The chief economist of the International Monetary Fund has warned of a "perfect storm" looming in the world economy. "The combination of the credit crunch and high oil prices could bring a big reduction in international trade from which no one would be immune". He also thought that projections for the prospects of the American and European economies were "too optimistic" and would have to be re-assessed downwards.
Among other forecasters Goldman Sachs have warned that the knock-on effects from the credit crunch crisis could plunge the US into recession. Others have suggested that the US is already in recession or at best facing a period of stagnation.
Following the outbreak of the credit crisis, the Federal Reserve saw little evidence of possible improvement, saying that "mortgage delinquencies are up significantly in many areas" and "home building is not expected to recover until next year".
Meanwhile the OECD has warned that stock markets around the world are set for a sharp decline. It thinks that the recent turmoil in share prices was just the "precursor of a more protracted downturn." This should come as no surprise because this year there have already been a series of mini-crashes on stock markets around the world, partly provoked by the weakness of the American economy.
In turn the weakness of the dollar has undermined the attempts of European businesses to export to the US. China is one country that relies enormously on the US market - its biggest export outlet - but the US economy is founded on debt, and therefore the Chinese economy is also effectively based on debt.
Despite all the propaganda, current growth in China and India is no more going to come to the rescue of the US and the rest of the world economy than did the Asian tigers or the dotcom bubble before that.
Ultimately the capitalists are relying on debt to a staggering extent. The movement of capital that results from this flight to debt is some twenty times more than the value of transactions in goods and profits. In the 19th century debt could be used to accelerate productive investments, for example in new markets, but in the epoch of glutted markets debt offers no solutions, only a postponement of the crises that are to come.
The current state of the economy is worse than the lurch of the crisis in 1987, 1995, 1997-8 and 2001. Ultimately it is worse than the situation in 1929. The bourgeoisie are aware of the way things are going. As Bill Gross, chief investment officer of Pimco, the world's largest bond fund, said: "The U.S. hasn't faced a downturn like this since the Great Depression of the 1930s. The slump in the housing market and increases in household debt will have negative effects on consumption and future lending attitudes, which could bring us close to the zero line in terms of economic growth". Former US Treasury Secretary Lawrence Summers drew out further implications "When the sub-prime mortgage crisis hit the U.S. in September, 2007, the fallout was limited to the U.S. However, now it is likely to spread to other countries around the world, depressing the world economy as well as American economy."
The ruling class can resort to a number of state capitalist measures, and also try to deflect the effects of the crisis on to weaker economies, but it can't keep a lid on the pressure building up in the system for ever.
Capital tries to make workers pay
Among the measures undertaken by the bourgeoisie, many focus not so much on improvements in productivity but on cutting its costs. This can take many forms. For example, keeping increases in workers' wages beneath the rate of inflation benefits the capitalists, as does laying off staff so that fewer workers are doing the same work. Moving jobs to regions or countries where wages are lower, or moving workers who will accept lower wages to areas where wages are normally higher, or keeping workers on short-term contracts to avoid annual wage increases, all these measures also cut down on capitalists' outgoings.
With the role of the state being so fundamental to the management of modern capitalism, state expenditure is also a prime target for cuts in expenditure. Partly this is the same as elsewhere, making workers redundant and keeping tight control over workers' wages. But some of the services provided by the state are part of the social wage, that is, they're an essential part of the working class's attempt to survive, and cuts in the social wage, therefore, amount to attacks on working class living standards.
This is the reality of capitalism's economic crisis. Capital tries to increase workers' productivity, cuts wages, cuts jobs, and cuts services. These attacks can't be concealed forever with lies about the health of the economy. The ‘perfect storm' in the world economy has its impact on a working class that is not passively accepting everything that's being thrown at it. Since 2003 we have been witnessing increasing evidence of the return of the working class to struggle. The growing force of capitalism's economic crisis will add further fuel to these sparks of a massive working class response to a system in profound disarray. Car 30/11/07