The fate of American capitalism is now heavily dependent upon global economic developments, especially in the emerging markets and in particular China, and in the not too distant future, Africa. Emerging economies like Brazil, Russia, India and China (the BRIC nations) and lately South Africa (BRICS) are driving the global economy and are the hope for sustained recovery from the crisis of 2007–2009. A major geopolitical and geo-economic shift was underway before the crisis, but has accelerated since. A sixty-five year period has ended. US economic and political hegemony and the dominance of the US dollar are coming to a screeching end. Martin Jacques in his influential book When China Rules the World: The End of the Western World and the Birth of a New Global Order argues, humanity is entering the Age of China. Roubini and Mihm agree. They speculate that the dollar in the not that distant future could be replaced by the Chinese renmimbi as the principal world currency. Few would argue that by 2030 China, now the second largest economy in the world (having this Spring surpassed Japan) will surpass the US. China ‘s continuing high rates of economic growth and its global standing among developing and developed nations, its alternative way of doing business (what is called the Beijing Consensus), makes it the attractive alternative to the US, IMF, the World Bank, the European Central Bank and Western financial and banking institutions. The Chinese remnmbi is increasingly the go to currency. Nothing, in this regard, is more dramatic than the China-Africa summits and China’s vast infrastructure investment throughout Africa.
This irreversible shift in all probability will be a messy affair, occasioning in the West sovereign debt default, currency crashes, crumbling markets, bank failures, exploding unemployment and underemployment and political and social unrest. Roubini and Mihm warn, “The status quo is unsustainable and dangerous and absent some difficult reforms it will unravel. Indeed, if the Unites States doesn’t get its fiscal house in order and start saving more, it’s headed for a nasty reckoning. When that reckoning will come is anyone’s guess, but the notion that it might be put off for decades is delusional. Indeed, some signs suggest that the tide is already beginning to shift (251).” What the authors call “difficult reforms” I call bold and purposeful action and planning, entailing fundamental alterations of the structures of US capitalism and finance. The authors urge in the short term a quick rebalancing of the global economy. China and Germany, for example, should consume more, and the US, Britain, Spain and Ireland, for example, should consume less, borrow less and save more. However, this only alters the context for the type of deep structural changes that must take place in the US and the West. But without a rebalancing of the global economy and establishing a new global equilibrium, the whole thing could snap. The next crisis would be worse and more than the garden-variety boom and bust cycle. “It would be,” they sat “ less a function of capitalism’s inherent instability than a deep ebb and flow of geo-political power. “ Actually, it would be a combination of both. Such an unraveling would constitute an earthquake and would occasion “a rapid, disorderly decline of the dollar (255).” Geo-economic and geo-political changes along with structural, cyclical and financial crises could produce a 21st century Great Depression The current crisis, therefore, rather than a once in a life time event, might be a taste of things to come.
The origins of this crisis are in modern capitalism. It is inherent in the nature of 20th and 21st century capitalism. Up to recently the US avoided the worst of Western capitalism’s crises. Europe was the epicenter. It experienced economic depressions and two world wars, European civil wars for dominance of the colonial world. These events evidenced new and deep contradictions within the world system. At the same time policies that supported banks becoming dominant and merging with the state were crucial. The financialization of the US economy, and the deregulation of Wall Street are decisive to the architecture of early 21st century US capitalism. The American (and British) free market model unleashed finance capital to do its thing on society. The most predatory, parasitic and criminal elements of Wall Street and bank capital became dominant over the economy and the government. Certainly, Bush II’s insane tax cuts for the richest 2% and the Iraq and Afghanistan wars worsened the problem of government debt and set the immediate context of the current crisis.