ORIGINAL FRENCH ARTICLE: Une trajectoire néolibérale impérialiste
by Gérard Duménil, Economist and Director of Research at CNRS, France’s National Scientific Research Centre (1)
Translated Friday 21 September 2007, by
August’s financial crisis originated from the United States and the practices of its private financial institutions. These firms have made a heavy entry into the credit sector in recent years (in the housing markets but also in consumables), secured by residential mortgages. They have moved into the ‘lucrative’ household markets which offer a low repayment capacity (“Nobody wants to lend you money but we will!”).
This activity is financed by reselling to other agencies (private investors or funds, domestic or foreign) the bonds which materialise from the mortgage debt owed by household borrowers. This characteristic explains why the crisis has been ‘exported’, notably in Europe, to those who became the buyers of these bonds (and why it is affecting the stock market). In short, these buyers have become substitutes for public agencies, recently nationalised, whose share of the market is in the process of decline. The neo-liberal state has therefore been deprived of a tool for intervening in the mechanisms of the credit sector.
We know that the level of household debt in the United States is gigantic and can therefore see that the situation is not about to discharge itself. It is being claimed that two million of these households will be faced with having their homes seized. The problem is knowing whether or not the policies in place for combating the effects of the crisis (the contamination of the real economy and other financial institutions) will be able to guarantee what we call a ‘soft landing’. The figures, as reported in the press, corresponding to the refinancing of banks by the credit they are granted by the Central Bank (the ‘monetary policy’) are often pure fantasy. In the United States the sum total (the stock) of these credits has been increased from around 25 billion dollars to 50 billion in just a matter of days; nothing too spectacular (much more was done for September 11th 2001).
Nevertheless, at the end of the month we saw a second wave of credits, not as strong but longer lasting, revealing the persistent nature of the crisis, a second intervention on the part of the FED (The Federal Reserve System) which seemed to have little precedent. Thursday the 6th of September saw a new injection of 30 billion dollars over a period of fifteen days. It smells like something is burning! The former president of the FED, Alan Greenspan made an explosive statement comparing the current situation to historically formidable financial crises which have come before it (he was careful not to include 1929 in his list). Very shrewd it is of him to know how long it will take to stabilise the markets. However, it is clear that the US Government is completely committed to supporting its economy which does not mean that it is in control of everything, in particular not international propagation. We are not in 1929 anymore.
The situation is complicated since in any case, financial crisis or not, the US economy is on the brink of a new recession. All possible policy levers have been pulled (a low rate of interest on long term credit, budgetary deficit and a weak dollar) although the rates on short term credits are up again. This probably will not be for very long but is it enough to avoid the recession?
In fact, the threat of recession and the financial crisis must be seen as two manifestations of the problems attached to the trajectory upon which the US economy has set foot since the start of neo-liberalism (that being over twenty five years ago); crazy levels of consumption, a deficit in foreign trade and investment being financed by the rest of the world. An unprecedented trajectory characteristic of the current neo-liberal, imperialist configuration under the hegemony of the US. A trajectory which it will take a long time to put right; and there will be a cost. The crisis and a recession are just the beginning.