Martin Thomas On Inflation - Part 21 of 25

When, in 1987, this sharp rise in asset prices was confronted with a sudden shock, resulting from the twin deficits crisis, in the US, as Reaganomics caused the US budget deficit to spiral, alongside its trade deficit, as a result of Reagan's tax cuts (a scenario repeated, in September, in Britain, under the brief premiership of Liz Truss) the result was the biggest one day fall in share prices in history. The resolution came in the form of the massive injection of liquidity from Alan Greenspan. And, central banks have not stopped printing additional money tokens ever since, as well as increasing liquidity and credit in other forms, to ensure that those asset prices do not crash. At least that is their intention, but it continually comes up against economic reality.

One reason that interest rates spiked, in 1987, was the huge rise in borrowing that had occurred. As workers wages fell, and capital still needed to sell its output, workers were encouraged to borrow to make up the difference, as credit controls were abolished. In Britain, household debt trebled. Reagan's policies turned the US from being the world's largest creditor to being its largest debtor. The injection of huge amounts of liquidity did not change these underlying realities. It simply papered over them, postponing the denouement until later. In 1994, as interest rates rose again, the US suffered a crash in the bond market. Then there was the Asian Currency Crisis, the Rouble Crisis, the Tech Wreck of 2000, when the NASDAQ fell by 78%, and, of course, the global financial crisis of 2008. The same papering over of the cracks during the Eurozone debt crisis by creating additional liquidity continues to haunt the financial system of Europe.

At every stage, ever larger injections of liquidity have been required to restore asset prices to their previous level, and enable them to rise even further, and, at each stage, to prevent that liquidity going into the real economy, greater damage to that economy, and to real capital, has been required, so as to prevent it leading to higher wages, and a squeeze on profits, and a rise in interest rates that would again crash those asset prices. But, at every stage, the underlying power of the long wave uptrend pushes its way through. When developed economies implemented austerity after 2010, industrialising economies, including China, pushed forward, filling the gap, thereby, undermining the power of the developed economies within the global imperialist system.

Austerity was itself a double edged sword. New technologies increasingly mean that the old statist, Fordist producers are dinosaurs. New non-state service providers are able to provide more individually tailored services to consumers, so that, as austerity removed local authority, and central government provision, that simply opened the door for these new capitals to enter that sphere, providing employment, wages and profits – the growth of leisure services is a prime example. Ultimately, austerity itself could not be sustained, especially as right-wing populist parties sought to build electoral coalitions around the petty-bourgeoisie, and layers of the lumpen proletariat, particularly in the decayed urban areas, created as a result of policies of deindustrialisation begun in the 1980's.

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