Financial Market Crisis
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Financial Market Crisis - Myth and Reality: How the very real Economy falls into Crisis
Uebersetzung des Buchs von Guenther Sandleben.
_Finanzmarktkrise - Mythos und Wirklichkeit: Wie die ganz reale Wirtschaft die Krise kriegt_
aus dem Deutschen ins Englische
Translation of Guenther Sandleben's book
_Financial Market Crisis - Myth and Reality: How the very real Economy falls into Crisis_
from German into English
http://www.proletarische-plattform.org/proletarische-texte
http://www.amazon.de/Finanzmarktkrise-Mythos-Wirklichkeit-Wirtschaft-kriegt/dp/3842336543
This is an ongoing project facing the need for a text that explains the economical reasons
of the current crisis.
Matze Schmidt, September 1, 2011
Note:
Words in square brackets [ ] are containing notes or additions by the translator or the
original German term [orig. ...]. German Umlaute ä, ö, and ü are replaced with "ae", "oe"
and "ue", the "ß" is replaced with "sz". Footnotes are put on the bottom of the page.
Words in hashs "# #" or three hashs "# # #" in a line mean unfinshed translated text.
Beware of type errors and mistranslations.
Some chapters have been extended contentwise with hyperlinks to relevant Websites. The
paragraphs and the formatting are according to the page layout of the printed copy.
Contents |
Title
Guenther Sandleben
Financial Market Crisis -
Myth and Reality
Guenther Sandleben lives in Berlin as publicist. Besides numerous articles his book
"National Economy & State. On the Critique of the Financial Capital" was released by
the VSA-Verlag [VSA-Press] in 2003. As a result of his own experience of being a
professional analyst for more than 20 years he knows the insides of the so called
Financial Capital and he has dealt with the interactions of the financial markets and
the "really real Economy" intensively.
After studying Economic Sciences in Dortmund and Berlin he he firstly was research
fellow with the focus on the History of Economical Theory. During this time he was
adressing especially the classic political Economy and Marx' critique.
A selection of his publications can be found on http://www.guenther-sandleben.de
[in German].
2
Guenther Sandleben
Financial Market Crisis -
Myth and Reality
How the very real Economy falls into Crisis
proletarische * Texte [proletarian * Texts]
- 3
Bibliographical Information
of the German National Library [Deutsche Nationalbibliothek]
The German National Library lists this publication
in the German National Bibliography; detailed bibliographical
data are available on the internet here: http://dnb.d-nb.de .
IMPRINT
Volume 1 of proletarische Texte [proletarian Texts]
Series, edited by the proletarische Plattform [proletarian Platform]
http://www.proletarische-plattform.org
[The hyperlink was completed by the "http://" for functioning]
(c) 2011 Guenther Sandleben
Frontispiece: Cornelia Leymann
[See flyer here:
http://www.proletarische-plattform.org/app/download/5108468964/Flyer+Krisenbrosche.pdf?t=1306271428]
Production and Publishers:
Books on Demand GmbH, Noderstedt
ISBN 978-3-8423-3654-4
4
Contents
Introduction ................................................................................................ 7
Chapter I
Stages of the Crisis so far ....................................................................... 10
1) End of 2005 until middle of 2007: Partial Crisis (Real Estate Crisis) 10
2) Middle 2007 until middle 2008: Credit- and Banking Crisis as
Consequence of the partial Crisis 13
3) Beginnig of 2008 until August 2008: Overproduction in the
most important Economic Sectors 18
4) September 2008 until beginning of 2009: Overproduction Crisis, Money-,
Dredit-, Stock Market- and Banking Crisis 27
5) March 2009 until end of 2010: Stage of relative stabilisation 35
6) Beginning of 2010 until today: Economic Recovery, Austerity Programs,
States Bankruptcies Threats 46
Chapter II
Financial Market Crisis or Crisis of the Capitalist System? ...................... 60
1) Myth Financial Market Crisis 60
2) Separation of the Financial Markets from the so called
"Real Economy"? 63
3) Critique of the Hegemony-Thesis 66
4) Relationship of Financial Market Crisis and Crisis of the
Production of Commodities 69
5) Politcial Consequences of the Analysis of the Crisis 71
Chapter III
The General Law of the periodical Crises found by Marx ........................ 74
1) Possibility of Crises 78
2) Imperative of the Crisis 79
3) Why the Crises occur periodically 81
4) Crisis Cycle, Credit and Interest Cycle 83
Chapter IV
Why the Crisis is a Big Crisis: Turnover of the
longer-term Type of Accumulation ........................................................... 87
1) Asymmetry of economic [orig. konjunktureller] Stages 88
2) The Storm and Stress Period of Capital as precondition
for the Big Crisis 89
3) Changes in the Financial Sector 92
4) Necessity for the Turnover of the Type of Accumulation 93
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Chapter V
Crisis Management of Governments ........................................................ 96
Limits of National Debts 97
29 National Debts Crisis (National Bankruptcy) with following
Monetary Decay and runaway Inflation 107
Bibliography
................................................................................................................ 113
Glossary .............................. 116
Charts and Tables
[The Graphics and Tables will be added later, 05/09/2011]
Chart 1: The Crisis in the US-Real Estate Market .............................. 12
Chart 2: Overproduction within the most
important Economy Sectors .............................. 20
Chart 3: Changes in Credit Standards .............................. 25
Chart 4: International Economic Indicators
[orig. Konjunkturindikatoren] .............................. 47
Chart 5: Stages of the Big Crisis .............................. 56
Chart 6: Patterns of Production in the
World Economy Crisis [Great Depression] 1929 et seq. .......................... 58
Chart 7: Crisis-, Credit- and Interest Rate Cycle according to Marx .................... 84
Chart 8: Asymmetries in US-Economy [orig. US-Konjunktur] .............................. 88
Chart 9: Boom of Accumulation in China .............................. 90
Chart 10: World Trade and World Production 1974-2008 .............................. 91
Chart 11: From Crisis of Capital to Crisis of the State ........................... 97
Table 1: Extent of the Rescue Plans for the
Financial Sector .............................. 36
Table 2: Financial Requirements of choosen States in the Eurozone .................... 48
Table 3: Financial Procedures of the EFSM [European Financial Stability
Mechanism] and the EFSF [European Financial Stability Facility] .................... 52
Table 4: Debt Explosion .............................. 96
Table 5: Role of the Issue Bank [orig. Notenbank] .............................. 109
6
Introduction
The ways of dealing with the Crisis are certainly strange. Although crises
shook economy in the past on a regular basis at intervals of seven to eleven
years sometimes more, sometimes less, bringing people the message that there
is something wrong with the Economic System, it was forgotten once gain.
When the Crisis approached in 2006 it was repressed. Its manifestations were
belittled as superficial, accidental maldevelopments that would swiftly go by.
When it eventually made the economy tremble in fall 2008 panic broke out.
Politicians saw the Financial System right on the edge. "There were voices",
Peer Steinbrueck wrote, then [German] Minister of Finance, "who were talking
of the end of Capitalism."[1] A Doomsday Mood was in the air. Production and
trade collapsed, wealth [orig. Reichtum] was destroyed, capacities were shut
down, workers were dismissed or forced into short-time work, companies stood
on the brink of insolvency, credits bursted, prestigious banks filed for
bankruptcy, uncertainty was widespread, wealthy private persons hoarded
money or were seeking for safety buying gold. Even States were pushed
to the edge of a bankrupt. Neoliberals and monetary principles vanished into
thin air affected by the events.
After gigantic money, credit-, interests- and economic policy interventions the
State Debts have been soaring as it was the case in the past only
in times of war. The spectre of insolvency is haunting us. It is knocking on
the doors of several states. Moreover general currency dislocations and
runaway Inflation. The Crisis
_________________________
[1] Steinbrueck (2010). P. 200. "In September (2008) it became clear to me
that we are only days apart from a total breakdown," Gordon Brown wrote in
his book "Beyond the Crash" (2001, P. 18) looking back on his days as Premier
Minister of Great Britain.
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is not yet over even though economies of some countries have recovered.
In the first chapter we will trace the course of the Economy Crisis so far
and we will investigate the inner nexus of Overproduction-, Credit- and Banking
Crises. According to which kind of crisis became more apparent an which
combination it went through six stages can be distinguished we will scrutinise
one after another.
Many observers - coming from the Left as well - consider the Economy Crisis to
be an evitable tragedy which could have been averted by political interventions.
If only the Financial Markets have been regulated in a better way, if only the
Financial Services Authority had been working better, if only the Investment
Bankers had been less greedy, if only Alan Greenspan, former chairman of the
US Federal Reserve Bank, had reduced the interest rates to a lesser extent and
if only the neoliberal policy of redistribution had not reduced purchasing power
that much, if this all and even more had happend the Big Crisis would not have
occured and entailed such consequences. And when Politicians, Financial
Supervision and Managers have learned their lessons at last the Crisis will
never recur.
Is such optimism reasonable?
The following chapters give an answer from different points of view. In
connection to our empirical analysis in the first chapter in the second chapter
the predominant thesis stating that the Crisis was first of all a Financial Market
Crisis which had spread to the so called "Real Economy" will be examined.
To get to the source of the Crisis one needs to be dug deep. Fact is, Economic
Cycles are permanent manifestations of capitalistic Accumulation Processes and
they are not to be taken as singular and extraordinary occurences. Also the
latest Crisis is part of the chain of such Economic Cycles. Just this essential
implication of the Crisis is blinded out by the current literature almost only
oriented on the Financial Markets, so that we consider such view on the crisis
as inappropriate,
8
to reveal the source and the inner coherency of the Crisis.
Firstly the literature about the Crisis widely ignores the real accumulation as
possible reason for the Crisis and regards the "Real Economy" as mainly stable
in order that the reason for the Crisis is in the first place located beyond the
production of commodities. This externalisation of the Crisis Scene secondly
means that the focus of the explanation is from the start put on historically
unique occurrences, hence the Big Crisis of 2007 until 2010 can be whitewashed
taking it as a kind of traffic accident.
It is totally different with Marx' Critique of the political Economy. By bringing
out the contradictions and antitheses of the Capitalistic Economy Marx was able
to disclose the hidden Scene of the Crisis in its general lawfulness and he
could display the general continuous form. The general law of the periodic
crises discovered by Marx is subject of the third chapter.
However such global analysis of the Crisis can not explain why the shock waves
were extraordinary heavy and wide-ranging this time. In the fourth chapter
we study the long term Tendencies of Accumulation to figure this out.
The Management of the Crisis by Government and Issue Bank so far appears to
be successful insofar as it actually contributed to some stabilisation and then
to a recovery of the economy in many countries, especially in Germany. The
chapter five adresses the other side of the crisis-management programme
whilst raising the question where the risks are gone the state has taken out of
the economic system by interventions. Is the resulting stabilisation a Pyrrhic
victory soon followed by National Bankruptcies, Currency Dislocations,
Hyperinflation and further Economical Crises?
Berlin, Spring 2011
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Chapter I
Stages of the Crisis so far
In its superficial appearance the Crisis showed a Sales Crisis of commodities,
at first of real estates then later an more generally a Sales Crisis of the most
important Economic Sectors of Trade and Industries. But this partial then global
Overproduction Crisis of commodities seems to be not at all the main issue at
first glance. It was the Crisis, Money-, Credit-, Stock Market- and Banking
Crisis, in short the crisis of the Financial Markets that was particularly
outstanding, that particularly sensational took place, that took on dramatic
forms that one meant it already would create the authentic Crisis Procedures
and it would have spread to the Economy.
Anyway, all the manifestations of the Crisis emerged with such intensity that
the Crisis was labeled "big Crisis" because of its extraordinary violence and
parallels were drawn quickly to the Great Depression of 1929/1932.
Depending on which kind of Crisis through which combinations came to the fore
the general Economic Crisis in its development so far is divided in to five
stages we want to analyse hereinafter.
1) End of 2005 until middle of 2007: Partial Crisis (Real Estate Crisis)
The beginning of the Crisis' first stage can be dated to the end of 2005, when
the downward trend of the US Real Estate Sector gained more and more.
Already in July 2005 the home sales reached their highest level. After initial
volatilities on a high level at the beginning of 2006 a downward movement began
which speeded up during the course of the year. In August 2007, first peak of
the Financial Crisis, home sales had been halved. Too many houses have been
built compared to the solvent demand.[2] How overproduction emerges shall
be analysed later on. Sales Volume Stagnations lead to a decline in construction
output. US Building projects reacted pretty quickly which cracked more
intensively after their peak in January 2006 than the sales (nearly minus 60
per cent until August 2007). The downturn of the New-Build Projects actions
resulted in a rise in unemployment in Construction Industries and Supply
Industries.
A situation occured, totally normal for capitalism but paradox for Good
Economics [gueterwirtschaftlich]. Sacked wage earners who had built lots of
houses were now unable to repay their loans, borrowed for their own houses.
They have been removed for their property, they have got homeless, while the
evacuated houses increased the feed on the housing market and contributed to
pressure on prices and further restrictions in production.[3] Corresponding
price increases of US Real Estates bottomed out. The Case-Shiller Home Price
Indices reached its high in June 2006 later going down accelerated.
For the provided Real-Estate Credits this was a critical point. Because the
rising Real Estate Prices have been the catalyser boosting Real Estate Sales
and Bank Lendings. Furthermore expensive real estates lead on to revenues of
debtors in the context of debt restructuring making possible additional consumer
demands. But when prices dropped instead of rising collaterals became
insufficient, with the result that refinancings were made difficult,
_____
[2] However the Boom came along with am extremely real increase of the
population in the US persisting until today. From 1967 to 2006 it went up from
200 to 300 million people and in the period between 2000 and 2007 it went up by
almost 20 millions, that is nearly one per cent yearly.
[3] In 2007 forced sales grew 7.5 per cent compared with the previous year. In
all 2.2 million residences have come under the hammer. In June 2008 per
day 8.000 homes.
Hyperlinks:
S&P/Case-Shiller Home Price Indices
http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us----
- 11
- Chart 1: The Crisis in the US-Real Estate Market
Hyperlinks:
12
sometimes impossible. Rising interest rates have led to difficulties in credit
performance. The decline of Real Estate Prices eventually stopped buying consumer
goods by adjusting the home loans. Consumer Demands were hit.
The USA entered a Real Estate Turmoil of its own. Later on Real Estate Markets in
wider Europe followed (above all Great Britain, Ireland, Spain, France, The
Netherlands) as well as in Asia.
It is important to regard this as a partial crisis and not a general crisis, the
latter would have been characterised in seizing all big economic sectors. Which
came later. The World Economy was developing very dynamic until the end of 2007. In
Europe above all in Germany, the Economy was prospering until the first quarter 2008.
Countries like Russia, Brazil, China, India and a several Gulf States have been
registering remaining high Economic Growth Rates during the partial crisis. The US
Economy grew moderately until the fourth quarter of 2007. After a slight decline
in the first quarter of 2008 (-0.7 per cent) and followed by increase anew
(+ 1.5 per cent) the economy got into a downward maelstrom in the second half year
(III. Q: -2.5, IV Q: -5.4 per cent).
2) Middle 2007 until middle 2008: Credit- and Banking Crisis as Consequence of the partial Crisis 13
At the second stage the Real Estate Crisis was continuing its downward dynamic
unchanged. That the Real Estate Crisis was crossing over to the credit sector
was new. # # #
- 13
[to be continued]
Editor's Notes
