National Recessions and Regional Depression
Last year, we asked about the geography of what we called “The Depression of 2009”. This year, in February, The Economist provided a brief article pointing out the differences in regional economies in the US – Montana still growing at over 4% versus Michigan’s economy, contracting at over 7%. Now in March the New York Times provides a map by county of the rate of change in the official unemployment rate compared to March 2008, noting, “Job losses have been most severe in the areas that experienced a big boom in housing, those that depend on manufacturing and those that already had the highest unemployment rates.”
Referring to “The Great Recession of 2008” it notes that layoffs affect men more than women construction workers, hotel workers, retail workers and others without a four-year degree, homeowners and investors more than renters or those on Social Security and Latinos more than other ethnic groups. It is no satisfaction to see that Depression terminology entering the discourse of the media:
If the Great Recession, as some have called it, has a capital city, it is El Centro, Calif., due east of San Diego, in the desert of California’s Inland Valley. El Centro has the highest unemployment rate in the nation, a depression like 22.6 percent. …hit by the brutal combination of a drought, a housing bust and a falling peso, which cuts into the buying power of Mexicans who cross the border to shop.
Locatable Assets and Non-Geography
There is a more fundamental geography of the economy. This is a geophysics of property and specifiable, locatable assets. On this material basis avatars and representations for these objects can be constructed and through this, trust can be maintained at a distance. As a system of signs grounded in valued locations and valued assets, the economy is not those assets per se but the signs of those assets.
In an interview with Don Cato for the Vancouver Sun, Hernando de Soto, the Peruvian economist of the global poor points out that economic havoc ensues when the system of signs and locatable assets breaks down:
The way we document property rights and record every change of hands — not just our land titles, but cars and equipment and stocks and bonds — is the basis of the trust on which strangers can do business. Only documented assets give strangers the confidence to give us credit cards and lines to credit, mortgages to start new businesses, cellphone contracts and apartment leases. Without the trusted record-keeping that enables due diligence, both individuals and businesses would be limited — as is most of the world — to cash transactions, or paltry credit from family or usurious loan sharks.
This is the situation that has bedeviled the most impoverished countries. Without stable institutions of property, trust is at risk.
And the reason we trust each other is paper. It tells each other what we own. It gives us credit records. We can track people down. We can infer from the information on paper, if we trust it, what’s going on. From the land, to the house, to your car, to boats, to your ships, to your investments, to your rights over intellectual property and patents — is recorded. There’s only one asset you Northerners haven’t recorded. Derivatives. Worse, investments with known risks have been bundled with those whose future value is anybody’s guess, and sold to people who don’t know how much they hold of what. … You don’t know who has them. And, when you don’t know who has them, you don’t know who you can lend to. That’s what’s causing the credit contraction. … The root of the problem is that the money was available to lend [to people with no assets but over-valued homes] because it was derived from paper that has no location. You can’t find it. You can’t evaluate it. … But it’s not only money that can be debased, it’s also paper. And far more credit is based on paper than on cash. … If you talk about cash in the world — all the Canadian dollars, U.S. dollars, Euros, Renminbi — there’s probably something in the order of $13 trillion. But if you talk about derivatives, there’s $600 trillion. According to some, it’s closer to one quadrillion…”
The key point is the lack of location. What is completely immaterial or virtual has no physical substance and so has no spatiality or locatedness in place, on in time, like a memory of a great party that once was. Some derivatives, such as futures, operate exactly in this manner: they are a contract to buy at a present price at a given time (ie. later). That is, at a future time, they will be converted into specific material assets. The mistake of non-asset backed paper derivatives is to leave open the maturation date, allowing them to be traded infinitely and also to become difficult to re-associate with the material aspects they originally stood in for, acting virtually, as if they were those things. Futures do not have this ‘as if’ quality in themselves until new instruments were created which could then stand in for the futures instead. Syndicated risks in the insurance market are also different – they are fundamentally probabilities – but once one creates a second order of instruments which are presented ‘as if’ they were insurance policies, then one is again dealing in virtualities, a place-less, non-geographic set of entities.
- Rob
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More geography: the world centres of financial capital. From the Toronto Star 22 Mar: a mea-culpa from financial journalist David Olive.
“To an unhealthy degree, North America’s financial press is concentrated in one place. That would be New York, where the two dominant, and symbiotic, industries are financial services and media. New York is home to The Wall Street Journal, Bloomberg News and the other business-wire agencies, Business Week, Fortune, Forbes, Barron’s, CNBC, and the latter’s upstart Fox rival.
The financial reporting and commentary that comes out of Gotham sets the tone — when not accounting for the entire business content — of thousands of newspapers, broadcast outlets and Web sites across the continent.”
“Particularly after the blow New York sustained on 9/11, there was a reluctance to knock the practices of Wall Street, a pillar of the financial journos’ hometown economy. Coincidentally, the Big Apple was in what appeared to be a losing fight with London to retain its status as the world’s financial capital.”
In a Washington address on March 13, Lawrence Summers ran through a partial list of the repeated failures of “bubble-driven economic growth” over the past two decades or so.
The Clinton-era treasury secretary, now head of Obama’s National Economic Council, cited the epic 1987 stock-market collapse. And the public-private bailout of Long-Term Capital Management, a pioneering U.S. hedge fund whose sudden demise was ample warning that later hedge funds with a spider’s web of global commitments bear closer attention. (One of LTCM’s rescuers, Merrill Lynch & Co., was merged out of existence last year after rolling the dice in the same way LTCM had).
Then came the U.S. savings and loan crisis. (Canada’s own go-go trust sector similarly crashed, and was absorbed by the Big Five banks.) And the commercial real estate collapse of the early 1990s that led to the bankruptcy or forced sale of every major publicly traded developer on the continent, along with the privately-held giant Olympia and York Developments Ltd.
Later came the dot-com and telecom bubbles of the early 1990s. Those debacles coincided with an epidemic of unethical accounting among Fortune 500 companies like Enron Corp., WorldCom Inc., Tyco International Inc.and other firms once lauded by the financial press for their “innovations” in financial engineering. And, less than a decade after those scandals, came capitalism’s current episode of widespread failure.
“This is roughly one crisis every 2.5 years,” Summers said. “We can and must do better.”
The latest man-made, preventable disaster has wiped out $11 trillion (U.S.) in average U.S. household net worth. That’s the biggest drop since statistics began to be kept after World War II. It’s a sum equal to the combined economies of Japan, Germany and Britain.”
The point being that these boom and bust cycles are as much driven by media promoters such as financial journalists as they are by stock promoters such as brokers contacting clients.
Full article: http://www.thestar.com/News/Insight/article/606266
In this context I wonder what will be happening to the global cities that have been at the epicentre of the virtual cycle of the asset creation that overshooting the locatable base that could serve as an anchor – be it cash, resources or goods – by a ratio of about 1000 to 1 appears to be a different kind of crisis that economic history knew so far. Pace the theoretical binaries activated in the blog post above, it is fart from clear how the management of the described economic situation will affect the hierarchies of global cities and their definition. In other words, does it mean that financial capitalism has reached its theoretical limits? What the key urban centres of capitalism to come would be? Are there reasonable pros and cons to choose between de-virtualization and re-virtualization?
There is a hidden assumption in the first comment that the economic-cum-financial situation is both understandable and rectifiable. In other words, one only needs to listed to the experts to know what to do, as the bottom line of the running commentary. However, the discussion of the theoretical options that can set the courses of action to be followed according to them has barely begun, judging by what is being done and what newspapers cite as expert commentary. After reading the perfectly rational opinions across their range, the impression I receive is that not only the possibility of contradictions that are part of the matter at hand is not even raised, but the dynamics that are inherent in individual and collective actions during this period of this anything else than static turmoil summarily escape these writers.
As for whether a regulatory framework can be brought to bear on the financial markets to curb their excesses, I am afraid that theories of de-globalization and de-coupling do not provide optimistic answers. In other words, the up-coming G20 summit does not promise to avoid a showdown over exactly these issues.