Al-USA

A Global Problem with No Solution

Good article and I agree, the "gig" is up.

There is no solution within the limits of the profit system, none. Been there tried that, as the historians among us know. Other than a massive expansion into new markets, like the opening up of the New World by the European capitalists in the 15th century, or the opening up of China, and then the former Soviet territories, forget about it.

We can't even try what worked last time the limits of the profit system were reached in the 1930's, World War. I mean, imagine the conclusion to that among combatants armed with nuclear weapons. Sure, there will be massive profits to be made in the reconstruction later, but who will care? As Eisenstein said in reference to a nuclear Third World War, "I don't know how WWIII will be fought, but the fourth will be fought with sticks and stones."

However, for the hear and now, get your shorts ready, because from now on, the "easy" money will be made on the downside as, sad to say, the unfolding Greater Depression sinks into the consciousness of the masses.

What if World Governments Had Washed Their Hands of the Financial Crisis?

They are still trying to spin it that the banksters had to be made solvent, on the "backs" of present and future taxpayers... It's not going to fly now, although it might after the generation that lived through it dies off, maybe.

Did Mr. DeLong see the financial crisis coming? I have yet to research his archives, but unless he did, I would not put too much credence into his spin of things.

For the record, Mr. DeLong does have other more interesting articles.

Recession Hardship Is Painful, But Can Be Beneficial

The working/middle class has seen no real increase in wages, after inflation, for about the last 30 years. Now, at what point is 30 years of hardship turn from painful to beneficial?

Of course, the 30 year hardship period also coincided with 30 boom years for capital and the top 5%, especially the top 1% of income earners, but, for the bottom 95%, well, maybe they will have to endure another couple generations to see the benefit of it all?

California's High Tax / High Benefit Model: A Constantly Renegotiated Bargain

Well, I do live still, in CA, LA area, and have noticed much improved air quality and reduced traffic. Probably due to the 12.2% official unemployment and residents leaving the state.

Why, I can even see clearly the San Bernardino mountains in the summer. Something which was impossible before the Greater Depression hit.

So, some things are getting much better but the state fiscal situation will take years to sort out.

In the meantime, I'll take the near perfect weather along with the continuously improving traffic and air quality, and am only sad that it took millions losing their jobs or leaving the state to improve the quality of life here.

Capitalism vs. the Flu

I had not considered this, good article. Further, I looked up the NYT linked article and got the quote below:

"
Paul Hotchkiss, a support manager at a Wal-Mart store in Hastings, Minn., said the point system pressured him to report to work two weeks ago even though he had swine flu.

There are a lot of people who have swine flu right now who are going in because they worry about getting fired for having too many points,” Mr. Hotchkiss said.
"

I suspect the swine flu will eventually mutate into something more serious. I have no basis for this but I do have an education in immunology so I know something about viruses and immune systems.

Anyways, great article, I'm staying away from as many places as possible that might serve as a vector for the swine flu.

By the way, if it mutates to the extent the 1918 Spanish flu virus did, there will be few places left, outside of massive quarantines, to escape to. Of course, by then capital will take huge losses but that's what capital does: no action if there's no profit or loss of profit potential...

Yes, I can afford to do that.

Despite Inflation, The Social Fabric Remains Intact

If you think the social fabric will remain intact, you don't know what has come before.

What we have here is, fundamentally, a crisis of capitalism, or, a crisis of over-production. This means that consumption levels that were previously driving economic production were a direct result from having a large portion of the populace, relative to now, earning enough money so that some were able to save what they felt was prudent and still consume enough to absorb their nation's productive capacity.

This is obvious to the serious strategists of capital, and it should also be obvious to you, the "little" investor and predominant reader, so that you're not taken up and swept away by all the propaganda talk of "green shoots", or that Chinese growth will avert a world-wide depression, etc....

The policies and practices that led to the present crisis can be traced back to the coming to power of Margaret Thatcher in Britain in 1979 and the election of Ronald Reagan in 1980. Their dual victories led to a repudiation of the managed capitalism advocated by John Maynard Keynes and the introduction of the free-market “fundamentalism” of Milton Friedman.

However, this change itself occurred as a response by powerful sections of the ruling class in Britain and the United States to an already far-advanced crisis of the capitalist system. If you recall, or care to reference, as far back as 1967, there were growing indications that the mechanisms devised by Keynes to stabilize and rebuild capitalism in the aftermath of World War II were breaking down.

The system of dollar-gold convertibility adopted at the Bretton Woods Conference of 1944, came under increasing pressure and eventually broke down as a result of three inter-related factors:

1) The first was the gradual erosion in the course of the 1950s and 1960s of the dominant economic position that the United States had enjoyed in the aftermath of the Second World War.

2) The second was a general decline in the rate of profit in the mid-1960s that placed considerable pressure on American, European and Japanese corporations and intensified global competitive pressures.

3) Finally, the militancy of the working class, throughout the world, frustrated efforts by the capitalist class to find a way out of the crisis through reduction in wages and benefits of the working class. What is now called "restructuring".

The three factors above, or advanced crisis of the capitalist system, were eventually resolved by three events that signaled the beginning of a successful counter-offensive by the ruling class against the previous decades' concessions won by the masses of the working/middle class. This also planted the "seeds" which directly lead to the present crisis of over-production now some 30 years later.

1) The counter-offensive began with the appointment by President Carter, a Democrat, of Paul Volcker as chairman of the Federal Reserve. Volcker immediately set about to break the back of working class militancy by raising interest rates to unprecedented levels, thus provoking a severe recession and driving up unemployment.

2) The second event was the announcement by Chrysler that it would shut down a major production facility in Detroit, the famous Dodge Main plant in Hamtramck that employed several thousand workers. This decision was accepted by the UAW bureaucracy by deciding to grant Chrysler major concessions on wages and work rules. Thus began a pattern of union-management "collaboration" that cleared the way for subsequent attacks on the jobs, wages, working conditions, and benefits of all sections of the American working/middle class.

3) Finally, Reagans' accession to the presidency in January 1981 accelerated and intensified the war on the working/middle class that Carter had begun in 1979 with the appointment of Paul Volcker. The defining event of the Reagan presidency—the firing of 11,000 striking air traffic controllers, members of PATCO—sent a signal to all corporations that strike-breaking and union-busting was legitimate and would enjoy the support of the government.

However, Reagan’s destruction of PATCO would not have succeeded had he not received the support of the AFL-CIO bureaucracy, which opposed any action in defense of the victimized air traffic controllers. In the years that followed, the AFL-CIO bureaucracy sanctioned a wave of government and corporate strikebreaking following the pattern of union-management "collaboration"

In practice, the alliance of the trade union bureaucracy with the Democratic Party kept the mass movement within the confines of capitalist politics and capitalist economics. This provided the ruling class with an opportunity to reverse its retreats of the previous decades and go on the offensive. In summary, under conditions in which social conflict is suppressed, by the temporary (going on 3 decades now) emasculation of the labor movement in the USA, wealth accumulation increased rapidly among the upper classes resulting in extreme levels of social inequality which has now led us to the present crisis of over-production and another still unfolding, in my opinion, Greater Depression...

Get your shorts ready because, from here on, the "easy" money will once again be made on the downside.

What Rebalancing of Chinese and American Consumption?

Derryl wrote:
"
To revive the consumption levels that ultimately drive economic production a nation needs a large portion of its population earning enough money so that they can save what they feel is prudent and still consume enough to absorb their nation's productive capacity.
"

Well said by writer Derry above. If I may extend it further, what we have here is, fundamentally, a crisis of capitalism, or, a crisis of over-production.

This is obvious to the serious strategists of capital, and it should be also obvious to you, the "little" investor and predominant reader, so that you're not taken up and swept away by all the propaganda talk of "green shoots", or Chinese growth, etc....

The policies and practices that led to the present crisis can be traced back to the coming to power of Margaret Thatcher in Britain in 1979 and the election of Ronald Reagan in 1980. Their dual victories led to a repudiation of the managed capitalism advocated by John Maynard Keynes and the introduction of the free-market “fundamentalism” of Milton Friedman.

However, this change itself occurred as a response by powerful sections of the ruling class in Britain and the United States to an already far-advanced crisis of the capitalist system. If you recall, or care to reference, as far back as 1967, there were growing indications that the mechanisms devised by Keynes to stabilize and rebuild capitalism in the aftermath of World War II were breaking down.

The system of dollar-gold convertibility adopted at the Bretton Woods Conference of 1944, came under increasing pressure and eventually broke down as a result of three inter-related factors:

1) The first was the gradual erosion in the course of the 1950s and 1960s of the dominant economic position that the United States had enjoyed in the aftermath of the Second World War.

2) The second was a general decline in the rate of profit in the mid-1960s that placed considerable pressure on American, European and Japanese corporations and intensified global competitive pressures.

3) Finally, the militancy of the working class, throughout the world, frustrated efforts by the capitalist class to find a way out of the crisis through reduction in wages and benefits of the working class. What is now called "restructuring".

The three factors above, or advanced crisis of the capitalist system, were eventually resolved by three events that signaled the beginning of a successful counter-offensive by the ruling class against the previous decades' concessions won by the masses of the working/middle class. This also planted the "seeds" which directly lead to the present crisis of over-production now some 30 years later.

1) The counter-offensive began with the appointment by President Carter, a Democrat, of Paul Volcker as chairman of the Federal Reserve. Volcker immediately set about to break the back of working class militancy by raising interest rates to unprecedented levels, thus provoking a severe recession and driving up unemployment.

2) The second event was the announcement by Chrysler that it would shut down a major production facility in Detroit, the famous Dodge Main plant in Hamtramck that employed several thousand workers. This decision was accepted by the UAW bureaucracy by deciding to grant Chrysler major concessions on wages and work rules. Thus began a pattern of union-management "collaboration" that cleared the way for subsequent attacks on the jobs, wages, working conditions, and benefits of all sections of the American working/middle class.

3) Finally, Reagans' accession to the presidency in January 1981 accelerated and intensified the war on the working/middle class that Carter had begun in 1979 with the appointment of Paul Volcker. The defining event of the Reagan presidency—the firing of 11,000 striking air traffic controllers, members of PATCO—sent a signal to all corporations that strike-breaking and union-busting was legitimate and would enjoy the support of the government.

However, Reagan’s destruction of PATCO would not have succeeded had he not received the support of the AFL-CIO bureaucracy, which opposed any action in defense of the victimized air traffic controllers. In the years that followed, the AFL-CIO bureaucracy sanctioned a wave of government and corporate strikebreaking following the pattern of union-management "collaboration"

In practice, the alliance of the trade union bureaucracy with the Democratic Party kept the mass movement within the confines of capitalist politics and capitalist economics. This provided the ruling class with an opportunity to reverse its retreats of the previous decades and go on the offensive. In summary, under conditions in which social conflict is suppressed, by the destruction of the labor movement in the USA, wealth accumulation increases rapidly along with the level of social inequality which has now led us to the present crisis of over-production and another still unfolding, in my opinion, Greater Depression...

Get your shorts ready because fortunes will once again, be made on the downside.

Another Jobless Recovery, Part 2

"
What puzzles me is why anyone expects anything but a jobless recovery.
"

Well, the masses still believe that capitalism works for them. In fact, there might still be a rapidly decreasing majority that believe that capitalism is the "best" economic model out there to secure a job, feed/clothe their families, and, in general advance civilization...

The past "jobless" recoveries, but especially the current one, will, in my opinion, sooner rather than later, change the class consciousness of the masses, even despite the massive propaganda machine of the Financial Oligarchy.

When that happens, Capitalism will be under its greatest threat since the 1930's Depression. So today's capitalists should be grateful that the masses still entertain the notion of actually being able to secure a job, feed/clothe their families, and see an advancement of civilization, as they have known it under the economic model of capitalism...

Next Economic Crisis Already Underway

Excellent article and there will be no solution because instability is designed into the economic model called Capitalism.

The masses were "sold" a "bill of goods": if, during the prolonged boom period of capital, starting from 1982 to about 2000, the economic model of capitalism failed to increase the living standards, or wages, of the masses and instead provided the illusion of wealth by substituting with massive debt, or credit, what will happen now? Now, in this crisis of capitalism, or crisis of overproduction?

Barbarism, that is what could happen. One only needs to look at the genesis of the last two world wars to see the results of capitalism when it reaches a senile state which it is now fast approaching, in my opinion. Boom and bust, and world wars or worse... Good luck to all.

The Deflation of the American Dream

Interesting article Mr. Martorana and good comments by the readers.

Regarding the "Deflation of the American Dream", I recall my review of 2008 census data where in 1967-1968 an average household made about $45k/year while in 2008 it was still only $55/year, both adjusted for inflation. That represents about +22% to +30% (doing this from memory so excuse the imprecise numbers) increase in inflation adjusted wages for a period spanning 2 generations but of course, inflation more eroded all of that wage increase, and then some.

I don't have the figures for inflation from 1967 to 2008, but from 1980 to 2008 inflation has increased +175%! Clearly, the deflation has been decades in the making and is well on its way to collapsing into a "black hole": a reference to a dying super massive star which deflates, collapses on itself, and creates a black hole.

Ramping Up China's Domestic Consumption: What's Taking So Long?

It's true, Chinese domestic consumption will never happen, not in a level to replace the consumption lost by the masses of USA or Europe simply because of the per capital argument already mentioned above.

Recall that the masses of the USA enjoyed relative prosperity, and increased incomes, only as a result of successful widespread unionization after the dominance of USA industry with victory of the democratic capitalists vs. the fascists (non-democratic capitalists) of WWII.

Of course, the period after WWII was dominated by the Cold War, with the democratic capitalists of the Western powers vs. the anti-capitalists of the USSR which provided fertile ground for continued successful unionization on the capitalists home ground b/c, to be honest, the Western capitalists were scared to "death" that the masses would, heaven forbid, look towards the anti-capitalists' economies as any proper economic model to aspire to.

It was only under the favorable conditions explained above that the masses were able to achieve and maintain relative prosperity. However, with the decline of the anti-capitalist competitors, the Warsaw Pact countries, the capitalists of the Western democracies were less compelled to allow a greater portion of their profits towards boosting labors' wages so, starting at about 1974 or so, with the opening up of China, the race was on to increase profits at the expense of masses of the working/middle class.

This is always the case, in fact, it is the definition of capitalism, but it intensified by orders of magnitude with the introduction of first, the billion plus workers in China , and later, the hundreds of millions of workers of the collapsed USSR, all paid at "slave" level wages, relative to the working/middle classes of the Western democracies such that, only by the introduction of massive debt was the illusion of wealth able to be maintained for the masses of the Western democracies and allowing economic "game" to continue...

Until now, or rather 2007, where the maximum extent of credit had been met, and in fact, surpassed, since as recently as 2007 the savings of the American consumer were negative, so, the "game was up". The conditions which favored the masses relative prosperity in the Western democracies don't exist in China, so, I see no forces which can compel a similar relative prosperity among Chinese workers, in a scale which would replace, to any appreciable level, that which was lost by the American working/middle class starting with the 1974-1975 opening up of China, and later the collapsed USSR. In other words, it has now come full circle, and the crisis of capitalism, a crisis of over-production, has no fundamental solution, within the limits of the profit system...

If you made it this far, thanks for reading.

Los Angeles Ports Face a Grim Future

Yes, Los Angeles ports will have a tough for the near future or longer. On the bright side, I live in that area so we should be getting alot cleaner air in the near future too. If you have ever visited Los Angeles, you know that is a critical distinction, clear vs. smoggy air.

Is a Two-Track Economy Emerging from the Rubble?

Something else will emerge from the rubble, the Marxists, or anti-capitalists. In fact, they will eventually make up the majority of the population when the massive propaganda machine of the USA oligarchy is unable to compete with the hard life experience of the American masses.

The only reason why the senile form of capitalism was allowed to exist in Latin America, among other places, was because the masses of the Western "democracies" were under the illusion that their form of capitalism actually was to their benefit so minimal to no effort was put forward in preventing the American military and financial machines in supporting the corrupt elites of the senile capitalistic states of Latin America.

This allowed a perpetual extraction of massive profits by American corporations to the detriment of the local populace and the steady off-shoring of manufacturing American jobs.

It has come back full circle though, and the masses of the Western "democracies" will, eventually, come to see the capitalist bosses as the enemy they always really were. In other words, it looks like capitalism will have another fight for its "life" again, in the early 21st century, as it did in the early 20th century...

People never learn history, and the cycles are doomed to repeat, it seems.

Social Security: Time to Uncap FICA

There are alot of people who never paid into the system and get benefits: one example is an elderly housewife who never worked for a paycheck but qualified through her working husband.

It's also being used for disability benefits, not just for retirements. So, unless you are on the left to far left, you should have a problem with this. Personally, I would rather have socialism for the poor than the wealthy elites of Wall Street or industry...

Friday Jobs Report Discounted: Why the Rally Will Continue

Ok, interesting article, now here's my two cents, which might balloon, with my IWM OTM puts, to much more than that, if what I say below comes to pass.

My study of Elliot Wave patterns shows each wave has a personality. The first wave down is scary but it takes a while for people to recognize that the market is in trouble.

The 2nd wave bounce (the rally from March 2009) convinces most that the bear market is over and good times are here again. The extremely high bullish sentiment of 88%, matching October 2007, is picture perfect sentiment for this rally. It has accomplished, from a sentiment perspective, exactly what it needed to.

The third wave down is almost always the strongest. It's called the "wave of recognition" as most people begin to recognize that the fundamental problem with the economy is far worse than originally thought and certainly much worse than what the hope-filled rally has been all about.

Tomorrow should be very telling. If the market drops hard, as it's potentially set up to do, it will be the signal that the top is in and I would look to short bounces for at least the next few weeks until we see what develops to the downside. If the market rallies instead (we should get a reaction one way or the other to the employment numbers) then another day or two of rally, watching for potential resistance near SPX 1014, should be all we'll get. Then be ready to play the downside.

Readers, if I'm right, we are near the end of the 2nd wave and about to start the 3rd "wave of recognition" down. Place your bets accordingly.