[Marxism] RE Patrick Bond on world financial volatility

ilyenkova at netzero.com ilyenkova at netzero.com
Tue Dec 28 19:13:54 MST 2004

 Jurriaann Wrote:
 >I think Patrick makes a pertinent analysis, but I wonder what 
political and cultural conclusions follow from it, i.e. how he sees all 
this affecting social relations, and just how volatile that volatility 
is. I also wonder why the US savings rate is so low; one sort of 
explanation is that Americans live "like there's no tomorrow" but that 
doesn't seem entirely credible - another possible explanation is that, 
if we disaggregated the data, we might find a large mass of people don't 
have the money to save. One can hardly object if people try to help 
other people into homes, but what is the overall economic effect, apart 
from rising property values?<

How volatile? Assuming you refer to how close the bubble of US consumer 
credit is to popping it may help to disaggregate the data a bit. While 
mortgage debt is now 80% of household disposable income (up from 50% in 
1980), the largest increases are among lower income families:

 Between 1989 and 2001, for households in the lowest quintile of incomes 
mortgage debt tripled; for the next 20% debt increased 2.5x; and for the 
third quintile, the debt doubled. For the next 20% (60-79.9%)mortgage 
debt increased 1.5x; for the 80-89.9% the increase was still more than 
1.5x and for the top decile debt rose by 39%. (Survey of Consumer 
Finances, Federal Reserve Board)

Mortgage debt loads for the poorest strata probably derive from 
proliferating nonconventional or so-called subprime mortgage lenders 
which has increased US homeownership by 5% in the 1990s despite stagnant 
wage levels. But for the midrange and up, record levels of refinancing 
activity bewteen 2001 and 2003 spurred by lowered interest rates have 
driven both speculative property appreciation and increased 
indebtedness. In the last two years refinancing has extracted a record 
$333 billion in cash from homes to pay down other interest-bearing 
consumer debt like credit cards as well for consumer spending. But 
refinancing has increased the size of payments for 40% of owners and 
lengthened loan term lengths for 80%. Despite appreciation, refinancing 
has leveraged household assets so that owner equity has fallen to a 
record 55%, and the equity/market value ratio could plunge as low as 43% 
should housing prices decline (Center for Economic and Policy Research, 
8/13/03). Lower equity increases family vulnerability to economic crisis 
as they own less in assets to serve as insurance against deceased 
income. In view of the larger debt picture for the US economy, interest 
rates must rise eventually and in all probability, quite sharply. With 
no evident prospects for significant growth in employment and wages that 
should trigger a cascade of foreclosures and prick the bubble of 
appreciating real estate property values the Fed has used to 
collateralize the financing which has stabilized the economy by 
injecting masses of dollars into the consumer goods market. So, I'd say 
this is quite volatile.

Re Why the low savings rate in the US? On paper Keynesian 
macromanagement could have forced savings, but fiscal policy has been 
anti-Keynesian since at least the mid 70s. Keynesian fiscal practice-- 
save during growth; spend during contraction-- has been totally junked 
for wave upon wave of tax cutting. Right now capital gains, corporate 
and income taxes continue to mimimize as they did during the neoliberal 
Clinton years. For liberals like Krugman, Thurow and Galbraith the 
younger, this is just bad fiscal policy. As Brenner and others on the 
left have shown, though coorporate profits have risen, the weight of the 
evidence suggests that the rate of profit trajectory has been downwards 
since the end of the long boom. If this is true, it would suggests that 
financialization has been more than a matter of policy choice for US 
capital, and that as Patrick Bond suggests we may be nearing the end of 
the present regime of debt driven accumulation. On a more prosaic level, 
though Americans certainly *overspend* for the variety of reasons cited 
by Juliet Schor in __The Overspent American__ , there just isn't a lot 
to save for the majority after housing, transportation, and esp medical 
expenses are deducted (i.e) I make $35,000/yr and it takes $40,0000/yr 
to afford a 2 bedroom apartment in Massachusetts where I live according 
to recent estimates.




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