Re: [OPE-L] A memorable quote...

From: Patrick Bond (pbond@MAIL.NGO.ZA)
Date: Sat Dec 29 2007 - 01:55:07 EST

Jurriaan Bendien wrote:
> I would broadly agree with a) and c) but not necessarily with b). In
> Australasia, the fluctuating interest rates remained relatively high,
> causing an influx of "carry trade" money, but interest rates in the
> US, Europe and Japan reduced strongly some time after the second oil
> shock,
Sure, as they were at extreme levels (Volcker having raised the 3 month
TBill rate from a low of 5% to a high of 17%) and so necessarily came
down. So did the inflation rate. The real rate remained at a level
during the 1980s-90s far higher than earlier periods.

> a deflationary regime
which in my book means relatively high real interest rates, not low

> was operated, and with the deregulation of international capital
> markets, you could borrow cheap money all over the world.

I remember it differently; yes there was lots of money as deregulation
proceeded, no it wasn't so cheap (consider how credit card issuers have
kept the rates near 20% while massively expanding their consumer base),
and there was very little long-term money (e.g. 40+ year funding for
infrastructure) around.

> You can easily find time series data to support this thesis.
Those are nominal rates (at least the ones I checked); do you have real?

> For US time series see e.g.
>  or
> For EU time series see e.g.
> or
> Germany e.g.
> Japan e.g.
> A group of countries
> The simple point implied by Holland's remark is, that if interest
> costs reduce, then this is itself a "counteracting influence" to
> longterm declines in the average industrial profit rate (i.e. it can
> partly offset declines in the average rate of return on capital). But
> this point is often not noticed in the Marxist literature, because it
> doesn't deal very much with capital finance (as Doug Henwood pointed
> out also). It is mathematically quite possible for a lower interest
> rate to combine with a higher net interest volume, obviously, if the
> lower interest rate means that borrowing increases.
Or the interest/profits ratio continues rising if the prior period's
credits are structured as balloons, which is what the US corporate
sector experienced during the 1980s and 1990s. The ratio of interest
payments to profits soared long after rates came down sharply after
1982. Dumenil and Levy have excellent analysis of this problem,
including where they correct profit for an interest component within
corporate profits, which shows that in the sphere of value production
(US manufacturing corrected for interest), the tendency of the rate of
profit to fall never corrected itself from the late 1980s as many think
based upon first-glance analysis of profitability rates.

> If however it becomes impossible to sustain the deflationary regime,
Again, this doesn't fit the language I know: deflationary policy usually
entails a high rate regime.

> and interest rates rise, this impacts negatively on the
> industrial profit rate, and often carries recessionary implications.
> The macroeconomic financial problem in our era is really "how do you
> keep interest rates down, without this generating speculative bubbles
> and dubious lending rackets that get out of control, wildly distorting
> economic fundamentals".
But that's just one of the variables. If financial institutions have
power, then you can bet there's a higher interest rate than normal, but
also you can count on lots of other socio-economic processes that
intensify commodification, the market as arbiter of social policy,
indebtedness and financial power.

> The subprime crisis is only one facet of a bigger problem of
> other lending rackets,
Full agreement. The bourgeois economics info is interesting (thanks for
all those links) but we still need lots more on the marxian side.

> including within the mortgage business itself (think e.g. of
> pay-option adjustable-rate mortgages, or option ARMs as they are
> called, see on this
>,0,4900304.story?coll=la-home-center ).
> The provisional policy answer to that financial problem, seems to be
> to operate a stricter, more conservative lending regime from now on.

Or find brand new markets to move the speculative impulses into, e.g.
further energy derivatives (already huge) or something more scary yet:
carbon (a.k.a. the privatisation of the air). (Our Dutch publisher
Rozenberg will issue the new edn of Climate Change, Carbon Trading and
Civil Society next month by the way.)

> In turn, this has the effect, however, that it reduces risk-taking
> entrepreneurship in world capitalism all round.

Or finds new risk-gimmicks.

> And that means, other things being equal, that investment projects
> which expand production and create more jobs longterm are less likely
> to be started up. You just get a more conservative economy with
> sluggish economic growth out of that, in aggregate, and the
> fundamental economic problems are not solved, or only tackled piecemeal.
> Effectively, a lot of govt economic policy nowadays consists of
> "buying time"

And also ensuring geographical boundaries to trade/investment fall
(maybe they'll eventually get their Doha Agenda at the WTO) and also
lubricating 'accumulation by dispossession'. But these are all
displacements not resolutions of the underlying crisis tendencies.


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