THE COMING ECONOMIC CRISIS

The Coming Economic Crises [Archival Material]
By Thomas Riggins

Recently Louis Uchitelle presented an economic analysis of the US deficit (NYT "Business Day" 9-18-04). Marxists should take note of a possible sudden collapse of the US economy that may well threaten the existence of the international capitalist system.

Uchitelle talked with C. Fred Bergsten, director of the Institute for International Economics, who thinks the deficit is a "disaster in the making."

The deficit results from the trade imbalance whereby we borrow and import more than we sell or lend abroad. The deficit has almost doubled under the Bush administration and now stands at about 4.4 trillion dollars – that’s a big debt.

What’s happening is that we are buying and consuming more goodies than we produce. The extra goodies are coming from China, Japan and other high export countries, and we are getting them on credit since we insist on living in consumer oriented society yet don’t produce the goodies we want ourselves.

Can we pay off the 4.4 (and growing) trillion we have run up? Think of it as a giant credit card debt – a credit card without a spending limit. Bergsten thinks the whole trading system "could unravel abruptly" with the dollar crashing and run away inflation breaking out – in other words, a big crisis.

But capitalism is supposed to have matured beyond the days of crisis – no more 1929s please!

Uchitelle points out that Bergsten’s view is not accepted by everyone at the Institute, Others hold that this is only what Marx would call a tendency. Uchitelle quotes Robert Blecker (American University) who says the deficit spending is "unsustainable" – it can’t keep going – but maybe a crisis can be avoided if "Americans slow their consumption" and other countries stop lending us so much in credit.

But wait a minute! Slowing down our consumption seems like voluntarism. Will we voluntarily give up our goodies to prevent a crisis? Did the capitalists "voluntarily" quit buying on margin in 1929? Not likely.

Here are some speculations about a way out. The Chinese grow their home market so don’t need to sell their products to the US anymore so they don’t sell to us on credit. No credit means faith in the dollar is gone and so down it goes in value making goodies more expensive. Americans have to become self-reliant. But will the "juche principle" really catch on in the US?

Meanwhile, the "global economic status" of the US is getting worse and worse with each passing day. This is how Uchitelle explains it. Other countries now own 40 percent of US Treasury bonds which they bought with the profits they made selling their goodies over here. Treasury bonds put us in debt to the holders.

But there still isn’t enough money to let us fulfill our desires for more goodies – so the government engages in deficit spending – putting more money in circulation so we can buy things. It also has to borrow to spend – so more Treasury bonds are offered and the debt goes up and up.

Not only that, the economies of China and Japan (and the Asian Tigers) are fueled by the American market so they eagerly buy these bonds (over $1.3 trillion held by China and Japan alone) and they strive to keep the dollar up so Americans won’t be tempted to make more of their own goodies.

However, to do this the Asians must "defy market forces" and like Mother Nature, you better not try to fool market forces or you risk the economic equivalent of Hurricane Ivan!

The winds of change are evident in the tendency towards decline in the net income flow (i.e., with all the problems more money still comes in than goes out of the US) it was $64 billion in the last quarter of 2003 but it has currently declined to only $10 billion. If this keeps up a serious crisis may be impossible to avoid.

Bourgeois analysts generally think this can be a chronic unsustainable problem (?) but Marxists who remember the dialectical principle that quantitative changes lead to qualitative changes should not be surprised if the current capitalist globalization enterprise finds itself sharing the dust bin of history with the former USSR.


--Thomas Riggins is book review editor of Political Affairs and can be reached at pabooks@politicalaffairs.net.