[PEN-L:4827] Re: credit & capital

[Jim Devine <JNDF%LMUACAD.BITNET@xxxxxxxxxxxxxxxxx>]

On Tue, 25 Apr 1995 13:07:45 -0700 Mike Meeropol said:
>This raises the question as to how a breakage in a speculative bubble can
>(or can not [?]) trigger a collapse in the "real" economy.  One might
>conclude from the actions of the FED in 1987 that given sufficient
>commitment to act as a lender of last resort --- even failures of major
>banks or great write-downs in speculative values can be CONTAINED so as not
>to contaminate the "real" economy.  This of course only permits the
>debilitating long run growth of "financial fragility" to continue.

Yes, but I agree with Bob Pollin and others who argue that the reason
for the continued growth of financial fragility is not simply due to
the Fed but also due to the low profit rate on investment which
encouraged companies to get into greater debt.  (The profit rate
seems to have risen significantly lately, changing that story.)
>
>If we conclude that bursting financial bubbles cannot produce a prolonged
>slump such as FOLLOWED 1929-1933 ...
>then are we to assume perhaps that the continued increase
>in financial fragility will continue to debilitate national economies so
>that recoveries will more and more look like this one --- little or no
>income growth for 80% of the population!

IMHO, to a large extent,
the financial fragility has been shifted from the banks and
corporations to the 80%.  The corps got out of their debt trap
partly because stagnant wages and salaries, plus down-sizing
that shifted the costs and has boosted profit rates of late.
On the other hand, the banks benefitted from the very
steep yield curve of circa 1992 that meant a big gap between
the rate we earn on deposits and what we pay on loans.

Doug or whoever has more up-to-date info, is this perception
accurate?

BTW, in my recent article in RESEARCH IN POLITICAL ECONOMY,
I was somewhat skeptical about similarities between the late
1920s and the present era.  But with the recent profit boom
as reported by BUSINESS WEEK and others, the similarities
seem a bit stronger. Not only that, Washington seems to
be chanelling with the spirit of Andrew Mellon* again
after a hiatus of a few years: government downsizing
and boosting benefits to the very rich and corporations
threatens to make things worse.

* the secretary of the Treasury in the late 1920s.

in pen-l solidarity,

Jim Devine
jndf@xxxxxxxxxxxxxx or jdevine@xxxxxxxxxxxxxxx
Econ. Dept., Loyola Marymount Univ., Los Angeles, CA 90045-2699 USA
310/338-2948 (daytime, during workweek); FAX: 310/338-1950
"Segui il tuo corso, e lascia dir le genti." (Go your own way
and let people talk.) -- K. Marx, paraphrasing Dante A.