The following is an extract from the financial newsletter
The Daily Reckoning, 22 April. I would not normally cite a single source so extensively.
But it is important for socialists to be aware of the extent to which serious
bourgeois commentators are thinking the unthinkable about economic perspectives.
We are not alone comrades!
It should be said that the writer, Bill Bonner, is not
representative of bourgeois orthodoxy, coming more from the fundamentalist free
market Austrian tradition of economics. But that simply gives him the
ideological courage to consider in public what serious strategists of the
ruling class – especially the non-economists, less wedded to academic orthodoxy
– are saying in private. And even Bonner carefully distances himself from the
horrific scenario outlined.
Ian Aylett
‘ “Let us assume that the unthinkable happens,” our old
friend Marc Faber begins. “China’s economy slows down sharply, or even
contracts – and there are reasons why it could. Commodity prices slump and
bring about economic hardship in the resource-producing countries. Imports of
capital and consumer goods from Europe and Japan decline. We would then have
the perfect setting for a global economic contraction with dire consequences
for corporate earnings and asset prices.”…
…‘Our theory (says Bonner) is that the war between
inflation and deflation leaves millions of casualties, but no clear winner – at
least not for a while. Instead, prices for U.S. stocks, houses and labor are
marked down…while commodities, oil, gold (and even some emerging markets) go
up.
‘But we could be wrong in either direction. Either
inflation or deflation could soon emerge victorious. Most analysts think
inflation will be the clear winner – with big boosts, not only for commodities,
but for the economy and stocks… and maybe even houses. They think the
financial industry has bottomed out and will soon get back on its feet and
begin inflating the whole economy.
‘The view Marc is putting forward is the opposite one –
that deflation will be the clear winner, dragging the whole world economy into
a slump, with lower prices for commodities as well as stocks and property.
‘Marc notes that much of the world’s earnings come from the
energy exporters – Russia and the Arab countries — and finished product
producers in Asia, notably China.
‘Both depend on the same foreign buyers.
‘In the weekend news, for example, we discovered that the
emerging markets are now using more oil than the United States. They use more
oil because their economies are growing – because they are still moving
products to the United States. In a real downturn, the United States (and other
developed nations) would stop importing so much oil…and so much merchandise
from China, which would have the consequence of reducing energy consumption by
China too. Result: lower energy prices and a worldwide recession…maybe even
the worst worldwide depression in history.
‘What might be the consequences of such a depression? In
the United States and Europe, probably nothing catastrophic. People in the
developed nations live with a thick cushion under their derrieres. The bench
might grow harder and less comfortable; assets would fall in price; earnings
would decline (both for businesses and individuals); otherwise, life would go
on as before.
‘In the emerging markets, on the other hand, billions of
people now sitting precariously on the edge of modern life might get pushed
off. The artificial boom – brought about by excessively low lending rates in
the West – caused millions of people in the emerging markets to abandon their
farms and move to the cities.
‘For the first time in human history, the planet now has
more people living in cities than in the countryside. These people can no
longer ‘get by’ as subsistence farmers. They no longer have any land to subsist
on. Instead, they rely upon a sophisticated, globalized economy for their daily
bread. And if that economy should break down, they could go hungry…or starve.
‘Already, there have been food riots in various parts of
the globe – and this while the world economy is still growing! Think what they
will do when the economy shrinks…when their earnings (which have been going
up by 10% per year and more) begin to fall…when there are no jobs for them in
the cities…and nothing to eat. Ah, dear reader, then it gets interesting.
‘We’re not predicting this. We’re sticking with our
middle-of-the-road forecast…for neither worldwide prosperity nor worldwide
ruin. But there are risks from both directions. And while most people expect a
mild recession and quick recovery…almost no one expects the kind of global
meltdown Marc imagines. We could see oil below $50…the Dow below 5,000…Wall
Street wiped out…and 20 million US families busted.
‘But that is the good news. In the emerging markets it could
be much worse – worse than the Great Depression of the ’30s. And there is also
the political risk.
‘What do governments do when faced with economic collapse
and social unrest? Hemingway described it:
‘ “The first panacea of a mismanaged government is
inflation of the currency. The second is war. Both bring a temporary
prosperity; both bring more permanent ruin.”
‘That is, they do just what Ben Bernanke and
John McCain have already promised. They dump money from helicopters and “bomb,
bomb, bomb…bomb, bomb Iran.” Imagine if China’s, and Russia’s leaders are as
simpleminded as America’s. Surely, they are… ’
