Capitalism is common link in economic calamity

 

“U.S., European officials scramble to calm financial anxiety By Zachary A. Goldfarb and Anthony Faiola, Published: August 7 | Updated: Monday, August 8, 6:50 AM Top economic officials from around the world scrambled Sunday to contain the fallout from an unprecedented downgrade of the U.S. credit rating and a serious worsening of Europe’s economy.

Treasury Secretary Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke joined counterparts from six of the world’s largest economies in an emergency conference call Sunday evening to discuss how world markets would respond to the Standard & Poor’s downgrade and the escalating European debt crisis. Afterward the officials released a statement pledging to support financial stability.

At the same time, the European Central Bank, after a hastily arranged meeting, signaled that it would invest in European bond markets in a bid to prop up hard-hit Italy and Spain, Europe’s fourth- and fifth-largest economies, which are in the midst of a worsening financial crisis.

The ECB intervention at first appeared to buoy markets Monday, driving down borrowing costs for both Italy and Spain and sending stocks in Milan and Madrid sharply higher.

But markets in London, Germany and elsewhere were dropping, with losses ranging between 1.6 and 2.9 percent.

Asian markets also sank, with Japan’s Nikkei closing at its lowest mark since mid-March. South Korea’s exchange halted traded briefly amid steep losses, and ultimately closed down 3.82 percent.

U.S. and European officials are trying to calm anxiety about the global economy as the U.S. downgrade and European debt problems threaten to feed on each other, weighing on markets and a limp economy on both sides of the Atlantic.

The emergency actions Sunday evoked memories of the response to the financial crisis in 2008 and portended intense volatility in global financial markets this week. The dollar fell over the weekend while gold soared. Stock markets in the Middle East plunged, and U.S. stock futures appeared negative. Asian markets dropped at the opening.

After the emergency conference call involving Geithner and Bernanke, the top seven economies expressed support for actions taken by both the United States and Europe and committed “to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth.” They said they would particularly take action to curb volatility in currency trading.

Amid this uncertainty, the Obama administration announced Sunday that Geithner, the president’s longest-serving economic adviser, would remain in his post through fall 2012. Geithner had told President Obama that he was ready to step down after leaders reached an agreement to raise the debt ceiling last week, but the president asked him to stay.

Geithner told Obama on Friday morning that he would agree to remain in the administration — only to inform the president later in the afternoon that the country would face a downgrade.

S&P cited the U.S. debt burden and political paralysis in its decision to remove the nation’s sterling AAA rating. The Obama administration blasted the decision, saying it was based on faulty logic and math, while acknowledging that Washington must do more to tame its debt.”

“Capitalism is an economic system in which the means of production are privately owned and operated for profit, usually in competitive markets.[1] Income in a capitalist system takes at least two forms, profit on the one hand and wages on the other. There is also a tradition that treats rent, income from the control of natural resources, as a third phenomenon distinct from either of those. In any case, profit is what is received, by virtue of control of the tools of production, by those who provide the capital. Often profits are used to expand an enterprise, thus creating more jobs and wealth. Wages are received by those who provide a service to the enterprise, also known as workers, but do not have an ownership stake in it, and are therefore compensated irrespective of whether the enterprise makes a profit or a loss. In the case of profitable enterprise, profits are therefore not translated to workers except at the discretion of the owners, who may or may not receive increased compensation, whereas losses are not translated to workers except at similar discretion manifested by decreased compensation.

There is no consensus on the precise definition of capitalism, nor on how the term should be used as a historical category.[2] There is, however, little controversy that private ownership of the means of production, creation of goods or services for profit in a market, and prices and wages are elements of capitalism.[3] The designation is applied to a variety of historical cases, varying in time, geography, politics and culture.[4] Some define capitalism as a system in which all the means of production are privately owned, and some define it more loosely as one in which merely "most" are in private hands — while others refer to the latter as a mixed economy biased toward capitalism. More fundamentally, others define capitalism as a system in which production is carried out to generate profit and is governed by the laws of capital accumulation; regardless of the legal ownership titles. Private ownership in capitalism implies the right to control property, including the determination of how it is used, who uses it, whether to sell or rent it, and the right to the revenue generated by the property.[5]”