[PEN-L:28101] Re: Greenspeak

[Chris Burford <cburford@xxxxxxxxxx>]

Thanks for URL

Remarkable, bland opening sentence which effectively notes that major
destruction of capital values appears possible without (hopefully)
preventing the circulation of the continuing economy. He might just be right:-

> Over the four and one-half months since I last testified before this
> Committee on monetary policy, the economy has continued to expand, largely
> along the broad contours we had anticipated at that time. Although the
> uncertainties of earlier this year are as yet not fully resolved, the U.S.
> economy appears to have withstood a set of blows--major declines in equity
> markets, a sharp retrenchment in investment spending, and the tragic
> terrorist attacks of last September--that in previous business cycles
> almost surely would have induced a severe contraction.


Larry Elliott may be wrong through an insufficiently marxian analysis and a
failure to notice that the problem about Japan is that it has not braced
itself for a sufficiently ruthless destruction of old capital. Oddly the
worse the destruction in the US the more Greenspan may succeed in soothing
the markets to assume that a period of stabilisation is now possible.
...

> As a result, the strength of final demand will play its usual central role
> in determining the vigor of the expansion.


If the contradiction between the mass of accumulated capital and the
limited purchasing power of the masses is solved by a massive destruction
of old capital, then it is not impossible that the cycle of capitalist
accumulation could resume almost without a break.

> Monetary policy also played a role by cutting short-term interest rates,
> which helped lower household  borrowing costs.


And also by government fiat, devalued old capital.

> a surge in household spending early in this recovery is  unlikely.


suggesting a long U-shaped period of economic stabilisation.


> Although business transactions are governed by laws and contracts, if even
> a modest fraction of those transactions had to be adjudicated, our courts
> would be swamped into immobility. Thus, our market system depends
> critically on trust--trust in the word of our colleagues and trust in the
> word of those with whom we do business. Falsification and fraud are highly
> destructive to free-market capitalism and, more broadly, to the
> underpinnings of our society.


A considerable problem for "free market capitalism". Perhaps they had
better move more openly to monopoly capitalism.

> An infectious greed seemed to grip much of our  business community.


What is he complaining about here? It is the job of capital and its lackeys
to "Accumulate, accumulate." Or is he saying that an antagonistic
contradiction opened up between the activities of the lackeys, and the
efficient operation of capitalism?

Or between insider dealing and outsider dealing?

> the options were poorly structured, and, consequently, they failed to
> properly align the long-term interests of shareholders
>  and managers, the paradigm so essential for effective corporate governance.

This emphasis on long term interests is presumably a new conversion, or am
I missing something? Every developing country has been supposed to
constrain its long term development to the whims of every short term lurch
of global finance capital, in the name of freedom!

> Our vast and highly liquid financial markets


He said it. Although in a domestic rather than a global context.

His remedy for lack of trust in corporate governance appears mainly to
depend on the CEO, with a caution about any mechanism for "independent"
directors.

> the efficient flow of capital from savers to those who invest in plant
> and  equipment.


This assumes what is probably a myth, that most investment comes from
savers rather from accumulated profits. It leaves the time bomb of devalued
pensions even if accumulation can resume at a lower market capitalisation.

> Unfortunately, there are also signs that the underlying disciplinary
> mechanisms that formed the framework for  federal budget decisions over
> most of the past fifteen years have eroded.


Oh dear. And that was a sacrosanct part of the ideology of "free market
capitalism".

On the exchange rate of the dollar all he could try to argue was that it
was unpredictable. Wise since it may be only half way through its fall. He
made no discussion of the short term risks to economic stability if it
falls further.

No concession in this moment of weakness to the need for international
cooperation to sustain the global economy.

Parochial.

The dollar does not deserve to remain the international medium of exchange.

Chris Burford

London



At 16/07/02 08:28 -0700, you wrote:



> http://www.federalreserve.gov/boarddocs/hh/ for the latest
> report