In the first part of this article (in WR 287) we showed the evolution of the economic crisis of capitalism since the end of the 1960s following the period of reconstruction after World War II. In the second part we are going to try to show that the capitalist world is sinking into a new world recession and the bourgeoisie will be obliged to make the working class pay still more heavily.
World capitalism confronts a new acceleration of its crisis
Faced with the decline of the capitalist economy, the bourgeoisie, at the beginning of 2000, wanted to make us again think that we were in for a new phase of economic expansion, mainly through the United States but also through China and India. We will return in more detail to the brazen propaganda of the bourgeoisie about India and China in the near future. As far as the United States is concerned, it is not difficult to show the hollowness of the bourgeoisie’s lies! Without a public deficit whose breadth and rate of increase frightens the bourgeoisie itself, the American economy would doubtless already be in recession.
But what are the other factors in this American ‘recovery’?
The first is the massive support the US administration has given to household consumption. This policy is due to a spectacular lowering of taxes on the well-off and middle classes, at the price of growing cuts in the federal budget.
In the second place, the lowering of interest rates, from 6.5% at the beginning of 2001 to 1% at the beginning of 2004; this has further increased household debt.
Finally, an ever growing drain on savings, the latter shrinking from more than 12% in 1980 to a tiny 2% at the beginning of the year 2000.
The spectacular lowering of interest rates and the phenomenal drain on savings have produced massive debt for households across the US.
The American state has totally and artificially supported the property and automobile markets. The American bourgeoisie has pushed innumerable households, sometimes by lending at zero interest, to buy their own houses; this has been the source of record borrowings. Since 1977, mortgage debt in the United States has increased 94% to reach 7.4 billion dollars. Since 1977 banking credit intended for property acquisition has increased 200%. Since 1988 the cost of property has more than doubled. On average, in the United States, mortgage debt for a family of four corresponds to an average debt of $120,000. The accelerated rate of increase in the cost of property is also shown in the frantic speculation in this sector.
As long as interest rates remain low, close to zero, household debt can be bearable. But with the increase in interest rates getting underway, the resulting increase in debt leads to the ruin, pure and simple, of a very large number of American households.
Finally, the United States, thanks to this policy of extremely low interest rates, has shamelessly carried out a policy of competitive devaluation of the dollar. This has allowed the US to push the most dramatic effects of the worsening of the economic crisis onto the rest of the world. This in turn has driven every national bourgeoisie to launch itself into a merciless trade war.
The proletariat in Europe has already had bitter experience of the crisis, with the development of redundancies and the dismantling of the ‘welfare state’ (cuts in health care, pensions, etc…). But what is still more significant is that despite the extent and the unprecedented nature of the measures adopted, any resulting recovery will have been extremely brief. The new recession and the return of inflation leave the bourgeoisie no respite. The French Groupe Financier Banque TD, which above all aims to reassure, announces a slow down of world growth: “Real world GDP will probably slow down from 4.8% in 2004 to 4.2% in 2005 and to 3.9% in 2006… In fact American growth must slow down from 4.4% in 2004 to 3.8% in 2005, then to 3.2% in 2006, while in China one can see that the rate of growth will oscillate between 8% and 8.5%… in relation to a rate of 9% and more in 2004.”
Even though these forecasts seem to underestimate reality, the bourgeois experts are still predicting dark days ahead for the capitalist economy, openly contradicting the ideological campaigns of the bourgeoisie.
Last 22 February, important new troubles appeared in the financial markets, indicating once again the disastrous conditions in which the international financial system finds itself. The main editorial in the New York Times (24/2/5) said: “The liquidation of the dollar on Tuesday has not provoked a collapse. But it has without a doubt given a foretaste of it (…) Tuesday’s episode has its origins in America’s structural imbalance…” For its part the Washington Post, during the course of the same month, wrote: “The clock continues to tick towards a meeting with disaster. A broken down financial superstructure is jolted by a new energy crisis, the movements of the dollar and out of control American finances”. The dollar was being exchanged at $1.32 against the euro. The perspective of a lowering of the dollar seemed to be on the cards. However, the crisis also hit the eurozone, momentarily upsetting the currency. On June 3 the euro reached its lowest levels for 8 months, in line with a sudden run on the dollar.
The bourgeoisie is finding itself confronted with more and more serious monetary turbulence, cutting off any medium term vision. To that it must be added that, in recent years, the dollar has mainly been supported by Japan, Saudi Arabia and China. We know that, for two years, the Saudis have diverted their investments away from the United States, towards other regions of the world. Today, China shows that it too has reached a point where it can no longer go on supporting the US economy. The Japanese and Chinese central banks, inundated with dollar credits, with some banks on the edge of bankruptcy, can no longer absorb any more. The largest acknowledged holders of American debts are the central banks of Asia and the Pacific region. Japan and China alone hold American state obligations of more than a billion dollars.
China disposes of a great part of its production through the US domestic market. It is paid in dollars that it uses in part to buy bonds from the US Treasury, thus financing the colossal deficit of the United States. In return this policy allows Beijing to open up more and more new factories, which, with the approval of the United States, produce goods to be sold on the American market. However, the Chinese economy is subsidised by the budget and state deficit. As in the United States this swollen mass of debt has reached a danger point. It was little more than a 100 billion yuans in 1987 and today it is close to 500 billion. This is a deficit that is essentially financed by the Chinese banking system, which is drowning in highly dubious credit. The growing instability of the dollar today represents a major risk to the international financial system.
For the majority of countries, holding dollars makes no sense other than it being the principal money of world commerce. This function is really put in danger by the threat of its collapse. Despite the present recovery of the dollar faced with the weakening of the euro, the fantastic level of debt of the US economy can, in the period to come, only push the level of the dollar to fall. Faced with this reality, the danger comes from the necessity for numerous countries to diversify their credits into strong currencies. The rocketing prices of raw materials, which on March 8 - according to the CRB index (Commodity Research Bureau) which covers 17 of the most important raw materials - reached their highest levels for 24 years. It is not only the cost of oil that is climbing, even if a barrel that was $10 six years ago has now risen to more than $55. Speculation is ever present, including a building bubble that is now quite close to implosion; and the catastrophic state of the international money system has pushed up the price of gold to a historic level of $440 an ounce. A few days ago the former Australian Prime Minister, Paul Keating, declared: “It is necessary to prepare ourselves for a catastrophic crash of the dollar and an explosion of panic”.
Despite the pressure to lower prices through a policy of declining wages, generalised indebtedness brings about, along with the recession, the spectre of inflation. The excessively strong pressure to lower the mass amount of wages, in turn bringing about a tendency to the lowering of prices, is not enough to put a brake on the longer-term inflationary tendencies. All the industrial countries of Europe, Asia and America are again undergoing inflationary tensions. The reduction of the monetary mass that ineluctably flows from this will be an additional active factor in the recession that is taking shape. The bourgeoisie itself is thus obliged to take measures that will slow down the economy while the recession is already happening. With a debt equivalent to 58% of GDP and 60% of the rate of growth attributable to military expenses (2003 figures), the coming American recession gives the tone for the whole of the world economy. The weakening of economic cohesion that is now hitting Europe, particularly with the management of finances, will also tend to speed up the descent into recession. The upheavals that the international financial system is going to suffer will have a major impact effect on the entire capitalist economy.
A more profound recession than previous ones
Since the very short economic recovery at the beginning of 2000 was accompanied by a massive acceleration of unemployment and the pauperisation of the working class, we can just imagine the breadth of the attacks that capitalism will have to inflict on the proletariat when the recession really gets going. One of the symbols of the recovery coming to an end is perhaps the virtual bankruptcy of the two greatest builders of automobiles: General Motors and Ford. Faced with such a deterioration of the capitalist economy, and the development of the exploitation of workers, the proletariat more than ever must not mistake its enemy. It is not neo-liberalism or free enterprise, or the individual boss, or what’s called ‘globalisation’. It is capitalism that is today bankrupt, its state and the bourgeois class which alone are the real enemies of the working class and all of humanity. Here and now we can affirm that the new recession will be much more profound than all of those since the end of the post-war reconstruction. The proletariat must not be discouraged by this perspective. If the economic crisis is accelerating and with it the attacks on the working class, the proletariat can respond to the attacks by develop its struggle, its self-confidence, its solidarity and its class consciousness. This situation is rich and full of potential for the proletariat.