The "post war boom" came to an end in 1967; this brief period of relative economic prosperity came in the wake of the horrors of the First World War, the Great Depression and World War II. The spectre of the economic crisis reappeared in that year. During the first half of the year, Europe fell into recession, in the second half there was a crisis in the international monetary system. Since then, unemployment, insecurity, deteriorating living and working conditions have become the daily lot of the exploited. Just a quick survey of the major events of the twentieth century, one of the most catastrophic and barbaric in the history of mankind, is enough to understand that capitalism has become, like slavery or feudalism before it, an obsolete and decadent system.
But this historic crisis of capitalism was partly obscured, buried under a load of propaganda and lies. In each decade, it was the same old tune: one country, one part of the planet or one economic sector that was doing a little better than the others, was given prominence to create a false impression that the crisis was not fatal, that it was sufficient to carry out effective "structural reforms" to capitalism for it to revive and bring growth and prosperity. In 1980-1990, Argentina and the "Asian Tigers" were brandished as models of success, then after the start of 2000 it was the turn of Ireland and Spain ... Invariably, of course, these "miracles" would turn out to be "mirages": in 1997 the "Asian Tigers" proved to be paper tigers, in the late 1990s, Argentina was declared bankrupt and now Ireland and Spain are on the brink of bankruptcy ... On each occasion, "the incredible growth" was funded by a resort to credit and each time the false hopes were eventually sunk by the burden of debt. But, banking on the short memories of the majority of us, the same charlatans are at it again. To believe them, Europe's sickness is due to specific reasons of its own making: difficulties carrying out reforms and 'mutualising' (i.e. sharing the burden of) its debts between its members; a lack of unity and solidarity between the countries; a central bank unable to boost the economy because it can't print money at will. But these arguments don’t stand up to much scrutiny. The crisis has hit Europe because there's a lack of reform and competition and we have to learn from Asia? Nonsense, these countries are also in trouble. The recovery is not sufficiently under the European Central Bank's control and the answer lies in printing money? That's crazy: the United States and its central bank have championed every kind of money creation since 2007, but they are also in bad shape.
A great discovery: BRICs don't float
The acronym "BRICs" refers to the four countries whose economies have been most successful in recent years: Brazil, Russia, India and China. But as with Eldorado, this good health is more myth than reality. All these "booms" are financed largely by debt and end up, like their predecessors, sinking into the horror of recession. Furthermore, that ill wind is upon us right now.
In Brazil, consumer credit has exploded over the past decade. But as in the United States during the 2000s, "households" are less and less able to keep up their repayments. The scale of "consumer defaults" has beaten all the records this time around. Worse still, the housing bubble looks identical to what was experienced by Spain before it exploded: large newly built housing complexes stand desperately empty.
In Russia, inflation is getting out of control: it's officially 6%, but it’s more like 7.5% say independent analysts. And prices of fruits and vegetables have literally shot up in June and July, increasingly by almost 40%!
In India, the budget deficit is widening dangerously (it's estimated to be 5.8% of GDP for 2012); the industrial sector is in recession (- 0.3% in the first quarter of this year), consumption is slowing sharply, inflation is very strong (7.2% in April, last October the soaring food prices had risen almost 10%). The financial world now considers India a risky country to invest in: it is rated triple B (the lowest rating in the "below average quality" category). It is under threat of soon being be ranked with countries that are considered bad investments.
China's economy continues to slow and there are growing danger signals. Manufacturing activity contracted in June for the eighth consecutive month. The prices of apartments have collapsed and the sectors associated with construction are less and less busy. A very clear example: the city of Beijing alone, has 50% of it dwellings vacant - more than in the entire U.S. (3.8 million homes are empty in Beijing compared with 2.5 million across America). But the most worrying thing without any doubt is the state budget for the provinces. For if the state is not officially collapsing under the debt, it is only due to the fact the burden of debt is all at the local level. Many provinces are on the verge of bankruptcy. Investors are well aware of the poor health of the BRICs, which is why they avoid these four currencies – the real, the ruble, the rupee and the yuan - like the plague; they have been falling continuously for months.
In the U.S., the time bomb of debt
The city of Stockton, California filed for bankruptcy Tuesday, June 26th as did Jefferson County, Alabama and Harrisburg in Pennsylvania before it. Yet for three years, the 300,000 inhabitants of this city have endured every "sacrifice necessary for the recovery": budget cuts of $90 million, 30% of fire-fighters laid off along with 40% of other municipal employees, a cut of $11.2 million to the salaries for municipal employees, a drastic reduction of the retirement pension funds.
This concrete example shows the real state of decay of the U.S. economy. Households, businesses, banks, cities, states and the federal government, every sector is literally buried under mounds of debt that will never be repaid. In this context, the future negotiation between the Republicans and Democrats when the debt ceiling is raised this autumn is very likely to turn into a psychodrama as it did last summer. We can say that the American bourgeoisie is facing an insoluble problem: it must generate ever more debt to revive the economy while it must reduce debt to avoid bankruptcy.
Each indebted part of the economy is a potential time-bomb: here's a bank close to bankruptcy, there's a city or a company almost bankrupt ... and if a bomb explodes, just watch the chain reaction. Today the "student loans bubble" is a concern to the financial world. The cost of studying is more and more expensive and young people find less and less work on leaving their university courses. In other words, student loans are becoming increasingly essential and the risk of default ever more likely. To be more specific:
- after their university studies, American students are on average in debt to the tune of 25,000 dollars;
- their outstanding loans exceeds that of all consumer loans in the country and is $904 billion (it has almost doubled over the last five years) and corresponds to 6% of GDP;
- the scale of unemployment for university graduates under 25 years is more than 9%;
- 14% of graduate students who have taken out loans have defaulted three years after graduating.
This example is very significant of what capitalism has become: a sick system that can only sign away (literally as well as metaphorically) its future. Young people today must live in debt and "spend" the future salary ...they're not going to see. It is no coincidence that in the Balkans, in England and in Quebec, the new generation has mounted powerful demonstrations in the last two years at the increased costs of enrolling for university courses: drowning in debt for 20 years and facing the prospect of unemployment and falling pay in future years, this is the perfect symbol of the "no future" that capitalism has to offer.
The United States, like Europe, like every country in the world, is sick; and there will be no real and lasting respite under capitalism because this system of exploitation is the source of the infection. After reading this article, can anyone continue to want to hope and believe that an "economic miracle" is still possible? If you are one of these people ... please note that the budget of the Vatican is in the red.