Consumer Debt, and the Crisis in Commodity Circulation

 Goods sold in capitalist countries must be sold at a profit.  But large surpluses of oil, food, clothing, transport vehicles etc., means world prices stay low, cutting into profits.   On a global scale multinational corporations must compete for contracting market spheres. 

In a glutted national economy, the rate of profit falls at an accelerated rate because they are more goods made than can be sold.  With this excess supply, prices tend to fall pushing down profits.  The lowered profits mean even greater competition as companies strive to maximize their profits.  This results in the merger and acquisition flurry we have seen in diversification.  Just as the production of goods is international so is the distribution of human labor power.  The circulation of labor power is stifled because there is a glut of human labor power as well as a glut of commodities.

For tens of millions of workers the crisis has already reached depression levels.  The economy is moving through the definite stages of capitalism's cyclic crisis.  The stages of the crisis are the ending of the expansion of the market, an agricultural crisis, a financial crisis and an industrial crisis.  Currently there is widespread weakness in production, a growing credit/debt crisis.  The economy is in the latter phases of a financial crisis.  This is setting the stage for industrial collapse and depression unlike any ever experienced in this country.  The junk bond market is now collapsing.  The Drexel bankruptcy is a vivid illustration of the seriousness of this situation.  Between 1989-2007 a record 618 insurance companies failed, compared with an average of four a year between 1969 and 1980.  They now hold 43% of all junk bonds, which means that they are in line for bankruptcy in the very near future.  Student loans, car loans, home loans of the subprime type, and home insurance are all tied up in securities firms being bet on wall street.  Wall street will collapse.  The dominoes are in order to fall as wall street falls, the Asian markets will fall. This crisis will be one for the ages.

From January to July 2006, Moody's Investors Service downgraded an unprecedented 3.5 corporate bonds for every one it up graded.  The old record was -2.8 to 1 was set in the recession of 1982.  Firms that accumulated massive debt in "leveraged-buyouts" will be wiped out.  Never has the US entered a recession so steeply leveraged.  Never has the US entered a global depression with twice the world debt.  As a result, large, mid-range and small companies will be forced to cut back even more on employment and capital spending to meet interest payments.  Debt-buyouts are at an all time high.  At the same time, business failures are on the increase nationwide. 

Some states with the highest rates of business failures are the states with some of the most advanced computer automated machine production and expensive real estate ties.  There will be an even more severe increase in bankruptcies especially with office buildings not leasing up.  Why would businesses lease building if they are unable to expand the distribution of their commodities because of a glutted homemarket?  They cannot.  Not at a profit.  Capitalist markets are in contraction.  As a result of mounting bankruptcies, the banking system will be forced to bear the burden of waves of business failures.  They too will continue to fail at a rate reflective of the failures in the business and consumer loan areas.  Next the FDIC, FSLIC, Federal Treasury, and federal government will then be forced to bail-out banks, even though each institution is going into further in order to state in business.

Debt has been the major solution to capitalist market contraction.  It will be the only solution soon.  The real wages of workers have been declining since 1973.  They spend less because they have less to spend.  The concept is that if their consumers cannot afford to buy the excess industrial capacity with their current levels of income, capitalists should loan them money to buy on credit.  By loaning money to consumers, the capitalists keep commodities circulating; that is consumers can continue to buy what industry produces.  Industry thereby keeps making a profit and production continues. In 2005, there are over 680 million Visa credit card holders in the world.  They use their debt-cards at mall, gas stations, retail outlets, hotels, restaurants, fast-food outlets, fitness centers, airports, and other sales outlets.  They spend approximately $900 million per day.  Visa is only one credit card out of hundreds. 

In 2007, the US alone totals $16.9 trillion of debt.  It consists of foreign, federal, business, consumer, and personal debt, each of which has reach its crisis proportions.   

Since the recession ended in 1982, consumer debt has risen more than twice as fast as either total consumption or disposable income.  It grew 29 percent more rapidly than in either of the last two recoveries.  In just three years (2004-2007), home mortgage debt increased by 67 percent to $3.02 trillion and installment debt surged by 78 percent to $912.3 billion. 

Since 1982 the household debt burden as a percentage of disposable income has risen from about 25 percent to 30 percent of disposable income.  In 2007, 29 million households were using at least 49 percent of disposable income to service debt.  The installment debt burden also rose drastically beginning in 2005, reaching a record 23.5 percent of disposable personal income in mid-2004 period, compared with only 14 percent in early 1983. 

Credit is based on confidence.  In many ways , it is fictitious money.  The glut on the world market indicates a severe over-accumulation of capital.  The crisis is world wide.  The recent drop in the stock market indicates that the point of world depression is quite near.  

Wages did not keep pace with the rapidly increasing volume of commodity produced by CAMP.  This has led to over-production.  Only credit circulation carry the life sustaining commodity-money-commodity' and money-commodity-money' cycle on each day.  As a result, an estimated 37 million households were financially overextended entering 2008 and thus are facing bankruptcy.  

Commodity-Money-Commodity = Commodity-Credit-Commodity

As CAMP replaces unskilled, semi-skilled, then skilled workers wage labor is reduced in social and economic value.  The reduction of wage labor value also reduces the material basis for human social consumption via the wage-to-purchase process.  The ultimate negation of wage labor negates the material basis for mass commodity circulation in a capitalist and socialist society.  The higher the organic composition of capital (i.e., the technological composition of the production process), the higher the volume and rate of credit required to circulated the mass of CAMP manufactured commodities. 

Thus, the two standard formulas for capitalist industrial production in the US must be modified to reflect the emerging transition in the basis of domestic commodity circulation.  The first formula summarizes the content of capitalist production, distribution, exchange and consumption form the view of the capitalist owner of a specific means of production.

M---C---M' becomes CR---C---CR'

In sum, the initial and overriding form of capital is its monetary form, and the general formula of capital is M---C---M', where M is money, C, a commodity, and M' is a sum of money plus a certain increment.  In the past, the circuits of capital started with money capital because every employer must have, first of all, monetary funds to buy the necessary components for producing surplus value, theses being labor power and means of production.  With money capital capitalists purchase labor power. 

In the past, capitalist invested money into the purchase of labor power and technology required to produce a certain commodity.  That commodity was produced.  After its manufacture, it was then sold at a profit by the capitalist for even more money than was invested in producing it. 

In 1995, this standard operating procedurehas been altered.  The transitional formula merely means that the capitalist today depends exclusively on credit or debt spending inorder to purchase raw materials and CAMP technology.  With this capital a commodity is produced by CAMP which will be sold on credit in the distributive spheres of the society. 

Credit or debt spending is the only means of circulating CAMP commodities in capitalist and socialist societies.  In the second formula, we see the emergence of the same characteristic processes of production, distribution, exchange and consumption.  However this time we document its expression from the viewpoint of the worker:

C---M---C' becomes C---CR---C'

Traditionally, in the workers' formula, the worker sold his or her labor power as a commodity in the capitalist production process.  In return that worker was paid a subsistence wage.  That subsistence wage was used to purchase commodities in the marketplace.  The workers create new value that exceeds the value of their labor power by the amount of surplus value, which is appropriated without indemnity by the capitalists.  By selling the commodities created by the wage workers, money-capital acquires the original money form, while the initially advanced money capital grows by a quantity equal to the surplus value. 

Since 1990, this formula has been altered due to the introduction of Computer Automated Machine Production into the capitalist production process.  Such and introduction reduces the value of wage labor in the production process.  In addition many levels of unskilled, semi-skilled and skilled labor are replaced altogether.  Reduction of wage labor value and worker purchasing power leads to commodity gluts.  Commodity gluts necessitate debt spending.  This means that the worker produces a commodity in the wage-labor process but needs credit supports inorder to purchase the necessities of life such as food, clothing, shelter, health care, education, etc.  This credit takes the form of MasterCharge, VISA, Discovery Card, American Express and other less publicized standard credit arrangements which allow workers to purchase automobiles, houses, jewelry, furniture, gas, and other commodities.  These credit arrangements are necessary supplements to a wage and salary allotment which does not allow for the purchasing of the necessities of life without extended credit supports.

When the worker's labor power is reduced in value by the introduction of CAMP, the wage that he or she is paid is also reduced, sometimes below the cost of reproducing the laborer.  For example, today we have full time workers who are at the same time living in poverty and in many cases are homeless.  Moreover, their is the phenomena of full time employees who cannot afford to go to the hospital if they get sick because they have no medical insurance and no means of paying medical bills.