Post-Pandemic Economic Scenarios: China & Europe (Interview #2)

10 June 2020 — Jack Rasmus

This past April, in the midst of the surging pandemic and collapsing US economy, I was interviewed by three sources in Europe for a US perspective on the events. The following is the second part of an interview with Polish social commentator, Konrad Stachnio, that will appear in a collection of interviews later this summer. Subsequent interview topics with Stachnio, and others in April, will be posted here in coming weeks as well.

(April 2020)

INTERVIEWER:

What do you think about China? Do you think China will be the biggest winner in this whole scenario here? For example, in terms of economy.

JACK RASMUS:

In terms of its economy, China has the ability to redirect investment into public investment a lot quicker and with less internal political opposition than the United States does. We’ll see whether it can do that. But China is very much an export-oriented economy, and the global economy has nearly collapsed. Global GDP is not coming back quickly. The supply chains are really broken, and it’s going to take quite a while to reestablish those supply chains. So globally, there’s no global V shape recovery scenario either.

Both Europe and Japan, the other two advanced capitalist economies were already in trouble economically in 2019, were stagnating or in recession, largely because they too, like the U.S., relied primarily on monetary policy as the main stimulus after the 2008-09 crash and eschewed fiscal policy. They all engaged in austerity fiscal policy. Again, that’s because the bankers are were in control of the politics and the policy since 2008-09.

Monetary policy means “give the money to the bankers first, and then we’ll decide how much we want to dribble down to the rest”; whereas fiscal policy means “give it to the household, the consumer, and they will then recover the banking system by spending.” Bankers and their bought for politicians don’t like fiscal policy because its bottom-up. They like top-down monetary policy. Europe and all the advanced capitalist countries were following this sort of policy after 2009, but now that policy has come to a dead-end. In Europe and Japan and the U.S., it was all the same but it just couldn’t be taken any further by 2019. As I say in my book about central banking, monetary policy was at a dead end and the central banks at the end of their policy rope.

It couldn’t be taken any further in the U.S. either when Trump came into office. Trump artificially pumped up the economy with his massive 2018 tax cut, but only artificially. Most of that $4.5 trillion (over a decade 2018-27) tax cut went into the financial markets and we had this big bubble, a 25-30% rise in the stock market, $3.4 trillion in stock buybacks and dividend payouts under Trump, and trillions more in corporate debt issuance due to low interest rates. And that bubble collapsed in a matter of weeks in 2020. That collapse, by the way, stabilized recently, but it’s going to go down again. This is a dead cat bounce, a classic bear market rally, as they call it in the financial markets.

So monetary policy is the primary lead policy for capitalism in the 21st century, and it has failed. It couldn’t go any further, and finance capitalists running the policy show don’t like fiscal policy. But now they’ve got to engage in fiscal policy. And now they’re going to pay a price with these massive deficits and debts they’ve run up in recent decades due to trillions of dollars in business-investor tax cuts and war spending, and no one knows how much that’s going to cause an even greater overhang and a drag on the economy after this whole virus thing runs its course.

But Europe is worse off than the U.S. Same with Japan. And now emerging markets are going to really take it in the ear, as they say, particularly countries whose currencies depend on global trade in commodities and oil. They’re already in a deep crisis, and the IMF lending a trillion dollars is not going to cover defaults in sovereign debt that are coming You can see the dimensions of the coming crisis in emerging market economies in Argentina and places in Latin America.

So the global economy is going to be very, very weak in the months and years immediately ahead. If China depends on sales into the global economy, that’s not going to recovery very fast for China. In summary, how much is that lack of export production going to play on China’s economy? China can probably make it up in other ways, but there are limits to that too. We’re going to see. China’s probably better off than the other emerging economies but its economy is not immune from broader global developments by any means.

But if there’s another wave of problems with the virus in China, then all bets are off for China recovering too. And you’ve got to remember, China engaged in massive fiscal spending after 2009. 15% of GDP, which pulled up the emerging markets selling commodities to China as well after 2012. Emerging markets in China did not suffer as much as Europe and North America and Japan after the last crisis.

But that’s not going to happen this time. If China cannot sell more goods into the global economy and trade, It’s not going to buy us much commodities from the emerging market economies, and therefore you’re not going to get that recovery in emerging market commodities or in China as sharply as occurred after the 2008-09 great recession.

I think there’ll be some recovery in China, but it won’t be very robust. It won’t be enough to pull up the EMEs, and it certainly won’t be enough to pull up the Western advanced economies.

INTERVIEWER:

Do you think that we are going in the direction of some sort of class war in Europe, or maybe even in the U.S., some sort of revolution? Because to be honest with you, I don’t see any other way to deal with this problem for people on the street who have nothing right now.

JACK RASMUS:

Yeah, I think the leadership of the western capitalist countries is grossly underestimating the discontent that’s going to occur in the working classes at the median income levels and below, in particular. They’re really going to be left behind this time. How long can they go on getting partial income support?

Or those who are working under really terrible conditions, very unsafe, unhealthy, dangerous conditions out there during this virus crisis and collapsing economy. It’s not just doctors, nurses, and first responders. The people who keep the utilities going, the people who keep the trucking and the delivery of food and necessities going, the people who keep running the warehouses and so forth – if that food delivery system breaks down, you’re going to see something very apocalyptic, I think, very dangerous.

To people who are working overtime and under hazardous conditions the politicians are saying, “You’re our heroes.” Yeah, well, that’s not enough. That’s not going to cut it. Why aren’t they getting hazard pay? Why aren’t they getting adjustments on their mortgages, rents, and so forth? We need to reward those people with extra compensation, who still have to work to keep society from collapsing. At a certain point people are going to realize, “Hey, we’re on the shitty end of this stick. They’re taking care of themselves, the bankers and so forth; what about us?” You’ll start seeing a lot of wildcat strikes in protest. Workers are going to start getting angry about having to choose between their lives, the lives of their families, and their livelihoods and jobs.

I’ll tell you one thing. Revolution isn’t around the corner for one very important reason. People engage in revolution when they have an organization that leads the way. Just having discontent over conditions is not enough. That will erupt in discontent like the Yellow Vests or Occupy Movement and so forth. That dissipates. You need an organization. You need a political party that will really represent them.

The problem is, you’ve got Social Democratic parties, whether they’re in Europe or the Democratic Party in the U.S. or whatever, who don’t really represent the working classes anymore. They threw a few crumbs their way, but they don’t rely on the working classes. They compete for the middle class, the professionals, and so forth, and the business class and small business and so forth. I don’t believe they will come up with a program and a solution that people will be able to get behind.

Already, most working class folks distrust all the political parties. Certainly in the U.S., they distrust the Democrats almost as much as the Republicans. But until you get a real organization that people feel that they can get behind, that has the answers to the crisis, you won’t really have a political revolution, I believe. It takes organization.

That’s the number one question before us today. The unions don’t seem to be that aggressive in moving in that direction. They’re tied to the Social Democratic parties and they do whatever the Social Democratic parties tell them to do. So I don’t see them leading it. I don’t see a new kind of resurrected Labor Party here or anywhere really doing it.

What will? I don’t have the answer to that. But I do know that that’s what must happen. I’m not advocating any particular organization out there. I don’t see anything that fulfills that task. But it will come. People will demand it when they see that the ruling class here has no solution to the crisis except to lower their standards of living even more to protect those who have the money. That’s the only solution that appears to be occurring. People will at some point say, “That’s not good enough.”

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