Maksim Kalashnikov (Russia)
The second global crisis tsunami: the Group of Seven and Greece. When will the national debt bubble burst?
The national debts of the rich Western countries are growing rapidly. The IMF has sounded the alarm: they will reach 110% of total GDP by 2014.
The forecasts of those predicting a terrific explosion of the national debt bubble after 2010 are apparently justified. The bursting of the real estate and derivative bubbles in 2008 will seem mild by comparison with the coming disaster. There is every reason to believe that the rich West will cease to exist in its current form, and the global financial system will collapse.
The world will enter a time of extremely severe shocks. And we need to get ready now.
THE PRESSURE IS RISING
The situation is like an overheated steam boiler with malfunctioning safety valves. Sooner or later, the boiler will blow. Nikolai Petrakov, Academician and Director of the Institute of Market Problems of the Russian Academy of Sciences, said in late 2009: “The current crisis is the result of speculation in the financial markets caused by the ‘cheap money’ policy of monetary officials in the leading countries. The next crisis will be a crisis of state finances because governments have shouldered the debts of national corporations, and sooner or later they will be unable to service such large national debts.”
IMF data published in The Economist Magazine on April 3, 2010 supports that point of view. Whereas at the very beginning of the neo-liberal monetary insanity in 1980 the total debt of the richest countries in the capitalist world (the Group of Seven) was 40% of their total GDP, in 1990 it crossed a threshold to reach 60%. In 2000, it was 65% of GDP of the G-7 countries. National debts began to rise rapidly when the global crisis entered its acute phase in 2008. They reached the hundred percent threshold in 2010. And by 2014 they are predicted to reach 110%.
Thus, the governments of the G-7 countries are going bankrupt. Meanwhile, fearing social upheaval and the economic collapse of big business, the ruling elites of the West are stepping up borrowing (to maintain social safety nets for their citizens) and shifting the debts of corporations and banks to the state. But that cannot go on forever: the progressive aging of the Western population, the growth of pension and social commitments, the dead end of the “consumer-based, post-industrial” model and cheap products from Asian countries (which entails the loss of jobs and tax base in the West) leave virtually no room for hope. Suffice it to say that a similar process once led to the collapse of the British Empire: by 1932 its national debt had reached 191% of GDP, setting the stage for the country’s weakness during World War II and the rapid disintegration of the empire after the war.
EVERYBODY TO THE SHELTERS!
Many people already understand that the public debt bubble will burst. Russian scientists from the Institute of Applied Mathematics of the Academy of Sciences of the USSR/Russian Federation predicted that the debt bubble would burst in about 2015. That coincides with the IMF forecast.
It correlates well with the prediction of Andrei Klepach (Deputy Economics Minister of Russia and head of the Center for Macroeconomic Analysis and Short-Term Forecasting—TsMAKP). He predicts that a global crisis will hit in 2016-2018 as a result of the bursting of national debt bubbles. Moscow University Professor Andrei Kobyakov talks about the world’s dramatic and difficult transition to the Sixth Technological Mode in 2015-2020.
To see what that might mean, just take a look at Greece. Although it makes up only 2.5% of the Eurozone’s GDP, it shocked the entire Eurosystem in the spring of 2010. The stabilization measures proposed by the EU will only deepen Greece’s debt hole and depress its economy with rising taxes. A default by Greece threatens to cause the banking systems in Germany, France, Italy and Spain to collapse. It became necessary to inflate another bubble in order to help Greece: a 0.75 trillion euro support fund, two thirds of which consisted of guarantees from EU countries that are in need of saving themselves. They too are potential Greeces. That affects Spain, Italy and Portugal. The public finances of Germany and Britain are in poor condition. The prospect that Italy will repeat what happened in Greece is already taking shape. Germany’s national debt is growing rapidly.
Both Japan and the United States are deep in debt. Incidentally, California is being crushed under heavy debts. Economy-wise, it is 10 times the size of Greece.
It is clear that the problems cannot be solved either by reducing public spending or increasing taxes. The point of no return has been passed. There is no chance that the GDP growth rate can be increased: the old capitalist models of such growth have completely and decisively exhausted their opportunities. The astronomical debts cannot be written off: that would destroy the banking systems of the G-7. What about dismantling the West’s social security system, ending the welfare state and leaving retirees with only $500 per month to live on? That would completely destroy the West’s political system and result in riots and revolutions. (Germany is a prime example: payment for public debts and social obligations accounts for two thirds of the 2010 federal budget.) Could they take money from local budgets (counties, states, cities)? That is also impossible.
I fear that we will see the collapse of the euro and the dollar by the middle of 2010, a rash of devaluations, hyperinflation and a wave of bankruptcies in the financial sphere and the service sector. To the depression of 1929 will seem like heaven in comparison with this crash. The world market will begin to collapse.
What can we expect? First of all, strict neo-fascist regimes could emerge in a number of Western countries. Steps will have to be taken as quickly as possible to rebuild the industries that moved to China between 1980 and 2000. Unpopular measures will be implemented. Social chaos will be suppressed. The sources of oil and gas in Eurasia and Latin America will be taken over by force.
The previous crisis of capitalism (the Great Depression) brought Nazism and Horthysm into being and strengthened Italian Fascism and the dictatorships of Franko and Salazar (Spain and Portugal). Dictatorships were established in Romania, Bulgaria and the Baltic states, as well as in Poland, Romania and Austria (the 1934 workers’ uprising in Vienna and emergence of a fascist regime before Hitler annexed Austria in 1938). The 1936 elections in the United States were almost won by the national socialist Huey Long (he was killed before the election). Japan in those years had a totalitarian regime, as did Brazil. Apparently we should expect something similar to happen. Moreover, the transition to the salutary technologies of the Sixth Mode and the new (non-capitalist) model of development will also cause social upheavals.
When that happens, the countries that possess the following features will benefit:
– Self-sufficiency in energy, food and fresh water (consider the impact of the development of shale gas deposits and reopening of oil fields);
– A strong military and political capability;
– Strong naval, air and space forces;
– Superior global intelligence and information operations technologies;
– Major scientific-technological and industrial capabilities;
– A large territory;
– A large and skilled population able to form a self-sufficient market;
– Well-developed state organizational capabilities and excellent management technologies;
– The ability to mobilize the masses by rallying them with advanced propaganda and tools for manipulating public opinion.
It is entirely possible that we are on the threshold of a global war (or a series of very large regional conflicts that will combine to form a global conflict). It is no wonder that China and India are hastily arming themselves. China is building a carrier-based navy. The Indians are also building a carrier-based navy, as well as nuclear-powered submarines and an air force with refueling aircraft capable of operating as far away as Alaska. Brazil is also becoming more powerful. The storm clouds are gathering.
Source: New Eastern Outlook