from Crikey …..

Rundle08: Everything goes to crap, and just before Christmas

US correspondent Guy Rundle writes:

Well any hope that things might slow down before the Xmas -- sorry, holidays -- break have been pretty well dashed for battered Americans as everything goes to crap all at once. To wit but not limited to:

·                     The Fed cuts the baseline interest rate to 0.25%, even lower than pundits had expected (it was at 1%, forecast to halve), which is basically free money. Crikey's finance smurfs will explain in more detail elsewhere -- I can't, having a life -- but it's pretty much in line with the Japanese approach in the 90s. Indeed we're on the way to the Japanese reductio ab absurdum, a negative interest rate, in which the government pays banks to loan out, and/or banks pay people to borrow (in the hope that an adjustable loan that's out there can be converted to a positive interest rate once things pick up).

·                     The Bernie Madoff Ponzi scheme is swelling and growing in the corner and no-one really wants to think about it. Madoff, a former chair of the NASDAQ board, has been running a scam whereby existing investors are paid with the funds of new investors (the Ponzi name comes from the only episode of Happy Days ever directed by Almodovar, in which Potsy and the Fonz had an affair, and treated Mr Cunningham as their giant baby). Nothing new, except the size of Madoff's scheme -- $75 billion -- which is enough to throw a fresh wobble into the financial system's shaky orbit, and add to the sense that no figure, valuation, price etc can be trusted.

·                     Illinois governor Rod Blogajackoffovitch unaccountably still hasn't been found murdered in the boot of a car in the shallows of Lake Michigan, which is what he deserves. The Illinois assembly has voted unanimously to impeach the jerk, who is sticking to his guns even though his attempt to shake down everyone -- from the Obama team to a children's hospital -- is on tape. What's the point of having an Illinois machine, if you can't remove these problems quickly? The right-wing -- and particularly the global Murdoch press -- have tried to link Obama chief-of-staff Rahm Emmanuel with the shakedown, because he called a Blaggerturdovsky staffer with a list of four names for the vacant Illinois seat who would be acceptable to teamObama, which is quite legal and proper (though they did deny contacting them at all, which was dumb). In any case, the bloom is well and truly off the rose.

·                     The Shoeguy in Iraq, Muntadhar al-Zeidi, is a hero across the Arab world, and his little piece of political performance art is the only thing that's going to be remembered about Bush's final swing through the beleagured region. Dana Perino, another of the anorexic ice-blondes the Republicans seem to use exclusively as staffers, was hit by a boom mike in the melee, during which she was reportedly hysterical, being under the impression they were all about to get shot. She subsequently appeared at a presser with a black eye, which, let's face it, won't be her last if she marries a Republican male.*

Bush remarked that this was simply what democracy involved, even as the hapless Muntadhar was being beaten outside the room (actually, this hasn't been confirmed). The usual right-wing munters (not Muntadhars) bleated stuff about not being able to do this sort of thing under Saddam Hussein etc etc, to which the obvious answer is well of course effing not, but who would be so stupid as to? What the Americans turned Iraq into was a place where no action on your own part made your survival any more likely, where you could be killed for having the wrong name, or not understanding a marine's bad Arabic read off a card, or, if you were a woman, going to the job you used to have, face unveiled. Muntadhar, who was arrested by US forces shortly after he'd been released by Iranian-backed kidnappers, seems to have coalesced all the frustration with this fatuous self-congratulation in one single image, and it would be unwise to underestimate its ramifications.

·                     Caroline Kennedy put her hand up to take Hillary Clinton's Senate seat, despite having done no campaigning for it, nor organised politics, and with eleven other candidates already in the field. That her bid was seriously reported is a measure of the residual hold that dynastic families have on American life, and confirmation of De Toqueville's forecast that, absent a visible aristocracy in American life, a de facto one would eventually coalesce in a mass recoil from the cultural consequences of equality and democracy.

Bogarsoleanov stuff aside, the main game was the collapsing American economy. Which brings me to the main subject of this Christmastide sermon, a reply of sorts to one strand of argument that's been uppermost in these pages through the recent months of financial unpleasantness to wit, that fears of a deep recession cum depression -- in the US and all the more in Australia -- are unfounded, and that beneath the chaos of financial capital, the fundamentals of the economy are strong.

The evidence, to my eyes, suggests otherwise -- indeed I think a lot of forecasts about the future of the Western economy have been near delusional. What has been happening since September is by no means merely a result of a lack of regulation, or still more absurdly, of greed (as if capitalism and greed were somehow inimical!) -- it's simply the most abstract effect of a permanent structural shift in the global economy, and the first signs of a broader world crisis in capital. Yes, capitalism has a ways to run yet.

There have been three dominant accounts of the current financial crunch. The hardline laisse faire one -- that the whole thing was caused by overregulation, specifically mortgages mandated by the 1977 Community Reinvestment Act and Congressional pressure on Freddie Mac and Fannie Mae to lend to the poor -- is too silly to consider, and even its early partisans have backed off from it, as the crisis spread. The second, milder, neoclassical version, is that all this mayhem is creative destruction at its best, that a crunch in all sectors would discipline labour, reward efficiency and create a leaner western economy. The dominant left-liberal version is that deregulation, greed and deflation of the "Main Street" economy has shunted investment into funny money schemes, while starving infrastructure and industrial investment, and that what is required is a new, new deal.

Whatever the vagaries of financial capital, crises in capitalism are always at root a product of one core contradiction -- that, after a certain point of development, it is always in the interest of individual firms to minimise their wages bill, while in the interest of the economy as a whole that wages be enough to create demand. This is meant to be a self-regulating process -- when wages go too high, firms go bust, unemployment rises, wages fall etc -- but the lived form of that "self-regulation" is boom and bust, stretching over decades.

The West, and especially the UK, had already entered that period -- systemic overproduction of goods -- by the 1870s. The response was the creation of a consumer society, stimulated by advertising, the rise of department stores, arcades etc -- effectively the invention of shopping, albeit only for part of society. By the 1910s this had been generalised, and the prelude to the Great Depression was vicious struggle over wages and conditions, and disastrous attempts to both keep the whole thing going and rein in business costs and an overinflating economy.

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