[OPE] More recession shape ideas, and some implications

HSBC chief fears a second downturn
By Patrick Jenkins, Banking Editor
FT October 4 2009

Michael Geoghegan, chief executive of HSBC, is so convinced there will be a second downturn in the coming months that he plans to delay any rush to expand the bank. "Is this a V recovery or a W?" Mr Geoghegan asked in an interview with the FT. "[I think] it's the latter. [If I'm right], we have to be very careful we don't grow the balance sheet so far before the recovery has come only to write it back into the impairment line later on. I'm cautious about growing too fast." (...) His concerns come as policymakers face the dilemma of when to withdraw their stimulus packages. Act too soon and they could precipitate a double-dip recession, but act too late and there are worries about a return of inflation and sowing the seeds for the next crisis. (...) http://www.ft.com/cms/s/0/41c8f48a-b10d-11de-b06b-00144feabdc0.html?nclick_check=1

Roubini Sees Stock Declines as Soros Warns on Economy
By Shamim Adam and Francine Lacqua
Bloomberg.com 5 october 2009

"Markets have gone up too much, too soon, too fast," Roubini, who accurately predicted the financial crisis, said in an interview in Istanbul on Oct. 3. U.S. stocks may suffer a "major decline" after climbing to the highest levels in almost a year two weeks ago, according to technical analyst Robert Prechter, founder of Elliott Wave International Inc. Stocks have surged around the world in the past six months as evidence mounts that the economy is emerging from its deepest recession since the 1930s. (...) U.S. consumers are "overdebted" and the country's banking system has been "basically bankrupt," Soros said in Istanbul today. "The United States has a long way to go." (...) "The real economy is barely recovering while markets are going this way," Roubini said. "I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U-shaped. That might be in the fourth quarter or the first quarter of next year." http://www.bloomberg.com/apps/news?pid=20601087&sid=aBSFMAyyENko

The point is that stock markets have surged, although unemployment has steadily increased at the same time, and real GDP growth remains lacklustre. The speculative bet is that the corporations have sufficient cash, and that equities are once again closer to real value after the wipe-out, to secure acceptable yield. But, of course, the biggest stockmarkets could drop again significantly, if lacklustre sales persist.

The stockmarket hausse of the last half year has largely been speculative, since, after sinking to an absurdly low level due to panic, stocks simply had to go up again. But precisely because the hausse is driven primarily by speculation, investors could just as quickly sell off again as bad economic news persists, which it will in the next half year or so. The spectacular rise of the Yen against the USD, reflecting currency speculation, goes together with the biggest GDP contraction in Japan in 50 years, and a whopping 40% slump in exports year-on-year, suggesting that the high Yen cannot last, as Jim O'Neill suggests. The "fundamentals" may not be fundamental in the short term, but in the longer term they are, since the net new income has to come from somewhere.

Interestingly, Marxist economist Michael Husson points out that the drop in profitability of US industries actually preceded, or occurred at roughly the same time as, the sharp increase in foreclosures which sparked the subprime crisis http://hussonet.free.fr/h8probou.pdf This suggests that, in reality, the expansion of the flow volume of surplus-value (the aggregate profit volume) had reached its maximum limit, whereupon the burgeoning credit system began to buckle, since additional yield to expand credit volume even more was simpy no longer available, so that the global bubble popped. That argument could of course been contested (the true profit rate of industries is not all that well reflected in value-added statistics anymore, and US corporations were often flush with spare cash) but there is some truth to it.

The brutal reality is that recovery of real GDP growth, even if rather lacklustre, will most likely go together with persistently high unemployment ("jobless recovery"): quite simply, the exploitation rate of labour rises once again (fewer workers producing more output in less work time, increasing the intensity of labour), and, ordinary working people pick up the tab of the financial crisis.

If you look at the data, the US economy, for example, demographically speaking, has to generate far more jobs than it possibly can, across the next few years, which means that a growing mass of people (particularly young people and those in a weaker market position) will be shut out longterm from the goodies of life.

If you own ten million dollars and you lose 3 million dollars, that is very sad obviously, but if you lose your job and then your home, or if schoolleavers cannot get a job at all, well, that is much more devastating. It leads to family breakups and all sorts. The economists will say that the NAIRU is now pitched at 7-8% unemployment of the labour force, but all that means is that (1) a structurally higher rate of labour exploitation is now necessary to sustain the capitalist system, that (2) in turn, a higher unemployment rate is required for this ("market discipline"), and that (3) it will take more unemployed people to keep prices stable.

Basically, I think we are looking at an unemployment rate which is durably, and not just conjuncturally, double of what it was before.

How is this situation mediated or mitigated in the medium term? Well basically by state intervention. The problem there is that (1) states are already seriously in the hock with their "stimulus" packages, and thus the ability of the state to create new jobs is also rather limited (it varies a bit from state to state, some have more resources than others), and that (2) state job creation runs against market ideology. If you tax the wealthy more, they just take more of their money out of the country.

And so, the easiest ideological maneouvre is, via a "naturalization" of unemployment, to blame the unemployed for their own unemployment, after all, they don't have much political clout. Society is going to be stuck with this "underclass" longterm, and then the polities have to "contain" this underclass in some way. At Pittsburg we had a taste of the techniques. It's a sort of "criminalization" of unemployment.

Another aspect is, that workers' freedom of movement is going to be much more restricted in many countries, not just internal labour mobility but also international migration. I was having a look in the weekend at some remarkable Dutch statistics. The Netherlands so far has one of the lowest unemployment rates in the OECD (but one of the highest proportions of parttimers, nonprofits and non-working working-age people). According to Prof. van Kalmthout (University of Tilburg), until 1982 there were no special detention centres for illegal immigrants in the Netherlands, just ordinary police cells were used. Just 45 cells were made available, and until 1982, about 500 migrants were interned there for about a month each year. http://www.schipholwakes.nl/25%20jaar%20vreemdelingendetentie%20v%20Kalmthout.pdf

However, the Dutch "expulsion industry" has grown explosively as the laws have become stricter. There are now anywhere between 100,000 to 200,000 "illegal" immigrants in the Netherlands (total popn 16.6 million), nobody really knows the true figure of illegals. From 2007, however, there are some 3,100 places designated for immigrants in detention centres, with an expected inflow of 15,000 to 20,000 illegal immigrants (including children) being locked up there for anywhere between 56 to 75 days prior to being booted out of the country. In 2007, 13-15% of "penitentiary capacity" was reserved for illegal immigrants, but in fact the illegal immigrants' share of the total inflow of new prisoners in the Dutch prison system is now rising to about 25% in real terms, according to van Kalmthout. In other words, something like one out of every four prisoners in the Netherlands at any time is nowadays an illegal immigrant, a spectacular figure. Your move, might be your crime...

The liberals wax enthusiastically about "globalisation" but in reality, more freedom for capital means less freedom for a large segment of workers http://archives.econ.utah.edu/archives/ope-l/2008m04/msg00162.htm . The harsh lesson that workers are learning, is that the capitalist system doesn't really work in their interests - but, since some do very well out of it, even despite lower house prices, while others don't, this lesson takes a long time to sink in.

Jurriaan

Anonymous autonomous

Will likely get the best of us yet
Before you disappear

If you can lend me half an ear, I'll regret
If I treat you like a number
It's because I can't remember your name, mmm
So have another cigarette

And help me to forget why I came
Run too fast, fly too high,

Run too fast, fly too high

- Janis Ian, Run too fast, fly too high http://www.youtube.com/watch?v=SOQiqiF9kTU

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Received on Mon Oct 5 15:02:40 2009