Controversial economic recovery in the United States
Osvaldo Martínez, director of the Center for Research into the World Economy

ONE year has gone by since the current economic crisis began its cycle of destruction; however, its duration could already have extended to two years, given that it was in the summer of 2007 that signs of the real estate crisis, the prelude to this global crisis, became apparent in the United States.

A controversy is underway in the rich countries hit by the crisis over the much-desired recovery, in relation to certain quarterly indicators that have displayed a slight upturn or whose rate of descent has slowed. Some economists are affirming that the crisis is over and joyfully announcing an imminent and energetic recovery.

However, the most objective analyses indicate that these are desires converted into predictions with a scientific appearance and that this global crisis – the most profound since the 1930s – cannot be declared a thing of the past, as it still retains the potential to produce greater destruction and to take many by surprise on account of its unprecedented characteristics.

This crisis cannot be seen as a repetition of that of 1929, as this one is an unique organism containing a mix of various crises (food, energy, ecological, social and financial) in the midst of a high rate of globalization with toxic assets (those lacking real backing) disseminated throughout the world economy, combined with incredibly complex finances (investment banks, tax havens, high-risk funds, insurance companies, etc.) in a context where the real sum of those "assets" is unknown, and there is no international regulation for containing the movements of that enormous financial mass considered by some to be no less than $600 trillion.

Within the controversy, the positions among those hoping for a vigorous recovery in the United States can be summed up as follows: those who believe that the recovery will be anemic and will probably tend to reproduce the virtual stagnation of the Japanese economy from 1990 to 2005; those who are pointing to the existence of other financial bubbles about to burst and for that and other reasons are talking about a "double-dip" downturn, anticipating another dramatic fall in 2010, accompanied by high inflation due to the massive injection of dollars in the form of rescue packages by the Bush and Obama administrations, the huge growth of the budget deficit and in general, of a public debt that is reaching a total of $12.5 trillion, almost equivalent to the U.S. gross domestic product.

But, before advancing within that controversy, it is worth paying attention to the social cost accumulated to date by the global crisis, because this is not about a technical exercise correlating variables in a theoretical model, but the destructive effect on persons and social wealth provoked by capitalist crises every so often.

Higher food prices – one of the ingredients of the current crisis – from 2005 to 2008, have taken approximately 200 million people into extreme poverty, while estimates for 2009 include an additional figure of 55-90 million people pushed into extreme poverty due to the crisis. According to the International Labor Organization (ILO) the unemployment rate is set to increase to 30-50 million due to the effects of the crisis.

Recent data from the FAO (Food and Agriculture Organization) indicate that in 2009, those suffering from hunger will rise to 1.02 million, 170 million more than in 2007.

Finally, World Bank estimates indicate that the crisis could result in 200,000-400,000 additional infant deaths between 2009 and 2015, implying the enormity of 1.4 to 2.8 million children killed by the capitalist crisis.

On the other hand, according to a 2008 report on world wealth, for the super-rich of the world, some 80,000 people, representing 0.001% of the population and possessing 10% of the planet’s wealth, the impact of the crisis has not provoked much commotion. While in 2005 they possessed a collective wealth of $33.4 trillion, in 2008, the figure stood at $32.8 trillion, and the most visible signs of "impoverishment" were a drop of $1 billion in auction sales of works of art and a fall of 21% in the sales of Lamborghini luxury automobiles.

Observing the state of the U.S. economy we can appreciate that an end of the recession is arguable, even in the reduced terms in which such a thing is understood in the conventional language of an absence of quarterly growth, and that the road ahead is strewn with obstacles and dangers, in no way indicative of a vigorous recovery. What can be observed on the horizon is the negative combination of inflation-debt, the danger of other financial bubbles that could burst and the possibility of a double-dip downturn or two falls, with the second occurring in 2010.

One of the possible courses of the crisis is related to the vast mass of dollars being laid out by the U.S. government in the form of rescue packages, combined with those gaily handed out over decades to maintain the loss-making and parasitical functioning of that economy.

The exclusive privilege of acting as the only country that can make imports and diverse payments via the simple procedure of printing dollar bills, is creating a crisis and this is being reinforced by the injection of dollars and the general weakness of the U.S. economy. The point at which the privilege of the dollar becomes unsustainable is not far in the distance.

Another serious obstacle to recovery is that the real estate bubble which burst is not the only one. Uncontrolled speculation, supported by the favorable neoliberal environment has inflated other bubbles that could burst at any moment.

One of them is the real estate bubble in non-residential buildings, i.e. offices, supermarkets and hotels. The crisis has hit all these activities and the bankruptcy of supermarkets occupying large constructive spaces has been reported, as has that of various offices. At the end of July the Financial Times called attention to this sector and the possibility that it could be the next link in the financial crisis after the real estate disaster in the residential sector. It estimated that $6.7 trillion of assets are compromised in this commercial real estate sector.

Credit cards represent another bubble threat, at an estimated one billion dollars. This so-called plastic money has experienced a lengthy stage of propagandistic saturation by inciting Americans to buy on credit without rational limits, and even encouraging them to have more than one credit card.

Speculation in relation to oil prices is feeding another bubble, given that price movements are strongly influenced by speculation, far beyond the real relationship between supply and demand.

After reaching the extremely high level of $145 per barrel in the summer of 2008, the price of oil fell to $33 in December, but since then it has risen again to more than $70 per barrel, although that increase does not seem to correspond to a real economic recovery that is prompting a substantially higher demand.

The most somber analysis of the crisis comes from U.S. economist Nouriel Roubini, who had the merit of being the only one from within the United States to forecast the actual crisis in its real dimensions. This author sustains that recovery is still barely initial and that growth will be anemic for at least two years.

His reasons are various: families are highly indebted and are having to save more, and the financial system (both banks and non-banking entities) is much damaged. We could add that many banks are alive thanks to governmental support, but that they are not providing their essential service, which is to offer credit. To date this year, 89 banks in the United States have disappeared, brought down by the crisis. Banks considered to be in a dangerous situation increased to 416 by the end of the second quarter; there were 305 at the end of the first quarter. These banks are ones that have been degraded in their position due to liquidity problems, levels of capital or quality of assets. As a consequence, the lack of credit will hold back consumption and private investment expenditure.
Another reason for anticipating an anemic recovery is the reduction of demand at world level, and which is diminishing in high-spending countries like the United States, the United Kingdom, Australia and New Zealand, and thus not increasing sufficiently to compensate that descent in saver countries like China, Japan and Germany. But the gravest aspect of the crisis is the possibility of two falls (don’t forget that in 1929-33 there were stock market rises of up to 20% on two occasions, only to experience a descent once again) and that there will be a second downturn with its retinue of destruction and poverty in 2010.

A double-dip downturn is possible because the finalization in terms of time of governmental stimulus and the return to a certain normality is proceeding on a knife-edge and requires extremely fine and precise handling. If the U.S. government raises taxes and cuts back on expenditure – an improbable action given growing military costs – and combats excess liquidity, this could abort the weak recovery. On the other hand, if it continues accumulating deficits by gaily printing bills, inflation will rise, the interest rate will go up and similarly abort the recovery. Here, it should not be overlooked that China is not in favor of continuing to buy U.S. bonds to the same extent as in previous stages and its government is proposing the need the transform the international monetary system based on the dollar.

And moreover, prices of oil and foodstuffs could increase more quickly than those indicated by real demand, due to speculation and a new round of very high oil and food prices in the midst of a weak recovery, which would likewise provoke an abortion.

Those who believe that the 2008-2009 crisis has been left behind could have a painful awakening. This crisis is not the same as previous ones and the capitalism of our days is dragging too heavy a combination of exploitation, inequality, speculation and aggression to the environment that is making such a recovery in economic, social and environmental terms an impossibility.