Is it over?
Anyone following the global financial markets over the past week or ten days will have been sorely tempted to believe that a dramatic and far-reaching change in the global economy was underway. After all, if share prices — especially those of battered banks and clobbered construction companies — shoot higher by tens of percent in a week, then maybe the housing crisis and the credit crunch are over. And if the prices of oil and other sources of energy drop, along with most of the commodity complex (and grains in particular), then inflation will soon be on the way down, so that threat is clearly over. Overall, therefore, it seems like we can sound the all-clear and get back to business-as-usual, after a most unpleasant year…
So, is it over? Yes, no and maybe — depends on what exactly ‘it’ is.
Yes, the right-wing/ Republican/ market-oriented socio-economic revolution – that began in California in the late 1970s and conquered America via Reagan in 1980 to become the global consensus in the 1990s – is well and truly over. You can date the exact moment of death according to taste: when the Bernanke Fed cut interest rates time after time to help out Wall Street; when the same Fed and the Paulson (he of Goldman Sachs) Treasury held a gun to the heads of Bear Stearns’ bosses and told them to accept the JP Morgan acquisition offer that they themselves had concocted; or when, as happened this Tuesday, the great ideologue and free-market apostle George W Bush announced he would not veto the bill designed to provide Federal, i.e. taxpayer-financed, succor to the housing sector and, above all, to the ‘privately-owned’ Fannie Mae and Freddie Mac, which are bust but must be saved or else both the financial and construction sectors will disappear down a large black hole.
Yes, that’s all over. America is the country of privatised profits and socialised losses, where the rich screw the middle-class and the poor get obese and ill on junk food. Remember that, next time some oafish American relative, tourist or passing investment banker makes the usual fatuous comments about the ‘socialist Israeli economy’ – and remember it, too, when Bibi gets back into office and cranks up his privatisation spiel.
But No, it’s no over, if by ‘it’ you mean the credit crisis, the mind-boggling losses to be absorbed by banks and other financial institutions, the fall in house prices, the foreclosures and – on a larger canvas – the enforced deleveraging of the American consumer from the debt bingeing that swamped the country in recent years. See the New York Times’ site for a wonderful interactive graphic showing how the US moved from being a nation of thrifty savers to one of compulsive borrowers and spenders; true, it took 50 years, but they did the job thoroughly. The reaction has just begun and the Establishment, unsurprisingly, is still trying to preserve the rotted old system and prevent it crumbling into systemic collapse.
And maybe – maybe the commodity boom is over. There are certainly increasing signs of that, beginning with the sharp price declines across a broad spectrum of key commodities, but also supported by other indicators: oil prices for instance are not merely going down, but on heavy volume, whilst the up days are marked by light volume. The action in the grains is more persuasive, but these are seasonal and weather-driven markets and hence highly volatile at all times. The truth is that we won’t know that the commodity price boom is really over until well after the final price peak was set, but it seems fair to say at this point that the burden of proof is rapidly shifting from the bears to the bulls. In order to ‘confirm’ that the bull market is still underway, in oil, gold, copper, soybeans, or whatever, prices have to hit new highs. Their current behaviour suggests that the buyers are too few and too weak to achieve that, so that the path of least resistance is down.
The weakness in commodities is partly artificial and the strength in US equities is largely artificial – in both cases, the regulators of the financial markets in the capitalist paradise are moving the goalposts during the game to make it more difficult for the ‘evil speculators’ to do things, such as buying oil or selling bank shares, that incommode the Establishment. But the underlying factors – consumer demand for energy and food, the ongoing business of banks and contractors – are all negative and getting worse. That is not anywhere near over.