What point has the crisis reached? Beginning of the recession

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The year 1984 ended in a fanfare for American capitalism with the re-election of Reagan as President of the United States. During his camp­aign, he boasted that he had beaten the economic crisis, that inflation had gone down to 3.2% in 1984, that unemployment had been reduced from 9.6% in 1983 to 7.5% in 1984, that production had been revitalized with a record growth rate of 6.8% in 1984 and finally that the supremacy of ‘King Dollar' had been driven to unprecedented heights in the exchange rates. A veritable high mass was celebrated to the greater glory of Amer­ican capitalism, its power and vitality, to make everyone believe that after years of defeat, the economic policy of the great Reagan, the famous ‘Reaganomics', had at last found the solution to the world economic crisis which has weighed on the whole world economy for 20 years.

American capitalism is powerful - no-one can deny it. Not just the power of its weapons but above all the power of its economy which dominates most of the world economy. The US is the leading prod­ucer, supplying 20-25% of the total world mar­ket, the main financial power whose currency dominates the capitalists of the entire world. 80% of all exchanges are carried on with the US; in 1982 it held 77% of the money reserves of the central banks of the industrialized countries. The entire world economy depends on the good health of American capitalism. But if American capitalism is indeed powerful, it is in bad health and the rest of the world economy along with it.

Once the election euphoria was over, there was no more talk of record growth rates for the GNP for 1985. The tone has changed in Washington. The new slogan of the Reagan Administration is "The Amer­ican economy must prepare a soft landing." To the extent that a ‘landing' of the American economy means a ‘landing' of the world economy and to the extent that we are all passengers on this plane together, we can only wonder at the meaning of this announcement by the pilot.

Why a landing?

If the US economy was as healthy as Reagan claim­ed, then why all this talk now about a ‘landing'? The American recovery, barely felt in the Euro­pean economies (see Table 1) had no effect on the under-developed countries who continued to see their economies systematically fall apart. Not only has the US recovery not been a world recov­ery, it was certainly a fleeting one, an aborted recovery.

Table I




Growth of GNP






2.6% (West Germany)

6.9% (France, Italy, Canada, UK) (average)

37.0% (Greece, Iceland, Portugal, Turkey) (average)








There has been a steep decline in the world econ­omy in relation to the ‘70s. The US today is incapable of repeating what it could still do in the past: temporarily prime the world economy, act as its locomotive force. No economic policy today can mask the contradictions of capitalism. The American recovery was only possible at the price of incredible debt: the US public debt is more than 1500 billion dollars and the accumul­ated debt of the state, private companies and households has reached the astronomical figure of 6000 billion dollars (twice the US GNP) while at the same time, for 1985 foreign investments in the US are greater than US investments abroad. The US has become a debtor nation in relation to the rest of the world (see IR 41, ‘The Dollar: The Emperor's Clothes'). But even the gigantic accumulated budget and trade deficits of the US are unable to absorb the surplus from the over­-production of the world economy. The US cannot continue this policy without risking a rapid, catastrophic monetary crisis around the dollar. They must urgently try to make a landing. The US cannot continue to allow such budgetary and commercial deficits. The plane hasn't got a lot of fuel left and its engines do not function well.

Only one landing field: World recession      

With the swamp the world economy is in, a decline or halt in the growth of the US economy can only spell a deep and long-lasting descent into recession with no hope of getting out. Europe and Japan have only been able to maintain their relative growth because of the opening up of the American market. If the market contracts, they will be the first to be affected, their exports threatened and their production risks collapse.

The landing that the pilot talked about is going to be on an incline, going down. During the last recession, US production fell by 11% in 1981 and 1982. But the pilot wants to be reassuring - he's promising a ‘graceful' landing.

A soft landing

"All's well", we're told, but the passengers are starting to get nervous. In recent months the dollar has been like a yo-yo, carrying more than 10% in just a few months. Bank failures in the US abound and, like in 1929, panicky customers queue up at closed windows. Stormy weather ahead and the plane is already shaky.

The economists in Washington had predicted a growth rate of 3% in the first quarter of 1985. But after continually lowering their estimates from 2.8% to 2.1% to 1.6%, the American govern­ment finally announced in May an annual projected growth rate of 0.7%. The pilot has lost his bear­ings and doesn't know where he's headed.

One can only have misgivings about the pilot's abilities. The failure of Reagan's so-called recovery marks the bourgeoisie's impotence in the world economic crisis of overproduction. Despite all the propaganda around them, Reagan's recipes are not new. They are the classic recipes of state capitalism: tax cuts to prime consumer spending, large-scale armaments programs to reflate industry ($195 billion in ‘83; $184 billion in ‘84). To attenuate the shocks of the economic crisis, to prevent the collapse of entire sectors of production, the Reagan state is, like all the others, obliged to intervene more and more, to control the economic process more and more closely (see Table 2). All his speeches to the contrary, Reagan has all but nationalized the bankrupt Continental Illinois and has subsidized American agriculture with a $2 billion budget. But these tried and true recipes from the past 40 years are no longer able to prevent recession and the collapse of the world economy.

Table 2

The public sector portion of total borrowing by non-financial economic agents (1973-1982)
























Reagan wants a ‘soft landing' but for the proletariat of the entire world, this means more misery, more unemployment. With the combativity of the working class as it is today, with the aggravation of the economic crisis, the social situation is potentially explosive. In these conditions it's understandable why the bourgeoisie is desperately trying to hold back the plunge into recession, why it hopes for a ‘soft landing'. But how are they going to get it? The question for the economists of the entire world is no longer ‘how to get out of the crisis?' but ‘how to fall into it as softly as possible?'

Today Reagan is appealing to his European and Japanese allies to reflate their economies in order to counter-balance the effect on the world economy of the decline in the US growth rate. But this measure can only be another temporary pall­iative because that's all world capitalism has left: to try with all its might to hold back the inevitable spiraling plunge into a recession such as humanity has never before known.

Slowing down the recession means further debt for all nations. Such a policy, along with unemploy­ment, bankruptcies, etc can only lead to an ex­plosion of inflation. Today, inflation continues to ravage the periphery of capitalism in under­developed countries. Although the developed coun­tries thought they had avoided the problem of inflation, it has in fact been rising in recent months. In the US inflation was 3.2% in 1984 but from April ‘84 to April ‘85 it was 3.7%.

A ‘landing' into a recession will indeed takes place but it will not be made ‘gently'. No economist of the bourgeoisie dares to predict the consequences of the end of the recovery in the US. They are catastrophic: unemployment, poverty, bankruptcy and inflation. But if these consequen­ces are catastrophic for the capitalist economy, it is above all on the political level that they will be felt. The aggravation of the living cond­itions of the working class can only mean an intensification of the wave of class struggle be­gun in the autumn of 1983. With the collapse of the capitalist economy, and in view of the present combativity of the proletariat, only the revolutionary perspective is a real alternative.



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