Reading the Economic Tea Leaves

Imagine a car careening around dark mountain roads during a rainstorm. The driver has no speedometer, but a set of brakes and plenty of power available at the accelerator. The passengers have both a need to get to their destination and an abiding concern for their own safety. They want to arrive promptly, but safely.

This story is a simple metaphor for the situation facing the US economy today. The dangerous roads represent the precarious state of the US economy still in disrepair in the aftermath of the 2007-9 systemic meltdown and suffering the devastation wreaked by the extra-systemic pandemic a decade or so later. The conjunction of these two unexpected disasters make the road ahead uncertain.

The lack of a speedometer represents the modern absence of any objective, material, universally accepted measure of value. In the past, the convention of measuring value by some rare metal like gold or silver would anchor the circulation of money and credit in something beyond the judgment or interests of central bankers or treasury officials who can set the “speed” of currency by fiat. But not today.

In the US, officials-- our economic “drivers” --have been pressing hard on the accelerator: buying up US debt and mortgage debt so that their growth will not devalue existing assets. In fact, their actions have more than met the challenge of devaluation-- asset deflation-- left by the 2007-9 crisis; they are now pumping up financial, home, and other asset values to new, seemingly limitless heights.

The “drivers” have suppressed interest rates which makes the cost of borrowing virtually zero, allowing corporations to access easy money for mergers, acquisitions, and stock buy-backs, further swelling asset values without touching corporate earnings.

Finding that pressing the accelerator on dangerous roads has not resulted in a crash, the emboldened bankers and policymakers have been pushing even harder, producing inflated values of assets and profits, while debt remains fixed and with little associated costs. Ruling elites and corporate executives fully support and reward these policies.

Thus was created a policymaker’s utopia: a limitless stimulus to the capitalist economy with no associated danger. Ruling class policy makers drink the same magic elixir that many on the left have urged: Modern Monetary Theory (MMT), the notion that fiat currency (currency free of any basis in a common material standard) allows currency expansion without any necessarily negative consequences. But they have hitched it to the interests of wealth and power. While US economic czars will not admit it, they have quietly tossed out their faith in the infamous Phillips curve, the close relationship of government spending and inflation, budget balancing and fiscal restraint.

Once, when Keynesian demand-side economics was popular, many policy makers also took to hiding this once-universal consensus for political reasons. Just as many read Keynes as justifying welfare spending and public-sector investment, ruling-class apologists insisted that “pumping up” the economy (bourgeois economics floats on metaphors) would result in massive inflation and crisis, while contradictorily endorsing obscene military spending and massive corporate subsidies and bailouts to do their “pump priming”!

Similarly, today’s elite policymakers mask their commitment to MMT remedies behind bluster about budget deficits and pay-as-you-go: they urge austerity, while government and quasi-government institutions spend money like drunken sailors, scarfing up assets and locking them up on their balance sheets in order to evade a deflationary crisis and to promote the stock market’s wild ride.

The limitless utopia imagined by US policymakers resulted in the Federal Reserve accumulating $8.76 trillion in assets by December 29, 2021, nearly $6 trillion of which they acquired since 2013. Had the assets (Treasury securities and mortgage securities) remained in the marketplace, the value of ALL securities would have dropped dramatically and the yield necessary to entice buyers would have risen sharply, discouraging future borrowing and retarding economic growth.

Instead, the Federal Reserve engaged in a massive inflation of financial assets to fend off the deflationary pressures inherited from the 2007-9 catastrophe, presenting investors and bankers with the gift that kept on giving: perpetual asset inflation and an assurance that the Fed would always have their back.

But eventually, the driver of a speeding car or those steering the US economy run into a sharp curve in the road and realize that they must slow down.

For the US economy, that curve in the road is consumer inflation. It is a misconception to see inflation as only arising in 2021. The first signs of fast-rising consumer inflation were indeed in 2021, but artificially induced asset inflation had preceded this for nearly a decade. Indeed, it was this asset inflation in conjunction with the shock of a collapse in supply brought on by pandemic lockdown and an even more dramatic rebound in demand that spurred the consumer inflation that now plagues the US economy.

How the masters of the economic universe thought that they could perpetually spur financial asset inflation without inducing inflation in more mundane, real-world markets-- autos, bacon, and eggs-- is truly astounding and hubristic. Most of us have the sense to slow down for the curves in the road.

******

Inflation will be with us for a while. Despite their initial Pollyanna assurances of a temporary inflationary blip, most of our economic gurus have come around to acknowledge that inflation has considerable staying power. The December year-to-year consumer price index (CPI) accelerated to 7% from November’s 6.8%, with December’s CPI constituting the biggest increase since June 1982.

Core producer-prices leaped a stunning 8.3%, the fastest on record, according to The Wall Street Journal, an ugly foretell of future consumer prices.

As I noted in late November, inflation is, ironically, itself like a virus, intensifying and spreading far and wide. Enterprises and institutions scramble to catch up to price increases with further price increases. Monopoly capitalism seizes on this opportunity to increase profit margins well beyond any catching-up level and driving inflation ever further. Small businesses and labor unions lag behind inflation, while the monopolies push it forward. It is the mega-firms, the giant monopolies, and not Labor or small business, that push the inflation spiral to greater and greater heights.

As they have in past inflationary periods, officialdom-- awakened to the danger-- are now set to “put the brakes” on the economy. Through raising interest rates and discontinuing buying securities, even selling off some locked in the Federal Reserve, they hope to slow down the economy. Of course, this “braking” will also slow down the tepid recovery from the earlier lockdown in response to the Covid pandemic.

Though clearly prescribed by the accelerating inflation, the slowdown could not come at a worse time. Nearly all of the retail and manufacturing figures for December 2021 were already trending down long before any Federal Reserve or Treasury braking was to occur. Total retail and food service sales dropped 1.9% from November, led by an 8.7% drop in online stores and 7% drop in department stores. Industrial production fell, with manufacturing down .3% from the previous month.

Fourth quarter 2021 reports also showed a significant drop in profits for two of the largest US banks, a departure from the unprecedented profit growth of the financial sector during the pandemic, an omen of pressure on profitability that will undoubtedly affect prices and interest rates.

******

What will inflation, higher interest rates, and slowing growth (In January, The World Bank revised its global growth estimate downward by roughly 25%) mean for 2022?

For some time, obscenely growing profits and nearly free money have generated an intense search for yield, as they did in the lead-up to the recession of 2000 and the 2007-9 crash. The growth of “blank check” companies, special-purpose acquisition companies (SPACs) and the surging of “unicorns” (privately-owned start-ups valued at over a billion dollars) places a lot of capital in a risky environment of slowing economic growth, rising costs, and higher financial costs. Even before the slowing economy and high inflation, start-ups were struggling. When investors, swollen with funds, seek out these dark, less regulated areas of economic activity in search of higher yields, trouble is often on the horizon. At the end of 2021, two thirds of initial public offerings (IPOs) traded below their opening price, according to The Wall Street Journal.

Rising interest rates may also endanger the mortgage/home-buying bubble, a phenomenon that has seen home prices soar at near-record paces, thanks to low-interest loans. Those pundits who derided the Chinese Communist Party’s pre-emptive strike on its own wildly anarchic residential construction boom may live to eat their words as the US home-buying spree unwinds.

With low union density, 2022 will likely see a loss in relative income of workers to inflation. A slowing economy and a squeeze on corporate profits will bring an increase in labor exploitation, more unemployment and more intense working conditions.

At best, we face a revisiting of the stagflation of the 1970s. At worst, a deflationary overshoot-- a deep recession like the early years of the Reagan administration.

How will we respond?

Greg Godels

zzsblogml@gmail.com.

THE US ECONOMY: A MID-YEAR REPORT CARD

It's no secret that investors are frightened. A fog of uncertainty hangs over US equity markets, with Wall Street mavens reassuring each other that the course ahead is promising. Activity is down and performance volatile, with institutional investors and fast traders catching small waves at the end of trading days. Fear over Greek negotiations and a possible Federal Reserve increase in interest rates haunt the investment banks, fund managers, and other institutional investors.

US commentators hopefully hail any modestly positive economic news-- an encouraging employment gain here, a small spike in consumer spending there. At the same time, they are deathly afraid of a dampening interest rate hike. Frequent bad news -- like the first-quarter drop in GDP in three of the last five years -- is either dismissed as weather related or conveniently attributed to other non-systemic factors.

Cautious, wary signals crop up in newspaper headlines: “Postcrisis Financial-System Risk Casts a Darkening Shadow” (WSJ, 4-9-15), “A World Awash in Almost Everything” (WSJ. 4-25/26-15), “Tech Investors See the Froth, but None Dare Call It a Bubble” (NYT, 5-25-15). Warnings about “bloated” stocks by the Fed chairman, and alarm over declines in business investment, industrial production and worker productivity, all cast a shadow over the cheer leading of stock purchase evangelists and other financial hucksters.

And then there is the eccentric David Stockman-- President Reagan's former budget director-- who makes a convincing case regularly that the sky is falling. He forewarns:

What is coming, therefore, is not their father’s inflationary spiral, but an unprecedented and epochal global deflation...

What ultimately stops today’s new style central bank credit cycle, therefore, is bursting financial bubbles.

That has already happened twice this century. A third proof of the case looks to be just around the corner. (4-5-15)

Where Are We Headed?

Despite riding a lucky hunch before the 2008 crash, I believe Marxists should avoid the speculative temptation of announcing impending crashes. The fashionable practice of revealing a “tipping point” is just that: a fashion, and not science. One should follow the sage advise of Marxist political economist, Alfred Evenitsky: “...if one is a Marxist intent on understanding the underlying forces which move and shape the capitalist economy, the ‘trigger,’ while not insignificant, is of less importance than the underlying economic configuration which is being ‘triggered.’ This is a difference in emphasis and point of view, but it is more than that. It is also a difference in the depth of analysis, for ‘triggers’ are in their nature surface phenomena and provide few clues to the subterranean forces they release.”

So what are the subterranean forces shaping the US economy (and the global economy) in mid-year 2015?

Comparisons with earlier downturns-- 1980, 1983, 1991, 2002-- show that the post-2009 “recovery” is by far the most tepid and problematic. Significantly, each successive decline has delivered a successively weaker rebound, culminating in the tentative, stumbling growth after 2009.

Clearly, the enormous boost that global capitalism (and especially US capitalism) received from a several-decades-long tonic of classical and state-monopoly policies (deregulation, privatization, the easy substitution of workers from cheap labor markets, and state intervention on behalf of the monopolies), along with the demise of the economic community of European socialism and the concurrent expansion of global markets, is reaching exhaustion. The historically unprecedented oddity of roughly one-third of the world's population joining or re-joining the global market economy in little more than a decade provided a powerful thrust to a struggling capitalism mired in a toxic swamp of high inflation and slow growth. Neo-liberal ideology fit the moment well, bringing a seductive world view to potential elites throughout the formerly socialist world and to other countries with a tempered stance towards capitalism.

But that unique moment is passing and those who were convinced that “there is no alternative” are surely having second thoughts. The triumphant capitalism of several decades earlier now seems far less sure-footed.

From the perspective of working people, the post-2009 “recovery” is no recovery at all. Change in average hourly earnings is trending below its generally pathetic long-term performance over the last thirty-five years; non-farm payrolls, disposable personal income, and consumer spending growth largely trail previous expansions; and total household debt is marching steadily toward the previous high of the third quarter of 2008.

Both the harsh discipline of unemployment and the lack of effective representation (no mass political voice, frail class-based organizations) batter the US working class. The growth of employment since 2009 exists largely in the low-wage, temporary, and contingent sectors, exerting little pressure on employers to raise wages and benefits. Chastened by the financial crisis, workers have been hesitant to take on mortgage and credit card debt. But this cautious posture has been more than offset by exploding student loan and automobile loan debt. Consequently, household debt has skyrocketed to levels unseen since 2007 (only 6.5% below its 2008 peak).

For those on the other side of the class divide, the post-2009 period has been most generous, thanks to high profits, low interest rates, exploding equity prices, improving home prices, and friendly government policies. The Dow Jones Industrial Average has recovered smartly from its February, 2009 low of around 7,000 to over 18,000 in May of this year-- an increase of well over 150%!

How can the stock market grow so explosively when Gross Domestic Product-- an, at best, exaggerated measure of real value generation-- grew by only 21% in constant dollars in the same period? What magic lies behind the good fortune befalling the ownership class?

The explanation of explosive stock market inflation begins with the enormous concentration of wealth in the hands of those buying and selling equities. The capitalist imperative to invest, to pursue a return, drives money back into a market filled with “bargains.” And “free” money, available through virtually interest-free loans, amplifies the surge in stock purchases. Publicly traded firms, flush with cash and able to fund investments with “free” money, buy back caches of their own stocks, inflating the price of stocks remaining in the market. Firms also pump up their dividends with their bloated cash reserves. And most significantly, the Federal Reserve's policy of quantitative easing-- gobbling up financial instruments and depressing the yield on bonds (and driving up their prices!)-- effectively herds investors seeking attractive returns into equity markets.

That equity prices have departed dramatically from economic reality is easily shown. Traditionally, investors grow suspect of equity prices when they exceed historical relationships of price-to-earnings (the p/e ratio). The p/e of the Standard and Poor's 500 has reached 17.5, well above its 10-year average of 15.8 and sufficient to strike alarm bells.

For comparative purposes, another gauge of the sustainability of equity pricing is the so-called Buffet indicator, the ratio of the Federal Reserve's estimate of corporate capitalization over the concurrent gross domestic product. In 2015, the ratio topped 1.32 (corporate capitalization 132+% of GDP). Immediately before the 2008 crash, the ratio was approaching 1.15. Before the 2000 “dot com bubble” burst, the ratio was 1.53, a level easily within reach in the next year or two given the current trend. Clearly, equity inflation has taken the stock market into a danger zone associated with the last two downturns.

Do the apparent dangers signal economic speed bumps or serious systemic issues?

Policy makers-- limited by ideology and class loyalty-- sought to escape the jaws of the 2008 crisis by pumping up the prospects of corporations and the ownership class. The corporate bail-outs (too often conditional upon downsizing and layoffs), the near-zero interest-rate policies, and a host of other corporate-friendly moves paved the way for the consequent surge in profits and the stock market frenzy.

These policy makers were counting on corporate coddling and painless credit to encourage firms to invest vigorously. They were determined to create a climate with investors and corporations choking on cash, with ready access to interest-free loans, and anxious to make even more money through hiring and expansion.

Indeed, with massive layoffs, labor productivity jumped as production continued and the hours worked declined (raising the rate of exploitation), fixed business investment grew at a satisfactory rate, and profits exploded (S&P 500 companies' earnings soared 30% in 2010).

But this jump-start was not sustained. Federal Reserve policies (low interest-rate policies and quantitative easing) encouraged corporations to satisfy stockholders through mergers and acquisitions, stock buy-backs, and dividends rather than invest in plants or hiring. Consequently, corporations successfully decoupled market capitalization from earnings performance. Since 2011, corporate capital returns (to investors) have exceeded capital expenditures. As profit growth declined since the 2010 explosion, stock values nonetheless continued to climb, leaving investors overjoyed.

Broadly speaking, the three key factors of fixed business investment, productivity and, corporate profits have been trending downward for three to four years. First-quarter 2015 fixed investments fell 3.4%, not surprisingly, output per hour (productivity) fell by 3.1%, and earnings were expected to barely move. These three interdependent and fundamental indicators underscore the critical weaknesses in the US economy. Capitalism has wrung as much sweat as it can from workers, managers are reluctant to invest in new or advanced means of production, and US corporations are experiencing a decline in the rate of profit.

Are the problems besetting the US economy and confounding bourgeois economists fleeting or deeply embedded in the 21^st century capitalist system?

A recent Wall Street Journal (World Awash in Almost Everything, 4-25/26-15) makes some interesting, relevant observations. Authors Josh Zumbrun and Carolyn Cui note: “The current state of plenty is confounding on many fronts... Global wealth-- estimated by Credit Suisse at around $263 trillion, more than double the $117 trillion in 2000-- represents a vast supply of savings and capital, helping to hold down interest rates, undermining the power of monetary policy.”

They might add that this extreme accumulation of capital also overflows existing channels of profitable investment, exerting downward pressure on profit growth and encouraging ever riskier investment choices. Capital will not remain idle. In an environment of over-abundance, conventional profit opportunities become scarcer and investors reach desperately for yield.

As with pigs foraging for truffles, too many foraging pigs reduce the chances of any individual pig finding the treasured fungus. Profit-seekers -- like truffle-seekers -- will go to any length and take any risk to secure their goal. Today, there are 65 venture capital investments of over $1 billion each (CB Insights says there are 107), drawing funds from yield-hungry retirement funds, mutual funds, and hedge funds. Whatever the number, all agree that the total capitalization of these investments in firms that are little more than start-ups approaches or exceeds the capitalization of the similar “dot com” firms that blew up in 2000. Like the “dot com” fiasco, capital is flowing freely to almost any garage enterprise with little more than a rough business plan and a clever idea. The search for yield is that intense.

As New York Times writer Conor Dougherty (Tech Investors See the Froth, but None Dare Call It a Bubble, 4-25-15) comments:

But the tech industry's venture capitalists - the financiers who bet on companies when they are little more than an idea - are going out of their way to avoid the one word that could describe what is happening around them.

Bubble.

Once again, the US economy suffers from a case of hyper-accumulation coupled with a declining rate of profit, seducing investors into riskier and riskier bets. As with the lead-up to the 2000 downturn and the 2007 crash, too much capital is pursuing too few attractive investment opportunities. Consequently, rampant speculation follows, risk intensifies, and the profit-making engine runs off the rails.

From time to time, we all need to be reminded that the capitalist system runs on profit and the confidence that profit-making opportunities will be available tomorrow. Even Marxists need to be reminded that Karl Marx placed the process of accumulation and its tendencies at the center of his analysis. Careful study shows that the challenges to continued profit growth have not been wrung from the US economy. As investors have emigrated from traditional productive sectors or service areas of the economy in search of further investment opportunities, they have shaken the system's foundations with risk and insecurity. But given the dynamics of 21^st century capitalism, given the enormous concentration of wealth that relentlessly and necessarily seeks to grow ever larger, investors must accept more risk and insecurity. There is no alternative, to steal a quote from the enemy. Therefore, they must continuously put the capitalist system in harm’s way.

For those who-- like the popular social democratic thinker, Thomas Piketty-- think that we can redistribute the obscene concentration of global wealth through tax policies and set capitalism merrily on its way... think again. Should, by some miracle, the ownership class surrender their grip on the state, capitalism would, in time, reproduce the inequalities that lead to the concentration of capital and crises. That's its nature. As the great song writer Oscar Brown Jr. reminds us:

“Take me in, tender woman," sighed the snake

"Now I saved you," cried the woman

And you've bit me, even why?

And you know your bite is poisonous and now I'm going to die"

"Ah shut up, silly woman," said that reptile with a grin

“Now you knew darn well I was a snake before you brought me in...”

Zoltan Zigedy

zoltanzigedy@gmail.com

The Global Economy: A Midyear Snapshot

What happens to the US economy when the Federal Reserve stops printing money to buy mortgage based securities, treasury notes, and other bonds? What happens when that body stops injecting 85 billion dollars into the US economy every month?

These questions torture the economic pundits in the mainstream press.

Contrary to what most believe there has been no recovery. The reports from the other principal global economies have been dismal, recording stagnation or anemic growth. In the mean time, the US economy has been sustained by forced feeding. The Federal Reserve quietly prints notes and takes around 85 billion dollars worth of various securities off the market and parks them on the Fed's balance sheets. The announced reasons for this action are to keep interest rates low, attracting borrowers, and to thus stimulate business growth and job creation. An unannounced consequence of the 85 billion dollar injection has been a surge in equity markets and housing prices. Since both stock portfolios and home values are the principal components in the psychological “wealth effect” -- the subjective, personal sense of financial well-being -- they have spurred the impression of recovery and consumer confidence. Behind this conjured image of recovery, the US economy continues to stagnate and erode.

Whenever the Federal Reserve has suggested that it might slow or end this life-support, markets have dropped precipitously.

Obviously, the Federal Reserve program, dubbed “quantitative easing,” is a back-door stimulus program. Not a stimulus program of the New Deal type, not public works and public jobs, but more a reclamation of the garbage piled up after the massive, destructive party thrown by the financial sector and a rekindling of the pre-crisis euphoria. No one in the political establishment, neither Republican nor Democrat, had the stomach for a full-blown New Deal program, nor did they have any desire to pass even a little of the cost of a fix-up on to their corporate masters.

So the task of recovery fell in the lap of the Federal Reserve, an ostensibly independent non-political body. The Federal Reserve is not political, except when it is. While it can't be dictated to by the branches of government, its make-up of ivy league professors and financial industry veterans guarantees loyalty to corporate moguls. It also keeps an ear open to the powerful as well as the rich. On occasion the Fed even hears the voices from the barricades, but only when they are at the barricades!

It shares that “independence “ with the Supreme Court. Like the Supreme Court, the Fed gets occasionally chastised when it either missed or failed to get the message of a ruling class change in policy.

All central banks boast of their independence, but all listen closely for a shift in political favor. The Central Bank of Japan recently demonstrated its fealty to political change. With the election of Shinzo Abe as Prime Minister, the Bank relented to his pressure and began a policy of quantitative easing with the goal of doubling Japan's money supply in two years. Abe, a right-wing nationalist, advocates purchasing securities and bonds through a speed-up of the Bank's printing presses, but makes no effort to conceal his real goal: radically reducing the exchange rate of the national currency, the Yen.

Like his foreign policy initiatives, Abe's currency policy is a bold act of aggression, in this case, economic aggression. A weak yen makes Japanese manufacturing products cheaper in global markets, giving Japan a competitive edge against other global manufacturers. The rise of Japanese nationalism has not gone unnoticed by other Asian powers. Chinese demonstrators have trashed Japanese cars in a way reminiscent of similar spectacles in the US decades ago. Japanese automobile sales have dropped sharply in the PRC.

While retaliation may well be on the horizon, the Abe policies have brought a sharp drop in the Yen's value, but also great volatility in Asian equity markets.

Similarly, for all the US Federal Reserve's aggressiveness in printing money, the stock market's surge and the recovery of housing prices have masked serious issues plaguing the real US economy.

[June 2: “Investors have ignored poor economic news as stocks have risen... The Basil, Switzerland based Bank of International Settlements said... that central banks' policies of record low interest rates and monetary stimulus had helped investors “tune out” bad news-- every time an economic indicator disappointed, traders simply took that as confirmation that central banks would continue to provide stimulus.” as reported by Fox News.]

Disposable personal income growth is collapsing, for example. Excepting the 2008-2009 collapse, disposable personal income growth was lower in 2012 than any time since 1959 and is trending even lower in 2013. Not surprisingly, the personal savings rate-- a rate that grew dramatically after the frivolity leading to the 2008-2009 collapse-- has now dropped sharply. Clearly, workers are taking home less while reducing their savings to pay the bills. While unsustainable, this tact has buoyed consumer spending.

[May 31: The Commerce Department reported a .2% pull back in consumer spending for April, 2013.]

Manufacturing production in the US has declined for three of the last four months. Caterpillar Inc., a bell weather of the basic manufacturing sector, has witnessed factory orders of machines, calculated on a rolling three-month average, decline steadily throughout 2012, moving into negative territory at year's end.

Hyper-exploitation in 2009, in the form of unprecedented gains of productivity growth, pulled the US economy from its nadir. But since 2009, productivity gains have slackened with a substantial decline in the last quarter of 2012 and only a very modest recovery in the first quarter of 2013. Consequently, anemic corporate revenue growth is increasingly crimping earnings, once again threatening the rate of profit.

Pressures on profit are demonstrated by the falling yield on junk bonds. The demand for yield-- the never-ending search for a higher rate of profit-- has driven the yield on the riskiest investments lower than at any time in recent memory (a leading high-yield bond index records a return below 5%, the lowest since records began in 1983!). Conversely, treasury bonds, once popular as a safe haven, are now commanding greater and greater yield despite the fact that the Federal Reserve gobbles them up and removes them from bond markets. Obviously, investors do not want safe Treasuries; investors do want risky junk bonds! The gap between Treasury yields and junk bond yields are narrower than any time since 2007. Are we skating on the same thin ice, the same crisis of accumulation?

Accelerating private debt in Asia suggests that much of the capital seeking higher profit growth rates has landed there. But Asia is not the hot bed of growth that it was a few years ago. The mounting private debt in Asian economies supports risky, speculative projects and services like commercial and residential real estate. With international trade tepid, these once export-leading countries are attempting to sustain growth through speculation and the hope of global recovery. The new Chinese leadership seems determined to reduce the role of the state sector, market regulation, and public financing, the very factors that allowed the PRC to painlessly weather the global crisis. They are determined to entrust the fate of the economy to global markets. The simultaneous shrinking of government debt and the explosion of private debt underline this policy shift.

[May 31: The Reserve Bank of India reported the lowest annual GDP growth rate in a decade for the end of the fiscal year, March 31.]

The once robust South American economies are also slowing. Exports to the PRC are declining and exports to the EU are on the skids, retarding growth throughout the region. Stagnant growth presents new challenges to the conservative neo-liberal regimes on the continent as well as the more progressive social democratic governments. Nor do South American economies offer any relief, as they have until recently, to the global economy.

And, of course, Europe is in a depression-- a deep and profound depression. The EU as a unity faces both centrifugal and centripetal forces that challenge any policy resolution. Moreover, the major parties – conservative, liberal, and social democratic-- have exhausted their policy toolboxes. Until a new road is chosen, the European Union will only drag the world economy towards a similar fate.

[May 31: Eurostat reports the EU unemployment rate reached a new high-- 12.2% in April-- the highest level ever recorded since euro-wide tracking began in 1995.]

The global economy faces two stubborn challenges: first, a crisis of accumulation and second, an insufficiency of global demand. They are, of course, inter-related, continuation of the 2008-2009 collapse, and immune to conventional treatment. The vast inequalities of wealth and the resultant massive accumulation of capital hungering for investment opportunities (driven by Marx's tendency for the rate of profit to fall) stand at the center of the lingering crisis. Capital continues to seek increasingly risky and unproductive profit schemes, schemes that strangle productive, socially useful (but unprofitable!) activities. At the same time, the crisis has immiserated millions and idled a vast mass of human capital. Left with limited resources and limitless insecurities, these casualties of the crisis have necessarily reduced their patterns of consumption. A shrinkage in global demand followed.

Some still harbor illusions of taming capitalism and slaking its thirst for profit. As the years of crisis continue, it looks more and more like the beast must be slaughtered.

Zoltan Zigedy

zoltanzigedy@gmail.com