Will capitalism survive?

You put it very nicely CI

The Bush administration has been one of the worst enemies of strengthening American capitalism. They have harmed our economic system in a variety of ways " but the two largest are: running massive deficits (and the related decline of the dollar); and Bush’s stubborn adherence to the Chicago School’s trickle-down economics which, while clearly benefiting those at the top of the economic ladder, has proven to be a flawed policy and antithetical to robust Capitalism. Further, he has regularly eschewed valuable and cooperative pubic/private partnerships through his lingering dislike of anything resembling government participation or regulation, thus discarding a valuable economic tool.

The deficit, and subsequent dollar decline, has poured incredible amounts of money into less than friendly nations and/or positioned foreign companies to literally “buy” American business at will. That translated into $276 Billion of foreign purchases of American business in 2007. Abu Dhabi buying the Chrysler building was a bit embarrassing; but even though I am fond of imported beer, the sale of an icon like Anheuser is kind of the last straw. Indeed, foreign companies now have a huge stake in our economy, with a contingent ability to buy virtually any company in sight.

Trickle-down has been a mantra of conservative philosophy for decades. Problem is, history shows it has never matched the “rising tide benefits all” way of thinking. This point could be argued about endlessly " but here are the facts as we know them today. For 6 years the Bush administration held all the levers of power in our country with an especially compliant Congress; and for two years, Bush has held the power in the Executive Branch and Judiciary. His trickle-down tax policies (heavily skewed to less taxation on the wealthy) have prevailed during virtually this entire period...and I ask you: has this been a road to a successful economy and growth of Capitalism?

America is such a great country, with a history of leading the world economically. We still have great imagination, creativity, production capacity, and strong (if not ebbing) financial strength. But corporate greed and mismanagement; lack of long term planning; poor stewardship of our resources; a horrendous deficit; and a specious tax policy have all contributed to the decline of a robust Capitalism and American leadership as it used to be. To paraphrase Winston Churchill’s remarks on Democracy: “Capitalism is the worst form of economics...except for all the others that have been tried.” We’ve been here before, and survived; but the world is different now, with wealth spread over many nations and continents. Only a radical change in American corporate governance and enlightened fiscal policies can get our Capitalism out of the tank this time.

http://www.ourfuture.org/blog-entry/why-american-capitalism-funk

Capitalism will always survive as long as there are workers to pay their taxes to prop it up. It is really that simple.

Perhaps you have a point. But if you read this quote you may think that the system is like a delapidated Building.


As the sorry sight of foreclosures and disappearance of hard-earned savings of ordinary American and European homeowners and depositors unfolds, the weight of the evidence favors the anti-neo-liberal camp's theory of culpability for the crisis.

The subprime mortgage disaster, which has dragged the entire Western financial system down with it and spun nightmares of trillion-dollar meltdowns, is a case of unregulated profligacy by adventurous capitalists. The absence of state licensing and oversight of the housing finance sector enabled bolder and more complex "derivatives" to be spun out of thin air, infecting whole economies and their foreign partners.

With no Leviathan watching and correcting the accumulating imperfections, the markets entered the badlands of profiteering by bending the basic rules of accountancy, transparency and corporate social responsibility.

At the peak of neo-liberal hegemony, developing countries around the world were being offered "bailout packages" by the International Monetary Fund (IMF)to solve macroeconomic crises. Ironically now, it is not international financial institutions but the states of Western countries that are doing the fire-fighting and bailing out their own prized corporations such as Freddie Mac, Fannie Mae and Northern Rock from sinking.

Powerful states, epitomized by the phrase "Washington Consensus", had been pushing to downsize the regulatory power of states in the Global South by means of the IMF and the World Bank. It is quite a reversal of roles now for them to be forced to take on a more interventionist role in their own economies after facing flak from their publics for allowing speculators free rein to plunder.
As the rescuer of last resort and the protector of social stability, there is no alternative to the centralized institution of the state. Deeper state interventions in the economy and in society are, for good and worse, here to stay and the repercussions of this shift away from neo-liberalism will be felt for whole generations.
http://www.atimes.com/atimes/Global_Economy/JH28Dj03.html

The daily barrage of bad news is really starting to get on people’s nerves. Most of the TV chatterboxes have already cut out the cheery stock market predictions and no one is praising the “impressive powers of the free market” anymore.
They know things are bad, real bad.
A pervasive sense of gloom has crept into the television studios just like it has into the stock exchanges and the luxury penthouses on Manhattan’s West End.
That same sense of foreboding is creeping like a noxious cloud to every town and city across the country.
Everyone is cutting back on non-essentials and trimming the fat from the family budget.
The days of extravagant impulse-spending at the mall are over.
So are the “big ticket” purchases and the “go-for-broke” trips to Europe. Consumer confidence is at historic lows, disposal income is a thing of the past, and all the credit cards are at their limit.
The country is drowning in red ink.

Something has gone terribly wrong with the economy, but no one knows what it is.
In the last three months bank credit has shrunk faster than any time since 1948.
The banks aren’t lending and people aren’t borrowing; that’s a lethal combo. When credit creation slows, the economy falters, unemployment rises and the misery index soars.
That’s why Bush will have to mail out more stimulus checks whether he wants to or not; his back is against the wall.
He’ll try to make it look like the economy is still breathing on its own and just needs a spell on the respirator before resuming its normal activities.
But Bush is wrong; we’ve reached Peak credit and the blood-transfusions won’t work anymore.
The vital signs have shut down and rigor mortis is already setting in.
Our goose is cooked.

http://www.dissidentvoice.org/2008/07/thar-she-blows-the-last-hurrah-for-the-banking-system/

I know what it is Rama.

Most of the people know or would have read.
But still some would not have read.
That is why I read and make my cut and paste.
Thanks
Rama

Fractional Reserve Lending ..... You would go to jail if you did this ....

How It Works

John Doe decides that he is going to deposit in the bank the sum of $100 dollars. The bank gladly takes the $100 dollars from Mr. Doe, and in return gives him a receipt (passbook) that states that the bank owes him $100 dollars.

If you read the fine print on any deposit agreement you sign with the bank, you will notice that you have actually loaned your money to the bank. In return you get an i.o.u. from the bank (deposit receipt or passbook), which stipulates the principal owed to you, and an amount of interest to be paid to you for the loan of money you just made to the bank. For simplicity, let us say you are paid 1% interest.

The bank has a 10% reserve requirement that means that on the $100 dollars you just loaned to them, they only have to keep on reserve 10% x $100 = $10 dollars. That leaves them $90 dollars to loan out to someone else.

When they loan out the $90 they have to keep on reserve 10% x 90 = $9 on reserve. They then can loan out $82.

Now stop and think about it. You "loaned" the bank $100. In two loan transactions subsequent to your "deposit" the bank has already loaned out $90 + $82 = $172 dollars.

By the use of fractional reserve lending, the bank has already loaned out $172 dollars using your $100.00 dollars.

So where do they get the extra $72 dollars to loan out. They do not get it from anywhere's - they just create it out of thin air as entries on a ledger. The money does not actually exist.

Granny Smith comes into the bank and wants to take out a loan for $90 dollars. No problem says the bank; John Doe just deposited $100 so we have plenty of money to lend you. Granny gets a loan for $90, and a loan agreement that says she owes the bank $90 dollars plus interest of 3% percent.

What this means is that the bank owes John Doe the $100 dollars he deposited with them, yet they only have $10 dollars on reserve, as they have lent the other $90 dollars to Granny Smith. How can the bank possibly meet its obligations?

Solvent Versus Liquid

As long as no more than 10% percent of all total depositors demand their money at any one time the bank remains solvent, as in aggregate they have that amount held in reserve. This is the dark side of fractional reserve lending: the seamy side - the moral hazard that borders on fraud.

If a number of depositors greater than the 10% held in reserve demand their money at the same time, the bank will be in a bit of a bind, as they do not have that amount of money on deposit. They will have to call the Fed as the lender of last resort.

The Fed will have no problem in supplying the money - as long as no more than 10% of the total of ALL DEPOSITORS in the banking system don't want their money at the same time, because if they do - it ain't there. This is a banker's worst nightmare - it's called a run on the banks.

Full article here http://www.321gold.com/editorials/gnazzo/gnazzo051906.html

While that is a neat explanation it fails to explain why Granny Smith wants a loan because if the bank's borrowers did not want loans, as they are traditionally taught and many millions don't, the original $100 would remain in the bank and, presumably, Doe would be charged a small fee for the bank to look after it.

It is why people want loans where the real issue is and not the process by which they get them which is pretty obvious once the desire exists. That is a political or psychological problem. Even a religious one in many cases.

And don't forget that the loans can be bundled up and sold on.

It is a useful procedure for investment in plant etc and when it is abused it is down to the Federal Reserve Board and Reserve banks. It is explained very well in J.K. Galbraith's book The Great Crash.

BTW- I do not recommend the ordinary A2Ker studying this matter too closely unless they are ready to lose all their innocence and to see a number of their most cherished beliefs shredded.

So you see Deckland.

You are trying to load the blame onto the evil money manipulators and thus absolve the ones who are desirous of the loans and without whom nobody can manipulate any money. The evil money men are few in number and their votes are easily discounted when set against the votes of their customers who are naturally reluctant to be discovered at fault.

Caveat emptor applies to groups as well as individuals.

Some might call it a species of demagoguery.

My main argument is that banks can lend money that they don't have, but expect the principal and interest to be paid back with "real" money which they can then lend out again using the fractional reserve lending method.
You can't do it, I can't do it, but we all know who can.
You say the evil men are few in number ... maybe they are, but their wealth is enormous and wealth is power.
As I said before, the capitalist system will never fail while the workers are there to pay their taxes to prop it up.

Will capitalism survive? Or like communism will witheraway?
My anser a befitting quote is here.

Capitalism or the market system thrives on private ownership of property and relies on consumer preference and efficiency, while communism depends on public ownership of property and equality.

Capitalism promotes efficiency through competition, though it also creates monopoly and advances the cause of inequality, while communism would settle the question of equality by creating an egalitarian or a classless society with less competition. What communism essentially faced was lack of motivation for achieving economic efficiency - the kind of efficiency needed for the production of goods with fewer resources.

The communist system would depend on bureaucrats, where central planners would set the priorities and the local authorities would act on them. The local factory management's objective was to meet the set quota, and in accomplishing that the basic quality was often compromised. As the system rewarded quantity over quality, most products under communism simply failed to reflect the wishes of consumers. Therefore, progress in improving the general living standard mostly escaped communism because it failed to generate the kind of incentives needed to achieve economic efficiency. The basic problem under communism was: why should anyone work hard if everyone could share the benefit equally?

In addition, communism was faced with extreme pressure from outside. From its inception the capitalist countries bitterly opposed communism and virtually dragged it into serious confrontations with them. Soon both groups became locked in proxy fights and were thrust into a situation known as the Cold War. As a result, the communist countries had to divert most of their resources for arms build-up, which came at a very high cost of their consumer products. Their economy was weak to begin with, so when faced with such confrontation the consumers suffered tremendously. Naturally, this kind of condition did not sit too well with the public. In the end, both internal as well as external pressures precipitated the collapse of communist system in Russia and China.

Although both countries have now adopted the market system in some modified ways, the Russians seem to be facing a more daunting task in adjusting with the new system. On the other hand, the Chinese authorities appear to have a better grip over their system and are using their economic command effectively to achieve a faster economic growth. With a yearly growth rate of about 10 per cent, China is currently considered to be the fastest growing country in the world. The current Chinese system is actually a mixture of two systems. They have adopted the capitalist system for urban development, while still pursuing the communist system for the rural areas. Will their system succeed? Or, will it eventually find followers in other developing countries whose economies remained quite stagnant? Only time will tell. What we can say for sure is that capitalism or the market system itself failed to bring prosperity everywhere. The huge difference that exists between the advanced and poor countries bears full testimony to this fact.

In any case, there are conflicts and tradeoffs involved in pursuing either the communist or capitalist system. It is obvious that fairness would not bring efficiency, and efficiency would require giving up on fairness.

Communism has failed to achieve efficiency, and capitalism has failed to achieve fairness. Now the big question is, why did communism's failure lead to its apparent end, but capitalism's failure did not lead to its destruction? Could it be because society has regarded efficiency as more important than fairness? Opinion varies. These questions will no doubt receive a thorough scrutiny. It may even be too early to celebrate the demise of the communist system.
How the future of communism will evolve and whether it will be able to revive as a viable system is very much up in the air at this point. What can be said with certainty though is that capitalism brought communism, and then capitalism had to change under pressure of communism. The universal health insurance, unemployment benefits, social security for the retired, welfare benefits for the poor and the disabled, government regulation of industries, and workers' rights to unionize that many industrialized countries have adopted are good examples of the type of changes communism has brought to capitalism. In advanced countries, such as Sweden, the government now plays such a role that public spending makes up more than 50 per cent of total gross domestic product. It is clear that the capitalist countries have already embraced many features of communism.

It should be pointed out here that a kind of division of power between the two segments of society, one private and one public, has emerged within the capitalist system. The policy of the government is influenced by the extent of power each segment holds. For example, the reason why European countries provide a better safety net for people than the United States is because the powers of public segment there is stronger. Thus, pure communism may have died, but so did pure capitalism. What we now have is in fact a combination of the two systems, though the system may not be uniformly practiced everywhere.
http://www.americanchronicle.com/articles/15310

Communism fails and capitalism survives, because capitalism guarantees competition for the resources and markets. Capitalism assures quality, but communism does not. The failure of capitalism is the inequality of how the CEOs are paid in relationship to its workers. The only way to correct this problem is through the system of taxation, so that the net income of CEOs more closely relates to the workers of their company no matter how much salary, bonus, and stock options they receive.

What does "more closely" mean c.i.

Without some guidance on that your sentence is incomprehensible as a political viewpoint. And wishy-washy. It's like you're trying to sound compassionate but nowhere near the barricades.

spendi, It's because the pay of CEOs used to be about 30 times the average salary of the workers of their company; now it's over 300 times, and many times more than that. There's no excuse for such disparity in pay for workers in the same company.

It also seems you are not familiar with how CEOs are rewarded; even when their performance for the company is below average, they still get a bonus and a golden parachute. There's no common sense in how they are paid.

Yeah- and your retirement pension is 300 times the income of millions of families in certain regions. What's your excuse for that disparity as good socialists. You have none. You're phonies. You just want more of the CEO's share to fund more of your extravagancies and pet indulgencies.

No matter how much CEO's get they can only sleep in one bed at once. And they feed it down by employing servants and suchlike. They patronise the arts. Some of them get guilt feelings I gather.

This thread is about economics not special pleading. An American political pundit told us yesterday that poverty in America is not having two fridges. We smirked mordantly.

Of course I know how CEOs are rewarded. I drink with lefties. They keep me well informed of every fat-cat greed fest.

What's your alternative?

Obviously I have to answer my questions myself. There's no sign of you doing.

Now, the question becomes "will capitalism survive under McCain/Palin?"

Following in Bush's footsteps, our economy has been drained of cash, maxed out at deficit spending, millions losing their jobs and homes, and most middle class and the poor have lost buying power for the eight years during the Bush regime.

McCain now talks about "change," but he's part of the old establishment in Washington; 26 years, and voted 95% with Bush during the last congress.

Will capitalism survive under McCain? How much more of a beating can our economy withstand?