Political Economy

 
 


The Next Global Financial Crisis

Jamie C.
The Current and Future Economic Scenario
There is growing concern in bourgeois economic circles that GFC Mk2 will arrive soon, and hit Australia much harder than the GFC of 2008-2009.

Apart from books with dramatic titles such as “The End of Australia—The Real Story Behind Australia’s Coming Economic Collapse and What You Can Do to Survive It” (by Vern Gowdie), there are the public statements of professional economists employed by major financial enterprises as exemplified below.

Some economists’ views on GFC Mk2

Jordan Eliseo, chief economist with ABC Bullion, claims that the problems leading to the GFC haven’t been dealt with and global economies are arguably in a worse shape today. “Governments around the world are running record budget deficits hand-in-hand with extreme levels of public debt, interest rates have been slashed to zero or below, and trillions of dollars, euros, yen, francs and pounds have been ‘created out of thin air’ and pumped intravenously into the world’s economies” he said.

HSBC chief economist, Stephen King, issued a dire warning that the global economy was “like an ocean liner without lifeboats”, with governments’ traditional recession-fighting ammunition all but exhausted following an ‘insipid’ post-GFC recovery. .

The Bank of International Settlements (BIS) pointed out that “certain major economies were seeing a sharp rise in debt-to-GDP ratios, which were well outside historic norms. In China, the rest of Asia and Brazil, private-sector borrowing has risen so quickly that BIS’s dashboard of risk is flashing red. In two-thirds of all cases, red warnings such as this are followed by a major banking crisis within three years.” .

Again according to British banking giant HSBC, global trade is down 8.4 percent so far this year, and global GDP expressed in U.S. dollars is down 3.4 percent.  So those that are waiting for the next worldwide economic recession to begin can stop waiting.  It is officially here.  … money is fleeing emerging markets at a blistering pace, major global banks are stuck with huge loans that will never be repaid, and it looks like a very significant worldwide credit crunch has begun. … the IMF, the UN, the BIS and Citibank were all warning that a major economic crisis could be imminent. … .

“China’s banks are, in effect, bust: few of the vast loans they have made can ever be repaid, so they cannot now lend at the rate needed to sustain China’s once super-high but illusory growth rates. China’s real growth is now below that of the Mao years: the economic crisis will spawn a crisis of legitimacy for the deeply corrupt communist party. Commodity prices have crashed. … Money is flooding out of the Emerging Market Economies (EMEs), leaving over borrowed companies, indebted households and stricken banks, but EMEs do not have institutions such as the Federal Reserve or European Central Bank to knock up rescue packages. Yet these nations now account for more than half of global GDP. Small wonder the IMF is worried.” .

Andy Haldane suggests a rate cut may improve economic growth, given signs third phase of global financial crisis is looming. … He argued that the latest developments in China and Greece should be seen as part of a pattern. “In my view, these should not been seen as independent events, as lightning bolts from the blue. Rather, they are part of a connected sequence of financial disturbances that have hit the global economic and financial system over the past decade,” he said. “Recent events form the latest leg of what might be called a three-part crisis trilogy. Part one of that trilogy was the ‘Anglo-Saxon’ crisis of 2008-09. Part two was the ‘euro-area’ crisis of 2011-12. And we may now be entering the early stages of part three of the trilogy, the ‘emerging market’ crisis of 2015 onwards.”

The World Economies
The economic realities throughout the world are pointing everywhere to a gathering storm. Here, I will briefly focus on the European Union, and in subsequent reports deal in detail with the USA; China, India, Japan and other Asian countries; as well as the situation in Africa, Latin America and Oceania.

The European Union
The EU is currently composed of 28 member states from Germany, the industrial giant, to Malta, the tiny archipelago. Contradictions abound such as those between the major imperialist and the struggling “wanna be” nations, between the Brussel’s centralization solution to crises and the members’ pressure for decentralization, between the brain drain from the poorer European countries and the consequent gain to the richer members, between the beacon of hope and safety for Syrian and other refugees and the growing neo-fascist strength and demagoguery that Europe’s security and “Christian values” are being threatened.

The liberal dream of the EU as a major socio-eco-political superpower—the World’s largest single market bloc with one currency—in which workers’ rights are relatively protected; social-welfare programs flourish; open borders bound the members’ nations; and leading advances are made in environmental protection, renewable energy and human rights, is taking second place to the growing EU nightmare of economic austerity, rapidly growing debt, unemployment and poverty.  The nightmare is fueling the anti-Europe faction’s cause, resulting in a British referendum before the end of 2017 on whether Britain should remain in the EU, as well as public disgust with the growing EU reality rising even in France and Germany.

Economic prediction is not an exact science
In November 1720, Sir Isaac Newton, arguably the greatest physicist and mathematician of all time, lost all his fortune in the South Sea Bubble—the stock disaster from which the term “bubble” was coined. His famous quote “I can calculate the movement of stars, but not the madness of men” epitomizes the difference, even today, between predictions of science and economics.  

Marx’s analysis, grounded in historical materialism, is a brilliant framework for understanding humanity’s socioeconomic development, and makes major predictions about the demise of the capitalist mode of production. But it is necessarily silent as to its exact timing. 

Recent mathematical models have had some limited success in predicting micro-economic phenomena. But no economist can predict when GFC MK2 will happen—some say it has already started, others that it will occur within the next three years. Neither can economists predict the sequence of events which will constitute it.

Crises have been averted before, but it’s different this time
In the early days of capitalism and even in the early days of the imperialist stage, crises had been averted by the export of religion, goods and finally capital to newly-found or under-developed lands. But today, with China having joined the World Bank and having capitulated to capitalism, all countries are inextricably linked in a global economic tangle centred primarily on US imperialism.  There are no new lands to be found, and China, the saviour of the GFC of 2008-2009, is now in no position to save itself let alone anyone else.

For these reasons, we can be sure that GFC Mark 2 is coming soon. It will be more severe than the GFC of 2008-2009, and we need to be prepared.

 

The Next Global Financial Crisis
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