I’ve put a link to the Hungarian translation on my website.

We published a Hungarian translation of your article “The ‘destruction of capital’ and the current…”: on indymedia :
http://indy.media.hu/node/12886

(Hope we didn’t “infringe upon” any copyright stuff, your homepage is credited at the end of the article as the original source.)

To Mihaly: Hi again. In my view, far too little capital has been destroyed at this point to permit a sustainable recovery of profitability and growth of a magnitude anywhere similar to the recovery that followed the Great Depression and World War II.

This doesn’t mean that capitalism can’t recover from the current financial crisis or the current slump in the “real” economy. I think such a recovery is more likely than not.

But what’s happening is that prices and asset values are being propped up by covering over a lot of bad debt with new debt. Thus the recovery, if it does taken place (which is far from a sure thing), will be artificially induced and unsustainable, in my opinion, unless a lot more capital is destroyed.

The underlying question is this, I think: Imagine that there were no artificial stimulus, bailouts, credit expansion, and government guarantees taking place; would asset prices recover or even stabilize at current levels without significant further destruction of capital (physically and in terms of value) first taking place? I don’t think a “yes” answer is very credible.

If you answer “no,” and if you think that a recovery that’s artifically induced by papering over bad debt with more debt is unsustainable (and the record indicates that this has been the case up until now), then you have to conclude that the conditions aren’t yet in place for a sustainable boom.

I agree with you that “a lot of paper wealth has been wiped out . . . and a lot of capital assets in the auto industry (and other industries as well) are being devalued.” But it’s not enough to give rise to a sustainable boom, in my opinion. I also agree with you that “the collapse of housing prices is also (or can be) a sort of devaluation of constant capital,” mostly because this affects the (fictitious) values of mortgage-related securities and other securities that are part of the capital of businesses. Assets don’t have to be physical in order to be part of capital, since all that “being part of capital” means is that they are part of the base against which profits are measured. Owners care about getting a sufficient return on all of the capital they’ve invested, whether it is productive capital or not.

In your article “The destruction of capital…” (and elsewhere) you claim that until capital is destroyed (in value terms) to a sufficient extent, there can be no recovery in profitability, and thus no sustained recovery in terms of general economic growth.
Do you think that what has happened so far represents a “sufficient” destruction of capital, or is it way too little to restore profitabilty?
A lot of paper wealth has been wiped out (there are various estimates), and a lot of capital assets in the auto industry (and other industries as well) are being devalued, right? The collapse of housing prices is also (or can be) a sort of devaluation of constant capital. (Of course, these are mostly residential houses, but the prices of office buildings, malls etc. is also falling, which can be regarded as the devaluation of “C”, correct?)

Is that enough, in your opinion?
Thanks.

(I havent’t yet watched the video, so sorry if you already answered my question there.)