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From Real Estate Speculation to the Collapse of the Global Deficit Economy

Joy to the world, the world of fallen idols and bubble transfer. The truth will set us free but the truth is a process, not a cudgel or stimulus. After the dot-com bubble, trillions were "invested" in real estate speculation. The crisis of the work society is the background for low interests.
FROM REAL ESTATE SPECULATION TO THE COLLAPSE OF THE GLOBAL DEFICIT ECONOMY

Short History of the Worldwide Economic Crisis, Part 3

By Tomasz Konicz

[This article published in the German-English cyber journal Telepolis 12/17/2008 is translated from the German on the World Wide Web,  http://www.heise.de/tp/r4/artikel/29/29356.1.html.]

The End of the "Golden Age" of Capitalism and the Rise of Neoliberalism (1) Part 1 and Explosive Expansion of the Financial Markets in the Clinton Era (2) (Part 2)




The neoliberal reforms sold as an answer to the stagnation (3) of the 1970s (4) brought fundamental contradictions (5) and resulted in dwindling mass demand and thus overproduction of goods and over-accumulation of capital threaten. Other factors intensify the system-immanent contradictions. The fundamental crisis of the work society that went along with the revolutionary increases in productivity triggered by micro-electronics and information technology [Kondratjwes' long business cycle waves (6)] led to a neoliberal "flight." (7) Building the low-wage sector, shifting production to threshold countries and heightened growth of the financial sector into a pillar of the economy were the results. Global deficit cycles financed on credit by the financial system (8) occurred with formation of speculative bubbles. The United States more and more heavily indebted as a kind of "economic pump" took up the worldwide surplus production of the export-oriented economies. They reinvested their revenues in the US financial sector.

The origin of real estate speculation in the US and several other countries (Spain and Great Britain among others) was connected with the bursting of the high tech bubble in 2000. The stocks of Internet startups driven to astronomical heights by unrealistic expectations crashed within months. (9) Trillions of dollars were withdrawn from the high tech Nasdaq stock exchange and the German "new market" while once celebrated seemingly innovative Internet firms went bankrupt in droves. Billions of dollars in investments burned. The IT-sector could not fulfill the excessive expectations as a new "key technology" with a new long-lasting business cycle wave.

'PUTTING OUT FIRE WITH GASOLINE"

According to official statistics, the US economy scraped past a recession in 2001 and posted an economic growth of nearly four percent in 2004. This trick was owed to the former Fed chairman Alan Greenspan who reacted very exactly, as the economist Paul Sweezy predicted in his article "The Financial Explosion." (10) Greenspan put out the economic fire of the burst speculative bubble with even more gasoline. This "extinguishing with gasoline" was preceded by a radical long-lasting lowering of the key interests that was unparalleled in the economic history of the US. Between 2002 and 2005 the US key interest rate (11) was under two percent. After the terrorist attacks of 8/11/2001, Greenspan even lowered the interest to one percent for over a year.

Because of this low interest policy, borrowing in the United States rapidly increased and the money supply fed into the economic cycle rose dramatically. This extremely expansive monetary policy of the US Federal Reserve increased the money supply around 20 percent between 2001 and 2003. The "cheap" money that flooded the financial market did not lead to a classical inflation but to a real estate bubble since many US citizens accepted cheap credits to build or renovate their homes. Thus an "inflation of home prices" occurred since many small investors who absorbed losses in the bursting of the high tech bubble now relied on seemingly "secure" property. After a brief phase of calm up to 2005, the inflating of the circulating dollar increased vigorously until the Fed saw itself forced to keep statistics about expanded money supply M3 (12) under lock and key.

The Fed had good reason for repressing the exact data on growth of the money supply. American gross domestic income nearly exploded from 2006. With this immense inflating of the US dollar, real estate speculation was kept alive and the collapse of the world economy delayed.

This fiscal excess was made possible by the abolition of the gold standard of the US dollar. (13) The dollar now has no relation to any real (commodity) value. The dollar was "its own gold," so to speak. The temptation of the US Federal Reserve to validate the dream of medieval alchemists and create "gold out of nothing" was too great in view of the intensifying crisis dynamic.

Another method for putting out the fire of the bursting dot-com bubble consisted in the most far-reaching deregulation of the financial markets shifting the contradictions of the late capitalist mode of production (14) to the financial sector. As long as the financial markets cheerfully continued in fraud, economic stagnation, over-production crises, over-accumulation of capital and the crisis of the work society were repressed. The repeal of the Glass-Stiegal Act in 1999 removing the separation between commercial- and investment-banking was one of the most important milestones (15) of this liberalization process of the financial markets. In 2000, trading with derivatives and "credit default swaps" (CDS) were removed from any control. In 2004 the further hurdles for investment banks fell since these banks were not obligated to any reserve savings to cover possible losses from their businesses. The way was cleared for "leverages," for the unrestrained indebtedness of financial market actors that quickly took effect in the course of the dollar glut of the Fed.

The long-term Fed chief Alan Greenspan is now hardly criticized for the policy of deregulating the financial markets. We should recall Sweezy's metaphor of the man who tried to ride a tiger. The economist wanted to illumine the relation between capitalist elites and the capitalist crisis dynamic. As a glance at the Fortune 500 list reveals, there are many billionaires in the capitalist world system (women are hardly found in this illustrious circle). Still there are no lords of capitalism. There is no one who really guides the capitalist world system "from the outside." Even the most influential billionaires and most powerful politicians are subject to the capitalist social structure and its drive principle that consists in the boundless increase of money and in investment of capital for profit maximization.

The term "The Great Bubble Transfer" (16) describes this maneuver from deregulation and expansive monetary policy with which the Fed successfully maintained capital reproduction in the financial sector. The dot-com bubble was transferred into the real estate bubble. In the course of this maneuver, three trillion dollars were withdrawn from the high tech stock market and reinvested in the real estate market.

To summarize, by riding this "tiger" of the blind capitalist crisis dynamic, the decision-makers around Greenspan tried to improve the possibilities for realizing profits for Wall Street and sought ways to keep up the whole system of a deficit-financed economy along with the global "bubble economy." The "bubble transfer" gave a reprieve of several years to the world economy. Thus the actors were driven by the crisis dynamic of capitalism - and chose "flight," more deregulation and a stronger more expansive monetary policy for the "bubble transfer" to the real estate market.

THE REAL ESTATE BUBBLE

The development and the course of the speculative boom on the US real estate market - as in several other countries and regions - have already been explained in detail (17) so only the most important phases of this speculation bubble will briefly sketched here, especially the interlocking with the financial markets.

Between the beginning of speculation in 2000 and its peak in 2006, the formal face value of all US real estate rose from 110 percent of the gross domestic income to over 150 percent. (18) Between 2000 and 2005, the average national home prices rose 50 percent. The US market was bifurcated. In the countryside, nearly unlimited development areas were available with prices dictated by construction costs. On the other hand, the boom concentrated in the US metropolises and the coastal regions of the country where prices soared an average 100 percent in five years.

Encouraged by the low interests and the expansive monetary policy of the Fed, more and more US citizens took out mortgages at variable interest rates which were then "guaranteed" by the mortgage banks in freely traded mortgage backed securities. The mortgages were mostly bundled in CDOs (collateralized debt obligations). Fresh capital for new mortgage packages was gained through CDOs resold by banks on the financial markets. The mortgage banks were not very interested in the financial strength of the mortgager since the failure rate was also resold with the CDOs. Therefore the sub-prime mortgages, the mortgages for customers with poor creditworthiness, were so popular among mortgage banks since they had higher interests (on account of the greater failure risk) and thus promised higher commissions.

A regular mass production of sub-prime mortgages started in the financial industry that could sell more and more mortgages by using sales techniques of predatory lending (19) - bordering on fraud. To increase the value of these "securities," they were ensured against the failure risks. This happened mostly through credit default swaps (CDS). These credit securities "invented" by the once largest insurance company of the world, the AIG-group, were traded again as securities on the financial markets - while the rating agencies were paid by the inventors of the securities. All these complex "financial instruments" were given the best rating ("triple A"). As Paul Craig Roberts explained (20), these "financial instruments" were exported to the whole world to maintain the global deficit cycle. (21)

This snowball system functioned brilliantly as long as home prices continued rising. However the "sub-prime mortgages" were provided with low interest rates to entice financially weak mortgagers to accept new mortgages. After a while, the interests dramatically soared so that more and more foreclosures were carried out exerting an ever-greater pressure on home prices. Then the home prices collapsed and a real tsunami of foreclosures occurred. (22) By 2009, according to the Housing Predictor, three million families will lose their own four walls on account of the crisis since they cannot afford the installments for the mortgages any more.

The massive collapse of mortgages changed the once celebrated financial instruments - like the CDOs and the CDSs - very quickly into financial rubbish that could not be sold. This ended the existence of several financial institutions and led to the notorious credit crunch. (23) No market actor could know for sure how much of this worthless paper slumbered with other financial institutions so the awarding of credits among banks came to a standstill. Every money house hoarded its cash since it feared the awarded credits would not be repaid in case of a borrower's bankruptcy. Awarding credits to private customers and to the real economy was also greatly reduced.

The collapse of the real economy along with the continuing financial crisis follows the bursting of the real estate bubble... The real economy was dragged to the abyss, not only the "credit crunch." These connections will be outlined in the next chapter.

FINANCIAL BUBBLE ECONOMY

In the course of the intensifying real estate speculation, the interconnections between the real- and the financial economy intensified to an unparalleled extent. The manufacturing industry depended, so to speak, on the "drip" of the financial markets. Their speculative movement promoted private consumer demand into an increasingly important economic factor.

The high-paid jobs in the financial sector were among the stimulating effects on the real economy that started from financial capitalism. Sweezy already described this development in the 1980s [The Financial Markets Stand Out (24)]. The economy of the metropolises of financial capital like New York and London for example depends on the consumer zeal of tens of thousands of investment bankers or stockbrokers in the neoliberal trickle-down economy. (25) Their spending generates many poorly paid jobs in the service- or "domestic servant sector."

New York is obviously a classic example for this labor market structure oriented to finance capitalism. In 2007, the financial sector was responsible for a third of all wages paid in this east coast metropolis since each of the high-paid bankers and brokers on Wall Street generated more jobs with his spending. The financial crisis worldwide has already destroyed 150,000 jobs that often had a six-digit annual salary. (26) In the coming months and years, tens of thousands if not hundreds of thousands of bankers will lose their posts and drag the "domestic servant sector" to the abyss. Wage dumping produced this sector.

The real estate bubble brought another effect that did not appear in the high tech bubble and led to economic recovery. In the course of the speculation based on unrealistic profit expectations, real houses were built so that the building industry experienced a strong upswing and had a stimulating effect on the total economy on account of its labor-intensive character and interlocking with many supplier industries. An economic structure dominated by a speculatively-fueled construction economy" is not only found in the United States. Real estate bubbles also formed in Great Britain, Spain and parts of Eastern Europe. In 2005, the crisis theoretician Robert Kurz described the enormous effect of this building-boom on the total economy of the affected national economies in the example of Spain.

"If the speculative building activity in Spain amounted to 18% of the gross domestic product, the blowback of `fictional capital' on the real economy was manifest."


Robert Kurz, "Das Weltkapital"

Finally the wealth-effect (27) seen during the high tech bubble also massively appears in a slightly modified form in the course of the real estate speculation. The constantly rising prices of their property seduced many members of the American middle class to take mortgages on their houses and use the "gained" money for consumer goods. Several hundred billion dollars were supplied to the domestic US market and kept the global deficit cycle going. (28)

The counterpart to the stock frauds of high tech speculation was the so-called flipper during the real estate bubble. (29) Houses often belong to the US middle class were bought during the boom to be sold again with profit after a more or less thorough renovation. Similar to the profits from stock sales, a part of this generated - or often only imagined - income growth went into consumption as a "wealth effect."

Another characteristic of the market economy in the US driven by the financial markets is the increasing importance of consumption that in the last years was responsible for a large part of the economic dynamic of the world economy. Thus consumer spending (30) in the US climbed from 62 percent of the gross national income in 1980 to 70 percent at the beginning of the 21st century. This permanently increased significance of consumption - despite all financial crises and bursting bubbles - cannot only be ascribed to the "wealth-effect" since the consumption based on "unrealistic" profit expectations through stock- or real estate-speculation had to collapse in times of a bursting speculation bubble. The "wealth effect" is nothing but the illusion of increasing wealth that ultimately "bursts" like a dream vision.

The wage development in the US cannot be cited to explain this phenomenon since real wages between New York and Los Angeles have not risen in the past decades. According to the journalist David Cay, average US wages corrected for inflation climbed to their peak of $33,000 in 1973. (31)

What drove the "financial bubble economy" along with the global deficit cycle over such a long period? A glance at the indebtedness of the United States lifts the veil.

The total indebtedness of the US has insane dimensions that have absolutely no parallels in the economic history of this largest national economy of the world. On March 31, 2008 the United States was up to its ears in debts at 350 percent of its annual total economic output! In the whole "Golden Age" of capitalism between the 1950s and the 1970s, the total US debt fluctuated between 130 and 160 percent of the gross national income. The debt overload first exploded to 350 percent in the 1980s for three decades in connection with the neoliberal offensive.

To grasp the incredible dimensions of this huge debt mountain, a glance at the exploding indebtedness during the worst economic crisis in the history of the capitalist world system breaking out in 1929 is enough. In 1933 the debt mountain reached 270 percent of the gross national income. This relation rapidly deteriorated on account of the economic program of the "New Deal" and the falling gross national income in the course of the Great Depression.

The total spending to "stabilize" the financial markets in the current debt overload of 350 percent may even rise further. The total indebtedness of the US will soon amount to $44 trillion, equal to the gross world social product, the sociologist John Bellamy Foster summarized in the middle of 2007. (32) Given these dimensions, believing the financial crisis can be managed thanks to a "bailout" of the ridiculous $700 billion is simply illusory.

In 2005 alone, at the peak of the last real estate speculation, private US households increased their debt overload 11.7 percent to the staggering sum (33) of $11.5 trillion. This was the highest rate of indebtedness since 1985 when the real estate bubble was about to burst and led to the savings account crisis. (34) Neither the heavy debts of US businesses (plus 7.8 percent to $8.4 trillion) nor the state debt of the United States (seven percent plus nine trillion) has risen at the same high speed as private borrowing. Wage earners of the US who for decades have had to struggle with stagnating wages were a real goldmine for the whole capitalist world system. In a lecture, Richard Wolff, professor of economics at the University of Massachusetts at Amherst (35) recently illustrated the functioning of this global contracting of debts:

Since employers can prevent higher wages, the only possible way of selling the ever-growing goods production consisted in giving money to workers so they can buy the goods. Businesses invested their profits in buying securities in which mortgages of workers, auto-credits and credit card debts were guaranteed. The owners of these securities had a right to part of workers' monthly installment payments. In the end, the extra profits realized by employers through the low wages were paid out twice since these profits were passed on as credits to workers and juicy interests were pocketed. What a system!


Richard Wolff

Wage dumping and "market expansion" of the financial branch by means of debt explosion went hand in hand. This system could be described as a kind of "privatized Keynesianism" in which US citizens support the economy with their "deficit spending." In the end, the American state with its astronomical indebtedness did the same thing. This system was global since this debt-financed demand boom was at the heart of the global deficit cycle that also kept the national economies in Southeast Asia or Europe above water. This perpetual motion machine driven on credit as the center of the "financial bubble economy" succumbed in the course of the financial crisis.

More dislocations will certainly follow the auto-crisis (36) in Germany and the US that now heats up tempers. National economies are directly exposed to the contradictions of the later-capitalist mode of production [the crisis of the work society (37)] expressed in a massive over-production crisis. These crises previously "disappeared" by means of debt packaging in the financial sector. As export world master (38), Germany's industry profited from the global deficit economy. Hartz IV (German welfare "reform" combining income support and unemployment benefits and drastically reducing the duration of benefits) helped the orientation of German society in the interests of German industry whose export offensive had a complementary function to the increasing trade deficit of the US.

This financial bubble economy arising in the course of financial capitalism since the deregulation in the 1980s has led to around 100 more or less serious crises and speculations around the globe. Alongside the above-mentioned dislocations, the Mexican financial crisis of 1994/95, the Asian crisis of 1997/98, the Russian financial crash of 1998 and Argentina's collapse of 2002 had disastrous consequences for the affected national economies. The collapse of speculation on the future commodities markets immediately following the bursting real estate bubble produced the - temporarily - falling raw material and energy prices.

IN THE LAND OF FANTASIES - THE DIMENSIONS OF FINANCIAL CAPITALISM

The global deficit economy lives as an appendix of the explosively growing financial markets. This unlikely relation between the global real economy and the financial sphere was only possible on account of the astronomic dimensions of the permanently proliferating and mutating financial markets.

Before we make a quantification of financial capitalism, the inner structure of this expansion movement of financial capital should be clarified. As mentioned, its assets are only produced by means of the burning out of human labor since no new capital and no new assets are actually produced within the financial branch. What occurs is a zero-sum game in which wealth can change owners without any new wealth arising. What causes the expansion of the financial markets?

The financial markets need ever new "fuel" in fresh capital, the "financial explosion," to maintain their growth. In the course of the neoliberal reforms, capital from the real economy streamed into the financial sector since the 1980s since higher profits could be realized there. Later the middle class increasingly invested its savings in stocks and securities starting from the popularization of stock market speculation in the 1990s. The growing social division in nearly all national economies led to a rapid multiplication of well-to-do "investors" who were also engaged on the financial markets. The privatization of welfare systems gave another growth push to the financial branch since the pension funds for example went on a search for profits in the financial sector. Ultimately the debt overload of private households became a business and another source of revenue for financial capital.

The presupposition of this massive indebtedness was a policy of low interests that facilitated awarding credits. In the final analysis, the expansive monetary policy of the Fed ("Extinguishing with Gasoline") provided the most important fuel of the financial markets. Through low interests and expansion of the money supply, "wealth on push-button" was seemingly created by activating the printing press since the dollar after the abolition of the gold standard was "its own gold."

A creatio ex nihilo, a "creation out of nothing," occurred, the creation of a purely fictional capital - not covered by any real assets or production. This voodoo economy flanked the runaway indebtedness and - like the inflation of home prices - led to an inflation of stock prices and all kinds of securities. The dimensions of this bloated finance capital bureaucracy based on the real economy are in fact "astronomical," as the philosopher Istvan Meszaros (39) recently remarked: (40)

"How can we imagine all these trillions? A trillion years is a hundred times the age of our universe. We speak here about the omnipotent US dollar, the preferred currency of all-important transactions, not the currency of a banana republic. How much speculative money now moves around the globe? According to an analysis of the Mitsubishi UFI Asset Management Group, the real economy in which goods and services are dealt amounts to $48.1 trillion. The global financial economy, the total quantity of stocks, securities and deposits comes to $151.8 trillion. Financial management has swollen to three times the size of the real economy... The crisis of 1929 is relatively small compared to what we have today."


Istvan Meszaros

The inconceivable dimensions of financial capitalism can be grasped best in relation to the real economy. The relation between the total turnover of the US financial markets and the gross national income of the United States (41) helps us understand the "financial explosion" advancing in the last decades. The American gross national income in 1960 only amounted to 66.2 percent of all the turnover of the US financial markets. In 1970, this share fell to 37.8 percent, in 1980 to 15.7 percent and a decade later to only 2.6 percent.

In 2000, the sum total of all the goods and services of the largest national economy of the world produced in a year amounted to 1.9 percent of the turnover of the US financial markets! The speculative movement clearly increased in the course of finance capitalism. It is no wonder that the "wealth effect," the "few cents per dollar" of increased fictional assets, went into the real economy to keep this going. The explosion occurring with the creation and spread of derivatives permeated the whole financial sector, as the sociologist John Bellamy Foster explained: (42)

"The average daily turnover in currency transactions rose from $570 billion in 1989 to $2.7 trillion in 2006. Since 2001, the global market for derivatives (instruments for transferring risks) grew over 100 percent annually. From being relatively insignificant at the beginning of the millennium, the total face value of the globally-handled credit derivatives inflated to $26 trillion in the first six months of 2006."


John Bellamy Foster

This is similarly true for the profits realized in the financial sector and in the real economy. (43) The profits of finance capital with three percent of the gross national income are higher than in the productive industries whose profits are two percent. The rise of the share of profits realized in the financial sector to the total profits in the US climbed from 17 percent in 1985 to almost 40 percent in 2000-2005.

In bankers' newspeak, an important lever for realizing such rapidly increasing profits is called "leverage." This means the degree in indebtedness with which a market actor operates. The expansive monetary policy of the Fed was the presupposition for this widespread practice of "leverage." This expansive policy promoted the debt overload of private households and led to the excessive reliance on foreign capital within the financial branch itself. Thanks to the dollar glut, private equity firms in 2006 for example could mobilize 15 times their own capital holdings.

This indebtedness assumed absurd dimensions with market heavyweights, as Istvan Meszaros illustrates in the example of mortgage financiers Fannie Mae and Freddie Mac. (45) The internal capital of both giants of the real estate market amounted to $83.2 billion toward the end of 2007 while the debts, guarantees and other obligations of these firms came to $5.3 trillion. The relation between internal capital and debts was one to 65 - in the largest and most important mortgage financiers of the world!

The quantity of "hot air," "fictional capital" generated by the central banks by means of the dollar glut and injected in the financial system, is clear with the help of these relations. As absurd as it seems, this "hot air" of the all-round escalating indebtedness kept the degenerate late-capitalist world system going.

EXCURSUS: OUR POTEMKIN VILLAGES

Some time or other, even the greatest injections of freshly printed US dollars will not be sufficient to maintain the fašade of a dynamic capitalist system. With progressive financialization, the temptation increased to help along reality statistically. The statistical distortions of the German and American unemployment rates have become known like the growth of the money supply in the US long repressed as a state secret. The statistics portal shadowstate.com shows the manipulation of the inflation rate.

The picture of a capitalism fit as a fiddle disappears very quickly, as soon as this alternative data is considered. Instead the thesis of the stagnation of developed capitalist societies gains in plausibility.

In Germany, it does not look much better since the "experienced inflation" - that must be regarded as real inflation - is always above the "official" inflation rate. Glossing over the facts assumes absurd dimensions with the eruption of the financial crisis, as the recent changes in the balancing regulations for banking demonstrates. In the future, banks and insurances may record their securities at the purchase price and not at the actual market price. One participant of the World Forum commented (46) on this "reform" of the balancing rules:

"Can what is still punishable and leads to the nullity of balance sheets, namely overrating assets, bring salvation in the future?... Long bankrupt firms may continue. Degenerate firms are no longer known by their balance sheets. The building block for the next catastrophe in ten years is laid."

Such desperate "reforms" recall the final phase of command socialist countries like the DDR (East Germany) and the Soviet Union. Their official statistics showed continuous economic successes while their economies actually sank in stagnation.

SUMMARY AND OUTLOOK

We can now answer the questions about the causes of the coming worldwide economic crisis. The deregulation of the financial markets actually promoted the "financial explosion" of the last decades. The wildly proliferating financial markets kept alive the real economy threatened by stagnation. Denouncing the "greed" of speculators for the greatest possible profit is just as sensible as complaining about the stench of a manure heap. Both are in the nature of things. The search for the highest profit, for maximizing profits by means of investing in production or speculation, is the innermost nature and end-in-itself of the capitalist system.

The characteristic of the capitalist system that fascinates critics and supporters alive is the permanent competition-driven upheaval of the technical prerequisites of production, the relentless advance of the means of production. That entrepreneur who can apply the latest techniques in production gains the highest profits by producing more and more products in the shortest time with fewer and fewer people.

This permanent "revolution of productive forces" causes reduced jobs in industrial branches. The total system remains in balance as long as branches of industry create additional jobs. Since the 1980s, the technical revolution in microelectronics and information technology has triggered a productivity surge. This is not working out now. Automation and rationalization in the whole economy make more jobs superfluous than arise in the IT-branch. Cars cannot buy cars. This saying ascribed to Henry Ford which implies a demand-oriented Keynesian policy can only be restrictedly applied to today's situation where the industrial working class rapidly falls and the army of the precarious and unemployed swells from economic cycle to economic cycle. The technical progress of productive forces, the potential foundation of a general satisfaction of needs of all members of society, changed under capitalist conditions of production into a scourge of humanity causing mise4ry, hunger and marginalization.

Thus mountains of goods that cannot be sold (over-production), vast amounts of fallow capital (over-accumulation) and mass unemployment arose from the 1970s. In a seemingly magical way, finance capitalism together with the established bubble economy solves this late capitalist dilemma. The financial markets growing wildly exuberantly accept the surplus capital, the profits generated during the boom phase of diverse speculative bubbles and on the other hand ensured purchasing power demand - even though it was fictional and credit-financed. In the global deficit cycles, the US as an increasingly indebted center accepts the surplus production of export-oriented countries like China, Japan and Germany.

With the collapse of the real estate bubble, these deficit-driven global economic cycles come to a standstill. These cycles cannot be set in motion again given the astronomical indebtedness on which they are based. The dismantling of the huge US debt mountain only seems possible through a hyperinflation. What is now occurring is nothing less than a fundamental structural crisis of the center of the capitalist world system. Industry and the productive economy are cast back on themselves since the stimulating effects of finance capitalism do not occur. An over-production crisis of gigantic dimensions is on the way.

A "return" to the Keynesianism already in crisis in the 1970s, to massive economic programs, will be just as ineffective as a new regulation of the financial markets. A person suffering from cancer cannot be healed with a cough drop. The continuing (47) scientific-technical progress makes more and more people "superfluous" for the reproduction of our society and leads to a "crisis of the work society."

The American sociologist Immanuel Wallerstein recently described (48) this "era of transition" and dared a prediction about the future development of the world system.

"The immediate consequences include strong chaotic turbulences that our world system experiences at the moment and will live through for 20 to 50 years. While everyone presses in the direction they consider most advantageous, a new order will emerge out of the chaos that will run along one or two different paths.

The present system cannot survive. We cannot predict the order that will be chosen to replace it because this will be the result of nearly infinite individual efforts. But sooner or later a new system will be installed. It will not be the capitalist system and could also become much worse (even more polarized and hierarchical) or much better (relatively democratic or relatively egalitarian) than the present system. The choice of a new system is the most important global political struggle of our age."


Immanuel Wallerstein

The emergence of a new key technology could be a reprieve for the capitalist world system lying in agony, generating mass employment and imitating a "long economic wave," in the sense of Kondratjwes. The wisest US politicians (40) see this possibility in the forced development of renewable energy (50) that could go along with a comprehensive labor-intensive transformation of the whole energetic base of the United States.

LINKS

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(11)  http://commons.wikimedia.org/wiki/Image:LeitzinsenDE.png
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(16)  link to www.marketwatch.com
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(18)  http://www.blah3.com/images/articles/20080202212911626_2.gif
(19)  http://en.wikipedia.org/wiki/Predatory_lending
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(23)  http://en.wikipedia.org/wiki/Credit_crunch
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(29)  http://en.wikipedia.org/wiki/Flipping
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(31)  http://www.alternet.org/democracy/86973/america%27s_democratic_collapse/?page=2
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(35)  link to video.google.com
(36)  http://www.spiegel.de/wirtschaft/0,1518,591122,00.html
(37)  http://www.heise.de/tp/r4/artikel/29/29235/4.html
(38)  http://www.heise.de/tp/r4/artikel/28/28395/1.html
(39)  http://en.wikipedia.org/wiki/Istv%C3%A1n_M%C3%A9sz%C3%A1ros
(40)  http://www.youtube.com/watch?v=m7DLchedKV8
(41)  http://en.wikipedia.org/wiki/Image:Financial_Turnover.jpg
(42)  http://www.monthlyreview.org/0407jbf.htm
(43)  http://en.wikipedia.org/wiki/Image:Profits_Finance_vs_Manufacturing.jpg
(44)  http://www.monthlyreview.org/080401foster.php
(45)  http://www.youtube.com/watch?v=0JFfxYhgNNo
(46)  link to www.welt.de
(47)  link to www.heise.de
(48)  http://www.monthlyreview.org/mrzine/wallerstein161008.html
(49)  http://www.youtube.com/watch?v=JqVwkKL859A
(50)  http://www.heise.de/tp/r4/artikel/29/29115/1.html
Telepolis Artikel-URL:  http://www.heise.de/tp/r4/artikel/29/29356/1.html

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