Fed cuts rates; crisis over?

Jorn Andersen jorn.andersen at vip.cybercity.dk
Fri Oct 16 02:29:34 PDT 1998

At 15:37 15.10.98 -0400, Louis Proyect wrote: [ Doug: ]
>>I'm starting to think the worst of the world financial
>>crisis may be over.
>This is just impressionism, Doug. The issue is not financial crisis, but
>economic crisis which the stock markets only indirectly reflect. The more
>interesting and revealing numbers are contained in Harry Shutt's "The
>Trouble With Capitalism", Zed Books, 1998, p. 38.
<SNIP figures>

>The brute fact is that capitalist growth slowed down in the early '70s and
>neither neo-Keynsianism, nor monetarism has worked to change that.

Indeed so. But still the years from 1973 to now is not a continuous decline. If you try to put the figures you gave into a spreadsheet and let it draw a graph, you'll get a nice picture for the Marxist Economics class. ;-) You can see the long term decline in growth since the late 60's/early 70's and you can see the business cycles interacting with this decline.

I agree with Louis that this is much more than a "financial" crisis, but still it is rather unpredictable exactly *how* deep it is - there are simply too many unknowns. Watching CNN or BBC it strikes me that when US economy is discussed almost all serious commentators agree that US economy will slow down. But they always attribute this to the *global* crisis; as if the US economy - or the European for that matter - was crisis-free. One danish economist said that the problem could be compared with an aeroplane where only two engines - US + Europe - was working. And what really worried him was that he saw signs that one of these two motors - US economy - was beginning to slow down.

My guess is that it will take quite some time for Japan to recover and that we will see rising problems in the US within the next 6-9 months. This could create a situation which will be unlike anything we have seen yet in this 25 year long period of decline. It is a situation which could not avoid to have serious effects in Europe as well.

This may be a worst-case scenario - but you will have a hard time finding a serious economist who would honestly be able to reject it as one possible development.

The point of this is not to say that capitalism is now entering a "free fall" crisis. I think there are a whole range of possible developments. The point is to say that these possible developments now include one or two which will bring more memories about the 1930's than many of us would like.

So, Doug, I would be *very* hesitant with predicting that the worst is now over.

BTW, it's quite interesting to watch the difference in words between politicians on the one hand and business people, employers etc. on the other. In Denmark the prime minister has just made his opening speech for the new parliamentary year. It was like: "Yes, we know there is a financial crisis somewhere on the other side of the globe, but danish economy is very strong, so don't bother." Just one week earlier the danish parallel to Financial Times had a major headline telling: "Mass layoffs to be expected in Denmark."

>Shutt's book is really an eye-opener and I recommend it strongly

I will try to get it from a library, but maybe it is still too new?



-- Jorn Andersen

Internationale Socialister Copenhagen, Denmark IS-WWW: http://www2.dk-online.dk/users/is-dk/

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