The Worst is Yet to Come

[On Nov. 22, 2008, Reuters news service published an article describing how the top IMF economist, Olivier Blanchard, predicted that the worse of the current world financial/economic crisis is yet to come. (This news report is included at the bottom of this posting.) I sent this article around to friends together with the following brief commentary. (The cartoon above was not part of the email.) —S.H.]

Hi everybody,

The Reuters article below reports the views of the top IMF economist who says the worst of the current financial/economic crisis is yet to come. This may be news to Reuters, but I think for us Marxists it is trivially obvious.

In fact the most interesting thing about the article is its totally unfounded optimism that things will be back to “normal” by 2011!

Neither this guy from the IMF nor any other reputable bourgeois economist predicted the current crisis in the first place, so why should we think that they really know what is going on at all?

The fact is that bourgeois economics does not, and cannot, understand why recessions and depressions take place to begin with. They ascribe such things to missteps by the government and speculative excesses by the investment community, rather than something that must inevitably arise eventually because of the very workings of the capitalist exploitation of labor.

There may possibly be a shallow and short recovery by 2011 if the U.S. and other capitalist governments expand their Keynesian deficits massively beyond their already massive levels and if international support for the dollar continues at roughly the same ridiculous level. (It might or might not.) But even if such a weak recovery does occur in the next few years it will by no stretch of the imagination mean a return to “normal”, or in other words, even a return to the way things were in the last years before the outbreak of this crisis.

Instead, at best the near future will be a period of in-and-out of serious recession for several cycles, lasting only until things make a serious turn from that oscillation for the worse. Then there will be a prolonged and more or less intractable period of in-and-out of genuine depression. The only real issue at the moment, as far as I am concerned, is whether we will very soon slip into that more serious oscillation, or whether the milder (but still very serious) prelude will continue for a while.

And I think even the bourgeoisie might have an inkling of this frightful possibility. That is why the whole world is sort of holding its collective breath at the moment.


IMF economist says worst of crisis to come: paper

Saturday, November 22, 2008; 6:21 AM

ZURICH (Reuters) - The financial crisis that has engulfed many top banks is spiraling into a broader economic crisis that has yet to peak, International Monetary Fund's top economist Olivier Blanchard told a Swiss newspaper on Saturday.

Blanchard said the crisis would continue for another year and called on governments to promote fiscal expansion and on central banks to cut rates toward zero.

"The worst is yet to come," he was quoted as saying in Finanz und Wirtschaft as he noted how the banking sector's woes had started to spill over into the real economy by hitting the carmaking industry.

"This is only the beginning," he added. "The risk exists that the data will get worse and worse, which would then lead to more pessimistic expectations and accelerate a fall in demand."

"It will take a long time before we go back to normal conditions."

Blanchard said the crisis should last for another year, but normal growth would return only in 2011.

"For 2009 we (the IMF) forecast negative growth on average in the industrialized nations," he said. "In 2010 there should be a recovery and we should go back to normal in 2011."

Blanchard said governments have up until now not done enough to address the crisis and called for fiscal stimulus both in the United States and Europe.

"In normal times the IMF would argue that budget deficits must be reduced ... But we are not living in normal times. Demand has collapsed. This is why a broad fiscal expansion is needed," he said.

Blanchard said central banks should cut rates as much as possible to avert the risk of a "Great Depression" scenario.

"They have to lower interest rates and bring them as close to zero as possible," he said.

"We have to use all the ammunition that we have in order to limit the collapse of demand."

(Writing by Lisa Jucca, Editing by Peter Blackburn)

© 2008 Reuters

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