As I described in my review of predictions for last year, the imposition, across much of the globe, of lockouts and lockdowns, to freeze social relations, means that, in large part, 2021 was a null year; it is a year that can be largely discounted, in terms of the historical development of humanity. The fact that millions of young people, at no risk from COVID, were, again, needlessly deprived of a large chunk of their education is totemic of it. So, again, as I set out in my review, in large part, the predictions for last year, can be similarly thought of as simply being deferred to this year. Only Prediction 1 does not fit that. So, I am simply rolling over the other 5 predictions from last year to this year, and updating the description of the material conditions, which forms their basis.
Prediction 1 - The World's Biggest Ever Financial Crisis Occurs
Am I confident of this prediction? Absolutely not, for the reasons I have described on numerous previous occasions. That is that, its possible to analyse the material conditions upon which the movement in the real economy takes place, but the movements of financial markets, and other asset prices, although, ultimately, determined by the real economy, are far more determined, in the short-term, by other subjective factors. What is more, in the last 30 years, it has been seen that the state has been prepared to go to extraordinary lengths to sabotage the real economy, in order to ensure that asset prices remain inflated, so as to protect the fictitious wealth of the ruling class.
Yet, that state is not omnipotent. Moreover, capitalism as Sraid Marx has said correctly, in a recent post, continues to be progressive, precisely because it continues to be contradictory. The state itself has to reflect those progressive elements of capitalism, and its development, represented by the ideology of progressive social-democracy, as well as acting to reflect and defend the immediate interests of the ruling class. The long-term interests of capital, as reflected in progressive social-democracy, are what must, ultimately, dominate, just as it is the real economy, and the large-scale socialised capital, which must, ultimately, dominate, and not the short-term interests of fictitious-capital.
So, will the biggest ever financial crash occur in 2022? I don't know, but certainly the fact remains that the material conditions that lead inevitably to such a crash have been present for some time, and have only not resulted in such a crash, because of increasingly massive, and damaging intervention by the state, to defer it. Such a crash is inevitable, because it is determined by material conditions and the laws of political-economy, i.e. of capital, competition and of value. It is only a question of when.
As this second wave failed to bring any sizeable increase in serious illness or deaths, especially as vaccines began to be rolled out, economies opened again, and the spurt in growth resumed, once again seeing what central banks claimed was “transitory” inflation, spike higher, as each month passed. It was accompanied by labour shortages, bringing higher wages, not as a result of negotiated wage increases, but simply as a result of firms having to pay much higher wages to recruit new supplies of labour. Again it began to cause interest rates to rise; again as that threatened asset prices, new restrictions were imposed, supposedly in response to the Delta variant.
But, although it slowed economies, Delta never had the same effect as previous waves, and economies continued to grow, even if at not such a break neck speed. As Delta sunk back in the consciousness, and inflation began to rise at rates not seen in more than 30 years, and bond yields again starting to rise, a new threat was put forward in the shape of the Omicron variant, even though, by then, there was widespread herd immunity, with around 95% of the at risk having been vaccinated, and despite the fact that it was known that Omicron was itself much milder in its effects than previous variants. Its ability to act as a justification for continued restrictions looks extremely limited. South Africa has already reported that it has past its peak, and that confirms a point I made some weeks ago.
On the question of the overall nature of COVID, which has been presented as some exceptional, existential threat, a look at the actual data for annual deaths, and mortality rates puts it into perspective. Its true that in 2020, the total number of deaths in the UK increased significantly, to 608,000, an increase of 77,000, or about 14%, over the previous year. However, wide variations of deaths from one year to another, are not at all unusual. But a crude figure for total deaths is itself misleading, because it can simply be e reflection of a larger population, or a larger proportion of older people. Given that 95% of deaths of people with COVID (not necessarily from COVID) are amongst the over 60's, its necessary to compare on a like for like basis, taking into consideration both population size, and age composition. If we compare the age standardised mortality rate, however, we find that the rate of 1043.50 in 2020, was, in fact, exceeded in every year between 1990-2008! In 1990, the rate was 1,462.60, or about 40% higher than the rate for 2020!! As a proportion of total deaths, COVID related deaths accounted for only 12%, about the same as deaths from Alzheimer's, and so on. The increase in total deaths, as the age standardised mortality rate data illustrates, is a consequence also of the failure of the NHS to treat other serious illnesses, during the periods of lockdown and lockout.
We have already seen the Bank of England have to raise its policy rate by 150%, from 0.10% to 0.25%. It is talking about introducing Quantitative Tightening, and, as inflation continues to surge higher, it will undoubtedly have to raise its policy rates again, in the next few months. Given that, unless central banks raise these policy rates or tighten monetary policy significantly, as Paul Volcker did in the 1980's, raising rates to 21.5%, so as to cause a recession, it will take two years for such action to feed through into inflation, so such moves will not stop the surge in inflation rolling on, as second round effects are taking place, with higher primary product prices, energy prices and so on feeding through, not to mention higher wages both as a result of higher living costs, and as a result of labour shortages. Indeed, as higher wages act to squeeze profits, central banks will find themselves compelled to continue to increase liquidity accordingly, so as to enable firms to raise prices to protect those profits, and that will ensure that the current inflation becomes embedded. Britain is particularly badly affected because of the self-inflicted damage it has brought on itself via Brexit, which both increases its costs, slows the turnover of capital, and, thereby, reduces its competitiveness and profitability.
The Bank of England is way behind many other central banks across the globe that have already had to raise their policy rates, as they face inflation in double digits, and collapsing currencies, which in turn embed imported inflation into their economies. Turkey has inflation of around 20%, and in 2021 the Turkish Lira has declined by 78%. It now has bank rates of 15%, Argentina has rates of 38%, Brazil, 9.25%, Russia 8.5%, Mexico 5.5%, India 4%, China 3.8%, South Africa 3.75%, Indonesia 3.5%. The Federal Reserve has noticeably hardened its stance, and given notice of its intention to taper its QE, and move to QT, and it is also going to need to move to raise its policy rates soon, as its own inflation heads inexorably towards double digits, despite Biden trying to reduce petrol prices by releasing oil from the Strategic Reserve and so on. In reality, in terms of a measure of workers' cost of living, US inflation is already in double digits. The last time inflation in Britain was at its current levels, in 1991, the UK base rate hit its lowest rate for the year, in September, and yet was still a butt-clenching 10.375%. Imagine paying your mortgage today, with mortgage rates having risen accordingly! But, that 10.375% was mild compared to other years, when for example, in 1979, it was 17%. A look at the official rates going back to 1975, indicates the probability of them remaining at current levels, and the likely level they might move back towards.
Crashes in financial market, and in the prices of other assets are always a result of rising interest rates, particularly when those prices are already inflated. The reason is that the higher interest rates cause the capitalised value of revenues to fall, and, at the same time, the reason that interest rates rise, during such periods, is that the demand for money-capital, for productive investment rises faster than the supply of money-capital from realised profits, or mobilised savings. The cause of that is increased economic activity, and the resulting competition between capitals to capture their share of this increasing market.
But, as I said in reviewing this prediction for last year, states have gone to extreme lengths to hold back economies and so protect asset prices in the last thirty years, in ways that would have previously been unimaginable. Could they get away with a similar feat? Possibly, but only by the use of even more extreme methods of Bonapartism. It would require totalitarian levels of propaganda from the state and the media, and an even closer alliance between the politicians of the main parties that represent the interests of the ruling class. That in itself would lead to contradictions that would break apart those existing parties, parties which are already increasingly fragile and contradictory coalitions, which can be seen by the increasing division in the Tory Party between its reactionary wing and its conservative social-democratic wing, manifest in Johnson's reliance on the Labour PLP, for support, as well as undoubtedly leading to widespread social unrest.
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