Summary: Last month’s developments, including the massive crash in silver and copper prices (which have, I believe, come about because people, including crucially industrialists, are realising that there just isn’t going to be the economic activity to use them), presage, in my view, the next stage of the economic crisis. The world is waking up to what may be the end of growth, certainly in the ‘developed’ (sic.) world. If there is growth now in some sectors of the world’s economy, it is likely to be matched or outweighed by decline elsewhere.
Meanwhile, a huge potential disaster is looming and growing in the world, as money itself comes under strain… I predict massive corporate debt crises soon, to rival the growing sovereign debt crises. But the fiat money system itself will likely be in the firing line within a year or two…
This piece explores speculatively some of the scenarios for the next few years which are not making the headlines in the mainstream media. ‘Surprises’ which need to be considered… Now that a permanent and forced end of growth is likely, now that we are actually hitting real global environmental limits that will systemically limit the capacity of the economy to produce now, not just damage it for the future.
In this post, I think all of this through at this current historical moment, so far as these matters can be judged. Then, Brian Heatley, a colleague of mine at the Green House thinktank, essays a reply. That is followed by a very brief further reply by me. The matter is then thrown open to you, dear readers, for debate…
Last month’s actions and predictions by the Fed, ‘Operation Twist’, mark an important change in the world financial and economic crisis. Basically, the Fed is finally accepting that we are quite likely to be entering a prolonged recession, more likely perhaps a Depression. Even perhaps, I would add, a permanent Depression. And ‘the markets’ have realised this. That is the huge significance of the massive drop in silver and copper prices that followed the Fed’s intervention:
“Morgan Stanley attributed silver’s drop to growing concerns about industrial usage and the “high retail component of the investor base”…
Three-month delivery copper fell 4 percent to $7,067 a ton, taking this year’s loss to 26 percent, after earlier today touching $6,800, the lowest level in more than a year. The contract lost 15 percent last week.
“Copper is clearly in a downward trend as investors see no improvement in the macro environment, only deterioration,” Zhang Zhenghua, an analyst at Minmetals Futures Co., said today by phone from Shanghai.”
In other words: silver and copper, which (unlike gold) are still bought primarily as genuine commodities for their actual use (speculative and ‘savings’ use of silver is still well under 50% of its use), have plummeted in price because manufacturers think that they are not going to need much silver or copper in the next several years. Because they finally have woken up to realise that we probably are not going to have net economic growth.
The mania for economic growth, combined with elite determination not to take proper control over banking and not to make the banksters pay for this crisis, and combined of course with financialisation itself, have unleashed a disaster. A disaster that could have been prevented by a genuine Green New Deal. Now, we are in the midst of a growing sovereign debt crisis, because the banks’ losses have been socialised. That crisis shows no sign of ending. And on the verge of a massive corporate debt crisis: balance sheets are going to unravel, as plans that were made on the basis of predictions of expansion are reined in. The de-leveraging will continue to unwind and probably escalate, as expectations fall. (See http://www.financialsense.com/contributors/nicole-m-foss )
The actions taken to try to deal with these escalating crises without taking power from the bunch of bankers who have ruined the world economy are putting fiat currencies themselves at risk. ‘Quantitative easing’ has further enriched elites without putting more money into the hands of the populace at large: A Citizen’s Income should have been used instead, with the newly printed money. Money itself is finally starting to come into question. As yet more QE happens in Britain, we now don’t know whether we are destined for runaway deflation (in my view, the likely outcome) or runaway inflation (which is what is currently being worried about in public).
Why is QE being tried? One reason is that QE is being used to stop the nominal banktruptcy of financial institutions (and now also governments) become an actual bankruptcy. But also: In a desperate bid for growth, through a zero-sum-game of export-led ‘strategies’, in the context of an unwillingness to take banking into social/public control. Most roads lead back to growth-mania as increasingly the cause of our troubles.
For now, the U.S. dollar is safe. But for how long can the game of the U.S. printing money without anything to back it up continue? The U.S. economy is in a dire state. Will other countries allow it to leech off them, through the dollar being a reserve currency, forever? (Further: is the US prepared in effect to lose its sovereignty to China? And what if the Chinese don’t want it as a vassal?)
The printing of more and more money, the real inflation underlying dubious government stats purporting to show that inflation is not getting out of control (see e.g. http://www.shadowstats.com/ for some provocative analyses; also http://www.shadowstats.com/article/hyperinflation-special-report-2011 )…; will money as we know it survive the current crisis? This inflation is lowering the real value of people’s houses and much more besides without them really noticing. Relative to the value of gold, house prices have gone through the floor in the last few years. So we are undergoing the deflation that we need to make the money match the real economy — but the price is being paid by those with small assets rather than large assets. This is why the ‘We are the 99%’ message is now more pertinent than ever…
As mentioned above, this pro-elite inflation is hovering in uneasy balance with the massive deflationary tendencies inherent in the vast destruction of debt-based money that has occurred and that may accelerate in the deleveraging process. All that is needed now is some countries to default and a load of banks to fall like nine-pins, and we could fall into a more or less unstable deflationary Depressionary spiral, which will impoverish billions. (Watch this video, which caused a sensation:
BBC speechless as trader says collapse is coming; Goldman Sachs rules the world and the euro eurozone collapse is a certainty:
Moreover, the short term effect would already be dreadful: If government defaults begin the main problem is the freezing up of the credit/trade systems that we rely on for our basic necessities.
This huge ongoing disaster may well have been caused in part by the limits to growth and the unwillingness of governments and peoples to face up to them: See http://rupertread.org/rupertread.org/wordpress/?p=335 .
The level of denial about this is astonishing; governments seem prepared to trash everything on the unrealisable altar of their desperate bid to restart economic growth. Thus we are getting the environmentally-trashing economics of 3rd world ‘development’
– and of the destruction of the countryside envisaged under the new planning laws that this Coalition government are bringing in in Britain.
Let’s take stock. The disaster was allowed to happen by governments unwilling to strongly regulate haute finance. And it has been and is being hugely exacerbated by the refusal to contemplate anything but growthism as the way out of the crisis. Because it is this refusal which has motivated the horribly-risky ‘strategy’ of printing vast sums of money, thus putting money itself at risk.
What is needed is a strategy to deal with all of this that does not fantasise a way out via a return to growth. We need to put finance back on the leash, swiftly: Vickers, for instance, represents too little, too late, and too slow: http://www.greenhousethinktank.org/files/greenhouse/publications/Banking_summary1.pdf (See also http://www.opendemocracy.net/blog/ourkingdom-theme/rupert-read/2009/07/14/the-bank-of-britain-a-proposal : this proposal has since become Green Party policy. It stands diametrically opposed to the obscenity of allowing the banks to return to the private sector, at this delicately-balanced moment in human history).
We need a Green New Deal not as a ‘stimulus’ but as a transition to a dynamic equilibrium economy: See my piece on this in http://clients.squareeye.net/uploads/compass/documents/COM_Good_Society_Green_Society_04.pdf .
We need to go beyond Tim Jackson’s (excellent) challenge to growth, and redefine prosperity through the idea of a REconomy: cradle-to-cradle processes incentivised, rationing not just of carbon but also of other virgin resource use (so an overall supply side resilience is secured), and, alongside this, rethinking how we incentivise appropriate technologies that match positive human-scale behaviour-change. The greatest challenge, that is, is replacing the growth-based identity with a provisioning one.
We need simultaneously to put in place a broader series of measures that will build resilience in the event, now probably likely, of the kind of vast crash and Depression indicated above. For instance, local currencies.
We need to warn people in plain terms that growthism, banksterism, and enormous gambles with our collective future have put the world on the edge of an unknown precipice. We need to talk about the risk of a Depression such as the world has never seen before; of an end to money as we know it. There is far more than the Euro now at stake. The news is full of the travails of Greece, Italy, and (soon) Spain and France. The banking system teeters on the edge of complete meltdown. For if the Euro tears apart and some of these countries default, there are far too many banks that will not be able to stand the strain.
Meanwhile, the refocusing on real assets – the sacrificing of anything and everything (including the celebrated British Planning system) to the chimera of growth — is accelerating ecological impacts and, ironically, pushing us towards a more ultimate economic collapse (See e.g. http://www.biofuelwatch.org.uk/2008/climate-geo-engineering-with-carbon-negative-bioenergy/ ). The ‘investment’ and exploitation in real resources around the world is truly devastating. It is not just a market Depression, but underlying collapse that is looming. And a huge land- and resource- grab is in process — which may be accelerated by processes of collapse (There will be super-rich waiting eagerly to pick up the assets of the en masse bankrupted and immiserated).
We need to be warning people now about the disaster that is unfolding. In the event of dire cataclysm, we need to be able to say entirely truthfully, ‘Unlike the others, we told you so’. We need, for instance, to tell people plainly, now: your savings, the savings of the 99%, are at risk. The (commercial) banks are not safe, and perhaps now they never will be.
Meanwhile, think tanks are piling over each other to have the best growth strategy – see http://www.lexcomm.co.uk/latest-news/think-tank-quarterly-the-growth-edition/ . Even Compass’s ‘Plan B’, for all its virtues, is still resolutely growthist.
But the environmental crisis will now almost certainly be permanent (non-renewables are not going to get more plentiful by themselves; we will hit more limits to growth, not less, as time goes by); the system will keep wandering into new crises making growth impossible.
The only people who see the really massive disasters coming are a small minority who are prepared to think the unthinkable and challenge hegemonic normalising assumptions. Like the tiny minority (including Dean Baker, Ann Pettifor, Larry Elliott, Nouriel Roubini) who saw the 2007-present crash coming, and were willing to guess how big it might be.
I think we may be about to see that crash get way bigger. I think we should warn people. Herewith then, my warning.
The time has come for a zero-growth solution to the world’s problems. The alternative don’t bear thinking about.
I wish it were the end of growth but it is not – a reply to Rupert Read from Brian Heatley
I agree with most of Rupert’s piece. Regulating the banks, providing a nationalised utility bank, local currencies, the dangers of inflation arising from quantitative easing and above all challenging the assumption that growth is the only way out of the crisis is all common ground. But one thread throughout the piece worries me.
This is Rupert’s most important claim that the world economy is now actually hitting environmental limits that are preventing further growth:
Now that a permanent and forced end of growth is likely, now that we are actually hitting real global environmental limits that will systemically limit the capacity of the economy to produce now, not just damage it for the future.
I think this claim is wrong, and essentially wishful thinking. I’m not saying that the world economy should not stop growing to prevent catastrophic environmental damage in the future, and I’m not saying that the world economy will not at some point in the future be stopped from growing by environmental constraints. But it hasn’t happened yet.
The first and very simple point to make is that the world economy has not stopped growing. The current recession is an OECD phenomenon, affecting primarily Europe, the US and Japan. China, India and many other countries are still racing ahead at high growth rates, if a little slower than before. Here’s a graph of real growth rates over the last five years for the principal economies (figures from the World Bank website at http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG):
The world as a whole is the thick black line, and for the world as a whole there was one year of negative growth of 2% in 2009. World growth in 2010 was 4.2%. The four principal OECD economies, the US, Germany, Japan and the UK largely tracked the world economy but at a lower overall level; the UK has shown an especially weak recovery. China and India both slowed, but from much higher growth rates.
So it’s simply not the end of growth globally, and so perhaps it’s a bit premature to start asking why growth has come to an end. The UK, because of its special characteristics (an over-large finance industry and a doctrinaire right wing government seeking an excuse the shrink the state seem to me to be the main special factors), may well be entering a depression (by which I mean a prolonged recession), but there is little evidence that the world is.
Rupert supports his contention that we may actually be hitting environmental limits with reference to Sarel Sarkar’s new book, The Crisis of Capitalism, at http://www.oekosozialismus.net/The+Crises+of+Capitalism.+Saral+Sarkar.+2011.pdf
Now I’m a great admirer of Sarkar, especially his earlier Eco-capitalism or eco-socialism which I put on the Green House book list. But I think the case he makes here is thin.
Sarkar’s main point is that commodity prices for non-renewables (mainly fossil fuels and minerals) have risen, reflecting the exhaustion of finite deposits. This has fed through into the main economy; the main mechanism he cites in the book (pg 197 onwards) is that increased commodity prices reduced the incomes of poorer Americans, and led to mortgage foreclosures, precipitating the whole banking collapse.
The claim about rising commodity prices themselves is very complex, involving many different commodities over a time period. Rupert cites very low copper and silver prices as evidence of lack of demand in the economy as a whole. But equally that is evidence against exhaustion of those minerals and the limits to growth case. Perhaps a lot more important is the case of oil; its use is so ubiquitous with few close substitutes that it has the potential to depress the whole world economy, as it did in the early 1970s. But the evidence is mixed. Peak Oilers claimed their moment had come when the price reached $150 a barrel in 2008, but the price has now dropped back to an unexceptional $80 (see http://www.nyse.tv/crude-oil-price-history.htm). Yes, the price will rise as it gets harder to extract, but enough to choke off growth? The West will, immorally, use war and support for client dictatorships to secure cheap supplies. We’ve only used half of it, there’s (regrettably) an awful long way to go yet. My guess is that it might be possible to mount a better case around another ubiquitous item, food, and I’m looking forward to seeing Tom Lines’s forthcoming piece. But my point is we need far more careful treatment of the whole range of commodity prices, and of their behaviour in other economic cycles, before we can be sure that ‘limits’ are dominating the picture.
Moreover, to go back to the main thread of the Sarkar argument, there are problems at the other end of the chain of causation involving the incomes of poorer Americans. There were quite a lot of things in the last decades affecting the real incomes of poorer people in the OECD countries apart from commodity prices for non-renewables, some positive some negative:
– increasing incomes through rising productivity and technical change
– the bonus that has come from the import of far cheaper manufactures from China etc
– a general tendency for tax rates and the share of government expenditure to fall
– changes in other commodity prices, especially agricultural prices
– the increase in the share of profits and rents from 30% in 1980 to about 50% now and the corresponding fall in the share of wages and salaries, squeezing in particular those on lower incomes
– the increasing debt of poorer people (through credit cards etc) which meant more of their income went to interest
and without a detailed and above all quantitative analysis it’s wrong to assert that one of these is the dominant factor and so in some sense the ’cause’ of the crisis. I say quantitative because it does matter how big the different effects are. My gut feeling (or perhaps it’s political prejudice) is that by far the biggest factor is the rising share of profits and rents in the period, the declining incomes and power of working people, brought on by Thatcherism, Reaganism, free movement of capital and the neo-liberal triumph. And that that has produced in the end a good old crisis of lack of effective demand; workers actually spend wages and salaries, while profits and rents are not necessarily spent, so if the share of the latter increases the economy is in trouble (I didn’t make this up by myself, it’s essentially David Harvey’s analysis in The Enigma of Capital, and more accessibly at http://comment.rsablogs.org.uk/2010/06/28/rsa-animate-crisis-capitalism/ .) It seems to me that it would need a rather more dispassionate and quantitative survey than that presented by Sarkar to get his argument properly off the ground.
Rupert says that Sarkar argues that there is a second mechanism; this is a crisis of the limits to growth because environmental limits have reduced profitability. Profitability in real-world investments have fallen, because of increasing costs of extraction, increasing pollution-effects, etc., and this has systematically biased the economy to become a bubble economy based around parasitism (financialism). I’d like to see some data to support the profitability point before believing it. And as I point out below, disentangling this effect, if it exists, from for example political determinants of the share of profits, requires detailed quantitative analysis.
None of this proves the assertion that growth is already ended by the environmental crisis is wrong. I’m merely arguing that the case that it is right hasn’t been shown. And quite apart from the environmental case that growth has ended, other arguments that growth has ended seem to me to ignore experience. Depressions have happened before (1820s, 1870s, 1930s), have been hugely destructive and unpleasant, but after a vast loss of capital, a generation lost to unemployment and sometimes war, growth has always ultimately returned. If we haven’t hit environmental limits, why is it different this time?
It is tempting when you believe that the right course for the world is to end its addiction to economic growth, to think that the limits to growth have finally come, that reality is anyway on your side. In the slightly longer run it is. But the sequel to one of the founding texts on limits, Limits to growth, the 30-year update, written but five years ago, has industrial production peaking around 2020 (page 169), which I agree is desperately close, but is not 2010. I don’t think we are quite there yet; the next recession maybe. None of this is an argument that we should not be pushing for the alternative of no growth now, and at least in the context of UK politics seeing the current depression as an opportunity to advance a new paradigm. But this is while we can still choose to do so, not because we are being forced to quite yet.
Growth hasn’t ended yet: mine was a conditional prediction – a reply to Brian Heatley from Rupert Read
Thanks to Brian for his cordial and well-informed reply. I won’t do a substantive further reply; people can make their own minds up. Just a couple of quick clarifications:
I concede, of course, that growth hasn’t yet ended (though some of the stats coming out from countries such as China are liable to be unreliable, artificially boosted by scared local managers and officials, etc.). My point in my piece was that the ecological limits to growth combined with social and financial buffers that we appear to have hit are hatching a massive disaster. I think that many in ‘the markets’ now believe that we are in the end-game for growth and for the Stock Market etc. . They may succeed in dragging it out for a few more years, via QE, more trashing of the environment, etc. – but desperate measures such as these will only hatch a bigger crash, when it comes. So: mine was a prediction, my best guess: overall growth will soon crash to a halt and reverse. If it doesn’t, then the crash will be all the bigger and more systemic, a few years later. The only way out of this is a controlled move now towards the kind of policies etc. recommended by us in the Green Party and like-minded others, which would require a planned end to growthism.