World Economy Today & Tomorrow

Kobad Ghandy

Capitalism has cycles of booms and busts. In the period of imperialism it may be slightly cushioned; yet it was in this period one witnessed the worst crash of the 1930s. But the fact is that no matter what the crisis, the system may fail, but will not collapse on its own unless there is an organised force to, not only push it down, but create a stable alternative. We have found that the alternative systems of yore (Russia and China) were not stable in themselves and after some years reverted to the same capitalist system. This has resulted in an impression amongst the people that there is no viable alternative, however bad the present is.

This disillusionment is further spread in India as a result of the CPMs’ 34 years in power in West Bengal where fascist type terror existed and their economic policies were of little or no benefit to the masses. Look at the poverty indicators of West Bengal; it is much similar to that of any of the poorer states of the country [clubbed with Chhattisgarh, Jharkhand, Orissa, etc]. According to a report West Bengal grew at an even slower pace than the country’s other low income states that too under so called communist rule. So also, in Kerala its policies are not much different to that of other parties while dealing with the economy and even dissent. Its higher standard of living is due to certain historical factors and employment in the Middle East, not ‘left-front’ rule. The CPM’s structures are even more autocratic than many a ruling class party. So, people tend to think that we have seen what type of alternative these communists can give, and they see it as little different from the other non-BJP ruling class parties.

And as for the non-parliamentary left their social base is insignificant, besides they are divided into numerous groups and factions, reducing their impact even further. They inspire little hope with their pettiness and narrow-minded sectarianism. Besides their brahminical arrogance, thinking they are the best and purist together with ultra-sectarianism results in a rigidity and abstract interpretations of Marxism. In addition, many are indirectly supporting the CPM, a social fascist party.

So, however bad the situation, the present system will continue until a viable political alternative appears with a new set of economic {particularly against big corporate and imperialist power} and social policies (particularly against the inhuman caste system). Without that, crisis ridden systems resort to fascism (as we see in India and many parts of the world today) to sustain their crumbling order. No doubt the farmer movements throughout the world {including India} aroused a hope of a new awakening; but this can only sustain if it can be converted into a political force.

The world economy is on the brink of a precipice; yet, on the surface, everything is presented as normal. But, Nouriel Roubini has warned “that a combination of mounting debt, high inflation and low growth will trigger a global economic crash the type of which we have never seen before. Because of this we can expect new global measures similar to lockdown type desperation in the coming year. But we cannot be sure what form it will take this time.” In 2022 the world GDP grew at 3.1% and in 2023 grew at 2.7%, which is well above the average for the last 20 years at 0.9% and the 20 year average before 2007 which was 2.2%. But, this will not last with economists predicting a recession by year end or even June this year.

But not our big-time ideologues of the CPM who have little to contribute to an analysis of the present, let alone an alternative. The likes of Jayati Ghosh, CP Chandrashekar, Prabhat Patnaik, etc only talk of unbalanced growth and higher taxation of the super-rich, leaving their vulgar accumulated wealth untouched. It is no wonder that they have top posts in western universities. Not one of them targets the western cabal nor the Chinese billionaires [see later] – the two main leading forces in the bourgeois world today.

While the CPM-type economists seek to lull the world people into passivity by inane discussions on the economy, the predicted crash will aggravate a bad condition further and wipe out the incomes, not only of the poor, but also that of large sections of the middle classes {including their savings} – with stock markets crashing, banks failing and consumer prices soaring. Already a number of US banks have crashed and inflation has reached peak levels in many countries; Japan and UK have already gone into recession in the 4th Q of last year and 18 more countries are expecting negative growth. Even the so-called high growth rates In India are faked as it is based only on the organised sector while the bulk of the population is involved in the unorganised sector [agriculture and MSMEs]. While Prof Arun Kumar says the rate is more around 1% the CPM big wigs accept the government figures at face value.

But more on this later. First let us look at the skewed nature of the economy as it exists vis-à-vis the backward countries; then view the present situation in the developed world itself – both economic and geo-political; and finally look at the future.

GROWING LOOT OF THE BACKWARD COUNTRIES

In 2017 the ‘backward countries’ lost $2.2 trillion worth of goods to the ‘advanced economies’, according to the IMF. This represents an enormous loss for the South. These resources could have ended extreme poverty 15 times over, but instead they were transferred gratis to the developed countries. This windfall is of enormous benefit to the centres of empire. For instance, in 2017 the U.S. gained $2,634 per person through unequal exchange, while the average Australian citizen received $3,116 from the South. Since 1990, the North’s annual gains from unequal exchange have been growing at 5.2% of GDP, considerably higher than the North’s annual growth rate. In other words, if not for imperialist plunder, aggregate income in the North would have been declining for decades. The extraordinary levels of material consumption currently enjoyed in the North are predicated upon exploitation and poverty in backward countries like ours. The problem is that our rulers get a small slice of this cake so remain quiet collaborators, while the masses of these countries have to live in acute poverty.

Studies indicate this exploitative relationship has worsened over time – during the 1960s[ Using Gernot Kohler’s method of esteimation. Kolher (1998) developed a holistic method, using the distinction between market exchange rates and purchasing power parity as a proxy for overall price inequalities.], the South lost about $38 billion a year, just over 1% of total Southern output. However, by 2005, with the neo-liberal policies in place, the drain from the backward countries amounted to almost $3 trillion per year, or 9% of output. In fact, by 2020 the global South has lost $ 152 trillion through unequal exchange rates[ Originally published Progress in Political Economy by Dylan Sulivan June 2021.]. (What such a figure entails can well be imagined by the fact that the third largest economy in the world, India, has a current GDP of just $ 3.75 trillion).

During the colonial period the loot was direct, but in the post-colonial period it is indirect, not visible to most. Foreign capital that infiltrates backward countries in the post-colonial era is like a hydra-headed monster, taking numerous forms and shapes. Besides operating directly through multinationals (3 lakh MNCs in India) they take the form of FDIs, FIIs, PEs VCs, etc. In addition, they extract their loot by over invoicing and under invoicing imports and exports, thereby transferring wealth to the mother country through trade as well. Yet another method of draining our country is through NRIs who take away their wealth before leaving the country, and students who go to study abroad paying huge sums for their education and stay. The list could go on and on, but let us look at just these to get a picture of the type of drain taking place just from India. The pattern would be similar in other backward countries.

In addition to these, most so-called Indian companies are also controlled by foreign investors. Take some examples: Ola’s [Bangalore based, and CEO Bhavish Agarwal] major shareholders/investors include SoftBank Group (Japanese), Tiger Global (US-based), Tencent (Chinese Venture Capital), Matrix Partners (US-based), and DST Global (Russia).Vanguard [US’s third largest TNC] also slashed its valuation of Ola from $ 4 bn to $ 1.9 bn. Then take 360 One [CEO Karan Bhagat], which funds real estate giant Anarock, is controlled by foreign financiers like General Atlantic, Fairfax, Morgan Stanley etc. Strata, [founding CEOs Rathore and Lodhas] which recently acquired Café Coffee Day’s massive hqs in Bangalore is financed by Mayfield India, Elevation Capital, and others etc. Just recently Reliance has tied up with Disney to create a Rs.70,000 crore media giant with Reliance having a 63% stake and Disney 37%. This JV will have over 75 crore viewers in India and control over most of the entertainment channels like Colours, Star, Hotstar and JioCinema[ Indian Express Feb 29 2024]. Through this merger major propaganda media is veritably American. Disney, uses cartoons to brainwash children’s minds, targeting their sub=conscious, getting most of them addicted. Such foreign investments also give the investor huge returns, the bulk of which are siphoned to their home country.

Over and above these TNCs and foreign collaborated companies there are numerous other forms of looting our country. So, for example, in the year 2022/23 Foreign Direct Investments (FDIs) amounted to $ 71 billion (Rs. 5.9 lakh crores), while Foreign Institutional Investments (FIIs – those who invest in the financial markets – like shares, pension funds, investment banks, hedge funds, and mutual funds, etc) was Rs. 2.6 lakh crores. Therefore the total FDI+FII in that one year was to the tune of Rs.8.5 lakh crores. At a modest rate of return of 5% (the actual figure would be much larger) the drain would be Rs.48,000 crores ($ 6 billion) for the one year under consideration. In the same year Private Equity (PE) and Venture Capital (VC) amounted to $56 billion investment for 2022, which at the same 5% would result in a return of $ 3 billion. (No doubt some of these may overlap with the FDI/FII figures, but anyhow the return mentioned is extremely conservative and is likely to be much more than the 5%). If we turn to exports/imports we find that in the year 2022 exports were $ 454 bn and imports were $ 724 billion. Assume they get a return of just 1% on this trade it would amount to another $ 12 billion. (This 1% does not entail the profit but just the super-profit gained through over/under invoicing). Then the official figure for remittance abroad in 2022 was $ 1.6 bn per month by the MNCs which amounts to another $ 19 bn in the full year. Then there are 3 crore Indians settled abroad and in the parliament, we were told that in the year 2022 1, 83,475 Indians have given up their citizenship and settled abroad.[ ‘The Great Underwear Exodus by Avay Shukla]

A minimum of one million dollars have to be dished out to get citizenship of other countries. Just taking this figure (the actual figure per individual would actually be much larger as the $1 million is required for merely citizenship through some investment, there would be more for living expenses) the drain through HNWIs (the super-rich) deserting our country would be about $ 200 billion (at 2 lakh individuals leaving citizenship per year). In addition, in 2019, Indian students spent $ 30 billion on studying abroad. By 2025 it is officially estimated that this figure will go up to $ 70 billion[ India Today] (so we can say that a conservative figure of $ 50 bn may have been spent in 2022), If we just take these figures the drain for the year 2022 was 6+3+12+19+200+50 = $290 billion. Now, if, from this, we deduct the amount NRIs repatriated in 2022 of $ 108 bn, the drain is still a gigantic $182 bn or Rs. 17 lakh crores.

Which country can possibly develop with such a massive drain of our wealth abroad every year? And these calculations are all based on the official figures; if the black money was included the figure would be far larger. Over-and-above this, development and growth suffers as vast sums are drained away through corruption, estimated at 62% of our GDP[ Arun Kumar estimates]. A Nov 2011 report from the Global Financial Integrity estimated that over the 60 years from 1948 India lost $ 462 bn {$ 8 billion per year or $ 7 per capita per year} in illicit financial flows. This is a conservative estimate; According to a Hindu article, unofficial estimates indicate Indians had $ 1.5 trillion black money stored abroad in Swiss Banks – more black money than the rest of the world combined. So much for Indian patriotism; robbing our country of our own wealth!!!!! The Indian upper middle classes wear their patriotism on their sleeves, yelling hindutva while silently siphoning off their wealth abroad.

Not surprisingly in India HNWIs [those with wealth over $ 30 bn or Rs. 240 crores] rose at a fast rate of 6% last year and is expected to rise to 19,908 families by 2026[ Indian Express Feb 29 2024]. On the other hand the employment rate for women in India has dropped to one of its lowest levels ever from 14.9% in Dec.2023 to 11% in Jan 2024[ Business Standard Feb 6 2024].

Dependency theorists and other economists have long argued that “unequal exchange” is a key driver of global inequality. Since wages and natural resource prices are much lower in the global South than the North, poor countries must export many more units of embodied labour and resources than they import in order to achieve a monetary balance of trade. This creates a constant transfer of labour and ecology from the underdeveloped to the developed, enriching the latter but impoverishing the former.
This increase in the scale of value transfer was driven by concerted imperialist assaults on the third world. Northern states have politically intervened to suppress Southern wages and prices. Through the 1960s and 1970s, Western powers violently toppled independent governments, installing military juntas that crushed organized labour, as in the Congo (1960), Indonesia (1965), and Chile (1973). Similarly, during the 1980s and 1990s, the IMF and World Bank (both controlled by the G7) forced the global South countries to de-regulate labour markets and cut-back public sector employment. At the same time, Northern states have sought to preserve the monopoly power of their own firms, and insulate their high prices from competition. The IMF, World Bank, and WTO have pressured the South to eliminate tariffs, decimating its indigenous-controlled industrial sector. This has given Northern monopoly capital overwhelming control over the international market and the terms of trade. These imperialist policies account for the dramatic rise in exploitation since 1960.[ MR Online] Of course, this would have been impossible without the spineless collaboration of the third world ruling classes; with examples being made of those who would dare to stand up, like Allende, Lumamba, Sukarno and others.

A common critique of the unequal exchange theory is that global price differences reflect differences in productivity; Southern workers are said to be less efficient than Northern workers, so their low wages do not provide a flow of value to the North. However, there is little evidence that the South is less productive than the North when it comes to production for international trade. The South’s export sector is equipped with advanced, ultra-modern technology provided by foreign capital. Similarly, Southern workers are subject to brutal Taylorist discipline that is illegal in the North. Indeed, one study of export processing zones in Mexico finds that Mexican metal workers, electronics workers, and seamstresses produce 10%-40% more output in an hour than their U.S. counterparts. Despite this productivity advantage, we find that Mexico lost $1,619 per capita through the undervaluation of its exports in 2017. Low wages and prices in Mexico’s export sector do not reflect low productivity; they reflect imperialist power imbalances in the capitalist world-system.

So we see it is this huge transfer of wealth from the backward countries – opaque in the neo-colonial period – that forces these countries to wallow in backwardness and hopelessness for decades. India, for example, has huge natural resources and wealth as also one of the most skilled people in the world, yet we are unable to come out of poverty, primarily because of this loot. For this, one would hold the backward country’s rulers more responsible, as they sell their soul and their country, for a few crumbs off the imperialist table.

Having seen how the imperialist system operates vis-a-vis the backward countries let us now turn to the very economic system itself as seen today throughout the world.

WORLD ECONOMIC SITUATION TODAY

We need to gear up for a dystopian future which is not too far off. For the first time in history, the world economies are faced not only with stagnation and inflation (stagflation) but a gigantic debt burden, which entails unsustainable interest payments. Earlier stagnation in economies was accompanied by deflation; but in the 1970s, for the first time, we witnessed stagflation. Now this stagflation is being accompanied by spiralling debt (government+ corporate + personal), resulting in huge interest payments needed to service it.

As Roubini says: The present crisis looming in the economy is not just a combination of stagnation (which is normally associated with drop in prices) and inflation (stagflation) but in addition a massive debt – both public and private.. Such a situation is unheard of earlier and portends to a horrific future. He adds in his December 2022 article The Unavoidable Crash[ Opinion piece in Project Syndicate]: “After years of ultra-loose fiscal, monetary, and credit policies and the onset of major negative supply shocks, stagflationary pressures are now putting the squeeze on a massive mountain of public and private-sector debt,” warning that “the mother of all economic crises looms, and there will be little that policymakers can do about it.” In fact real estate, stock markets and other assets have reached peak levels, and the bubbles could burst anytime.

According to the World Bank Deputy Chief Economist, Ayhan Kose[], the stagnation in the world economy that set in with the crisis of 2008-09 culminated in the covid lockdown with negative growth of -3% after a growth of 2.6 % in 2019. As we have already seen, post-covid there is a continuous decline in growth rates.

Having said that, let us then look at all these three aspects separately – i.e. growth rates, inflationary pressures, and the mountain of debt and interest payments. Later we shall also touch on the real estate and stock market booms and the dangers associated with it.

SLOW GROWTH RATES

First, on the issue of growth; according to the same World Bank report, Global GDP growth is set to be lowest for decades. The global economy is on track for its worst five-year period of growth in at least three decades. This year, global growth is expected to decline for a third year in a row, making the economic performance in the period between 2020 and 2024 worse than during the years surrounding the Asian financial crisis of the late 1990s, the downturns in the early 2000s and the 2008-2009 global financial crisis.[xi As stated by World bank Chief Economist, Ayhan Kose xii ibid]

Earlier in the year[xiii April 9 2023 IMF Report] the IMF came out with a similar gloomy estimate. The Managing Director Kristalina Georgieva stated: that the world economy is facing its weakest period of growth since the 1990s. She further said that “in the next five years due to problems triggered by the pandemic and political tensions, International Monetary Fund (IMF), predicted a severe slowdown in the global economy. She warned (last year) that: “following the Covid-19 pandemic and the conflict in Ukraine the slowdown is set to continue in 2023 and could persist for the next five years.” She has been proved correct for 2023 and the signs for the current year are not bright. Meanwhile in Oct last year the West Asia crisis broke out which resulted in a shrinking of the Gaza economy by a huge 25% or $ 655 million.[ UN Report Jan 31 2024] UNCTAD further said that “restoring the social and economic conditions that existed in Gaza in the current conflict will take tens of billions of dollars and several decades”.

The World Bank issues a similar grim economic forecast: The report highlighted that the slowdown in growth between 2021 and 2024 was on course to be twice that of the period between 1976 and 1979. The recovery from the stagflation of the 1970s required steep increases in interest rates in the West, it said. Those “played a prominent role in triggering a string of financial crises in emerging markets and developing economies. We witness a similar situation today on an even greater scale; one can imagine the turmoil this will lead to. And as the US will not want any destabalisation till the elections that will entail even more QE in the next months leading to an even bigger bubble which Trump will have to deal with (his victory is predictable).

Even in these slow growth rates there is a severe mismatch as the largest economy in the world (measured on a PPP basis), China, has been growing by over 5% while the developed countries and Russia have nominal growth rates. On a PPP basis, China has overtaken the US in 2017 and is ahead by $4 trillion, with the gap increasing. China will remain the world’s largest economy on a PPP basis over the next few decades as 2nd ranked US is growing very slowly. China’s growth rate was 5.2% in 2023 which was far in excess of the developed countries. Even in the sphere of technology China is surpassing the US. But the most shattering blow to US dominance is the rapid decline of the dollar being displaced by local currencies and the Yuan.

In the US the real GDP growth rate was 1.9% in 2022 and 2.5% in 2023. Japan’s economy shrank by 0.7% in 2023 and the European countries (27) was 1% while the 20 country euro bloc growth was a mere 0.7% For 2024 the IMF has predicted a growth of mere 1.4% for the advanced countries, with the EU at 0.7%, the US at 1.6% and Russia at 1.1.%. On the other hand, China’s economy is expected to grow at 4.6%.in the current year. This mismatch in growth rates is resulting in a change in the geo-politics of the world. And this change in the world balance of forces is impacting every country in the world and resulting not only the assertion of other powers but also growing contention, particularly between the US and the China-Russia axis.

Ironically in all the analysis India seems to be rarely mentioned; of little significance it would appear. India’s posturing as a vishwaguru, is probably only in the imagination and dreams of our rulers. India’s economic growth though officially stated as 6.3%, it is actually much less as this only measures the organised sector. According to Professor Arun Kumar the actual growth rate was barely 1% in the last year if the unorganised sector was also taken into account.

Overall, we find world growth rates slowing steadily from the peak in 2021. The main factor here is that even what growth has been maintained is due to the huge infusion of money through Quantitative Easing [printing notes], which now has become unviable due to the high interest rates. In fact, according to Burt Dohman[ His predictions of Federal Reserve policy have been astounding. He considers Fed policy the most important fundamental factor. To get precise timing, which often has enabled him to catch the exact day of the turning point in the market, Bert Dohmen uses his 42 years of experience with technical analysis.], just in the US, $ 2 trillion of just commercial real estate loans are coming due in the next two years, but there is no money to pay for that – so would entail more borrowings.

Now let us turn to the issue of inflation where we find that it has reached record highs.

INFLATION

We find that at the world level, inflation jumped to 11.1% in 2023 from 4.4% in 2021and an average of 3.2% over the past decade. Inflation has skyrocketed as never before, in spite of the slowing of economic growth. The US is headed for a period of slow economic growth with rising interest rates to beat a 40-year high inflation. In Britain energy bills are expected to go beyond rentals making it unsustainable. Heating and cooking is becoming a problem for large sections of the people. In UK inflation hit a 50-year high at 18% and in Germany it is expected to reach a 70-year high. In the EU inflation is at a 25-yr high at 10%. In Italy, in May 2023, inflation is at a 30 year high at 7%. In Estonia it is at 23% and in Latvia and Lithuania it is at 21%. Energy prices have shot up 40% and food 7%. Sanctions on Russia have affected gas supplies to 12 EU states. Worst hit is Hungary, Czech Republic and Slovakia which have been given no gas. Germany gets 50% of its gas from Russia and if cut off it will lose $225 bn in the two years 2023 & 2024. As it is, world food prices hit a record high in 2022. The Food Price Index rose from 98.3 in 2020 to 144 in 2022. It was 93 in 2015 and was virtually static till 2020. Inflationary pressures continue to this day.

So the world economies have been hit by stagflation i.e. stagnation+inflation, last seen in the 1970s. And to this has been added the unmanageable debt.

THE GLOBAL DEBT

Finally, let us look at the issue of the great global debt resulting from liberal policies of Quantitative Easing (defacto printing notes) throughout the past decade and particularly during lockdown. This became necessary to prevent the economies collapsing, but now the total debt (public, private, corporate) is at a historic high of nearly $ 300 trillion (by June last year) according to the IMF. Total debt levels, which include government, household, corporate and bank debt, rose $4.8 trillion to $296 trillion at the end of June 2022, to stand at $36 trillion above pre-pandemic levels. The rise in debt levels was the sharpest among emerging markets, with total debt rising $3.5 trillion in the second quarter of 2022, from the preceding three months to reach almost $92 trillion. Private and public debt as a share of global GDP has jumped from 200% in 1999 to 350% this year. The ratio is now 420% across advanced economies and 330% in China.”

Roubini highlights data on debt, described as “staggering.” He writes: “in the United States, it is 420% of GDP, which is higher than during the Great Depression and after World War II.” The US debt has skyrocketed to $ 34 trillion at the end of 2023 and is rising daily.

Interest on this huge debt is becoming more and more unsustainable. As a result of high inflation, interest rates have peaked making the huge debt unviable. In the US The Federal Reserve kept the Fed funds rate unchanged at a 23-year high of 5.25%-5.5% for a fourth consecutive meeting in January 2024. Interest on this debt in the year 2023 in the US was a staggering $ 1 trillion, and set to increase.
The European Central Bank raised key interest rates progressively to a record high of 4% in Jan 2024from 0.25% and promised further hikes. This was on account of the high inflation rates which rose to 9.1% In August 2023, a half century high. With the EU debt at over half a trillion[ Indian Express Sept 9 2022] imagine the rise in interest payments.

In Japan after having decades of negative interest rates in August 2023 it raised interest rates once again to 1.3% on a public debt of $ 9 trillion – 283% of GDP.

A recent ‘Economist’ has claimed that we’re headed for a “stagflationary crisis unlike anything we’ve ever seen.” And Roubini concludes on Project Syndicate “that the mother of all stagflationary debt crises can be postponed not avoided,”. He warns the next decade could bring ‘massive insolvencies and cascading financial crises’[ Business Insider Dec 11 2022]. Many economists are predicting a long recession.

REAL ESTATES & STOCK MARKETS

But this is not all. We have not dealt with the mother of all speculations – the real estate and stock markets, both of which are booming. The Real Estate market worldwide has reached a staggering value of $637.80 tn by end 2023. The world’s most significant store of wealth, real estate, is more valuable than all global equities and debt securities combined, and almost four times that of global GDP.  Yet by 2025, 1.6 billion people are expected to be affected by the global housing shortage, according to the World Bank.

China has the biggest housing market which has lately suffered due to the crash of some major property houses. Since 2021, more than 50 Chinese property firms have defaulted on debt, including the two firms that once dominated the country’s housing market: Evergrande and Country Garden.
In the world, significant residential wealth is concentrated in Europe and North America, accounting for 43% of value combined, despite being home to just 17% of the global population. This is because their standard of living is much higher than the backward countries; while in some 10 cities property values have a bubble risk that is not the case with the general property market as yet. Neither is there a bubble nor is much money being invested in it as property values are at peak levels and there is little chance of it being a good investment.

Similar is the case with the stock markets throughout the world which have also been rising consistently and are unlikely to go much higher. In the US the stock market is at peak levels just because of about ten big corporate stocks; the bulk are doing badly. An exceedingly fragile situation. But, for the present, the nasdaq is at a 50% higher value than a year ago In India too the Sensex and Nifty have peaked – the Sensex is at over 73,000 from 59,000 one year back. This is pure speculative funds and can come crashing down once there is a weakening of the confidence factor. So, both real estate and the stock market will not attract much investment until after a crash when the moneybags will move in for the kill.

BLEAK FUTURE

Overall, the situation is fragile if one looks at the above five factors, but economists are not willing to predict when the crash is likely. The mainstream media gives no idea of the instability that could hit the world. Most economists though are agreed that one is long overdue as there has not been one since the recession of 2008-09. No doubt covid hid a deep fall in growth rates (the stagnation had set in three months before the pandemic was declared in March 2020), but that too was just for one year. It is only China’s high growth rate that has kept the system from falling apart for the present, with the economy of most developed countries in the doldrums. All western economists say the Chinese economy is in dire straits, but that is probably only to hide their own crisis and not based on any serious analysis. It is difficult to get at the reality there though two years back the real estate market did crash in China, but it diverted its investment to manufacturing. Yet, there is no doubt if China begins to slow the world economy is fraught with dangers that cannot even be imagined now.

DECLINE OF THE US & PUSH FOR WAR

Not only is the US losing its status as the paramount economic power to China, de-dollarization is proceeding at a fast pace led by the BRICS countries which now include 5 more – including Iran, Saudi Arabia, and the UAE. While Iran is the defacto Trojan horse of the China-Russia axis in the Middle East; both the Saudis and UAE have ditched the $ and are selling their energy either in their own currency or Yuans. This is a huge blow to the $ as petro-dollars was once the bulwark of dollar trade domination in the world. Russia too is insisting to be paid in roubles for its huge gas exports, and Russia’s foreign trade in dollars has dropped from 50% to 13% in 2022.

China is taking the lead in conducting trade throughout the world in Yuans or the local currencies. In Latin America, the US’s backyard, a number of countries like Bolivia, Argentina, Brazil have shifted from the dollar. Even smaller countries, traditionally close to the US, like Egypt, Iraq and Iraq, have ditched the dollar. And many are experimenting with digital currencies. In 2001, the year China entered the WTO, over 80% of countries had a larger trade volume with the US than China. By 2018 the figure was down to 30%. In fact 90 countries {out of the 190} traded more than twice as much with China as with America.

Trade in dollars has dropped from over 70% of total trade, to 59% in 2023. Gold holdings with central banks have peaked having bought 1000 tonnes in both years 2022 and 2023. These are unprecedented in the history of gold as a reserve. Bloomberg said that central bank holding of dollars fell to a 25 year low. It added that it was on the strength of the dollar that the US ran huge budget deficits and covered them with printing notes. But with the weakening of the dollar this is no longer viable. US fiscal deficit is at $34 trillion – 120$ of GDP [EU is at 730% of GDP]. Interest payments on this debt is at $ 870 bn and predicted to go up to $ 1.6 trillion by 2034, by when Fed spending on interest will surpass that on Medicare and other welfare measures. Even credit card debt is at a record high where interest charges are 20-25 %.[ John Roubino in ‘Thoughtful Money ‘ video]. In addition, world trade has been badly hit by the drying up of the Panama canal [65 kms] and the Houthi attacks in the Suez canal [193 kms]. The decline of the $ is linked to the fact that the US is a declining superpower and China is growing to outpace the US. China too has imperial ambitions and is pushing trade in the Yuan.

In addition the US had its first trade deficit last year since 1968/69[ Financial Times Dec 30 2023]. Mortgage rates have doubled and the housing market is extremely fragile. Interest rates on the 10-year Treasury Bonds are likely to go up to as much as 10% by next year, resulting in a 7 year ‘rolling recession’. Money Supply [M2] is shrinking for the first time ever. [Money supply has to grow to cover interest on the debt]. The US govt is losing its ability to bail out every problem as its currency value is falling. The next couple of years can be very stressful according to Roubino. He adds, they can’t save an extremely leveraged system – if they do, it will destroy their currency. As it is, the dollar is buying less than 30% it did in 2019. According to the same Financial Times by end 2025 another Great Depression is expected.

Let alone clashes between the main two adversaries all is not well amongst allies as well. Even in Europe there is dissent against US policy as they suffer when sanctions are put on Russia, with, for example, Germany dependent on Russia for 50% of its gas. Even a country like Britain gave the $ 30 billion contract for building its high speed train network to China inspite of massive opposition from the US and Japan. China has many other lucrative contracts not only throughout Asia Africa and Latin America but also Europe and even Australia as part of its BRI (Belt & Road) initiative.

Of course, the US’s contradictions with France are legendry but these have now intensified. France has got used to US insults over the last 15 years, from spying on French presidents (revealed by WikiLeaks) to General Electric’s dismantling of Alstom (using legal ploys akin to highway robbery) or the eye-watering fines imposed on French businesses and banks that failed to apply sanctions against Cuba or Iran decreed in contravention of international law by the US. US bullying is no longer being tolerated by their European allies; but the tragic situation is that without a viable communist/revolutionary alternative, countries are asserting their nationalistic feelings through fascism.

Not surprisingly there is the rise of extreme right-wing (if not outright fascists) to power in many European countries, like Italy, Finland, Spain, Sweden, Greece, Poland, Hungary and even the growth of the fascist AID in Germany which is running neck to neck with the ruling Social democratic party. The fault for this lies with the social democrats, which have been in power all these decades acting as stooges of the US. Take, for example, the recent sanctions on Russia; it primarily hurts the European countries (particularly Germany) which got cheap gas – yet they quietly went along with the sanctions. So also instigating Ukraine to war with Russia, by threatening to extend NATO to Russia’s border has resulted in huge suffering, in not only Ukraine, but also neighbouring countries – but the US has been sitting pretty with massive sale of weapons to Ukraine.

With all doors shut and the US in dire straits it has finally to resort to flexing its military muscle. Actual U.S. military spending reached a gigantic $1.537 trillion in 2022—more than twice the acknowledged level. Fascism and war go hand in hand. And the economic crisis aggravates both. China’s military spending in comparison in 2022 was barely $ 220 billion; a fraction of the US expenditure.

In this scenario the US’s push for war continues apace. It has 40,000 troops in the Middle East, 2 destroyers in the Suez Canal, and an aircraft carrier in the Sea of Oman off the coast of Israel; at the same time it is a defacto collaborator of the Israeli forces which have intensified strikes on the South of the Gaza strip where the bulk of the population have fled, living in refugee camps.[ Business Standard Feb 9 2024] The toll of Palestinians killed is around 30,000, with over 60,000 injured and the entire Gaza population of 2 million displaced. Most of those killed are women and children. Without US backing and economic and military support Israel would not have been able to lift a finger. But, then the US rulers have massacred millions earlier in Indo china and other places like Latin America.

War is its last resort to maintain its past glory – so its massive expenditure on defence (see earlier in article), the strengthening of its 800 military bases worldwide, pushing Ukraine to war with Russia and fuelling the crisis in the Middle East with huge economic and military aid to Israel resulting in the killing of 250 Palestinians and injuring 3,000 daily since Oct 7 2023 – mostly women and children. Its military bases are scattered across at least 80 countries. Japan has the highest number of American military bases in the world at 120, followed by Germany with 119, and then South Korea with 73. It is also provoking tensions in the Taiwan straits with its so-called pivot to the Pacific. Examples are Pelosi’s official visit to Taiwan (the first ever such) and calling the president of Taiwan to the funeral of Queen Elizabeth as the sole representative of the Republic of China. (Though Taiwan has not even been recognised by any of these governments)

On April 21st last year, President Biden announced new shipments of weapons to Ukraine, at a cost of $800 million to U.S. taxpayers. On April 25th, secretaries Blinken and Austin announced over $300 million more military aid. The United States has now spent $3.7 billion on weapons for Ukraine since the Russian invasion, bringing the total U.S. military aid to Ukraine since 2014 to about $6.4 billion.[ How Could the U.S. Help to Bring Peace to Ukraine?n World — by Nicolas J S Davies — 28/04/2022] The US grants Israel $ 3.8 bn a year to maintain its outpost in the Middle East, but it has now given additional military supplies to Israel. The United States has given Israel more aid than any other nation since World War II, granting it more than $260 billion plus about $10 billion more in contributions for missile defence systems like the Iron Dome.[ How Much Aid Does the U.S. Give to Israel? by Christopher Wolf] According to a Time Magazine report: the Biden administration has allocated $ 14 bn in military aid to Israel, which is over and above the $ 60 bn military hardware allocated to Ukraine. If it is given as ‘aid’ the US taxpayer pays for it; if it’s sold, it’s the taxpayers of Ukraine and Israel who have to pay. With the likely Trump victory in Nov 2024 the aggressive policies of the US are likely to get a big boost, but even Biden’s present policy of a “pivot to the Pacific”, has set the tune for greater confrontation with China in the latters own backyard. For this, the US is also aggressively pursuing military alliances in the East in its so-called ‘string of pearls’ policy and the formation of blocks like ASUS.

RISE OF CHINA

Though in the immediate there is not likely to be much destabilisation, particularly till the US elections in Nov 2024, but in the near future – end 2024 or 2025 – serious economic conditions are likely to evolve. The reason is all the contradictions outlined above are likely to come to a head; till then more QE may postpone the crash, but it will make it all the more severe as the debt will be even greater.
US’s greatest fear is of course China. Today the situation has changed significantly from the earlier cold war period, with China asserting its authority vis-à-vis the US, and forming blocks of its own.

In every way possible China (with the help of allies Russia and Iran particularly) is outmanoeuvring the US; already having dominated world manufacturing and trade. With the decline in the housing market, China has been heavily investing in manufacturing. This strategy is reflected in the sharp increase in lending to industrial enterprises, which soared by 38.2% year-on-year in the first three quarters of 2023. In comparison, outstanding loans to the property sector fell by 0.2% in the same period, according to data from China’s National Bureau of Statistics According to data from China’s Central Bank overall investment in the manufacturing sector also jumped, by 6.3% in the first nine months of 2023 year-on-year and by 11.3% in high-tech manufacturing in particular.

Meanwhile, according to Bloomberg Intelligence, China has attained a surplus of manufactured goods that has reached around 2% of global GDP, a figure not seen since post World War II by the then US. Analysts estimate that about 45% of China’s manufactured goods are exported, from cars to washing machines, since domestic demand is unable to keep up with output. Beijing has been particularly successful in producing and exporting electric vehicles, batteries, and solar panels. The value of such exports grew 42% year-on-year in the first three quarters of 2023, according to official statistics.[ RT Home Business News JJan 9 2024] China’s domination of world trade by 2020, is reflected by the fact that it had 15.5% of all goods exported, compared to the US’s 9.1% and Germany’s 7.8%.[ China: The rise of a trade titan UNCTAD REPORT April 27 2021]

After all, China is no socialist country but one of the most dictatorial in the world where every movement is under hi-tech surveillance. No wonder Klaus Schwab – Chief of the World Economic Forum and the author of the Great Reset to deal with the coming explosive situation – gives China as the best example of nations of the future. Besides, China has the largest number of billionaires in the world – 969 – ahead even of America.[ Hurun Research Institute 2021] Just one city, Beijing, had 20,400 millionaires in Jan 2021. Together the billionaire’s wealth in China was $ 2.5 trillion in 2021, with the top ten being worth $ 447 billion. The number of millionaires in China grew by 35%; predicted to double its millionaires by 2025 going up from 5.3 million millionaires in 2020 to 10.3 million by 2025.[ Report by Credit Suisse as quoted by Natalie Koh Jun 22 2021]

Though the US is trying to squeeze Chinese production by stopping semi-conductor export to it and other sanctions, at present it is difficult for them to effectively do much as there are 8,619 US Corporation in China and 1992 US-owned subsidiaries. US corporations would not favour their government jeopardising these profits generated there. For example Tesla recorded $6.66 bn in revenue from China in 2020; Apple’s revenue was $ 40.31 bn in 2021; Nike’s second largest market is in China; Starbucks sales in China hit $ 5.2 bn in 2020; Qualcomm had 52% of its revenue from China in 2021; IBM’s revenue in China was $ 16 bn; while McDonald had more than 2,500 outlets, Walmart 400 stores and Coca-Cola operates 45 factories in China.[ GITNUX MARKETDATA REPORT 2023]

Not only this, the bulk of the Chines billionaires are tied up with large foreign investments. So, for example, Japanese investment company, Softbank, held 24% of Alibaba stock while the promoters share, Jack Ma, was 6.2% in 2019. Even Goldman Sachs held 1% of Alibaba shares worth $ 2 bn. If we turn to the Tencent Holdings Ltd (the third largest Chinese Corporation after Alibaba), Prosus has 29% of the stock of the company. Prosus is controlled by Naspers Ltd, a South African Holding company. Besides, Tencent Holding Company is incorporated in the tax haven, the Cayman Islands. The list of intertwining of foreign and Chinese capital could go on and on; suffice it to say that by about 2013 the Chinese began to have its own imperialist ambitions with the launch of its Belt & Road Initiative.

By end 2022 China had invested nearly $ 1 trillion in the BRI; of which $ 573 billion was in construction and $ 389 billion was in non-financial investments. BRI investments in 2022 were dominated by private sector companies like CATL (battery producer) and Alibaba, while construction contracts were dominated by state owned companies. In that year BRI operated in 147 countries. In 2022 BRI also saw a significant growth in the finance and technology sector. CATL announced it would build a $ 7.6 bn 100 GWh power plant in Europe. While Chinese foreign investments have been relatively small in metals and mining, its focus has been on lithium (batteries for electric cars) in Africa and Latin America. For all India’s opposition to the BRI it too received at least $ 4 billion from China in FDI since 2014 [Modi’s rule].

How the BRI is used to exploit other countries is not yet clear, but it is reported that it has fostered ‘hidden debts’ totalling $ 385 billion on lower and middle income countries.[ According to an International Development Research Lab bsed at the College of Williams and Mary in Virginia] Yet, in spite of all this evidence the CPM type ‘leftists’ still claim China to be socialist, probably based on the high standard of living of its people. But even higher standards can be seen in western countries and Japan – so should they also be called socialist? The inequalities in Chinese life, together with the high levels of surveillance and controls (not to mention long working hours) are an indication of a ruthless capitalist system operating in China.

CRISIS & CONTRADICTIONS

So, the world is caught in a Catch 22 situation – raise interest rates to control the sky rocketing inflation or allow inflation to play havoc with the economies. Either option will be disastrous as high interest rates will make the debt unsustainable and result in the crash of companies and private debt, not to mention default by governments with already 40 countries pushed to the brink begging for IMF bail-outs. On the other hand, if inflation is allowed to grow, it will push the masses to further improvisation and with it will come crumbling of the consumer market and high unemployment.
Inspite of the real estate and stock market booms, economists are agreed that never has the world economies been on the brink of a precipice so dangerous where all the negative features of capitalism are beginning to converge into the melting pot of disaster. Today for the first time in the history of capitalism, stagflation is combined with a phenomenal debt crisis as also a volatile currency situation pushing countries to once again turn to gold.

But this is not all. Added to these factors are two more which is further aggravating an already bad situation. First is the high rate of unemployment intensified by the use of robotics, AI, internet of things and digitisation on a huge scale. World unemployment is hovering around 7%, with the figure in backward countries grossly understated due to massive underemployment.

Second, and most importantly, for the first time in the post WWII era there has risen a threat to US world hegemony – from China in alliance with Russia. Not only in Asia, Africa and Latin America, China is also making deep inroads into Europe, much to the chagrin of the US. But it is helpless as it cannot match China’s economic clout.

So, with its economy already receding to second place (on a PPP basis), a declining world market, a weakening of the dollar, the US is left with only one alternative to sustain its world supremacy – its military might. And it will use it to the maximum to stem the rise of China to protect its declining markets. After all the earlier two world wars were fought over markets. So, we find its aggressive, war-mongering posture in Ukraine, its deep involvement in pushing the Middle East to wars, its provocation in Taiwan and its needling China in the South China Sea – are all a part of the US’s war-strategy to protect its declining power and foster funds to its military complex.

All these five factors (i.e. slowing growth, high inflation, spiralling debt with high interest costs, drop in consumer spending with greater unemployment and finally the sharpening geo-political tensions between the US & China) are bringing all the contradictions of capitalism to a climax, as they are all appearing at once. As Dr. Nouriel Roubini, the famous economist said in early December last year, in his opinion piece in Project Syndicate, titled “The Unavoidable Crash,” – the inevitable collapse that the globalized world will face in a few months from now and that not even central banks will be able to counter. He went further and raised the alarm warning that the steep rise in bank interest rates could erode the ability of households and companies to meet their loan repayment commitments. He said that could trigger “the mother of all economic crises”. He may be wrong in his timing, as there are also many a political factor at play, but the writing is on the wall.

The fact is with the looming economic crisis and the contention for supremacy between the US (and allies) and China (and allies) growing with each passing day, the entire world is being pushed to a state probably worse than during the Great Depression. For the last decade QE (printing notes) has been a method to postpone the crash, but that was manageable as interest rates have been maintained near zero. Now, not only has the debt skyrocketed, interest rates have ballooned due to high inflation – this can bring the entire system crumbling down. No lockdown will save them now. They will need another drastic step, or else the situation can spiral out of control and even culminate in WWIII. As it is, world tensions are growing – not only in the sphere of trade but also geo-political.

IMPACT ON PEOPLES’ LIVES

In many aspects the 2008 crash was worse than 1929 with most of industry moving to China. Wages in the EU are 35% less than 1972 and in Italy the value of the currency is 50% less than the 1990s. Germany is the sick man of Europe; faced with a fast fall in exports. According to the Deutche Bank GDP is expected to shrink this year by[ World Inequality Report Dec 2021 by World Economic Forum] 0.2%.

Those gaining the maximum are the billionaires of the world. The world is now home to 2,755 billionaires, a world record and a startling 30 percent increase from Forbes’s accounting last year of the world’s uber-rich. And 86 percent of those billionaires are richer than they were a year ago. Of these 169 are from India led by Mukesh Ambani, whose opulence is on open display in the ongoing wedding preparations of his retarded son. At $ 112 bn Mukesh Ambani is followed by Adani at $ 79 bn – compared to China’s top billionaire at $ 61 bn.

On the other hand 70 crore people live below the poverty line worldwide of which 21 crore are from India [NITI Ayog figure calculated at an expenditure rate of Rs.27 per capita per day]. But this would be a huge understatement given that in Modi’s free grain scheme there are 80 crore people besides who can live on a mere Rs.27 per day?????

The richest 10% of the global population currently take home 52% of the income. The poorest half of the global population earns just 8%. And, when it comes to wealth (valuable assets and items over and above income), the gap is even wider. The poorest half of the global population owns just 2% of the global total, while the richest 10% own 76% of all wealth.

UNITE TO FIGHT GLOBAL POVERTY AND US AGGRESSIVE WAR DESIGNS

To reduce poverty levels and unseemly inequalities the first step would require confiscation of the wealth of the billionaires and using that money to generate employment at a decent wage. A MASSIVE $ 15 TRILLION [Rs. 1.2 lakh crore] COULD UNLEASH MIRACLES. Assuming there are 100 crore poor, this would result in each individual getting Rs. 120 crore!!!!! And that would entail a mere 3000 odd families ‘suffering’, if the Rockefellers and Rothschild type are included [who do not even appear in the billionaire list] and 100 crore poor gaining. And this does not even include the huge black money and those parked in tax havens anonymously. If those were included the figure would likely double. Now if one turns to the current international scenario it is the US which is the main source of war as it is the US markets that are being usurped by a more robust competitor in China. In this situation how can it protect its declining hold over world markets, if not by war? China would like the world situation to change in its favour peacefully, but the US is unlikely to allow that.

In such a scenario, to avoid a world conflagration, all peace-loving nations should align with forces opposed to the US. And in the event of a world war (or even in local wars like Ukraine and Palestine) should be against the forces of aggression led by the US. In Ukraine it was the US’s egging on NATO to Russia’s border which was the major reason for the war and in the Middle East it is the US backing of Israel that has resulted in the holocaust for the Palestinians. Without US material and moral support both these wars would be over in a day. And now there is continuous provocation by the US in Taiwan, which is not even recognised by most countries and the Pacific Ocean area.

These two factors – world economic crisis & global tensions between the US and China – are pushing the world into a conflagration the type of which we have never seen before (not even during the Great Depression and the two World wars). Though not imminent by next year the economies of the world can be badly hit, pushing the world into a new Great Depression scenario that will last for years. This economic crisis will intensify contradictions within the major world economies and particularly those between the major two – the US & China.

Roubini believes that our new era of “Great Stagflationary Instability” will be fuelled by inflationary trends like aging populations, climate change, supply disruptions, greater protectionism, and the reshoring of industry—or the process of moving businesses that are now operated overseas back to their original countries. But unlike many other economists and business leaders, he warns that central bank officials can’t “wimp out” and decide to stop raising interest rates anytime soon, otherwise inflation will be a persistent problem worldwide. Essentially, Roubini believes central banks are trapped between a rock and hard place due to our current inflationary environment.
Roubini further added that “when confronting stagflationary shocks, a central bank must tighten its policy stance even as the economy heads toward a recession”. Already in 2023, the high interest rates (to balance the inflation) pushed a lot of regional banks in the US to bankruptcy (including the relatively large Citizen bank).

After the financial crisis of 2008-09 with enormous difficulty the major economies were saved from going into severe depression through policies of Quantitative Easing (QE) – a nice term to signify massive amounts of printing notes and going into debt. It reached its climax with the lock down which was a convenient pretext to justify huge negative growth – as well as to push the world economies towards digitalisation, robotics and AI: a method to enhance profits amidst pauperisation; pushing the wealth of the billionaire club to unseemly heights. But at that time all the countries of the world were on the same plane falling at the feet of the cabal. In this fast changing international scenario, that is no longer the case today, with the US and China standing in direct conflict.

As Roubini says: all these factors are pushing the world to a financial cliff. When the fall will come none are willing to say, but most predict it will be after the US elections while some say it can be as early as June 2024. No doubt a Trump victory will give the political basis for greater fascist policies and warmongering. Ideally in line with the US’s economic situation.

But in this scenario where does India stand. At the international plane India is rarely mentioned as it seems to have little role to play – running with the hare and hunting with the hounds. While being historically close to Russia, we can never give up our servility to the West and hostility to China (in fact, to please the West). Nor can we completely put our boats into the sinking ship (US), maintaining certain historical ties with Russia. Such vacillation may have been OK in peaceful times, but in the coming days it will be forced to take a stand with all contradictions sharpening. Of course the tendency will be to shift towards the West, who give our rulers large funds and much applause to needle the Chinese. But, that will entail playing with fire.

Today, as during the earlier world war situations, countries need to openly stand against those pushing for war – in the present scenario it is the US. But at the same time, we need an independent policy, not falling headlong into the arms of the Chinese as the CPM would wish.

So, in the immediate we need to stand with all the forces aligned against the US and its allies (Israel, etc) whether in Europe, Middle-East or Taiwan straits. In the long term there is need in India for a twofold stand – first, at the national level, to take steps against the looming crisis which can even wipe out much of the middle classes let alone the poor [as already mentioned by stopping the foreign drain and confiscating the wealth of the big corporates, foreign cos, and UNHWIs, and investing those large sums in agriculture and MSMEs]; second, at the international plane, stand up against US war mongering and US/Western infiltration– economic and military – here in India and all around the world.

March 8, 2024