The current global economic crisis took form in 2007. Before that, the crisis-ridden Western economy had slumped successively in 2000 and 2001. Before that, there had been the Asian crisis of 1996-7, and before that there had been the Western economic crisis of 1991-3, and before that there had been the recession of 1979-82, and before that, the recession of 1973-6. (There have been many smaller-scale national and regional crises during this period.)
This current crisis is longer and more extensive than the earlier ones, but we can see from this that in a sense the “crisis” is simply a more severe phase of a long-existing disorder. Also, like the recurring fevers of acute malaria, such crises happen over and over, not quite regularly but systematically and historically, at intervals of five to eight years. This means that a fresh crisis should be falling due by the business calendar in about 2014-5 – and this probably explains why banks are not lending and businesses are not investing; they anticipate losing their shirts and possibly trousers as well.
We don’t exactly know what causes these crises. The assumption has often been that these are simple crises of underconsumption – that the growth of an economy encourages excessive investment which produces manufacturing capacity greater than consumption can justify, and so to business crisis, banking crisis, and a downward spiral as companies go bust or retrench and consumers become still less capable of keeping the economy afloat. However, it has become clear that under neoliberal circumstances, these crisis have become more frequent and more widespread – which one would expect, since neoliberalism means concentration of wealth in fewer hands with less state regulation, and hence a greater instability of consumption combined with a greater financial and fiscal irresponsibility. So that’s settled, then.
But if this is true, there is no sign of it stopping, and therefore there is going to be a fresh crisis before long. It may even be deliberately engineered by the American business community in order to discredit the Democratic Party – who, God knows, are not anti-business, but the American business community are psychopaths – before the end of the Obama administration. That suggests that if there is no organic crisis by 2015, the American rich will manufacture one in order to generate a political crisis to sweep the Tea Party to power in 2016. What fun all these people are having.
What would such a crisis mean globally? China is already retrenching – deliberately restraining capital formation (i.e., large-scale borrowing for the purposes of industrial investment by the private sector). The Chinese government appears to feel that this capital formation, were it to be allowed to happen unrestrained, would probably pour capital into the Chinese property bubble and thus run the risk of generating a crisis similar to the American property crisis of 2007 or the Japanese property crisis of 1988 – both of which brought the national economies to a virtual standstill. What the Chinese are prepared to do is to slow down their economic growth in order to avoid a calamitous contraction in the economy in a few years – perhaps the year after next. But of course those who have banked on China continuing to grow at previous rates may lose a little money – while those who have banked on China imploding may lose a lot of money. It is, thus, possible that China could create a Western banking and investment crisis all by itself (with a little help from the stupidity, greed and racism of Western bankers – for a moment I mistyped “cankers”, which is actually more accurate).
The United States and Western Europe are propping up the values of their bond market and thus also wildly inflating their stock market by printing money and using it to buy bonds of various kinds. This money all ultimately goes to corporations, who take it, keep it and sit on it. Thus they are protected against bankruptcy by bundles of Monopoly money, appropriate in monopoly capitalism. However, in the event of anything happen to endanger them, they will want to sell those stocks and bonds to get capital for their own defense. That would be almost inevitable in an economic crisis – indeed, it would be almost inevitable if businesses decided that an economic crisis were due, for then the rush would be to unload the stocks and bonds before their value fell. That would bring down the value of almost everything on paper, and would also cause a crisis of currency value; the dollar, pound and euro would plummet on global money markets, and in order to counterbalance this, Westerners would sell weaker currencies from small countries, and the end product would be a sudden spiral of inflation. It is likely that we are not talking Zimbabwe or Weimar, but we could be talking about currencies losing half their value in a week or so, as in the Asian crisis, and stock exchanges losing a third of their value in a similar period.
At that point, central banks would have to step in. Unfortunately, central banks have only one objective – restraining inflation – and only one tool – raising interest rates. There would be a huge panicky desire to restrain inflation which would probably lead to savage increases in interest rates. Meaning that the average citizen would suddenly find herself paying a lot more to the bank than before – the same sort of thing which happened in 2007-8, of course, and led to foreclosures, bankruptcies and so forth. This would not help the bank much, because the bank would also be paying more.
But so would the government. Governments in the West have run up titanic debts in the last decade and have protected themselves against the consequences of such debts by keeping interest rates low. Jack up the interest rates and suddenly the debts become a huge problem, siphoning big chunks of state revenue away into the coffers of possibly-insolvent financial institutions. It is significant that in the West, governments have simultaneously done this and denounced the act of doing this, declaring that something must be done – that is, that they must cut spending on the poor and the middle class as much as possible. This means that, come the crisis, the Western governments will have little option but to implement these calls for spending cuts – which will mean, of course, exacerbating the crisis of consumption, because almost every serious consumer will have less to spend.
What all this will mean will be a savage decline in employment, in consumption, and in investment in the West, together with a probable banking crisis. A return of the 2007-8 crisis, but under much less favourable circumstances and probably with far greater impact. The consequence will almost certainly be political crisis and, at least in the West, a political shift towards the extreme right (since the left has neither the will nor the power to take advantage of any crisis). Many countries, such as China and its satellites, Russia and Latin America, may be able to weather this crisis because they are ideologically hostile to the forces generating it and because they have built up reserves of currency and consumption capacity which can enable them to survive, at least for a while, on their own – as China and Russia and Brazil did during the 2008-9 fallout of the 2007 crisis. Many others, such as Japan, Eastern Europe and most of Africa, are acutely vulnerable to such a crisis. South Africa is one such vulnerable nation.
When the crisis hit, South Africa would face a fall in exports at a time when, for political reasons, we would be importing infrastructure equipment extensively, so our already bad balance of trade would grow still worse. We would face a drying-up of portfolio investment, so we would be uncertain of our capacity to pay for our investments. The value of our currency would fall disproportionately, further fuelling a crisis of foreign economic relations. Inflation would rise – although mercifully the government has been falsifying the inflation statistics for many years, so therefore this need not be acknowledged if the government didn’t wish to, and hence it would not be necessary to raise interest rates. Except that the collapse of portfolio investment would probably force interest rates up, and in any case bond rates would skyrocket as South African bonds were dumped by desperate foreign banks. Therefore, the cost of borrowing would rise.
This means that we would face the same problems as affluent Western countries – and regrettably, although our national debt is lower than theirs (probably somewhere between 60% and 70% of GDP by 2015) we are poorly situated to increase our spending. The probability is that increased spending on debt servicing would hit the government budget hard – particularly conspicuously so since government has been cutting back on spending ever since Zuma took control. Almost inevitably, the consequence of this would be a desire to cut back on state spending still further – which would devastate public support for the government as well as plunging the country into a depression. Therefore, of course, business would also cut back on its spending.
Against the background of falling demand, falling investment, falling revenue and soaring expenses – which would have particular impact because all these things are already problems at the moment – there would also be a crisis of business confidence. Big business would be terrified that they would lose everything. The nation turns its lonely eyes to the government . . .
. . . and most likely the government, in the post-election crisis, would be incapable of doing anything at all.