[page 17]
Debt mountains grow larger
More than a year has passed since the crash on the world's stock exchanges in October 1987. It marked a new conjuncture in the world economy indicating a future worldwide production and trade recession or slump - although as we argued in the MIR, the timing would be affected by what action the governments of the major capitalist countries would take to avoid it.
Boom
But over the last 18 months the world boom which began in 1982 and has been one of the longest lasting in the post-war period has continued and even accelerated. The stock markets of the world have recovered in price and, since Christmas 1988, even in volume of
Production business.
growth in the major
economies capitalist averaged 4 per cent in 1988 and unemployment fell from 9 per cent to 7.5 per cent, while the utilisation of industrial capacity returned to the peak level of 1979, although not yet to the previous peak of 1974.
It appears that the prophets of recession and slump have been proved wrong. But that would be a superficial and complacent conclusion. For none of the fundamental contradictions which provoked the stock crash in 1987 have disappeared.
18
Then the huge deficits on government expenditure and trade run up by US capitalism could only be financed by either rising interest rates which threatened to choke off investment and production; or by a sharp devaluation in the US dollar which could provoke competitive devaluations and a world trade war. The fear of the consequent world recession led to the stock crash.
The world recession was postponed only by an unprecedented injection of credit from the major capitalist powers to shore up the US dollar and finance the US budget and trade deficits. The last period also coincided with the bunching of elections in most of the top seven
economies: Britain and Italy in June 1987, France in June 1988, Canada and the USA in November 1988. In all cases the governments In power made sure that their economies were stimulated for growth.
The credit boom was concentrated mainly in the USA and the UK 'deficit' countries and financed by the 'surplus' trade countries, West German and Japanese capitalism. But this accelerated growth was at a price. Inflation is now on the move in the advanced countries - 4 per cent on average and rising. And the debt mountains are growing even larger, threatening to topple over into an even sharper downward avalanche.
The new Bush
Table 1:
income
debt
USA Japan West UK
Germany
19 .72 .60 .09 .55
1982 78 82 15 66
1987
.97
.90
.17 1.04
Table 2: net f real interest
les (ra
Top seven USA Japan West Germany
1971- 10.1 12.5
19
81-
36-90est
Table 3:
industry 1968-78 6-10%
Average annual growth in OECD countries
1974-5
1976-9
1980
nil
1984-7 5-10%
Unemployment rates
pre-1973
974-9
1980-7
OECD Top seven
(Source for all tables: OECD Economic Outlook Dec 1988).
istration faces four debt mountains that it must correct in the next year or so, and in doing so may bring about the world contraction in trade and production that the capitalist powers are desperate to avoid.
The US budget deficit was $150bn in 1987, rose to $155bn in 1988, and is estimated to reach $146bn in 1989 if there is no action. Such a deficit can only be financed by sharply rising. interest rates which will choke off growth in the world's largest economy con which other capitalist powers depend for their markets. The US government is committed under Congress legislation to reduce that deficit to $100bn by the end of this year. Such a cut, whether by tax increases or spending cuts, must further damage the purchasing power i of the US market.
Burden
In addition the collapse of the US savings and loan industry equivalent to the UK's building societies because of faise property deals during the boom, is likely to cost the US government another $100-$150bn over a period of years to support. That extra burden can only add to the interest rate spiral which already soaks up 15 per cent of the US government's spending.
[page 18]
Moreover much of the merger and stock price mania in the USA, and for that matter in the other major capitalist countries, has been financed through huge corporate loans - over $400bn in the USA alone. Any downturn in corporate profits could trigger off a series of cascading
crashes which would further extend already overstretched state finances.
Deficits
Despite a devaluation
of the US dollar of over
40 per cent since 1985,
the US trade deficit re-
mains stubbornly high-
around $130bn. It has
fallen during 1988 only
at the expense of creat-
ing bigger deficits in
other countries like the
UK, rather than by red-
ucing the surpluses in Japan and West Ger-
many. The major imbalances in world trade re-
main, threatening to provoke a new trade war.
The recent tit-for-tat exchanges between the EEC and the USA over semiconductors and agricultural products and the collapse of the GATT talks are signs of such a development. The US deficit cannot be indefinitely financed by high interest rates attracting foreign money. A further devaluation of the US dollar looks inevitable and the recent rise in the dollar because of its high rates of interest can only delay an even sharper reversal in the dollar's fortunes.
The recent credit boom has failed to improve the lot of third world debtor countries.
BUSH
President Bush faces a hard task in dealing with mountains.
In 1988 the 15 most heavily indebted countries had to make a net transfer of $31bn to their creditors and overall the net outflow from the poor to the rich
in 1988 countries reached $46bn, the fifth successive year there has been such a transfer. There remains a real danger that one or more of these debtor nations will default on payments and lead to a crisis in International banking which again will have to be bailed out by further taxation or government spending cuts in the advanced capitalist nations.
Inflation
Interest rates are rising again, inflation is now shooting up. The temporary stimulus to the world economy injected over the last 18 months has nearly exhausted itself. The tryth is that the boom of 1982-8 may have been longlasting, but it has been a weak and superficial one based on a huge increase in fictitious capital ie credit not backed up by real production or investment. The growth in debt is
the Debt
revealed by the (see table 1).
And while total profit levels and the rates of profit have now finally recovered to the levels of the early 1970s in many countries, the industrial rates of profit, after interest rates are deducted, remain well below the rates of the 1970s, with the exception of West Germany (See table 2)
Profits
Relatively lower profit rates have meant that
growth, except perhaps for the last two years, has been not through increased investment in machinery and innovations, but by cutting the workforce and increasing the intensity of work for the smaller labour force employed, as tables 3 and 4 reveal.
This boom is without firm foundations of accumulation in productive capital. It has only been prolonged because of the intensive exploitation of working people both in the advanced countries and in the Third World, and through a colossal influx of fictitious capital spending. That cannot continue.
19
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