7-29-08, 10:03 am
It has never happened before. For the first time in modern economic times, three major crises – affecting finances, energy and food – are coinciding, coming together and merging. Each interacts with the others, exponentially worsening the deterioration of the real economy.
As much as the authorities try to minimize the seriousness of the moment, the truth is that we're facing an economic cataclysm of unprecedented magnitude, whose social effects are just beginning to be felt and will explode with total brutality in the next several months.
Disaster is never certain and numerology is not an exact science, but the year 2009 could very well turn out like the grim 1929.
As feared, the financial crisis continues to worsen. To the problems suffered by prestigious US banks – such as Bear Stearns, Merrill Lynch and the giant Citigroup – add the recent disaster afflicting Lehman Brothers, the world's fourth-largest bank, which on June 9 announced a loss of 1.7 billion euros. Because this is Lehman's first deficit since being listed in the Exchange in 1994, the loss had the effect of an earthquake in a financial America that was already violently traumatized.
Every day there are new reports of banks going under. So far, the most affected entities have admitted losses totaling almost 250 billion euros. And the International Monetary Fund estimates that, to emerge from the disaster, the system will need about 610 billion euros – the equivalent of twice the French budget!
The crisis began in the United States in August 2007 with subprime mortgages falling in arrears and has extended throughout the world.
The crisis' ability to transform and spread, through the proliferation of complex financial mechanisms, likens it to a lightning epidemic that's impossible to stop.
Banking entities no longer lend money. They all mistrust the financial health of their rivals. Despite the massive injections of liquidity made by the major central banks, the drought of money in the markets has been unprecedented. And what some people fear most is a systemic crisis, in other words, a collapse of the world's entire economic system.
From the financial sphere, the crisis has moved to the whole of the economic activity. Suddenly, the economies of the developed countries have cooled. Europe (particularly Spain) is in full deceleration and the United States is on the brink of recession.
The harshness of this adjustment is most noticeable in the real-estate sector. During the first quarter of 2008, home sales in Spain dropped 29 percent! Nearly 2 million apartments and homes could not find a buyer. The price of land continues to fall. And the rise in mortgage interests and the fears of recession plunge the sector into an infernal spiral, with ferocious effects on all fronts of the huge construction industry. All the construction businesses are now in the eye of the hurricane and witness with impotence the destruction of tens of thousands of jobs.
From financial crisis we have gone on to a social crisis. And the authoritarian policies emerge again. The European Parliament on June 18 approved the infamous 'directive of return,' and the Spanish authorities have announced their willingness to arrange for the eviction from Spain of one million foreign workers.
On top of this awful situation comes the third oil shock, as the price of a barrel of crude rises to about US$140. That's an irrational increase (in 1998, a barrel cost less than US$10), due not only to an excessive demand but, above all, to the action of many speculators who are betting on the continuing rise of a fuel on its way to extinction.
Investors flee the real-estate bubble and shift colossal sums of money because they are now betting on the price of oil rising to US$200 a barrel. Oil is now financialized, with the consequences we see: a formidable rise in the prices at the pumps and explosions of anger on the part of fishermen, truckers, farmers, taxi drivers and all the professionals who are most affected. In many countries, by staging demonstrations and confrontations, those professionals demand help, subsidies or tax breaks from their governments.
As if this whole context weren't gloomy enough, the food crisis has suddenly worsened, reminding us that the specter of hunger continues to threaten almost 1 billion people. In about 40 countries, the high cost of food has provoked uprisings and general revolts. The summit of the United Nations Food and Agriculture Organization (FAO), held June 5 in Rome to consider alimentary security, could not reach an agreement to relaunch worldwide food production. Here, too, speculators fleeing from the financial disaster are partly responsible, because they're betting on a high price of future harvests. So even agriculture is being financialized.
This is the deplorable balance left by a quarter-century of neoliberalism: three venomous intertwined crises. The time has come for the citizens to say 'Enough!'
From Prensa Latina
--Jose Ignacio Ramonet, author of 'A Hundred Hours with Fidel' and many more essays, is Editor in Chief of Le Monde Diplomatique.
