US economic and political hegemony and the dominance of the US dollar have come to a screeching end
Corporate media, which never warned that capitalism was in crisis before the financial meltdown, now insists that the system is simply in a down period, and will at some point return to stability. But the crisis became inevitable precisely because “the most predatory, parasitic and criminal elements of Wall Street and bank capital became dominant over the economy and the government.” With these same elements still firmly in charge, how can the future be anything but chaotic?
In 2006-2009 the US financial system and economy came close to systemic collapse. Had it occurred most of the world would have gone down with it. Karl Marx famously described events like these as “momenti mori”, reminders of systemic death. This was the first truly existential crisis of the capitalist economic system since the Great Depression, and it reminds us of its near death fragility.
The financial system has been stabilized; we’re in the middle of a jobless recovery, the threat of a double dip recession and decades of stagnation loom ahead. Stag deflation (a dangerous combination of stagnation and falling prices), and the threat of sovereign debt default, (the federal government unable to pay its creditors, like China and other nations holding US bonds) is possible. Millions of people will never recover under current policies. Nouriel Roubini’s and Stephen Mihm’s Crisis Economics: A Crash Course in the Future of Finance is a sophisticated, analytical, yet readable, look at the crisis and its aftermath. They assure us, “capitalism did not collapse.” It took the government pumping over $12 trillion into banks, investment firms, insurance companies, hedge funds, private equity funds, money markets and carmakers to “save capitalism.”
The US was the eye of the storm and the source of the collapse. While the banks and global centers of finance have for the time being been stabilized, the eye of the storm has shifted to sovereign debt. The federal debt, the authors say, “will effectively double as a share of the nation’s gross domestic product as the deficits in coming decades are expected to hit $9 trillion or more (178)”, reaching 90% of GDP. If the federal government is viewed by nations like China as not credit worthy and thus refuse to lend us money, social calamity might follow, as the federal government reneges on its obligations to its citizens. Many state governments have already reached this point.
“It took the government pumping over $12 trillion into banks, investment firms, insurance companies, hedge funds, private equity funds, money markets and carmakers to ‘save capitalism.'”
The fate of American capitalism is now heavily dependent upon global economic developments, especially in the emerging markets and in particular China. Emerging economies like Brazil, Russia, India and China (the BRIC nations) and lately South Africa (BRICS) are driving the global economy and are the hope for sustained recovery. A major geopolitical and geo-economics shift was underway before the crisis, but has accelerated since. A sixty-five year period has ended. US economic and political hegemony and the dominance of the US dollar have come to a screeching end. Martin Jacques in his influential When China Rules the World: The End of the Western World and the Birth of a New Global Order argues, humanity is entering the Age of China. Roubini and Mihm agree. They speculate that the dollar in the not that distant future could be replaced by the Chinese renmimbi as the principal world currency. Few would argue that by 2030 China, now the second largest economy in the world (having this Spring surpassed Japan) will surpass the US. China’s continuing high rates of economic growth and its global standing among developing and developed nations, its alternative way of doing business (what is called the Beijing Consensus), makes it the attractive alternative to the US, IMF, the World Bank, the European Central Bank and Western financial and banking institutions. The Chinese remnmbi is increasingly the go to currency. Nothing, in this regard, is more dramatic than the China-Africa summits and China’s vast infrastructure investment throughout Africa.
This irreversible shift in all probability will be a messy affair, occasioning, perhaps, sovereign debt default, currency crashes, crumbling markets, bank failures, exploding unemployment and underemployment and political and social unrest. Roubini and Mihm warn, “The status quo is unsustainable and dangerous and absent some difficult reforms it will unravel. Indeed, if the Unites States doesn’t get its fiscal house in order and start saving more, it’s headed for a nasty reckoning. When that reckoning will come is anyone’s guess, but the notion that it might be put off for decades is delusional. Indeed, some signs suggest that the tide is already beginning to shift (251).” What the authors call “difficult reforms” I call bold and purposeful action and planning, entailing fundamental alterations of the structures of US capitalism and finance. The authors urge in the short term a quick rebalancing of the global economy. China and Germany, for example, should consume more, and the US, Britain, Spain and Ireland, for example, should consume less, borrow less and save more. However, this only alters the context for the type of deep structural changes that must take place in the US and the West. But without a rebalancing of the global economy and establishing a new global equilibrium, the whole thing could snap. The next crisis could be worse and more than the garden-variety boom and bust cycle. “It would be,” they say “less a function of capitalism’s inherent instability than a deep ebb and flow of geo-political power.” Actually, it would be a combination of both. Such an unraveling would constitute an earthquake and would occasion “a rapid, disorderly decline of the dollar (255).” Geo-economic and geo-political changes along with structural, cyclical and financial crises could produce a 21st century Great Depression The current crisis, therefore, rather than a once in a life time event, might be a taste of things to come.
The origins of this crisis are inherent in the nature of 20th and 21st century capitalism. Up to recently the US avoided the worst of Western capitalism’s crises. Europe was the epicenter. It experienced economic depressions and two world wars, European civil wars for dominance of the colonial world. These events evidenced new and deep contradictions within the world system. At the same time policies that supported banks becoming dominant and merging with the state were crucial. The financialization of the US economy, and the deregulation of Wall Street are decisive to the architecture of early 21st century US capitalism. The American (and British) free market model unleashed finance capital to do its thing on society. The most predatory, parasitic and criminal elements of Wall Street and bank capital became dominant over the economy and the government. Certainly, Bush II’s insane tax cuts for the richest 2% and the Iraq and Afghanistan wars worsened the problem of government debt and set the immediate context of the current crisis.
The economist Rudolph Hilferding pointed to the dangers of an economic structure where bank capital is dominant and the state becomes its protector and facilitator. A new capitalist economic structure results; a more exploitative and globalized system. He called this new arrangement finance capitalism. Lenin appropriated Hilferding’s analysis, adding that the new capitalist arrangement quickened the process of the export of capital to the colonial world, making colonies a part of the global system of capitalist production.
After World War II the US became the center of world capitalism and global politics, the dollar the major currency. American triumphalists named this the American Century. With the recent financial meltdown and the Great Recession all that has ended. Yet, we’re left with the outgrowth of finance capitalism, a vampire economy that competes with and sucks the blood of the real or productive economy. The logic of the vampire economy is that while it lives on the real economy, it will eventually take it down.
The vast economy of derivatives and the market in debt and especially subprime mortgages are means by which the vampire economy sucks the life out of working people, the middle class s and the real economy. The financial meltdown began in the subprime mortgage markets, but that was merely the most obvious sign of what Roubini and Mihn call systemic rot. The economic boom that preceded the collapse was a speculative bubble. The onset of recession in 2007 exposed fragility in the mortgage markets, which set off a chain of events that culminated in the collapse of Lehman Brothers in September 2008. The US financial collapse shook the edifice of the entire world financial system.
The US drowns in debt and is overleveraged; the financial services sector of the economy increased its indebtedness from 22% of GDP in 1981 to 117% in 2008. Private debt overall went from 123% of GDP in 1981 to 290% in 2008. Economist Hymar Minsky pointed out the greater the reliance on debt the more fragile the financial system (see Roubini/Mihm pp82-83).
In a previous essay on BAR I supported economist Joseph Stieglitz’ calls for a restructuring of the US economy from the free market to a social market economic model, with tough regulations on Wall Street and the banks. I argued that this Keynesian model should be viewed as a transition to a socialist market economy leading to a developed socialist economy. I proposed a tough minded Keynesianism (a Keynesian/socialist synthesis), that would break up the “too big to fail banks” and nationalize their parts. The guts of their predatory impulses would be cut out. Like Roubini/Nihm and Stieglitz I agree that the state has to be the decisive player in the future economy. However, the state and political systems must be democraticized, and made instruments of people’s needs, rather than of finance capitalism.
The first priority of the economy has to be the needs of the people. Thus an industrial and infrastructure development plan has to be instituted. The people have to give substance to Barack Obama’s green economy idea. Immediately we need a 21st century Works Project Administration that puts people to work on green and infrastructure projects. This must be a multi decade program, with planned and targeted government stimulus.
The US people will need help from the world to reconstruct our economy and society. China and other emerging economies can invest in this reconstruction. Their experiences with state capitalism and the socialist market economy will be helpful. Ideologically the US people have to recognize that we have moved from the Age of Europe and US hegemony to the Age of Humanity, where we must cooperate as an equal among other peoples and civilizations.
More than anything the US people have to initiate a great democratic movement that draws on the movements of the 1930’s and the 1960’s and 70’s, with the aim of creating a people’s democracy, and democratic culture, which takes over the mechanisms of the state. It must be a peace, anti-racist and social justice movement. It must target the military industrial and prison industrial complexes for dismantling. The military budget must quickly be cut by 75% and become a domestic jobs and rebuilding budget.
Roubini and Mihm state that American capitalism will never be what it once was. They conclude that the US financial system has to be reformed and restructured. China, they insisted, will be the major economic and geopolitical player in coming decades. What they do not argue for is a change from a rotten economic structure to a new one. It seems obvious that the existential crisis of US capitalism logically suggests that an alternative has to be considered. W.E.B Du Bois insisted near the end of his life that history had passed capitalism by; he called for its replacement by socialism. We find ourselves at a moment of decision, either to move forward to socialism or to remain mired in the capitalist quagmire.
– Anthony Monteiro is a professor of African American Studies at Temple University. He can be contacted at firstname.lastname@example.org.