M-TH: Credit

[boddhisatva]

		To whom....,



	I am very interested to pursue some of the suggested reading on
credit.  Until that time, I Suggest two points, both from my own "archives".


	The first is that the debt deflation that Fisher talked about also
explains downturns in the stock market nicely, if one moves it around just
a little.  Stock speculators who find that their assets have been
overvalued when company profits underperform estimates take money out of
the market to meet current requirements (a reason that small investors are
very dangerous to the stock market) or to avoid a grater downturn.  Asset
valuations which are a component (but not by any means the principal
component) of credit ratings are reduced (reducing borrowing capacity),
and/or the firms actual assets are reduced in value, and/or firms are
forced to favor short-term thinking over long-term (downsizing,
outsourcing), and the overall potential for greater operating economies is
undermined.  Thus a very nasty spiral can begin. Fortunately, as Mr. 
Henwood notes, the stock market and the debt markets are not as closely
linked as before.  This is fortunate for the capitalist, because equity is
credit without the immediacy of interest.  Instead, capitalists pay one
another in a scheme that can take on a definite Ponzi character until the
business reality betrays the deformities they have created.  Equity
speculation is money extended on a guess, and when they guess wrong,
holders of equity can create a debacle if they are not insulated from the
rational parts of the market.


	The lesson is that overvaluation of assets has a deleterious
effect beyond the original dollar amounts.  The application is on planned
economies.  Government overvaluation of assets (production plans -
intrinsically guesses) leads to wage dollars spent for work unconsumed,
thus the currency is devalued, driving down the value of present receipts,
which drives down the value of present production.  Thus another very
nasty spiral, extremely similar to the first, rears its head.  The danger
comes from the fact that government planners have too much freedom from
use valuation (the market), just like stock speculators. The only
difference is that they give their investment dollars to people whose
marginal propensity to consume is larger, so the effect is not so bad
immediately. The greater danger is that they have power over a greater
amount of currency, thus creating a greater potential for disaster.


	
	Credit, most often linked in Marxist writing with the excesses of
capitalism, brings a use-value assessment into the investment process with
interest rates.  It therefore discourages market deformities large enough to
unbalance the currency or the economy.  It also provides the means, as Rakesh
Bhandari noted, for full employment, because it overcomes the need to invest
wholly out of present receipts (minus that amount of value lost to
unavoidable inefficiencies).  This growing money supply anticipates economic
growth, thus keeping the value of the currency ( and therefore previous
investments) stable and rational.  If it fails to anticipate that growth, the
interest rate  markets signal that fact.  


	Think of it this way: if labor values the economy, then we must
have a mechanism to exceed the limit of present receipts since that amount
approximates *past* labor, instead of the greater sum of present labor.  




	peace





     --- from list marxism-thaxis at lists.village.virginia.edu ---