“Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown,” says IMF chief Dominique Strauss-Kahn. The G-7 leaders (minus Russia) are scrambling to find a collective solution.
Above is a Marxist take on the situation from Richard Wolff. Wolff is a professor of economics at the University of Massachusetts, Amherst and the editor of the journal Rethinking Marxism. Wolff presents a passionate analysis delivered with a measure of self-congratulating “We told you so” glee. Wolff’s take can be boiled down to American consumers borrowing and borrowing in order to consume. I think Wolff’s concluding statement is more important. The global economic crisis has opened up a space to criticize the dominance of free market capitalism and offer alternative solutions. It’s a rare moment indeed when you can think outside or beyond capital and people are willing to listen. Perhaps Naomi Klein is right to say that “Wall St. crisis should be for neoliberalism what fall of Berlin Wall was for Communism.”
Interestingly, the opening of the discursive space is appearing in unlikely places. Wolff’s emphasis on debt is more or less being echoed by centrist liberals like Joesph Stigliz (I recommend his recent interview on Democracy Now!) and Fareed Zakaria. Here’s what the latter has written in the latest Newsweek:
Since the 1980s, Americans have consumed more than they produced—and they have made up the difference by borrowing.
Two decades of easy money and innovative financial products meant that virtually anyone could borrow any amount of money for any purpose. If we wanted a bigger house, a better TV or a faster car, and we didn’t actually have the money to pay for it, no problem. We put it on a credit card, took out a massive mortgage and financed our fantasies. As the fantasies grew, so did household debt, from $680 billion in 1974 to $14 trillion today. The total has doubled in just the past seven years. The average household owns 13 credit cards, and 40 percent of them carry a balance, up from 6 percent in 1970.
How then does late capitalism keep itself alive? Debt slavery and robbing Peter to pay Paul. As usual, Washington’s solution is to wage class warfare from above. Bail out the rich investors and pray the stability trickles down to the rest of us below. Same story, new packaging.
And what about Russia? Like their Western counterparts, the Russian government is poised to buy up bad assets, loan its corporations money, and flood the market with liquidity. Putin has already promised $36 billion to Russia’s banks. Last week, the Duma passed a plan to give credits to Gazprom, LUKoil, Rosneft and TNK-BP so they can pay their foreign debts, which total about $80 billion. Medvedev’s five point solution doesn’t seem much different than what most are proposing: Regulation, transparency, and increase free trade. Or basically apply band-aids at a time when invasive surgery is needed.
But Russia’s woes don’t end with its banks and corporations. Analysts are now expecting the bubble in Russia’s real estate market to burst. Developer debt, which is a combined $1.8 billion, is the problem. A few are predicting the collapse in 4-6 months. A halt to building construction will slow down one of Russia’s most vibrant economic sectors and put an extra crunch on an already existing housing shortage.
Luckily for the Russian government, they have a budget surplus of $100 billion to weather the financial tempest. The only question is whether any of these measures will make any short term difference.