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05-28-2009, 06:53 AM #1
The Deeper Origins of the Economic Crisis
The Deeper Origins of the Economic Crisis
by Shamus Cooke
Global Research, May 28, 2009
2009-05-27
For all the horror the global economic crisis has caused for so many people, one progressive consequence has emerged: many of these people are becoming politically conscious — searching for information to better understand their political and economic system. They want to know how things got the way they did and what can be done about it. Unfortunately, much of the resulting analysis has focused too little on actual causes, and too much on abstract financial details and other consequences of deeper economic problems.
Therefore, the typical explanation of the economic crisis goes as follows: depression-era financial regulations were tossed aside, and banks were allowed to merge into new institutions that then invented ways to transform debts into assets, which were gambled away on the stock exchange to the tunes of trillions of dollars.
All of which is true.
What’s missing, however, is why. Why did successive governments allow the regulations to be destroyed? And more importantly, why did the entire political establishment agree that these regulations needed to go?
One important statistic can help provide some insight: Whereas manufacturing was twice as large as the financial sector of the U.S. GDP in 1970, these numbers have since been reversed — the financial sector is now 21 percent of U.S. GDP, while manufacturing is just 12 percent, and shrinking.
Why did the financial sector grow as manufacturing sank? And how are the two related?
Investors (capitalists) have become increasingly frustrated with actually producing things; the profits just aren’t what they used to be. This is because manufacturers — under capitalism — must compete with others on the world market in selling their goods; and the only way to win this competition is to have the lowest prices, requiring that you also own the most up-to-date and expensive machinery. The huge investment it takes in machinery to win this contest has an adverse affect on profits — the bigger the re-investment in machinery, the lesser the take home cash for the owners.
This drives the more astute investors into the financial realm, where one is magically able to shift money around and make huge profits…seemingly out of nowhere. But this type of money wizardry has its limits. Money, properly understood, is simply a means to exchange goods and services, having no independent existence outside of this purpose.
But that is just what happened during our now-fizzled boom — money took on a life of its own. New financial “instrumentsâ€
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05-28-2009, 07:04 AM #2
There is definitely some truth to this. Some studies have shown that for families, especially divorced families, a lot of the consumer debt that got piled up was for the purpose of maintaining a middle class standard of living, not for luxuries. Keeping the car running, the kid's glasses broke, band fees, etc.
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05-28-2009, 08:03 AM #3Originally Posted by BetsyRoss
War and economic crisis are closely related phenomenon, both of which require an anti-capitalist perspective to combat. A system where goods and services are produced for social need, under the democratic control of the people, is not utopian, but an absolute necessity if the world is to progress past this increasingly turbulent period.<div>Number*U.S. military*in S.Korea to protect their border with N.Korea: 28,000. Number*U.S. military*on 2000 mile*U.S. southern border to protect ourselves from*the war in our own backyard: 1,200 National Guard.</
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05-28-2009, 08:12 AM #4
Re: The Deeper Origins of the Economic Crisis
The disease lies in overproduction, which occurs naturally in an economic system that produces goods only for a market.
Every time I see "new packaging" or "new and improved" for an existing product or a new brand, flavor, and/or design of shampoo, toothpaste, toothbrush, laundry detergent, dish soap, hand cream, skin cream, cereal, spaghetti sauce, etc., etc., etc., I have pondered the concept of production verses consumption and the possibility of potentially reaching a point where the market was so overly saturated with products without enough consumers to purchase these products. It seemed as if this principle was inherent in our current system of capitalism, and bubbles existed to perpetuate the continuous cycle of consumption in keeping pace with ever-increasing production and profits.
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