The economy has seen workers wages depressed via globalisation, to keep consumption rising a mountain of debt was created....now it has crashed.
We have an economy which acts as a giant Ponzi scheme....now the cards are falling, Phil Hearse takes up the story.
In the mainstream media and among right-wing politicians the truth of this slump is simply not being discussed. Thus the irresponsible lending of bankers is blamed and bankers pilloried – as was Lehman Brothers boss Richard Fuld in front of a Congressional sub-committee in October 2008. It seems that Fuld himself is likely to be prosecuted by US authorities.
Otherwise, the cause is put down irresponsible consumption by a whole generation who have, allegedly, been partying and living comfortable well-pensioned lives for decades and who must now pay the price for their fecklessness – and indeed pass that price on to generations to come.
Of course the banks lent recklessly. But the elephant in the room is never addressed – the fact that the present slump was deeply embedded in the DNA of neoliberal globalisation at birth and is an inevitable consequence of central features of the neoliberal ‘regime of accumulation’. How so?
The basic facts of the matter are blindingly simple to comprehend, unlike the thousands of column inches of mumbo-jumbo on the crisis that appear in the mainstream press. Neoliberal globalisation has an inbuilt tendency towards deflation (an accentuation of basic features of the capitalist system). As explained by Sean Thompson in his article in this volume, this has been caused by historic defeats of the international workers movement, financialisation and above all international outsourcing and relocation to sites of cheap labour. This has undermined union bargaining power, held down wage levels and repressed workers’ purchasing power - contrary to numerous myths and often appearances.
So the only way to ensure continuous economic growth and ever-greater capital accumulation was to pump endless credit into the system in the form of historically high levels of household and company debt. It is the enormous mountain of debt that has underpinned the lifestyles of the comfortable middle classes and indeed regularly employed workers.
The scale of this debt mountain is stupendous. In 1997 the debt held by individuals in the UK was £570 billion. Ten years later it was £1,511.7 billion, an increase of 165%. In the same period personal debt in the United States grew from £5,547.1 billion to $14, 375 billion. In the UK personal sector had increased from 102% of personal income to 173% of personal income; in the US the figure went from 93% to 139%. These are staggering figures.
The worsening of the underlying relative decline in workers purchasing power has especially been the case since privatisation of the public utilities. Gas, electricity and water (together with oil) have become cash cows for multinational corporations and the banks who lend them money, hoovering up vast swathes of the disposable income of workers and the middle class. This together with high prices generally (especially in the UK) meant that even apparently affluent families have been unable to save money; their only real assets have been their houses, themselves financed by colossal borrowing; the collapse of the housing market is now doing away with even the illusion of affluence for millions.
That such huge levels of debt could be tolerated and its fragility not immediately obvious has been due to the enormous inflation of the value of assets, mainly housing. The millions borrowing on credit cards or directly from banks borrowed (whether they realised it or not) against the guarantee of their house or apartment. There is growing evidence that this housing bubble was welcomed or even actively sponsored by governments, not least in the US and UK, precisely because of the ‘wealth effect’ that it created. But that wealth effect has now been shattered by the realisation that much of that debt is irrecoverable and that many of the banks’ loans (put down in their balance sheets as ‘assets’) are worthless.
Neoliberal globalisation has been a system of smoke and mirrors where the basic instability and unsustainability of the whole system has been covered up by the credit bubble. Now the bubble has burst, the consequences will be terrible for countless millions.
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