitalism progresses. Your mocking tone would suggest that we do not see any evidence of such progress around us. But, not only is the evidence of progress since the 19th century evident in the mass of technological development we see around us, but is also witnessed in the incomparable rise in workers living standards since that time. In fact, not just since that time. Living standards even during the height of the Depression of the 1930's were higher than fifty years earlier. Living standards at the height of the Second Slump, during the 1980's were higher than during the 1930's. For masses of workers in China, India, and other industrialising countries that rise in living standards today is very marked indeed.

Boffy said...

Of course individual economies can have self-destruct buttons the same as countries. That is why Britain declined, whilst the US, Germany and Japan rose. It is why the US is declining, and China and India are rising. That is the whole point about that other aspect of Marxist analysis, “Combined and Uneven Development”. And, in fact, just like the tendency for concentration of Capital within companies, we find the same thing in relation to economies, which is why we see the development of the EU, for instance.

Most EU countries only gave money in relation to Iraq, for purposes of reconstruction. The US attempted to apply as much pressure as it could to get the EU to join the Coalition in Iraq, and could not do so. That is why it attempted to get a second resolution to provide itself with cover, and then found itself having to invade without it. That hardly fits your rather racist, Anti-American, conspiracy theory about the whole world being merely puppets of the US. Just as your ridiculous conspiracy theory over DSK seems to fail to consider how it reconciles itself with him being appointed in the first place, why he would need to be replaced, if he was their original chosen candidate, and why further to your Bildebeerger Conspiracy Theory, he would as a member of that group be alien to their interests anyway. In fact, responding to your wild assertions is increasingly like dealing with one of those trash TV programmes on “World's Most Ridiculous Conspiracy Theories”.

Of course the EU has adopted policies on privatisation etc. They are Capitalist countries!!!! China has followed a similar path. But, when necessary those countries have also adopted the exact opposite policies such as nationalising the Banks. In fact, the lead on those types of policy was taken by Brown and darling at the end of 2008, and it was the US that copied the UK. And, yes, of course the aim with the EU is to create a mini US, in the sense that the intention is to create a United States of Europe. The task of Marxists, as Lenin and Trotsky pointed out is not to oppose that, because it would be a progressive development, but to try to turn it into a United Socialist States of Europe!

In actual fact, London was the centre of the global Financial system, not Wall Street. If British Labourism was in thrall to anyone it was not US financial Capitalists, but its very own home grown ones. Accepting that may be hard for you to fathom, but that is because you base yourself not on honest Marxist analysis of reality, but on a nationalistic, and indeed racist Anti-Americanism, that leads you to try to explain reality in a way that fits your bigotry and prejudices, by a recourse to ever more ridiculous conspiracy theories, and need to deny, and distort the facts even when they are laid out openly in front of you.

vngelis said...

Your analysis boils down to what the general imperialist media argue. The same ones who at the beginning of the last decade gave the label hyperpower to the US and it ended in a military humiliation from both Iraq and Afghanistan. You then argue alongside the corporate media that the USA is about to go through a 'technical' default much like GM, which goes bankrupt and continues to function, by continuing to offshore the remaining jobs in the USA at the same time as getting bailed out. In other words you view the bailouts just like the bosses. As long as they can hide the losses on their balance sheets as the state took on the losses and its no coincidence a British Labourite came up with this nonsense, that a balance sheet can become non-toxic if you Enronise it, it becomes so ridiculous when one takes the official figures as fact or future projections of growth as ...reality.
Even the Daily Telegraph, the banksters bible has the courage to quote Pr Kotlikoff who stated the US's actual obligations and debt is more akin to $220trillion when one factors in all the other commitments of the US govt, such as unpaid pension contributions of govt employees.
Presumabely the US military defeat in Iraq was also techinical as they didn't drop the A bombs?
You then go on to rant about anti-Americanism and nationalism so I will furnish you with a quote from McNamara, the ex-US Defence Secretary who stated 'we underestimated the power of nationalism to motivate people to fight and die for their beliefs and values'
'Our misjudgement of friends and foes alike relfected our profound ignorance of the history, culture and politics of the people in the area and the personalities and habits of their leaders'...

Britain was bankrupted by the cost of two world wars and costs of Empire. America bought it lock stock and two smoking barells in the mid-1940's. Now all it owns are printing presses. If you believe with the decline of the USA it can survive independently or punch above its weight when it cant even unseat Gaddafi, then you must be more gullible than Cameron.

Boffy said...

Are you really Max Keiser? I have to ask because your arguments are in fact identical to the kind of conspiracy theories he uses on his show, and your economic theories are those not of Marxism but of the Libertarianism/Austrian School of Mises and Hayek of the kind that he advocates.

If the Capitalist media were to agree with my analysis that would hardly be an argument that proves it was wrong would it? Even the Capitalist media get things right sometimes. Still you obviously prefer the Stalinist tactic of the amalgam than actually presenting any rational arguments or facts yourself to counter what people say. So I'll treat those statements with the contempt they deserve.

In quoting the figures from the Telegraph about US commitments in respect of pensions you demonstrate just how closely your argument is to that of the ultra-right. That argument was also used by the Telegraph in relation to Public sector pensions in the UK as a basis or argument for cutting those pensions. But, in fact its a sham. It is ridiculous as the TUC and otehr economists pointed out to take commitments that strtch decades into the future, and present them as though they were debts, which have to be immediately covered. Over the decades that those commitments will fall due, there will be large amounts of revenues received, which will cover them!

In quoting Mcnamara on Nationalism, in response to my description of your politics as those of National Socialism, you only confirm your attachment to that ideology. Then you once again accuse me of saying something else I have never said in relation to the UK punching above its weight. I've never said anything even approaching that. On the contrary I've argued the need in Capitalist terms for the EU to develop as a larger unit in order to compete with the US, and the China-Japan axis of Asian capital.

As for the US owning Britain, I#d ask you to present facts, but I know its a hopeless request, because like all conspiracy theorists you deny any fact that contradicts your prejudice, and see no need to justify your ravings with any facts of your own.

To be honest, I have little further interest in responding to your comments, which are increasingly nutty.