On December 19, 2018, the US Federal Reserve produced the fourth rise of the referential interest rate of 2018 and the ninth since December 2019, against the demands of Trump, who later threatened with firing the head of that institution. And, though the “markets” were aware that this would happen, the world´s main markets reacted with falling stock values and generating uncertainty in financial centers.
Some of the warning signs are in the private and public debt -especially of the big corporations- the growing protectionism seen in the commercial war between the US and China, now in a fragile truce, and the downturn of the Chinese economy.|
Because of these symptoms, international agencies like the IMF and most capitalist analysts changed their recent positive predictions on the world economy, faced with the omen of a new economic recession and a new crisis towards 2020.
In the Anticapitalist Network we’re been warning for months about the imminence of a new crisis, possibly deeper than 2008, and have tried to explain the causes that are dragging the system towards it.
Ganancias en la industria manufacturera de Estados Unidos entre 1er. Trimestre 2014 y 1er. Trimestre 2018. Cálculos Orlando Caputo con datos del Departamento de Comercio
But this objective dynamic is not enough to foresee its timing. Though necessary, understanding the internal gears of capitalism, its metabolism, isn’t enough. This phenomenon and its accelerated rhythm are influenced by political and geopolitical conditions that are products of this crisis, and simultaneously feed back into it. Among them, two of those conditions are: a) the French yellow vests movement, an anti-system powerhouse that deepens social polarization and spreads across Europe and, b) the imminence of Brexit, which will have important consequences, not only for the British economy, but could also have a crisis domino effect over the whole European Union.
In this article, we will go over the causes of the economic crisis which explain its dynamic and the reasons for this world situation, which foreshadows big confrontations and a new peak of the capitalist crisis.
Ganancias en el sector automotriz. Elaboración Orlando Caputo con datos del Departamento de Comercio de Estados Unidos
The indicators that alert the possibility of a new crisis show levels similar to those in 2007
The level of profit of the non-financial sector, especially of the productive sector of the main economies, the level of overall growth of these economies, the evolution of public and corporate debt and the development of the world market, among other indicators, point to the possibility of a new peak in the world crisis. On August 2018, in a study based on data collected by the U.S. Department of Commerce, the Chilean economist Orlando Caputo analyses the situation of that country’s economy and concludes: the profit of U.S. manufacture has fallen, from 2014 to the second trimester of 2018, around 51,3%. This fall is similar to the one registered between 2006 and 2008 before the crisis, which was of 53,3%. In that essay, he also analyses the behavior of the profit of the production of durable and non durable goods, which also fall similarly to the manufacturing industry.
Since the news that came out on December 2018 about the critical situation of two of the main automotive industries in the U.S. (Ford and General Motors) -crisis which has caused the closing of plants and collective lay-offs- it is useful to look at the evolution of profit in that sector. According to Caputo’s essay, the math indicates a fall during the entire period, with a particular drop during the Trump era. The fall of profits in he auto industry between the first trimester of 2017 and the first trimester of 2018 was of 65,2%.
When it comes to the growth of the world economy, both private and public as well as analysts are adjusting their predictions to lower levels. Goldman Sachs, Bank Of America, the BPI, among others, see that the U.S. and world economies are slowing down while interest rates are high and keep on growing. This situation is similar in the production field. Michael Robert writes on his blog: “the last report of the real GDP for the third trimester of 2018 shows a growth rate of 3,5%. But the 2,1% of this GDP growth actually responds to the accumulation of inventory, meaning goods that are not sold. At some point, production will have to slow down in order to give accumulated inventory a way out”. Something similar happens with these investments. There is also the distortion caused in 2018 because of the elimination of taxes for corporations and multimillionaires that weren’t used in productive investments but in the re-buying of their own stock to keep its prices up.
In a similar vein as the economic slowdown, official institutions and analysts talk about the behavior of the Chinese economy. While the slowdown of economic growth is quite evident in Europe.
On the other hand, the levels of public and private debt are superior to those at the end of 2007 and 2008. Corporate debt has grown exponentially since 2014, producing the extension of a phenomenon called “gearing” in an important part of them. Robert quotes a September report on BPI that points out that there is a great number of companies that this institution defines as zombies. They are companies that do not make enough profit so as to pay the interests of their accumulated debt. That are unable to invest or grow, and turn into living dead. The BPI affirms that around 15% of those enterprises that trade in the main world economies are in that situation.
World trade is also shrinking as a result of the trade war that the United States declared on China. The “truce”, fragile and unstable, which was agreed on in the context of the G20 summit in Buenos Aires, occurs after the consequences of the previous protectionist measures gave a blow to the exports of the main world economies. According to OECD G20 researchers: “Excluding large oil exporters, such as Russia and Saudi Arabia, G20 trade has stagnated, suggesting that the constant expansion of the last two years has slowed down as a result of the recent protectionist measures “.
The data these researchers present about the diminution of exports are the following: in the U.S. exports fell around 1,7%. They grew in China (2,4%), but this reflects partially the selling of an oil platform to Brazil, which helped push up Brazilian exports around 18%, but only compensates part of the significant contraction of Chinese exports (4,9%) in the previous trimester. Exports also fell in the European Union (-0,8%) for the second consecutive trimester, in Australia (less than 2.0%), Japan (less than 2.0%), South Africa (-0,8%), Turkey (-0,6 %) and India (-0,3%).
This tendency toward the decreasing of the rate of profit is constant, the cooling of the world economy, the growth of corporate debt until it becomes unbearable and the drastic shrinking of international trade are the ingredients of what seems to be a very hot dish, the announcement of a new chapter of the world crisis.
Economic crisis and social polarization
In an essay published in February, Roberts elaborated an historical analogy comparing the current moment with the recession of 1937, keeping in mind the sudden fall of the stock numbers. He describes the moment in which the crisis unleashes, with a peak after a low but constant recovery of five years since 1932, one of the lowest moments after the 1929 crash.
Robert explains that the 1937 recession was only solved after the strong impulse of the arms industry and the entry of the U.S. in World War II and -we add- the consequential destruction of capital and productive forces.
To be clear, it’s important to know the social and political conditions of the time. The ten years between the 1929 crash and the start of World War II are filled with political convulsion, polarization and important social confrontations. The Civil War in Spain, the occupation of companies and general strikes in France and Italy, as well as England, are some of the episodes that defined the juncture, as well as the Second German Revolution and the Chinese Revolution.
Understanding this scenario of social polarization is fundamental to understanding that World War II and the consolidation of fascism as an historical process of savagery were only possible after the crushing defeats of these movements, struggles and revolutions.
This is the case, because the big systemic economic crisis, like the crash in 1929, the 2008 crisis and the next world recession that is approaching as a continuation of the 2008 crisis, stimulate the independent action of the mass movement, deepening polarization.
The historical period we are in, with a new chapter in the economic crisis and the deepening of social polarization, is not a moment of a turn to the right or consolidation of neo-fascist projects, but opens the opportunity of a revolutionary overcoming of the system. The fate of this period will be sealed in the upcoming confrontations. And in this juncture, the struggle of the yellow vests is the first of those.
Carlos Carcione
2 Orlando Caputo Fuerte disminución de las ganancias de las empresas estadounidenses. http://www.rebelion.org/noticia.php?id=245593
3 Michael Roberts http://sinpermiso.info/textos/ee-uu-trump-las-elecciones-legislativas-y-la-recesion-que-se-avecina
4 Los Riesgos de las Empresas Zombis https://www.bis.org/publ/qtrpdf/r_qt1809g.pdf
5 http://sinpermiso.info/textos/g20-el-comercio-y-la-estabilidad-financiera