Remember the "wealth effect"? Rapidly rising housing and share prices made people feel wealthy and so they borrowed big-time and became big-time spenders, and this supposedly makes for an endless economic boom. Just about every capitalist economist was singing from that cheery song sheet — until recently.
We are emerging from a decade-long orgy of borrowing and spending in the wealthiest part of the world. By the end of 2007 the US national debt had reached almost US$10 trillion, while the total indebtedness of the US federal government, the states and US corporations amounted to $40 trillion.
The wealth effect dream began souring first in the heart of capitalist fantasyland itself — the US. In denialist mode, US economists named this new global economic tsunami the "sub-prime mortgage crisis". It sounded soothingly like a minor technical glitch caused by a few stupid sub-prime people who borrowed more than they should have.
But last week the US Census Bureau reported that, in the first quarter of this year, mortgage foreclosures had pushed the number of vacant houses in the US to 18.6 million. This is double Australia's total housing stock. US housing values have fallen 15.8% in the last year; an even bigger fall is only being prevented by the US spending billions of dollars to bail out banks and financial institutions holding unsustainable mortgages.
On July 31, the US Department of Labor reported that while the official unemployment rate remains at 5.5%, 448,000 new unemployment insurance benefits claims were lodged during the previous week — a five-year high. The week before there had been 404,000 new claims.
Any thought that these US economic woes would not impact on Australia were dashed when two of the big four banks in Australia, the National Australia Bank and the ANZ announced a combined A$3.3 billion write-down of their assets over the financial year due to exposure to the US "sub-prime crisis".
In the heyday of the wealth effect dream, two Australian economists calculated that a $1 increase in stock market value causes a 69 cent increase in consumption and a $1 increase in home values added another 7 cents to spending.
But how does the calculus work when the wealth effect reverses? NAB's announcement of its latest A$830 million asset write-down wiped $7 billion off its share market value in a single day. Since these announcements the big four Australian banks have lost a total of $27.4 billion of their combined share market
value.
The big four tell us cheerily that they will survive, they'll just make their borrowers pay higher interest rates and other customers higher "service charges".
But this shifting of the pain onto you and me is just part of a much bigger and deadlier process. Big capitalists are shifting the pain from a crisis born of their own chronic greed onto the world's poorest.
An additional hundred million more people have been pushed into starvation around the world as the big capitalists push up global food and fuel prices in their efforts to "resolve" their financial crisis in their narrow interests. This means nearly a billion people are now facing starvation around the world.
And to rub salt into the wounds of the world's suffering, in 2007, Wall Street bankers gave themselves bonuses worth US$39.34 billion, up from $36.19 billion in 2006. That's more than the $30 billion the UN is begging for emergency food aid for the world's starving.
The only good end to this will come about through a serious political response to capitalism itself, one that brings into being the popular democratic movements that are needed to begin replacing the capitalist system with one that puts human need and environmental sustainability first.
We at Green Left Weekly are often dismissed as "dreamers" and we plead guilty to dreaming and organising for a radically different world.
But ours is a good dream and what the capitalists have pushed is the truly deadly dream. Now more than ever we need you to join us in making something constructive out of the ruins of the collapse of that deadly dreaming.
Please make a donation to GLW's $250,000 fighting fund for 2008. The year is more than halfway through and while we have raised $123,600 through donations and numerous fundraisers (see calendar on page 23 for details of the next fundraising event near you), we need your help to raise the remaining $126,400.
You can directly deposit a donation at: Greenleft, Commonwealth Bank, BSB 062-006, Account No. 901992. Alternatively, ring in your donation by credit card on the toll-free line at 1800 634 206 (within Australia only), send us a cheque or money order to PO Box 515, Broadway NSW 2007, or donate online at http://www.greenleft.org.au/fogl.htm.