Re: [Marxism] Re: Problems and Realities 3

[Louis Proyect <lnp3@xxxxxxxxx>]

> And more..
>
> I don't know about the rest of you, but I can't picture "growth," such
> as it is, surviving $75/barrel oil.  I'm not real good at predicting
> things (I was absolutely convinced Carter would beat Reagan), nor do I
> hold to "tipping point" theories, perfect storms, etc. but $75/barrel
> for oil?  With 59 supercontainer ships set to join the fleet this year,
> bringing the total number of this ships from 0 to 140 in 2 years... with
> massive overproduction of autos, and steel..?
>
> Sky isn't falling, but can't imagine there isn't a massive "correction"
> looming on the horizon-- and then another war... like using the Kurds to
> provoke or stage a conflict between Iran and Iraq...

Speaking of such questions, this message from Loren Goldner showed up on
LBO-Talk and PEN-L. Goldner is a "council Communist"--not my cup of
tea--but he is a fairly smart guy especially on economics.

Dear Michael,

Pouring over the tea leaves, I jotted down the following analysis the
current conjuncture for a few friends, then decided I'd like to get broader
feedback.

Would you mind posting this on PEN-L?

Thanks

Loren


The following is thinking out loud about the current world conjuncture, in
hopes of eliciting some feedback.

I argue that we are still in the early phase of an inflationary blow-out
centered in the indebted "U.S. consumer" as the "locomotive" of the world
economy.

Every indicator I can see in the world economy today points to a
reflation-driven boom that can ultimately be traced back to credit
expansion in the U.S. generalized to the world by unbelievable levels of
U.S. balance-of-payments deficits. When this house of cards collapses, the
Asian exports giants (Japan, Korea, China) will go into the tank with the
U.S., as will the Third World raw materials producers (e.g. Latin America)
currently enjoying a boom from exports to Asia, above all China.

I'm constantly struck by the uncanny parallels with the early 1970's:

-U.S. bogged down in a losing, unpopular war (Vietnam then, Iraq now)

-a scandal-ridden, foundering Republican administration

-all commodity prices headed skyward, led by gold and oil

-a lingering "boom" (now Goldilocks) mentality in the U.S. mainstream (the
Dow hitting highs not seen since January 2000)

-unbelievable run-up of consumer (and all kinds of) debt in the U.S.

-faltering dollar and growing uneasiness of the U.S.'s international
creditors, who have made the above run-up of debt possible

The financial press, such as the Financial Times and the Economist,
continue to turn out their anti-gold crap, such as in Saturday's FT where
the usually lucid Phillip Coggan talks about the gold price being out of
line with "fundamentals", by which he means "supply and demand", as if he'd
never heard of masses of liquidity looking for a safe haven.

It is true that Chinese exports are exerting a deflationary drag globally,
which is different from the 1970's. But wages are rapidly rising in
Shenzhen and in Guandong province to attract workers, and Bangladesh has
now edged out China as the low-wage
champion of the Third World.

Further, the relentless boom in China is pulling up all commodity prices by
its seemingly bottomless demand for raw materials, now spreading the boom
to Latin America, and to African oil producers.

Last but now least, let's not forget geopolitical dislocation, led by the
brewing Iran crisis, one of several that takes the above out of purely
economic considerations.

The only counter-scenario I can imagine is that the downward turn of the
U.S.housing market, seemingly underway, plunges the U.S. (and, by a
fall-off of U.S. demand, the world) into a deflationary crash faster than
we anticipate. IMHO, Bernanke et al. will not allow this to happen without
first pulling out all stops on reflation with his famous "helicopter
money". True, the Fed is hardly omnipotent and there would be a huge run
out of the dollar, forcing a rapid rise in U.S. interest rates, which would
in turn further act to kill off the housing bubble. It is precisely the
prospect of a run on the dollar that I see as the most likely scenario for
a surge of gold to levels even higher than in 1980.

I would be interested in receiving feedback on the above analysis,
particularly from anyone who sees major flaws in the argument, and who
considers for example that a "healthy" boom (e.g. in Asia) is underway, or
who thinks that a deflationary scenario will in fact preclude an
inflationary blowout.

The broader theoretical underpinnings of this brief analysis are developed
in articles going back to the 1970's on the Break Their Haughty Power web site

http://home.earthlink.net/~lrgoldner

Send comments/criticism to

lrgoldner@xxxxxxxxx

Many thanks

Loren Goldner


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