Is “The Big One” Coming?

On January 12, 2009, Paul Craig Roberts reported in
“Counterpunch” that if the unemployment rate were calculated
as it used to be prior to 1980, it would stand at
17.5% today, as opposed to the official figure, which is less
than half that amount. This gets close to the rate of the
1930s, which was around 25%.
In recent years, consumer spending has risen to almost
three quarters of the US GDP. In the 1930s, consumer debt
rose to 9.6% of household income, vs. 25.1% in 2006.
The main means of ending the Depression was federal
spending – on war production. But today, federal spending
is constrained by the national debt.
US national Debt as % of GDP
1930 $16.2 bn. 18%
1940 $43 bn. 52%
1946 120 bn. 120%
1950 257.4 bn. 94.1%
1980 930.2 bn. 33%
2008 (est.) 10,024.7 bn. 72.5% (est.)
(source: Wikipidia)
So, at the outset of the Depression, the national debt
was about one third of what we are facing today. This will
give the federal government a lot less room to maneuver.
Not only that, but with the massive bailout bills, this
national debt will balloon even more.
This present spending is essentially going down a rathole,
because the heart of the problem is that production
was kept afloat by increased debt of all sorts. The overwhelming
bulk of the federal bail-out money is going to
directly boost the bottom line of finance capital, vs. in the
1930s and ‘40s, when much of it went to federal projects
and later to war-time industrial production.
An all-out economic crisis will not necessarily take the
same form as that of the 1930s, though. Despite their destination
in finance capital, the massive federal bail-outs are
serving to slow down the
collapse of production. At
present, these bail-outs are
financed by selling federal
bonds. Investors, both foreign
and domestic, are willing
to buy these bonds at
extremely low interest rates
because they have nowhere
else to put their money. This
cannot continue indefinitely.
At some point, the
demand for US bonds and
Treasury Notes will diminish.
When this happens, the
Treasury will have to raise
the interest rate it pays. This
will further decrease the
credit available to private
companies. In addition, the
federal government will
have to repay this debt some
day. When that day arrives,
they will have to crank up the printing presses and print
dollars. The effect of this will be to cheapen the dollar; in
other words, inflation.
In this way, a new economic crisis would differ in form
from that of the 1930s, but the underlying contradictions
that caused the crisis would be the same: Private ownership
of the means of production (leading to a tendency
towards overproduction and a tendency for the rate of
profit to fall). For decades, these tendencies were masked
by the massive increase in both public and private debt, by
the expansion of capitalism into new arenas (the former
Soviet Union, China, etc.), and even the reduction of real
wages (which boosted profits and encouraged investment).
Added to these contradictions is the existence of
the nation states in the era of world production, distribution
and finance. Up until now, the global role of the US
dollar has lent a certain stability to the world economy. As
the dollar drops in value, as it inevitably must when they
start printing them up, then this will add to the crisis.
I think it is still too early to say that we are definitely
headed towards a crisis on the scale of the 1930s in the
next year or so. However, the facts make it appear increasingly
possible.