Why There Will Be No Stable Post-War Order After the End of The War Over Ukraine

Tomasz Konicz

Is this the big one? Is this the big crash that will overturn everything that has been established in global structures and dynamics since the breakthrough of neoliberalism in the 1980s? The war over Ukraine could indeed be seen in retrospect as an epochal break, as a tipping point in the global crisis process, at the crossing of which the crisis of the late capitalist world system has taken on a new quality.

That the world capitalist system is in a severe systemic crisis,[1] after decades of ignorance and marginalization[2] value-critical crisis theory, is now generally accepted even on the German left, but the character of the crisis process still seems to be only partially understood. For the late capitalist systemic crisis is not a one-off event, not merely a “big crash,” but a historical process that unfolds in spurts over decades, eating away from the periphery into the centers of the world system. The debt crises of the Third World, which in the 1980s marked the beginning of the now collapsing neoliberal era and left behind a series of civil wars and “failed states,” have long since spread to the centers of the world system. This is evident, for example, in the increasing tendencies towards stagflation, which are reminiscent of the stagflation period in the 1970s – which at that time helped neoliberalism to achieve its breakthrough.[3]

The systemic crisis is therefore not a “big crash,”[4] but rather a historical process of increasing internal and external contradictions of capital, which, due to competition-mediated rationalization, gets rid of its own substance, the value-creating labor of commodity production[5] and leads to an ecologically devastated world.[6] This historical process of crisis, which gave rise precisely to neoliberalism as a system of “delaying the crisis,” is characterized by phases of latency interrupted by manifest waves of crisis in the centers: such as the dot-com bubble of 2000, the real estate bubble of 2008, the pandemic-induced crisis of 2020, and the upheavals now beginning with war. The crisis was delayed at the expense of increasing instability of the system, which had to cope with ever more violent waves of crisis in the neoliberal decades, and the accumulation of crisis potential.

The Dialectic of The Crisis

The episodes of crisis that gain in intensity and in which the crisis becomes manifest are thus preceded by a long latent phase in which the crisis potential resulting from the self-contradiction of capital accumulates, mostly in the form of rising mountains of debt or financial market bubbles,[7] which still allow the hyper-productive system a kind of zombie-like illusory life through credit-financed demand[8] – and it is precisely this debt tower construction that is reaching its inner limits due to the current inflation dynamics.[9] The quantitative process, the accumulation of debt and the rise of speculative bubbles, leads, after crossing a tipping point, to a qualitative upheaval, to the outbreak of a debt crisis or the bursting of a debt bubble, which are then also publicly perceived as a “crisis.”

The same materialist dialectic of the transformation of quantitative changes into a new quality can also be observed in the capitalist climate crisis.[10][11] Here it is the quantitative increase of greenhouse gases in the atmosphere that leads to a fundamental, qualitative change of the climate system once certain tipping points are passed. (Incidentally, the habituation effects that occurred between the economic or ecological waves of crisis also promoted crisis ignorance, since the consequences of a crisis in the centers or the periphery very quickly sedimented into a new “normality” in the ahistorical public).

The financial market-driven neoliberal variant of capitalism, which took hold in response to stagflation and the end of the great post-war boom in the 1970s, has to a certain extent run capitalism “on credit” in both economic and ecological terms. Since the 1980s, the global debt burden has been rising faster than world economic output, leading to ever stronger financial market quakes in the form of speculative bubbles and debt crises. And ecologically, too, neoliberal capitalist globalization has been accompanied by steadily rising CO₂ emissions, which so far could only be reduced in the short term at the price of economic crises. And it is precisely the increasing climatic and economic distortions that make the system in its neoliberal form increasingly unstable.

The neoliberal debt tower construction that is the foundation of this era cannot continue ad infinitum. The same is true of the fossil fuel driven world combustion engine (Weltverbrennungsmaschine),[12] brought about by neoliberal globalization, which is, in effect, a globalization of debt dynamics. The quantitative increase in the potential for crisis, which has created a global debt mountain equal to 356% of world economic output[13] and a CO₂ concentration of 419.82 ppm,[14] is leading capitalism to its inner and outer limit, at least to the developmental limit of the neoliberal era of capital. A qualitative shift into another form of capitalist crisis management seems inevitable (overcoming the economic and ecological crisis of capital is impossible within the framework of the capitalist social formation).

This dialectical shift from quantity to quality takes place in particular with regard to the process of globalization, which seems to be turning into its opposite. It is precisely here that the outlines of a new phase of crisis are clearly emerging, which would be characterized by a “fragmentation of the world economy into geopolitical blocs,” in which “distinct technology standards, cross-border payment systems, and reserve currencies” would be used, as the International Monetary Fund (IMF) warned in a paper in April 2022.[15] As early as mid-March, the IMF described the war as a “severe blow to the global economy” that would not only “fundamentally alter the global economic and geopolitical order” but would also be accompanied by the risk of increased instability in peripheral regions such as Africa or Latin America, which would be affected by growing food insecurity.[16]

De-Globalization

The war-related sanctions are disrupting important global trade flows and causing rapid price increases not only for energy but also for food, since Russia, Belarus and Ukraine are among the world’s most important exporters of grain and fertilizer.[17] In the case of essential goods, food and fossil fuels, capitalist globalization has already effectively collapsed. Western sanctions on Russian and Belarusian fertilizers are likely to reduce agricultural production in many countries.[18]

But it is not only the imperialist front between East and West in the Ukraine war that is contributing to the price explosion – even uninvolved countries have long since resorted to protectionist measures to ensure food security and domestic political stability. Due to massively rising prices and the threat of supply shortages, Indonesia, for example, issued an export ban on palm oil, which further exacerbated the supply situation, especially in the global South, as the war had already caused exports of Ukrainian sunflower oil to collapse.[19] India acted similarly with its recent export ban on wheat.[20]

The inflation and supply shortages that were already occurring before the war due to the pandemic are now gaining force in the context of the de-globalization that is abruptly taking hold. But even this big bang, shaking up global flows of goods and finance, is not coming out of the blue. Efforts to revise globalization have been virulent for years, especially in the form of US President Donald Trump, who personifies the contradictions of capitalist commodity production like no other. Elected by sections of the pauperized US middle class, Trump set out to make a deindustrialized America, plagued by a gigantic trade deficit, “great” again – by erecting trade barriers. The goal of Trump’s protectionism: a reindustrialization of the United States.

The debt dynamics that developed during neoliberal financialization, which set in after the end of the great post-war Fordist boom and left the world system increasingly running on credit,[21] did not develop uniformly. There were regions with large deficits, such as the USA or southern Europe, and countries with large export surpluses. This led to the formation of deficit cycles, which became increasingly important during globalization and shaped the course of the episodes of crisis in the first two decades of the 21st century (real estate bubble, Euro crisis). Globalization, and its accompanying disruptions, is thus obviously not the cause of the capitalist crisis process, such as financial market bubbles and debt crises, but is its historical course.

The largest deficit cycle, the Pacific deficit cycle between the United States and China, was characterized by the fact that the People’s Republic, which was emerging as the new “workshop of the world,” exported gigantic quantities of goods across the Pacific to the de-industrializing United States and thus built up enormous trade surpluses, while in the opposite direction flowed a financial market flood of United States debt securities, so that China rose to become Washington’s largest foreign creditor.[22] A similar, smaller deficit cycle formed between the FRG and the southern periphery of the Eurozone in the period from the introduction of the euro up to the euro crisis.[23]

Globalization was thus not only characterized by the construction of global supply chains, but also the corresponding globalization of debt dynamics, realized through deficit cycles, which, as mentioned, have grown faster than world economic output in the past decades – and consequently functioned as a major economic engine by generating credit-financed demand. The globalization that produced these gigantic global trade imbalances was a systemic reaction, a flight forward from the increasing internal contradictions of the capitalist mode of production, which is choking on its own productivity.

What is now unfolding globally could be studied in rudimentary form on the basis of the euro crisis: As long as the mountains of debt grow and the financial market bubbles are on the rise, all the states involved seem to profit from this growth on credit. But as soon as the bubbles burst, the battle over who should bear the costs of the crisis begins. In Europe, as is well known, Berlin has used the crisis to pass on the costs of the crisis to southern Europe in the form of Schäuble’s infamous austerity measures. Now, at the global level, the collapse of the much larger debt-financed deficit economy, which has most recently been kept alive primarily by the central banks’ expansionary monetary policy, is imminent.

The value accumulated in the financial sphere, the “fictitious” capital not generated by the valorization of labor power, will be devalued due to the absence of a new accumulation regime in commodity production.[24] The increasing inflation, in the face of which bourgeois monetary policy finds itself in a crisis trap,[25] is precisely the expression of the inevitable devaluation of value. For many states that were previously chained to globalization by means of deficit cycles and in locational competition, the increasing costs of the crisis exceed the eroding advantages of deficit cycles, so that national and regional centrifugal tendencies gain the upper hand and force the collapse of globalization. This is a crisis-induced contradiction. Capitalism is full of them.

China as The New Hegemon?

It is precisely this exhaustion of the neoliberal debt tower construction of the past decades that has the late capitalist state monsters increasingly seeking refuge from the escalating internal contradictions in external expansion. Turkey, plagued by high double-digit inflation and driven by Erdogan into ever new imperialist campaigns of conquest, is only the blueprint, so to speak, for the manifest crisis imperialism that is rampant in many places. This crisis-driven, neo-imperial flight to war is also evident in the case of Russia, which had to put down a number of uprisings and unrest in its post-Soviet “backyard” in the months before the invasion of Ukraine.[26]

But this causal link between crisis and war is also manifested in the expansive actions of the West in the post-Soviet space, which, with its refusal to agree to neutrality guarantees for Ukraine, clearly provoked the Russian war of aggression in the Kremlin’s geopolitical “backyard.” For the United States, the struggle against Eurasia, as indicated by the alliance of China and Russia, is a struggle for hegemony and the US dollar in its function as the world reserve currency.[27] The United States, because of its extreme trade deficit, acted in a sense as a black hole in the world economy, absorbing much of the surplus production of hyper-productive late capitalist industry. With inflation rapidly accelerating, fueled, after all, not only by the expansionary monetary policies of central banks, but also by resource constraints and the full-blown climate crisis,[28] Washington’s ability to borrow freely in the world’s reserve currency, the measure of value of all things commodity, is on the line.

At the same time, for China, which together with Russia is striving to form a Eurasian power bloc, the looming end of the US deficit economy removes an important incentive to tolerate US hegemony: The extreme Chinese export surpluses, which in the 1990s and at the beginning of the 21st century contributed significantly to the recuperative capitalist industrialization of the People’s Republic, have not played a central role as an economic driver since the outbreak of the real estate crisis in 2008 – and they are also likely to lose weight rapidly vis-à-vis the USA in the future.

And yet it is a fallacy to interpret the current global upheaval as a transition to a new hegemonic system in which China would, in a sense, “inherit” the United States. The Middle Kingdom does appear to be in the process of replacing the United States as the global capitalist hegemonic power – but at the same time, this upheaval is no longer possible within the framework of the capitalist mode of production due to the escalating socio-ecological crisis. The history of the global expansion of the capitalist world system, which began in the 16th century, takes place in hegemonic cycles, such as those described by Giovanni Arrighi in his fascinating work “Adam Smith in Beijing”:[29] An emerging power gains a dominant position within the system, then after a certain period of dominance this hegemonic power goes into imperial decline and is finally replaced by a new hegemon.

According to Arrighi, every hegemonic cycle has two phases: First, a phase of imperial ascent takes place, characterized by a “material expansion,” i.e. by the dominance of the commodity-producing industry of the new hegemonic power. After the outbreak of an economic “signal crisis” – triggered by processes of over-accumulation – the phase of imperial descent sets in, which is accompanied by financial expansion and the dominance of the financial industry, and which once again gives the descending hegemon a final economic and imperial heyday.

And this sequence can be clearly confirmed empirically in the case of both the UK and the US. The English Empire, which rose to become the “workshop of the world” in the context of industrialization in the 18th century, transformed itself into the world’s financial center in the second half of the 19th century, before being replaced in the first half of the 20th century by the economically ascendant USA, which in turn experienced its “signal crisis” during the crisis phase of stagflation in the 1970s. This was followed by the deindustrialization and financialization of the USA, which led to the economic dominance of the financial sector.

Moreover, Arrighi argues that the alternation between two hegemonic cycles is accompanied by the descending hegemonic power becoming indebted to the ascending hegemon, as exemplified in the book by Britain’s increasing economic dependence on the United States during the First World War. Britain built up a huge trade deficit with the U.S. during the World War period, “supplying billions of dollars worth of munitions and food to the Allies but receiving few goods in return.” Incidentally, Britain acted similarly in its role as “banker” to the anti-Napoleonic coalition some one hundred years earlier. And it was precisely this dependency relationship between a declining United States and a rising China that was described in terms of the Pacific deficit cycle, in which Chinese export surpluses contributed to China’s export-driven industrialization and deficit-building in the United States.

So, what is wrong here? What is wrong this time so that a new, Chinese hegemonic cycle is impossible? Why can’t the 20th “American” century be replaced by the 21st “Chinese” century? For one thing, China has obviously already passed its “signal crisis” marking the transition to a financial market-driven growth model in 2008. With the bursting of the real estate bubbles in the US and Europe, China’s extreme export surpluses (with the exception of the US) declined, while the gigantic stimulus packages that Beijing launched at the time to prop up the economy led to a transformation of China’s economic dynamics: exports lost weight, and the credit-financed construction industry and the real estate sector henceforth formed the central drivers of economic growth.

According to official statistics, China, for example, consumed around 6.6 gigatons of concrete between 2011 and 2013, which means that the People’s Republic, condemned to a permanent boom, produced more concrete in three years than the USA did in the entire 20th century. With this amount, the whole of Hawaii could be covered in concrete and turned into one huge parking lot, the Washington Post enthusiastically wrote at the end of March 2015.[30] The United States had used 4.5 gigatons of concrete in the past century, according to the WP, adding that the official figures from Beijing would also stand up to closer scrutiny – which is by no means self-evident. The figures are “surprisingly logical,” given that much of China’s infrastructure was not built until the 21st century and that urbanization in the world’s most populous country is proceeding apace. In 1978, just under one-fifth of all Chinese people lived in cities; by 2020, that figure had risen to 60 percent.

China’s growth is thus also running on credit, the “People’s Republic” is just as highly indebted as the declining Western centers of the world system (even more: China’s rise to become the “workshop of the world” was also based on debt processes in Western Europe and the USA due to Chinese export surpluses within the framework of the aforementioned deficit cycles).[31] And this Chinese deficit cycle produces far greater speculative excesses than in the USA or Western Europe, made evident by the disruptions on the absurdly inflated Chinese real estate market in 2021.[32] This lack of a new accumulation regime in commodity production, in which the inner barrier of capital manifests itself, forms the major difference between China and the US: Washington, after WW2, at the beginning of its hegemony, was able to build on two decades of coming capital expansion under Fordism. China, on the other hand, because of its collapsing towers of debt in an over-indebted late capitalist world system, looks as if it was already in decline before it achieved hegemony.

Another moment that makes a Chinese hegemony in the late capitalist world system impossible from an ecological point of view was described by Arrighi in his aforementioned work as the historical tendency towards progression within the hegemonic cycles: the territory, the population as well as the economic weight of the hegemonic powers increase in the history of the capitalist world system. From the few million subjects of Great Britain to hundreds of millions of US citizens of the continent-like hegemon USA to the last possible increment of the billion-person state China. This, however, also breaks the ecological limits of the capitalist world system,[33] since China is already the largest emitter of greenhouse gases and the climate crisis is already having catastrophic consequences.[34]

Oceania vs. Eurasia?

The collapse of the global deficit economy and the escalating climate crisis stand in the way of a new “world order” shaped by Beijing, a Chinese hegemonic cycle. Hegemony, after all, means that the position of the hegemon is at the very least tolerated, since it is accompanied by advantages for the other states in this hegemonic system. In the case of the US, it was the long post-war Fordist boom and – from the 1980s onwards – the deficit economy based on the world’s reserve currency, the dollar, that enabled Washington to achieve hegemony. China’s rise, by contrast, can no longer be based on such an economic foundation.

The historical hegemonic cycle of the capitalist world system is thus superimposed on the socio-ecological crisis process of capital, it interacts with it and allows China’s hegemonic rise and disintegration to merge. In place of the US hegemonic system, which went into open dissolution with the invasion of Iraq from 2003 onwards, there now seems to be a global bloc formation, in which Eurasia (Russia and China) and Oceania (USA together with its Atlantic and Pacific alliance systems) are in a perpetual conflict in a real dystopia. Yet even this frontline position, reminiscent of the Cold War – which escalated into open conflict in Ukraine – is likely to remain unstable and volatile. It could even be argued that Washington and London, as the driving forces in the Ukraine conflict, are also pursuing the goal of welding together the eroding Western alliance system through a common front against Moscow in the trenches of eastern Ukraine.

The collapse of globalization is synonymous with the collapse of the global deficit economy outlined above, which stabilized the world system in the neoliberal era. This is the decisive factor that will shape the further course of the crisis. The debt tower construction, which was maintained by means of money printing by the central banks and which delayed the manifest outbreak of the crisis in the neo-liberal period, is just collapsing, without a new accumulation regime in sight, which results in the intensification of blind crisis competition at all levels of capitalist socialization. A “post-war order” hardly seems possible any more, due to the increasing impacts of the crisis and the thus increasing crisis competition.

This also applies to crisis imperialism, which, while evoking memories of the 19th century, is driven by an inverted logic of development. While the first imperialist “Great Game” took place in a phase of global expansion of capital, in which ever new peripheral regions were integrated into the capitalist world system by means of fire and sword, its re-enactment in the 21st century takes place against the backdrop of the contraction of the valorization process, which leaves behind more and more economically and ecologically “scorched earth” along with the corresponding “failed states.”

In a nutshell: Since capital can no longer continue its zombie life financed on credit, the late capitalist state monsters are falling over each other, making all current alliances unstable, since the crisis-related competitive pressure is also increasing between the EU and the USA, between Beijing and Moscow. There is a certain inevitability in all this, since the striving for international standing in the world crisis of capital is in fact tantamount to a fight against social and economic decline, a fight on the Titanic of the late capitalist world system, which is in the process of open decay. Exclusion of the economically superfluous and the securing of resources are central moments of this crisis imperialism, while the inferior powers and world regions stagger into state collapse.

This becomes particularly clear in the example of the war over Ukraine, where both sides are in fact endeavoring to instrumentalize tendencies towards state disintegration for their own interests. Moscow is working to establish loyal “people’s republics” in the occupied Russian-speaking regions of Ukraine – following the example of Donetsk and Luhansk – in order to be able to incorporate them into the Russian Federation. Ukraine’s far right, on the other hand, which currently forms the fanatical spearhead of the Ukrainian military, sees the war as an opportunity to accelerate Russia’s state disintegration in order to realize imperial ambitions in its slipstream.[35]

It is a Taliban logic that is unfolding here, in which – similar to Western military aid to Afghanistan’s holy warriors in the 1980s – an extremist movement is being ramped up that will destabilize the region as the crisis progresses and bring the already anomic tendencies in the rotten Ukrainian state apparatus (which is just as corrupt as Russia’s) to full fruition. The Nazis of Ukraine, who are currently gaining influence at a rapid pace[36]– similar to the crisis imperialism described above – only superficially follow their historical model. Having set out to fight for the classic national empire in the form of a state, they are in fact the subject of the anomic barbarism objectively unfolding in the course of the crisis, i.e. of the rapidly advancing decay of the state.

Another moment of the new phase of the crisis, in which the external and internal barriers of capital interact, is also becoming clearly discernible during the Ukraine war: the rapidly spreading shortage of resources and food, which, although currently sold as a consequence of war, will turn into a permanent phenomenon.[37] The late capitalist global agrarian system, which has turned humanity’s natural resources and livelihoods into bearers of value and is burning them for the purpose of rampant value valorization,[38] is unable, in the face of the escalating climate crisis and collapsing globalization, to sustain the food supply for large segments of humanity on the periphery of the world system – even though this would still be possible in a resource-conserving post-capitalist system, despite the escalating climate crisis.

With the ever more clearly emerging collapse of the global deficit economy, including the deficit cycles described above, and with the devaluation of value that is now also imminent in the centers, both in the euro and the dollar area, and which is in all likelihood being heralded by stagflation, global supply chains for raw materials, resources and basic foodstuffs are also likely to collapse or at least be severely damaged. The crisis of scarcity characteristic of the new quality of the crisis, which is already spreading in the periphery,[39] is thus a product of the escalating contradictions that are inherent in the growth compulsion of capital – and here, too, the “supply bottleneck” under which German industry, for example, is groaning, was only the manifestation of this new quality of the crisis of a world system that is moving into open disintegration in the course of the pandemic.

The character of the neo-imperialist “Great Game” over Ukraine has changed since 2014 – when the West intervened[40] to prevent the formation of the “Eurasian Union” propagated by Putin. With the battle over Ukraine’s southern and southeastern regions, which the Kremlin wants to incorporate into its rotten empire, an archaic-looking resource war is now also taking place. These swaths of land have the highest agricultural yields.[41] Moscow, which has failed to modernize the Russian economy, is thus expanding its strategy of an “energy empire,” which seeks extensive control of the “value chain” of energy resources, to include other “scarce” resources: basic foodstuffs. Russia not only wants to be a nuclear-armed gas station, it also wants to be a granary – precisely in anticipation of the climate crisis.

The Russian invasion of Ukraine thus provides a glimpse of the coming period of crisis, in which a capitalist world system in the process of disintegration will no longer allow for a fixed hegemony or bloc formation due to increasing economic and ecological devastation, while openly warlike confrontations over essential resources are likely to increase, even between the great powers that are increasingly sealing themselves off from the periphery. In a sense, everything will become oil – especially since the crisis process does not adhere to the reified form in which it appears in bourgeois crisis discourse, and the individual moments of this dynamic, which are separated in public discourse into “economic crisis,” “climate crisis,” “political instability” or “supply shortages,” will increasingly interact with each other. The vanishing point of this new quality of the crisis on a geopolitical, “neo-imperial” level is ultimately the nuclear exchange of blows, which is becoming more and more likely with the increasing intensity of ecological and economic crises, with ever new, more violent “crisis impacts.”

Authoritarian State Formation and State Collapse

Since de-globalization is accompanied by the collapse of the global deficit economy, which will lead to the devaluation of the neoliberal debt mountain, the most severe economic and social dislocations, as they devastated large parts of the periphery in the form of debt crises and economic collapses in the neoliberal era, seem likely to occur in the centers as well this time. If the capitalist functional elites have no further method of delaying the crisis at their disposal, the crisis process, which has been advancing in stages from the periphery to the centers since the 1980s, would thus reach its logical end point. It is not only the USA, which is groaning under an absurd private and state debt burden, that is facing the economic abyss in view of the necessary turnaround in monetary policy on interest rates; it is precisely export-fixated economies such as that of the FRG that are highly dependent on the global deficit economy by means of their export surpluses, which in fact represent an export of debt – and which could now be hit particularly hard by de-globalization.

Thus, at first glance, a tendency that was already apparent in the final phase of the neoliberal era seems to be advancing to become a central moment of the new crisis period: The state as an economic actor, which in recent years seemingly stabilized the system with stimulus packages and excessive money printing in the context of the last great liquidity bubble, is likely to become a central actor in the new crisis period.[42] The state, which seemingly stabilized the system in recent years with economic stimulus packages and excessive money printing in the context of the last great liquidity bubble, is likely to become the dominant economic actor in the short term due to the new quality of the crisis process – even if these state capitalist reflexes no longer have any prospect of success.

In general, the capitalist state, which already in its absolutist early form in the context of the European “economy of firearms” (Robert Kurz) acted as the most important impulse generator of the initialization of the valorization process, acts as a central economic actor in times of war and crisis. The state is not an alternative to the market, as it often appears in the truncated critique of capitalism, but a necessary corrective to the blind market dynamic, which tends to be auto-destructive. As soon as the contradictions inherent in capital valorization shake the system to its foundations through crisis or war, the state – which is always a capitalist state – must intervene to try to stabilize the system. Most recently, for example, in the period of crisis and war in the 1930s.

Even at present, in the face of climate crisis and war, there are voices calling for an open transition to rationing,[43] to state capitalism, to the war economy.[44] The state is not only supposed to support the “economy” through stimulus programs, the development of the new, “ecological” infrastructure and money printing, as in the final phase of neoliberalism; the state is also expected to be responsible for costly basic research, the subsidization of consumption or production and the organization of commodity distribution in phases of crisis. Strategic state decisions on industrial development are already part of bourgeois policy, for example in the FRG in the form of the promotion of “industrial champions” who are to conquer the world markets with state backing (here too the West is actually only following China and Russia).[45] Also foreseeable are, in reaction to coming crises, renewed nationalizations, especially in the ailing and crisis-prone late capitalist infrastructure sector.

This necessary role of the state as “crisis manager” is, however, undermined by the previously described exhaustion of the financial market-driven globalization of the deficit economy in the neoliberal age, which, in the face of dizzying mountains of debt, overheated financial markets and rapidly increasing inflation, drives politics into a dead end, a crisis trap: On the one hand, capitalist crisis policy should actually lower interest rates, print money and support the economy with stimulus programs in order to minimize the economic consequences of the war in Ukraine, but at the same time it would be necessary to raise interest rates and pursue a consistent austerity course in order to get at least some control over inflation.

This crisis trap, which is becoming ever clearer,[46] and marks the end of the credit-financed neo-liberal delay of the manifest breakthrough of the crisis in the centers, will, when it snaps shut, entail the most severe economic and social dislocations – especially in the centers, and especially in their middle classes. With the wave of impoverishment, the gradual brutalization of the bourgeois metropolitan societies, which has been going on for decades, will turn into open barbarization, driven by an escalating crisis competition at all levels, driving it into the anomic. The crisis-induced socio-political retreat of the state will reduce it to its original role as an instrument of repression. The new crisis thrust will thus entail a corresponding state reaction. Authoritarian state aspirations, present in neoliberalism in the form of the dismantling of democracy and the expansion of the surveillance state, will become openly apparent. The right-wing US President Trump was only a prelude in this respect. And in the Federal Republic, too, the latently fermenting fascist potential is only likely to become fully manifest when the civilizing effect of the high foreign trade surpluses, which compel Germany’s economic and political elites to take account of foreign opinion, disappears in the course of the crisis.

The war over Ukraine in particular makes this interaction of crisis dynamics, brutalization and authoritarian state reflex clear. Lukashenko, once called “Europe’s last dictator,” seems to be the forerunner of all those authoritarian tendencies that are currently spreading in the EU, for example in Hungary or Poland, in NATO, especially in the form of the Islamo-fascist regime in Turkey, or in Ukraine itself, which is already following in Russia’s footsteps with arrests of opposition members and party bans.[47] It is a fundamental mistake to interpret the war in Ukraine as a struggle between democracy and dictatorship, a view which could actually be corrected just by looking at the conditions in Warsaw, Budapest or Ankara. Consequently, the new phase of the crisis is more likely to be marked by the Orwellian struggle of authoritarian or fascist regimes for resources than by a new edition of the “Cold War.”

And yet this tendency towards authoritarian, and in the final analysis openly fascist, crisis management is a surface phenomenon, only externally linked to 20th century fascism. Total and totalitarian mobilization during World War II made the postwar Fordist boom possible, since there was effectively no demobilization after the end of the war and mass tank production passed into the automobilization, the mass production of cars, of postwar capitalist societies; but a similar regime of accumulation in which mass wage labor would be valorized in commodity production is not in sight this time. There is only the abyss of total over-indebtedness in the incipient climatic catastrophe, which gives a different course to the objective function of fascism as a terrorist crisis form of capitalist rule. The moment of fascism that has always existed as the rule of the rackets, that is, of competing communities of looters, as Critical Theory clairvoyantly stated, becomes dominant in the current systemic crisis.

The authoritarian formation of the state, which is increasingly becoming the prey of rackets, thus goes hand in hand with its internal erosion, which is already beginning to unfold in the Federal Republic in particular: especially with regard to the increasing right-wing extremist activities in the state apparatus.[48][49] In Ukraine this process has already progressed much further, where the oligarch rule after the fall of the government and the outbreak of the civil war already turned into right-wing extremist militia formation,[50] which could openly challenge the Ukrainian state in the run up to the war.[51] The disastrous course of the Russian invasion also revealed how far the tendencies towards state erosion had progressed even within the Russian state oligarchy, since even the army, essential for the Kremlin’s projection of power, was fully caught up in this. The division within the German right, which cannot clearly position itself behind the Ukrainian Nazis or Russian pre-fascism in the Ukraine war, points precisely to the omnipresence of these authoritarian-anomic tendencies in this conflict.[52]

A prime example of the fragility of authoritarian rule in capitalism and the transformation of dictatorship into anomie is provided by the Arab Spring, in the course of which seemingly monolithic dictatorships such as those in Syria and Libya collapsed and released their inherent centrifugal forces. Authoritarian structures are not a sign of the inner strength of the capitalist system, which prefers the optimization of the self-valorization of the wage-dependent within the framework of capitalist democracy, but rather its form of crisis, which is nowhere near as efficient at organizing the process of valorization as the typical published discourse in the centers of the world system on ways to optimize and increase growth – but which requires a certain degree of social stability to ensure its ideological foundations.

Amok or Emancipation

The era of openly authoritarian crisis management, which is now being heralded, for example, in the publicly articulated preference of Western oligarchs for right-wing populists,[53] will therefore not be able to bring about a decade-long post-war order in domestic politics either, as it prevailed at least in the centers during the neoliberal era, despite all the creeping processes of erosion and the increasing contradictions. The climatic, economic and geopolitical crisis impacts are coming with increasing frequency, which is why stabilization, which would herald a new historical period of crisis management, is hardly likely, even by means of authoritarian, dictatorial methods. Especially since, as already mentioned, the different moments of the crisis process are increasingly interacting, so that the climate crisis, for example, will have a growing economic and social fallout. The time of the monsters, as Gramsci called the breakthrough crisis to Fordism in the 1930s, no longer seems to have an end in sight.

It could even be argued that – with crisis imperialism and fascism striving towards the anomic as an open death cult[54] – in the phase of capital’s decline, moments of its expansionary dynamics briefly reappear, overlap, interact – entirely in the sense of a dialectical negation of negation, so that seemingly familiar phenomena at a higher stage of the capitalist development of contradiction follow a reversed logic of development driven by the contraction of the valorization process. These are blood-soaked early capitalist mementos from the ascendant phase of capital that the world system, which is passing into agony, once again unleashes upon humanity. Even the mercenary, who is currently celebrating a comeback in the neo-imperialist wars of distribution and collapse, is a product of early capitalism, when the first “wage earners” emerged en masse in the 30 Years War as an embryonic form of the wage-earner and terrorized the population.

Without an emancipatory overcoming of capital in its blind fetishistic flight towards world destruction,[55] the crisis has its final vanishing point in panic, in the capping of all libidinous bonds between the members of society triggered by escalating crisis competition, as already evidenced by the case of the individual run amok, which now occurs regularly.[56] In addition to global nuclear war, which is becoming an ever greater threat in crisis imperialism as the intensity of the crisis increases, it is the climate crisis that is likely to act as the greatest producer of panic: Specifically, the increasingly apparent uninhabitability of vast swaths of the global south,[57] which places objective limits on all, even the most brutal, openly terrorist forms of crisis management. This would mark the transition to sheer civilizational collapse.

From this systemic urge towards self-destruction, which is now blatantly obvious, grows the necessity of survival of the emancipatory overcoming of capital, which forms, so to speak, the last constraint with which the capitalist regime of constraint must be transformed into history. The struggle for the transformation of the system should thus be the central moment of left practice, instead of losing oneself in the jubilant cheering for NATO or Putin, which large parts of the German left are currently practicing in view of the Ukraine war.[58]

---

[1] https://oxiblog.de/die-mythen-der-krise/

[2] http://www.konicz.info/?p=4136

[3] https://www.xn--untergrund-blttle-2qb.ch/wirtschaft/theorie/stagflation-inflationsrate-6794.html

[4] https://de.wikipedia.org/wiki/Gro%C3%9Fer_Kladderadatsch

[5] https://www.heise.de/tp/features/Freihandel-und-Fluechtlinge-3336741.html

[6] https://www.mandelbaum.at/buch.php?id=962

[7] https://www.xn--untergrund-blttle-2qb.ch/wirtschaft/weltfinanzsystem-finanzmaerkte-notenbanken-6360.html

[8] https://www.xn--untergrund-blttle-2qb.ch/kultur/film/george_andrew_romero_zombie_4234.html

[9] https://www.xn--untergrund-blttle-2qb.ch/wirtschaft/theorie/stagflation-inflationsrate-6794.html

[10] https://www.mandelbaum.at/buecher/tomasz-konicz/klimakiller-kapital/

[11] https://www.xn--untergrund-blttle-2qb.ch/politik/theorie/die-klimakrise-und-die-aeusseren-grenzen-des-kapitals-6832.html

[12] https://www.lunapark21.net/das-kapital-als-weltverbrennungsmaschine/

[13] https://carnegieendowment.org/chinafinancialmarkets/86397

[14] https://www.co2.earth/daily-co2

[15] https://www.imf.org/-/media/Files/Publications/WEO/2022/April/English/text.ashx

[16] https://www.spiegel.de/wirtschaft/iwf-ukrainekrieg-kann-weltwirtschaftsordnung-fundamental-aendern-a-af821a51-222d-42d2-9038-d29180574e3d

[17] http://www.konicz.info/?p=4876

[18] https://www.dw.com/en/high-fertilizer-costs-threaten-farmers-amid-sanctions-on-russia/a-61163444

[19] https://www.reuters.com/business/indonesia-seeks-balance-international-local-palm-oil-demand-official-2022-05-11/

[20] https://twitter.com/spectatorindex/status/1525327269707022336

[21] https://www.heise.de/tp/features/Die-Urspruenge-der-gegenwaertigen-Wirtschaftskrise-4285127.html

[22] http://www.konicz.info/?p=1409

[23] https://www.heise.de/tp/features/Der-Aufstieg-des-deutschen-Europa-3370752.html

[24]  https://lowerclassmag.com/2021/04/13/oekonomie-im-zuckerrausch-weltfinanzsystem-in-einer-gigantischen-liquiditaetsblase/

[25] https://www.heise.de/tp/features/Politik-in-der-Krisenfalle-3390890.html

[26] https://www.xn--untergrund-blttle-2qb.ch/politik/europa/russland-ukraine-krise-konflikt-neoimperialismus-6830.html

[27] https://www.ft.com/content/e5735375-75df-4859-bbf0-ae22e4fe2ff6

[28] http://www.konicz.info/?p=4389

[29] https://www.versobooks.com/books/347-adam-smith-in-beijing

[30] https://www.washingtonpost.com/news/wonk/wp/2015/03/24/how-china-used-more-cement-in-3-years-than-the-u-s-did-in-the-entire-20th-century/

[31] https://www.heise.de/tp/features/Wachstum-der-Schuldenberge-3762292.html

[32] http://www.konicz.info/?p=4643

[33] https://oxiblog.de/klimakrise-und-china/

[34] https://www.buzzfeednews.com/article/kirstenchilstrom/china-flooding-photos

[35] https://www.youtube.com/watch?v=DOBntnuYCMA&t=5s

[36] https://unherd.com/2022/03/the-truth-about-ukraines-nazi-militias/

[37] http://www.konicz.info/?p=4566

[38] https://www.streifzuege.org/2021/das-globale-agrarsystem-wahnsinn-mit-methode/

[39] https://www.tagesschau.de/ausland/asien/sri-lanka-ausnahmezustand-101.html

[40] https://www.heise.de/tp/features/Ost-oder-West-3363061.html

[41] https://ipad.fas.usda.gov/rssiws/al/crop_production_maps/Ukraine/Ukraine_wheat.jpg

[42] https://lowerclassmag.com/2021/04/13/oekonomie-im-zuckerrausch-weltfinanzsystem-in-einer-gigantischen-liquiditaetsblase/

[43] https://www.ft.com/content/d8e565b0-c769-46cc-9be3-4ed9a806d8e8

[44] https://www.spiegel.de/wissenschaft/mensch/ukraine-krieg-und-gas-dann-eben-kriegswirtschaft-aber-richtig-kolumne-a-532bb9fa-15e4-4b9b-8e50-d6e082a93f04

[45] https://www.zeit.de/wirtschaft/2019-05/nationale-industriestrategie-2030-peter-altmaier-industriepolitik-faq

[46] https://www.heise.de/tp/features/Politik-in-der-Krisenfalle-3390890.html

[47] http://www.konicz.info/?p=4832

[48] https://www.heise.de/tp/features/Braun-von-KSK-bis-USK-4355668.html

[49] https://www.heise.de/tp/features/Inflation-der-Einzelfaelle-4259590.html

[50] https://www.streifzuege.org/2014/oligarchie-und-staatszerfall/

[51] https://consortiumnews.com/2022/03/04/how-zelensky-made-peace-with-neo-nazis/

[52] https://www.endstation-rechts.de/news/die-deutsche-rechte-und-ihr-umgang-mit-dem-krieg-der-ukraine

[53] https://winfuture.de/news,129707.html

[54] https://www.heise.de/tp/features/Der-alte-Todesdrang-der-Neuen-Rechten-4509009.html

[55] https://www.heise.de/tp/features/Die-subjektlose-Herrschaft-des-Kapitals-4406088.html

[56] https://www.heise.de/tp/features/Fluchtpunkt-Amok-3263142.html

[57] https://www.spiegel.de/wissenschaft/mensch/extremwetter-und-klimaforschung-klimakrise-macht-hitzewellen-in-indien-100-mal-wahrscheinlicher-a-aa4a67a0-96f2-4be0-911f-a83f33abcaec

[58] Read more: https://www.konicz.info/?p=4868.

Originally published on konicz.info on 05/24/2022

Tomasz Konicz

The fact that parts of the world are facing a devastating famine cannot be attributed solely to the consequences of the Ukraine war.

Putin did it! This exclamation, which the Kremlin ruler’s auburn-haired German fan base likes to use with a wink to ridicule any criticism of their surrogate leader, actually seems to apply perfectly in the case of the worsening hunger crisis in the global South. Since Russia’s invasion of Ukraine, staple food prices have really skyrocketed. The food index of the Food and Agriculture Organization of the United Nations (FAO), whose calculation takes into account the price of cereals, dairy products, meat, cooking oils and sugar, has risen significantly since the beginning of the war.

Ukraine and Russia, as important exporters of staple foods such as wheat, corn or sunflower oil, supply mainly peripheral states. Belarus and Russia also produce a large share of fertilizers for the global agricultural economy. According to the Federal Office of Economics and Export Control, Ukraine’s wheat production accounts for 11.5 percent of the global market. In 2021, about 33 million tons of wheat were harvested in the country, which has particularly fertile soils, of which 20 million tons were destined for export. This year’s harvest is estimated to be 35 to 42 percent lower due to the war, and exports have already fallen to a third of last year’s volume in May. The food crisis is thus triggered on the one hand by the war in Ukraine and the Russian blockade of Ukraine’s Black Sea ports, and on the other hand by globally looming crop losses due to fertilizer shortages. Russia and Belarus produced around 37 percent of the potash fertilizer used worldwide in 2019.

Before the outbreak of the war, Russian and Ukrainian grain exports went mainly to those peripheral regions that are particularly vulnerable to famine. Among the largest importers of wheat from Russian and Ukrainian production are Egypt, Bangladesh, Nigeria, Yemen, Sudan and Senegal. Of the 25 African countries that source more than a third of their wheat imports from Russia and Ukraine, 15 countries actually met more than half of their import needs from Russia and Ukraine. In the case of Somalia, Egypt, Benin, Sudan, the Democratic Republic of Congo, Senegal and Tanzania, the figure was more than two-thirds. East Africa in particular, where the worst drought in 40 years has already caused a severe famine threatening some 23 million people, to which statistically one person falls victim every 48 seconds, is a major buyer of wheat from the war zone. Since the EU sanctions do not affect Russian sunflower oil and grain exports, and the most important importing countries have not imposed any sanctions against Russia, the price increase and the resulting increase in hunger and malnutrition must be attributed to the imperialist war of aggression which Putin – provoked by Western expansionism in the closest Russian sphere of influence – unleashed in his megalomania.

However, a look at the global development of hunger and malnutrition also shows that the war acts as a crisis amplifier that accelerates already prevailing trends. Indeed, Western public opinion is in part using the Russian invasion of Ukraine as a cheap excuse to distract from the deeper, systemic causes of the crisis.

According to FAO figures, the number of people suffering from hunger and malnutrition in late capitalism has been increasing almost every year since 2014 due to episodic outbreaks of social and environmental crisis. The increase in hunger was most pronounced in 2020, the year of the pandemic – 768 million people were affected. The fight against the pandemic led to a massive collapse in demand in the core countries, which led to an overproduction crisis and a corresponding explosion of misery in the periphery. According to a report in the FAZ, for example, sales of textiles in Europe and North America collapsed by around 16 billion dollars in 2020, which was reflected in income reductions of around 21 percent in the Southeast Asian textile industry. Since wages in the industry in countries such as Bangladesh, Pakistan or Burma are at the subsistence level, millions of workers simply had to go hungry – or get into debt.

According to surveys, 75 percent of the workers were forced to take out loans in order to ensure adequate access to the necessities of life. The market-mediated capitalist destitution mechanism, which had its destructive effect not only in the textile industry during the pandemic, transforms the falling demand of the centers of the world system into empty stomachs in the periphery. The rise of hunger thus affected millions of wage-earners in 2020 precisely because too much material wealth was produced that could no longer be valorized in commodity form. Those wage-dependents who are still allowed to sew clothes for Adidas, Puma and Co. have been “lucky,” according to the capitalist logic of valorization.

In capitalism, only that which directly or indirectly contributes to the valorization process of capital has a right to exist, that is, only that which promotes the boundless multiplication of money by means of wage labor. Natural resources and human life have no value in themselves for capital, but function only as a means to the insane end in itself of boundless capital accumulation. Commodities – and this includes the commodity of labor power – represent a mere cost factor if they cannot be valorized. Since, under capitalist conditions, the massive increase in hunger is accompanied by an equally massive decrease in the market demand for food, the pandemic year 2020 was consequently marked not only by a serious increase in hunger, but also by mass destruction of food. The US agricultural industry, for example, destroyed millions of tons of staple foods, while some 38 million US citizens suffered from “food insecurity” and the queues at soup kitchens and food distribution points, which were frequented by 60 million people in 2020, grew longer and longer.

The destruction of foodstuffs that can no longer be pressed into commodity form is also taking place in this year of war and crisis, when, for example, farmers in Münsterland have their strawberry fields plowed under because the food trade is forcing prices below production costs. However, there are now also signs of famines caused by the climate crisis. This is illustrated by a look at India, for example. In the spring, the country was hit by a historically unprecedented, week-long heat wave with record temperatures of more than 45 degrees Celsius, which led to considerable crop losses. In key crop-growing regions such as Punjab, initial estimates put crop losses at around 25 percent. With India already using up a large part of its grain reserves during the pandemic-induced bouts of pauperization to prevent famine and riots as part of a welfare program, New Delhi decided to pull the emergency brake and impose a ban on wheat exports in the face of skyrocketing prices. India originally wanted to use the shortages triggered by the war in Ukraine to open up new markets, but in view of the collapsing crop yields, which are calling into question the government’s food program, which runs until September, the government felt compelled to resort to protectionist measures.

The climate crisis is thus reinforcing the protectionist tendencies that are already prevalent in the final phase of neoliberal globalization – at the latest since Donald Trump took office. And the impacts, which take the form of extreme weather events, are becoming more frequent: the severe heatwave that hit Spain in May endangered the harvest of several berry varieties. In the USA, prolonged drought in the Midwest is threatening yield losses of eight percent for winter wheat – despite an expansion of the area under cultivation. In Morocco, crop losses of 70 percent are expected due to drought, while Canada and France are also facing significant losses due to unusually warm and dry weather conditions in the spring. And China could also see yield losses due to severe flooding. Overall, according to estimates by the US Department of Agriculture, wheat yields are expected to fall by 0.6 percent in the 2022/23 season, and global reserves by as much as five percent.

The skyrocketing world market prices for staple foods, which are likely to contribute to the 193 million people at risk of starvation worldwide, as stated by the Global Report on Food Crises for 2021, will continue to rise this year, only anticipate future market demand in the face of war and the climate crisis. And it is not only India that is responding to this killer market movement with protectionism. Due to massively rising prices and looming supply shortages, Indonesia, for example, issued a short-term export ban on palm oil in April, which further exacerbated the supply situation, especially in the global South. The export restrictions on the environmentally harmful oil, 60 percent of which is produced in the South Asian island state from oil palms grown in monocultures on the soil of deforested rainforests, were only lifted at the end of May.

Just as the failed global fight against pandemics, due to the unequal distribution of vaccines, leads to the emergence of new mutants and resistances in the periphery, the late capitalist world system is at the same time the cause and intensifier of the hunger crisis, which is gaining momentum. The growth compulsion of the capitalist economies, itself only an expression of the process of valorization, is causing global CO₂ emissions to continue to rise in spite of all the ideological assurances of green politicians, which will put ever greater pressure on the food supply of humanity. At the same time, the late capitalist agricultural system is incapable of reacting adequately to the increasing distortions, since it follows only the end in itself of achieving the highest possible profit.

The lamentations of the green political swamp, according to which “we” should finally eat less meat and fill up less biodiesel, ignore precisely this irrational end in itself of capital, which turns the basis of human existence into the mere material of the real-abstract valorization process. The demands raised by the agricultural mafia in the face of the unfolding hunger crisis to lower environmental standards and abandon organic farming after all, in order to push the ecologically disastrous industrialization of food production to the extreme, only illustrate the fundamental inability of the late capitalist agricultural sector to reform, as was already expressed in 2020 in the EU agricultural reform, which was softened beyond recognition by lobbying associations (see konkret 12/20).

In the course of the famine crisis, the internal and external barriers of capital interact with each other – this becomes very clear in the upsurge in prices, which is, after all, not only fueled by war and the climate crisis, but also by the consequences of the massive over-indebtedness of the entire capitalist world system. The gigantic global debt burden – the consequence of a missing accumulation regime simulated in the neoliberal era by credit-financed growth – which also crushes many countries in the global South threatened by famine and makes adequate crisis reactions difficult, could only be maintained in recent years by steadily increased money printing by central banks. Long before the outbreak of war, this “expansive monetary policy” manifested itself in rising inflation, contributing to increased food prices and heralding the inevitable devaluation of global debt mountains. And it was precisely these increasing economic as well as ecological contradictions that put the West and Russia on a collision course in Ukraine. 

The nature of the neo-imperialist Great Game over Ukraine has consequently changed since 2014 – when the West intervened to prevent the formation of the Eurasian Union, propagated by Putin at the time, by means of a government overthrow carried out by Nazi militias. With the fight over Ukraine’s southern and southeastern regions, which the Kremlin wants to incorporate into its resource empire, an archaic-looking resource war is now also taking place. The disputed areas have the highest agricultural yields of cereals such as wheat and rye. Moscow, which failed to modernize the Russian economy, is expanding its strategy of forming an “energy empire”, which seeks extensive control of the “value chain” of energy sources, to include other “scarce” resources: in this case, basic foodstuffs.

Russia not only wants to be a nuclear-armed gas station, it also wants to become the granary of the late capitalist world lurching into climate catastrophe, thereby gaining another geopolitical lever of power. The visit of representatives of the African Union to Moscow in early June to discuss the food crisis illustrates the Russian strategy. Senegalese President Macky Sall said he was “very pleased and very happy” with the exchanges with his Russian counterpart, after the three-hour meeting with Vladimir Putin, as the latter was aware that “the crisis and the sanctions would cause serious problems for weak economies like the African ones.” The New York Times described the meeting as “something of a diplomatic victory” for Putin. It is doubtful, however, that the late capitalist world system, in its current state, even knows such a thing as a victor.

Originally published in konkret in 07/2022

Tomasz Konicz

The wonderful world of bond markets – currently far more exciting than many functionaries in the state and financial sector might like.

Dull, dreary, mind-numbing – these are usually the words used to describe the bond markets of the core of the world system. When capital needs to be parked safely, when pension funds need to guarantee a secure, albeit low, return, when insurance companies want to park their money, then money flows into US government bonds or into German bonds, which are considered the stable foundation of the world financial system, the backbone of the neoliberal financialization of capitalism in recent decades.

When measuring the concrete on which the neoliberal financial house of cards has been built over the past decades, the trillion is the appropriate unit of measurement: with a volume of more than 22 trillion dollars, the American market for government bonds had the largest volume worldwide at the end of 2020, followed by China (20 trillion) and Japan (12 trillion).[1] Globally, a total of $128.3 trillion worth of bonds were traded during the period, of which 68 percent was public sector debt and 32 percent was corporate debt.

It’s usually more exciting to watch grass grow than to watch the US Treasury bond markets. Usually. The fact that the financial sphere is in the midst of what is, to say the least, an unusual crisis that is eroding its very foundations can be gauged precisely by the fact that bond markets in the US and the EU have been on the move and are in the midst of a nerve-wracking rollercoaster ride for investors large and small. There has seldom been so much tension and action on the bond markets, which are comfortable by capitalist standards and last came under similar pressure in the EU around ten years ago during the euro crisis.

The difference in interest rates, the so-called spread between German and Italian government bonds has risen sharply in recent weeks. Rome has to pay higher interest rates for its government bonds than Berlin, which threatens to make Italy’s enormous debt burden, which stands at around 150 percent of its economic output, unsustainable – and could blow up the entire Eurozone.[2] The ECB finds itself at an impasse due to galloping inflation and unsustainable debt burdens in the southern periphery of the Eurozone, because it would actually have to raise interest rates to fight inflation and at the same time lower them to keep the debt burden in the currency union bearable.

In the US, observers had to look further back to find parallels with the massive shifts in the sovereign debt market. In the market for US government bonds, for so-called Treasuries, a rare constellation known as an inverted yield curve[3] can be observed, which serves as a safe indication of a coming recession. Yields on long-term bonds, such as the 10-year Treasury note, have fallen below yields on short-term T-bonds, such as Treasuries with two-year or even three-month maturities.[4] Usually, long-term bonds carry higher interest rates than shorter-dated notes to compensate for the greater risk.

If bonds with short maturities are now considered just as risky as T-bonds with maturities of ten years, then this points to a coming major shock, to an approaching crisis push. Over the past 50 years, this market constellation has always preceded a recession. According to the Financial Times (FT), this inverse yield curve is as pronounced in the US bond markets as it was in 2000, when the global dot-com bubble burst with internet and high-tech stocks.[5] Thus, the US bond markets in particular seem to be sending a sure recession signal.

On average, US Treasuries, which trade at a market price similar to equities, have lost about nine percent of their value since the beginning of the year,[6] the biggest correction in this typically solid market in about 30 years. The US bond market is all but dead, lamented the Financial Times in mid-July,[7] as Washington’s long-term T-bonds are now being “shunned” by strategic investors such as pension funds, leaving their yields higher than those of 30-year bonds. This, too, is an inversion that is already attracting speculators such as hedge funds to the market to exploit these “distortions” (FT) – and further destabilize the market.

Moreover, the falling prices of US bonds are causing foreign investors to think very carefully about whether Washington’s Treasuries are still a fireproof investment.[8] Japan is now the largest foreign creditor of the United States – ahead of China – with Japanese investors holding $1.2 trillion worth of US bonds. As reported by Bloomberg news agency, net sales of US bonds in Japan have been taking place for seven months in the face of falling prices, setting a new record since record keeping began. The largest foreign creditor to the US is said to have dumped $2.4 billion worth of Treasuries in May alone, with sales as high as $17 billion in April. If these outflows accelerate and more of Washington’s foreign creditors do the same, the Fed could face a full-blown debt crisis.

Falling bond prices go hand in hand with rising interest rates, which tend to approach the interest rate level of the central banks. However, the Fed’s interest rate hikes, which are intended to help fight inflation, are also accompanied by an increase in the cost of servicing sovereign debt. The higher the interest rates, the greater the government’s interest burden. Even in the FRG, the cost of servicing the – relative to the south of the Eurozone – lower and cheaper mountains of debt has increased almost eightfold within a short time: from just under four to just under 30 billion euros.[9] The era of negative interest rates is finally over, although, as explained above, it is precisely the bond markets that are contributing to the destabilization of the currency union due to the increasing differences between the interest rates of the German core and those of the southern periphery of the euro area, and which could lead to it breaking up should the crisis escalate any further.

In the US, right-wing forces within the Democratic Party have already exploited the Fed’s interest rate turnaround to massively cut the Biden administration’s infrastructure and stimulus programs.[10] There is nothing left of the flowery campaign promises of a credit-financed Green New Deal. Conservative think tanks are already arguing[11] that even Biden’s minimal stimulus programs should be sabotaged, as they are pro-inflationary and a burden on the middle class. Inflation has already risen to 9.1 percent, the Heritage Foundation complained, due to the Fed’s “printing” of an incredible amount of money that adds up to some seven trillion dollars.

In addition to this conservative critique of the loose monetary policy of recent years (which was also practiced by the Trump administration) ignoring the environmental and pandemic factors contributing to the current wave of inflation,[12] it omits the simple fact that it was precisely the historically unprecedented period of expansionary monetary policy by central banks that kept the economy and the financial sphere afloat in the context of a gigantic liquidity bubble.[13] The capping of stimulus measures, as is happening in the US, is thus likely to deepen the coming recession.

This dead end of bourgeois crisis policy,[14] where central banks can only choose between recession and inflation, only between the concrete paths to the next episode of crisis, is now being openly addressed by leading officials in the financial industry. Analysts at Bank of America (BoA) stated in a market assessment at the beginning of July that it would take a very “deep recession” to contain inflation.[15] It would take “a long time” to “cool down the labor market” and contain “inflation driven by labor costs,” the BoA forecast said. In plain English, unemployment must rise significantly to depress wages, which rose in the era of “cheap money,” generating demand and exacerbating pandemic supply shortages. The “market equilibrium” between demand and supply, which was shattered by the pandemic and the climate crisis, is thus to be restored via the pauperization of wage earners – so that full supermarket shelves and shop windows can once again be wistfully admired by wretched figures.

The great flood of money from the central banks, which had actually already opened their floodgates wide in 2008 after the bursting of the real estate bubbles in the USA and the EU and hardly closed them since,[16] led to an inflation of securities prices in the financial sphere. And it was precisely this financial bubble economy that provided for the “good” economic development generated on credit, which is now “overheating” in inflationary terms. It is precisely the inflation of the prices of the speculative objects in the financial sphere that is at the core of the definition of a bubble. And since it was the liquidity of the central banks, with which the financial markets were flooded, that led to the formation of this “inflation of securities prices,” this speculative dynamic, which is now bursting, is called a liquidity bubble.

In the Financial Times[17] this connection between the flood of money and the financial market boom is now openly discussed: According to the paper, the liquidity pumped into the markets since the beginning of 2020 has had a “twofold to 2.5-fold” greater impact on the performance of the stock markets than the dismal economy. Investors are thus far more concerned about the drying up of liquidity in the wake of the interest rate turnaround than they are about the growth outlook.

The central banks’ turnaround on interest rates is not only causing the mountains of debt in the bond markets to move, but the stock markets,[18] the currency markets,[19] and the real estate market[20] are also all affected. The liquidity bubble of the central banks, which have been pursuing a zero interest rate policy almost without interruption since 2008 and have pumped trillions into the financial sphere by means of securities purchases, has in fact developed into an everything bubble, which has promoted the formation of bubbles in many areas of the financial sphere – up to and including the absurd excesses of swarm speculation with meme stocks such as Gamestop.[21]

The current upheavals in the financial sphere, the turbulence in many markets, which seem so confusing at a cursory glance, can certainly be reduced to a common denominator that makes these crisis dynamics understandable: the aforementioned liquidity bubble, which has been pumped up by central banks since the financial crisis of 2008. To prevent the economy from crashing after the 2008 and 2020 bouts of crisis, central banks pumped money into the financial sphere by buying up junk securities like mortgage securitizations or the government bonds of their sovereigns, leading the financial sphere into a long speculative boom accompanied by short bouts of shocks. This Everything Bubble is bursting after the outbreak of the pandemic and the war over Ukraine, as the liquidity held in the inflated financial sphere increasingly flows into the “real” economy, accelerating price inflation there, which could reach double-digit rates of increase in the US.

The global turnaround in monetary policy by the central banks is taking place – this is characteristic of capitalism – not in a coordinated approach, but in competition with each other, which is an expression of the usual late-capitalist crisis competition between “economic localities.” According to the Financial Times, there are increasing signs of a “reverse currency war” between central banks, with each country’s monetary policy seeking to contain the “import of inflation.”[22] The Fed’s interest rate hike has put many central banks “under pressure” to follow suit, as it has caused the US dollar to appreciate against the currencies of other currency areas, such as the Eurozone. However, a depreciation of the currency makes imports, such as of energy sources, more expensive, which fuels inflation. This is why the ECB recently decided to keep its key interest rate at 0.5 percent, despite the friction within the economically divided eurozone,[23] so as not to fall behind in the revaluation race with the USA.[24]

The central banks of competing countries must therefore follow suit in this revaluation race if they do not want to literally import inflation. This currency war is in fact the reverse of the devaluation races that were common in the late phase of neoliberal globalization, after the bursting of the real estate bubbles in 2008.[25] At that time, states sought to achieve export surpluses through monetary devaluations in order to literally export the systemic overproduction crisis of capital, following the German model. These devaluation races, in which China and the FRG were so successful, turned into open protectionism when the Trump administration took office.

How far can these revaluation races of the central banks, which begin with a period of inflation, be pushed? The functional elites who are in a dead-end situation,[26] who initiate this revaluation race, are well aware that it will bring great social and economic friction. Actually, monetary policy has no choice but to at least try to let the devaluation process run its course if inflation is not to get completely out of control. The “economy” and especially wage earners will suffer. The turbulences and distortions in the financial sphere are also far from over, the crisis is far from being “priced in.” Much, even the threat of state bankruptcies in the periphery,[27] can certainly be managed and sat out without the collapse of the capitalist world system as a whole. The social fallout of the crisis can, to some extent, be held in check militarily.

But the seemingly boring bond markets in the core of the world system – in the EU, Japan and the US – cannot simply collapse without the current push of crises taking a collapse-like course. That is the objective limit of all appreciation races and all inflation battles. The mountains of debt that have started to move must be prevented from burying the crisis-ridden core beneath them in an uncontrollable avalanche.

I finance my journalistic work mostly through donations. If you like my essays, then you are welcome to contribute via Patreon.

---

[1] https://www.icmagroup.org/market-practice-and-regulatory-policy/secondary-markets/bond-market-size/

[2] https://www.ft.com/content/2869a8f3-bf59-437f-a795-4a3fbdc35cd4

[3] https://www.ft.com/content/4f4c3414-9249-4347-91e1-6049081ec431

[4] https://www.bruegel.org/blog-post/inverted-yield-curve

[5] https://www.ft.com/content/4f4c3414-9249-4347-91e1-6049081ec431

[6] https://www.onvista.de/news/2022/05-05-anleihemaerkte-schlimmste-korrektur-seit-fast-30-jahren-als-quittung-fuer-die-lockere-geldpolitik-so-koennte-es-fuer-die-maerkte-weitergehen-19-25980629

[7] https://www.ft.com/content/e02705c2-a9b6-4c47-99e2-66924af55bc3

[8] https://finance.yahoo.com/news/exodus-treasuries-hits-record-japan-015240938.html

[9] https://www.handelsblatt.com/politik/deutschland/staatsverschuldung-die-zinsexplosion-warum-sich-lindners-kosten-fuer-schulden-fast-verachtfachen/28496844.html

[10] https://edition.cnn.com/2022/07/15/politics/biden-build-back-better-manchin/index.html

[11] https://www.heritage.org/budget-and-spending/commentary/bidens-newest-build-back-better-boondoggle-would-worsen-inflationary

[12] https://www.konicz.info/2021/08/08/dreierlei-inflation/

[13] https://www.konicz.info/2021/04/13/oekonomie-im-zuckerrausch-weltfinanzsystem-in-einer-gigantischen-liquiditaetsblase/

[14] https://www.konicz.info/2022/06/11/fed-und-ezb-in-geldpolitischer-sackgasse/

[15] https://finance.yahoo.com/news/deep-recession-needed-bring-down-143850758.html

[16] https://www.konicz.info/2015/06/27/auf-ein-neues/

[17] https://www.ft.com/content/c11cee9e-7a09-4bb6-bde0-87f5392e88c7

[18] https://www.nytimes.com/2022/07/15/business/stock-market-recession-half-year.html

[19] https://www.ft.com/content/07cbb91a-5e68-45da-a796-d800cfaf9a2f

[20] https://www.yahoo.com/finance/news/us-housing-market-entering-deep-090501768.html

[21] https://lowerclassmag.com/2021/01/30/hedge-fonds-gamestop-und-reddit-kleinanleger-die-grosse-blackrock-bonanza/

[22] https://www.ft.com/content/d189b2f2-808a-4a9b-a856-234181f98c2f

[23] https://www.konicz.info/2022/07/17/russischer-sieg-im-wirtschaftskrieg/

[24] https://www.tagesschau.de/wirtschaft/finanzen/leitzinserhoehung-ezb-101.html

[25] https://www.heise.de/tp/features/Der-Schwaechste-gewinnt-3397508.html

[26] https://www.konicz.info/2022/06/11/fed-und-ezb-in-geldpolitischer-sackgasse/

[27] https://www.bloomberg.com/news/articles/2022-07-21/warnings-of-sovereign-defaults-in-asia-frontier-markets-flare-up

Originally published on konicz.info on 07/22/2022

Tomasz Konicz

For the first time in over 30 years, Germany recorded a negative trade balance. The export-fixated German economic model is facing a crisis.

“Export world champion” is now a thing of the past: in May, the German trade balance recorded a deficit for the first time since 1991, albeit only to the tune of just under one billion euros. German industry, which had been spoiled by success and had been responsible for (almost always large) trade surpluses since the 1990s, is apparently facing major ­problems.

Two factors were decisive here: the rapidly rising prices for energy sources and raw materials and the continuing disruption of global supply chains, as a result of which companies in Germany ­lack components for ­manufacturing and prices for imports are rising. As a result, the cost of imports rose 27.8 percent year-on-year to 126.7 billion euros, while exports rose only 11.7 percent to 125.8 billion euros. Compared with April, the new trend becomes even clearer: the value of German exports increased by only 0.5 percent, while imports rose by 2.7 percent.

Germany’s business representatives ­seem to be bracing themselves for the fact that the era of high German ­trade surpluses, which had already fallen from 224 to 173 billion euros annually between 2019 and 2021 due to the pandemic, is threatening to come to an end. Volker Treier, responsible for foreign trade ­at the Association of German Chambers of Industry and Commerce (DIHK)­, spoke of a ­longer-term “export downturn” at the ­beginning of July.­ An end to the price increases and supply chain problems was not in sight. The Federation of German Wholesale, Foreign Trade and Services (BGA) commented that the “consequences of the Russian war of aggression and the disruptions in the international supply chains” would leave “much greater traces” in the German trade balance, especially if there were “a break in gas supplies from Russia.”

Newspapers such as the Tagesspiegel saw a “momentous trend reversal” due to the trade deficit, which endangered the “German model of prosperity.” Economic journalists from Die Welt even asked whether Germany’s “decline” would lead to a “social crisis.”

Indeed, the economic success of the Federal Republic in the 21st century was based on the fact that the foreign trade surpluses achieved for more than 60 years reached special heights during this period. For many other countries, this was devastating, because Germany’s high trade surpluses, which often reached more than 200 billion euros, in 2017 even 247 billion euros, correspond to equally large deficits in importing countries. In the ideologically driven economic debate in Germany, this ­connection is generally ignored, but it should be obvious to everyone that surpluses and deficits in foreign trade balances must equalize on a global scale. Germany’s prosperity – the unequal distribution of which, ­by the way, is becoming ever more pronounced – was thus de facto based on the export of debt to the target countries of the German export offensive.

It is considered a great success in this country that Germany is still one of the leading industrial countries. The preservation and expansion of German industry has been at the expense of other countries, where deindustrialization has taken on enormous proportions and unemployment and debt have risen. For example, the huge exports of German industry have led to the decline of competing industry in southern Europe.

The clashes ­between the federal government and US President Donald Trump, who had promised his voters to reduce the US’s huge trade deficit, also ­resulted from this social context. Trump had taken office in 2016 promising to ­restore prosperity to ­the declining sections of US society ­by shifting industrial production back to the US, be it through protectionism or by putting pressure on the big surplus countries China and Germany, which on top of that took advantage of the relative weakness of the euro against the dollar. While ­threatening ­the German auto industry ­with tariffs, his administration imposed import tariffs on China that, ­tellingly, have not been withdrawn by ­the current US administration ­under Joe Biden.

These protectionist tendencies and trade policy conflicts, ­preceded by currency devaluation races, are a consequence of the systemic crisis of capital, which lacks a new accumulation regime in which mass wage labor in commodity production ­could be ­profitably ­valorized at the globally given level of productivity. Instead, competing capitals are engaged in an increasingly fierce struggle to keep the effects of the crisis at bay as best they can. This systemic crisis manifests itself concretely in a global debt that is growing faster than the world economy, and now stands at $296 trillion, 350 percent of world economic output. The ­hyper-productive ­system is running on credit, so to speak.

The crisis competition between the economic localities, in which the Federal Republic was so successful, thus amounted to ­passing on the debt constraint to other economies by means of trade surpluses.­ Germany’s high trade surpluses were a consequence of the introduction of the euro and the so-called Agenda 2010. The German current account balance, which takes into account services as well as trade in goods, was still balanced in the 1990s, showing only relatively manageable surpluses. It was the introduction of the euro that brought about Germany’s huge trade surpluses, especially vis-à-vis the other Eurozone countries. This is because the single currency prevented euro countries from reacting to the rapidly increasing German trade surpluses with currency devaluations, while the Hartz laws ensured the devaluation of labor in Germany.

This strategy of the soon-to-be-named world export champion was only possible thanks to the corresponding accumulation of government debt, especially in the southern Eurozone. The resulting speculation and debt bubbles burst in 2008. After the outbreak of the euro crisis, Germany – by means of the austerity dictate embodied by Finance Minister Wolfgang Schäuble (CDU) – was able to pass on its social consequences to the crisis countries in the southern periphery of the currency union. At the same time, due to the structural undervaluation of the euro in relation to the performance of German ­industry, a geographical realignment of German trade flows took place.

While the crisis in southern Europe weakened demand for German goods there, German trade surpluses in exports to non-European countries grew rapidly. The Eurozone, which initially had a balanced trade account, generated growing trade surpluses after the euro crisis, after the currency union had been turned into a “German Europe” by means of austerity policies and internal devaluation. But even that is now over: according to the statistics office Eurostat, the seasonally adjusted trade deficit of the Eurozone rose last April from 13.9 euros in the previous month to 31.7 billion euros. It is by far the highest foreign trade deficit since the creation of the currency union.

This is the systemic reason for the crisis in the German export industry: over the two decades in which global debt rose from less than 200 to more than 350 percent of world economic output, Germany was still able to pass on the litigious crisis to others through its export surplus, but now it is threatening to spread to the economic core of the Eurozone. The stable budgetary situation of recent years, with low, sometimes negative, interest rates on issued bonds, has also been based on years of debt exports, enabling the German government to mobilize hundreds of billions of euros to cushion the economic consequences of the Covid-19 pandemic and the Russian war of aggression.

All this is now at stake, even if German Finance Minister Christian Lindner (FDP) continues to promise to stick to the so-called debt brake. At least this should ­silence the economic chauvinist rhetoric in German public opinion against the debtor countries of the ­Eurozone, with which Europe’s biggest debt exporter is outraged by the mountains of debt it itself is forcing other countries to pile up.

However, this is likely to be the only positive domestic political consequence of the feared “export downturn,” should this crisis trend become permanent. The German functional elites will ­probably react to the export crisis in the same brutal way as they had initiated the foreign trade boom with the Hartz laws: By further devaluing the commodity of labor power domestically, the trade balance could be pushed back into positive territory in order to defend Germany’s crisis-ridden accumulation model. Moreover, the end of the export boom is likely to give a renewed boost to the extreme right and to euro-skepticism in the Federal Republic, if the Eurozone turns from a competitive advantage into a mere cost factor and concerns about an export-promoting image of the Federal Republic abroad recede into the background.

Originally published in jungle world on 07/21/2022

Tomasz Konicz

The Republican-hijacked US judiciary is on the road to post-democracy.

The smartphone is the best weapon against widespread police violence in the United States. The police killing of George Floyd,[1] which led to mass protests across the country in May of 2020 and reignited the Black Lives Matter movement, would not have been solved if it weren’t for clear video footage. There are hundreds of cases of police violence[2] that have been captured by courageous witnesses or activists and scandalized through social media.[3]

That, at least in Arizona, may soon be coming to an end.[4] A new police law in the western state bans all recordings of police arrests made from a distance of less than eight feet. According to human rights organizations such as the American Civil Liberties Union (ALCU), this rule in practice opens the door for abuse by police officers. Since all police officers in Arizona can now demand a distance of eight feet from filming witnesses, video recordings of arrests are likely to be prevented simply by the police officer walking towards the filming witness. The new requirements are thus even more repressive than the similar post-Democratic jurisprudence in the Federal Republic.[5] The ALCU in Arizona commented that “one of the most effective tools” against human rights violations has been compromised.

The new police law in Arizona is not only “a bad idea,” it is also “unconstitutional,” the ALCU criticized. Yet it is questionable whether such a statement is still meaningful, since the idea of what is constitutional in the US is undergoing rapid, reactionary change. The ALCU could be in for a surprise when it goes to the US Supreme Court on this issue, after the highest judicial body of the state revised decades of legal practice in the US with a series of spectacular landmark decisions, as well as previous landmark decisions.

The nine justices of the “Supreme Court” are nominated by the president and appointed for life by the US Senate – and the US right has managed to win a clear majority on the panel in recent years. Donald Trump, Joe Biden’s right-wing populist predecessor in office, was able to fill three Supreme Court seats during his tenure. For years, the increasingly right-wing Republicans pursued a deliberate strategy of reactionary politicization of the US judiciary, with reactionary judicial organizations, such as the Federalist Society, which has been called the “Constitutional Taliban,” elevating right-wing activists, sometimes even those with a lack of legal expertise, to key positions in the judiciary.[6]

This also applies to the Supreme Court. Currently, six of the nine justices are considered “conservative,” belonging to the right-wing of the political spectrum.[7] As the US media has pointed out, this reactionary majority is in fact trying to turn back the clocks of social development by waging a right-wing culture war.[8]

It appears that the justices’ conservative majority identifies with the America of the 1950s and 1940s, when the nation was “Christian, white and rural,” human rights activists commented in The Atlantic. The Supreme Court is thus attempting to reverse the profound demographic and cultural changes in the urbanized United States that shaped an “ethnically, religiously, and culturally diverse America.”

Abortions: Back to the Past

This has become especially evident in abortion law,[9] where, at the end of June, the right-wing majority overturned the Supreme Court’s 1973 and 1992 landmark decisions establishing a federal right to abortion. Now, it is again up to the states to regulate abortion law, which will lead to a massive restriction of the rights of many women in conservative regions. The three liberal judges who voted against the ruling noted in their minority opinion that in the future, “young women would grow up with fewer rights” than “their mothers and grandmothers.”

The verdict, which was accompanied by widespread protests, was only one building block in a reactionary strategy of outright judicial warfare,[10] in which a politicized judiciary is attempting to further restrict the leeway of the Democratic Biden administration, which has already been narrowed by lobbying and crisis dynamics. It almost seems as if the Republicans, who at the latest with Trump’s election developed into a right-wing populist force open to the extreme right, will continue to govern through the Supreme Court.

Rollback on Environment, Climate, Religion, Gun Rights

This is especially true in the case of environmental and climate policy, which in any case has been massively watered down by the neoliberal forces in the Biden administration in comparison to the promises made in his election campaign.[11] Another landmark Supreme Court ruling, coming just days after the de facto abolition of federal abortion rights, massively curtailed the powers of the US Environmental Protection Agency (EPA).[12] In the future, the EPA will no longer be able to set emissions standards for coal or gas-fired power plants. This effectively makes climate policy impossible. All limits on greenhouse gas emissions will have to be enacted into law, where Republicans have extensive means to sabotage climate change initiatives. It was conservative and Republican politicians from the coal state of West Virginia who brought this dispute to the conservative-dominated Supreme Court.

At the same time, the reactionary judicial offensive continues with blow after blow: The Christian right of the USA can be pleased about fundamental decisions – again handed down by the right-wing majority of 6 to 3 – which place religious acts of individuals at public secular events under the protection of religious freedom. A plaintiff sports coach felt his rights were violated because he wanted to pray publicly on a school’s athletic field after a football game. This public religious act, which was previously considered a private matter and not permitted during working hours, has now been legitimized by the highest court.[13] In effect, this legalizes prayer in public schools – and erodes the separation between church and state.[14] Shortly before, the Supreme Court also ruled that private religious schools were entitled to state subsidies.

The gun lobby in the United States – despite regular rampages and mass murders in the socially broken society[15] – can also count on the right-wing majority in the Supreme Court. In June, the “conservative” justices declared that a gun law in New York, according to which the concealed carrying of weapons can be authorized only with “probable cause,” is unconstitutional.[16] Again, the three liberal judges voted against the right-wing majority’s ruling that all US citizens may carry a gun in public for self-defense. This landmark decision is likely to make many regulations restricting gun rights obsolete. According to initial estimates, a quarter of all US citizens live in states where restrictions on the carrying and possession of guns could now be scrapped.

What is the Point of Elections if Congress is Already Filled?

In the meantime, legal attacks on the bourgeois-democratic constitution of the United States are also emerging, which even question the foundations of capitalist democracy – such as the right to vote.[17] At the end of June, the Supreme Court allowed the case of Moore v. Harper to be heard, which is ostensibly about the practice of so-called gerrymandering in the state of North Carolina, which is favored by the US right-wing. This involves redrawing electoral districts to give wealthy, white areas and suburbs greater electoral weight – which benefits Republicans.

The North Carolina Supreme Court ruled that this gerrymandering, which helped Republicans in the southern East Coast state maximize their electoral chances, was illegal because the changes created “extreme partisan advantage.”[18] North Carolina House Speaker Timothy K. Moore then went to the Supreme Court, using an exotic legal interpretation that at the state level all power comes from the state congress, the legislature, and that the courts, the judiciary, do not have the authority under the Constitution to nullify the state’s election laws – and this suit, based on the marginal “independent state legislature doctrine,” was promptly allowed to proceed.

The implications of this legal construct are far-reaching and fatal, as it involves more than just tailored voting districts. State constitutions would effectively cease to provide legally binding rules in the conduct of state and federal elections. The courts and governors would be deprived of their remedies to prevent manipulation of the electoral process or outcome that might be decided by the majority in the state congresses.[19] Even the flat-out ignoring of election results that don’t suit the – right-wing – majority in the state congresses would be possible under the nationwide establishment of the “independent state legislature doctrine.” Indeed, the Trump administration, invoking similar legal constructs, has sought to overturn the results of the last election it lost. As US media pointed out, it is hardly possible to “overestimate the danger” posed by this case before the Supreme Court.[20]

There Is No Going Back to the Past

The reactionary campaign of the politicized US judiciary would thus effectively call into question the introduction of universal suffrage should the Supreme Court, whose legitimacy is now doubted by leading US media such as the New York Times,[21] give its blessing to these anti-democratic efforts. But, of course, a reactionary return to the past, which is not only troubling the American right, is not an option.

The reactionary aspirations in US politics and the state apparatus, as they are also present in the FRG in a broad spectrum from AfD to Wagenknecht, do not, after all, engage with the increasing social and ecological disruptions and crisis processes, which make an indirect form of capitalist rule, democratically mediated through ideological consensus-building, increasingly difficult. In view of capital’s inability to effectively confront the economic and ecological crisis, the need for systemic transformation is becoming ever more apparent. Thus authoritarian, ultimately fascist efforts to maintain the status quo are gaining steam, which cannot even be stopped by the act of voting.

The forms of capitalist rule mediated by the market and the judiciary threaten to turn into direct, dictatorial maintenance of power in the unfolding cascade of crises. Little resistance can be expected from the Democrats, who are currently engaged in their latest neoliberal dance on the volcano[22] of a fractured US society. While the Biden administration has met the right-wing judicial offensive with a defensive posture and blank appeasement,[23] at times even disparaging feminist activists who urge decisive action as “unworldly,”[24] only the few left-wing Democrats in the House of Representatives warn of the consequences of this apathy.

The United States is experiencing a creeping “judicial coup,” left-wing politician Alexandria Ocasio-Cortez declared in late June, in which the Supreme Court is blatantly usurping “presidential and congressional powers” in flagrant violation of its authority. If the Biden administration does not act now against the right-wing majority on the Supreme Court and “put it in its place,” the chief justices will soon “go after the presidential election,” Ocasio-Cortez warned.

Supreme Court: Reactionary Continuities

It is a common misconception to think of the US Supreme Court as a principled progressive institution because of some progressive rulings on minority and women’s rights during the civil rights movement in the 1960s and 1970s. In the history of the United States, the panel has often played a reactionary role, with justices seeking to prevent fundamental reforms.

In the 1930s, the Supreme Court tried its best, and largely in vain, to torpedo the New Deal of progressive President Franklin D. Roosevelt. In the mid-19th century, the Supreme Court’s constitutional guardians opposed the Republican Party and its president, Abraham Lincoln, by attempting to use legal remedies to thwart the curbing of slavery.[25] The Supreme Court, which as recently as 1857 denied civil rights to African Americans by a majority of 7 to 2 in an openly racist landmark ruling,[26] was one of the last bastions of power of the slaveholding states in Washington. After the outbreak of the Civil War, by the way, Lincoln found a simple recipe against the reactionary judicial sabotage: he changed the composition of the Supreme Court by a law in such a way that the supporters of slavery and secession no longer found a majority in the body.[27]

I finance my journalistic work mostly through donations. If you like my texts, then you are welcome to contribute via Patreon.

---

[1] https://en.wikipedia.org/wiki/Murder_of_George_Floyd

[2] https://www.vox.com/2020/6/6/21282412/protests-viral-videos-police-violence-disciplinary-action-suspension-firing

[3] https://www.theverge.com/c/21355122/police-brutality-violence-video-effects-trauma-civil-rights-black-lives-matter

[4] https://arstechnica.com/tech-policy/2022/07/arizona-makes-it-illegal-for-bystanders-to-record-cops-at-close-range/?comments=1

[5] https://www.lto.de/recht/hintergruende/h/smartphone-polizei-beamte-einsatz-filmen-ton-staatsanwaltschaft-201-stgb-bverfg/

[6] https://www.konicz.info/2021/12/25/amerikas-justizkrieg/

[7] https://fivethirtyeight.com/features/the-supreme-courts-conservative-supermajority-is-just-beginning-to-flex-its-muscles/

[8] https://www.theatlantic.com/politics/archive/2022/02/supreme-court-conservative-rulings/622050/

[9] https://www.bbc.com/news/world-us-canada-61928898

[10] https://www.konicz.info/2021/12/25/amerikas-justizkrieg/

[11] https://www.konicz.info/2021/12/29/der-dealmaker-in-der-sackgasse/

[12] https://www.rollingstone.com/politics/politics-news/supreme-court-epa-climate-pollution-ruling-1376017/

[13] https://www.nytimes.com/2022/06/27/us/politics/supreme-court-coach-prayers.html

[14] https://www.theguardian.com/commentisfree/2022/jun/28/kennedy-v-bremerton-supreme-court-prayer-public-schools-football-coach

[15] https://edition.cnn.com/2022/07/05/us/victims-highland-park-illinois-shooting-fourth-of-july/index.html

[16] https://www.bbc.com/news/world-us-canada-61915237

[17] https://www.vox.com/23161254/supreme-court-threat-democracy-january-6

[18] https://www.scotusblog.com/wp-content/uploads/2022/03/20220317132500136_2022-03-17-Moore-Appendix.pdf

[19] https://www.vox.com/22958543/supreme-court-gerrymandering-redistricting-north-carolina-pennsylvania-moore-toth-amy-coney-barrett

[20] https://slate.com/news-and-politics/2022/06/supreme-court-dangerous-independent-state-legislature-theory.html

[21] https://www.nytimes.com/2022/06/30/opinion/dobbs-mcconnell-supreme-court.html?searchResultPosition=2

[22] https://www.konicz.info/2021/01/22/letzter-neoliberaler-tanz-auf-dem-vulkan/

[23] https://edition.cnn.com/2022/07/06/politics/anti-abortion-judicial-nominee-joe-biden-kentucky/index.html

[24] https://news.yahoo.com/outrage-erupts-white-house-calls-013222807.html

[25] https://www.theatlantic.com/politics/archive/2022/02/supreme-court-conservative-rulings/622050/

[26] https://teachingamericanhistory.org/document/dred-scott-v-sandford-2/

[27] https://theconversation.com/packing-the-court-amid-national-crises-lincoln-and-his-republicans-remade-the-supreme-court-to-fit-their-agenda-147139

Originally published on konicz.info on 07/13/2022

A brief background on the aporias of bourgeois crisis politics in the transition of the world economy from pandemic to war-related crisis.

Tomasz Konicz

From pandemic to war – the world economy is obviously not coming to rest. On its website, the Tagesschau sees the world economy threatened by “multiple crises.”[1] But when it comes to the economic fallout of the rapidly advancing erosion of the capitalist world system, the question now arises whether it makes any sense at all to speak of a pandemic or war-related economic crisis, or whether it would not be more consistent to finally understand the successive economic shocks as stages of one and the same systemic crisis process.

In its latest assessment of the global economy, the World Bank had to revise its earlier growth forecast downwards significantly.[2] As of now, the global economy is expected to grow by only 2.9 percent this year, while the World Bank was still forecasting 4.1 percent growth in January. This would almost halve global economic momentum, which reached a whopping 5.7 percent in 2021 due to the gigantic, debt-financed stimulus measures implemented by many countries. For many developing and emerging countries, which can only achieve social stability with high growth rates, this economic slowdown is dangerous – especially against the backdrop of skyrocketing food prices. Moreover, the World Bank has warned of the growing risk of a prolonged period of stagflation, similar to the crisis phase in the 1970s, when economic stagnation was accompanied by double-digit inflation (see also: “Back to Stagflation?”).[3]

The OECD made similar corrections, according to which global economic output is expected to grow by only three percent this year.[4] At the end of 2021, the forecast was still 4.5 percent. For 2023, the association of 38 industrialized countries forecasts economic growth of 2.8 percent instead of the previously assumed 3.2 percent – if there is no new crisis push, of course. According to the OECD, the economic slowdown in the coming year will also be accompanied by an easing of the wave of inflation, which is expected to fall from 8.5 percent this year to 6.0 percent in 2023.

The massive revisions that had to be made by the OECD and the World Bank within half a year not only illustrate the futility of economic forecasts in the manifest systemic crisis into which late capitalism is entering, they also reveal an increasingly clear connection between inflation and economic growth. At the latest since the outbreak of the pandemic, to which politicians reacted with massive money printing, to finance government stimulus measures in the USA and the EU, the dynamic of increasing inflationary has taken root. This is not only due to the war – it is not pure “Putin-flation” – and the disrupted global supply chains, but also to the expansionary monetary policy of central banks.[5]

A Flood of Money and Inflation

This connection between the great pandemic-related flood of money and global inflation was most recently discussed, for example, before the US Senate Finance Committee, which the Biden administration’s Treasury Secretary Janet Yellen had to face in early June.[6] The accusations of the Republican opposition, according to which the White House triggered inflation and the “overheating” of the economy through its 1.9 trillion dollar stimulus program, are dishonest in several respects: on the one hand, Donald Trump introduced similarly costly support measures, which, however, mainly included tax breaks for the rich and corporations, while with Biden – despite all the cuts – it was possible to push through some relief for the middle class and low-income groups. And it is precisely this circumstance that the White House has now been reproached for, for example by the identification of social subsidies for children as “inflation drivers.”

A look at the past year helps to put things in perspective: Accelerating inflation, which now exceeds eight percentage points, was accompanied by GDP growth of 5.4 percent – the highest level since the 1980s.[7] This expansion, in which the Federal Reserve effectively used freshly printed money to buy up the debt incurred by the US government to stimulate the economy, was in response to the tremendous economic collapse that followed the outbreak of the pandemic, which caused US GDP to contract by 3.4 per cent in 2020. Conversely, one might ask what the US economy would look like now if Washington had foregone these stimulus programs.

US economic policy has effectively averted a depression, albeit only at a price that wage earners must now pay at the supermarket checkout: the price of inflation. Central banks have bought up bonds and debt instruments in previous crises, for example after the bursting of the real estate bubble in 2007/08, but on the one hand the dimensions of this “quantitative easing” are many times greater now than they were back then,[8] and on the other hand, the financialization of capital seems to have reached its limits, as the previous phases of expansionary monetary policy led to an inflation of prices on the already bloated financial markets – and thus contributed to the rise of new speculative bubbles.

Central bank money printing thus represents – along with collapsing globalization and the full-blown climate crisis – one of the three most important factors contributing to the current wave of inflation (see also “Triple-Threat Inflation”).[9] In the meantime, the Fed has raised key interest rates to between 0.75 and one percent in order to get this inflation under control – despite a 1.5 percent contraction of the US GDP in the first quarter of this year.[10]

In the US, the right-wing opposition blames the Biden administration and its already stunted approach to social policy for inflation.[11] In Europe, the ECB is at the center of criticism, mainly from Germany. In the EU, the disputes over the course of monetary policy are overshadowed by the divergent interests of the southern periphery and the German center.[12] In Berlin, resentment of the ECB’s ultra-loose monetary policy is growing, while the south of the eurozone, which has suffered from Germany’s trade surpluses since the introduction of the euro, relies on zero interest rates and ECB bond purchases to finance stimulus measures and keep its high debt burden sustainable. In Italy, government debt now exceeds 130 percent of GDP. There is a good indicator of the potential for crisis in the eurozone: it is the so-called “spread,” the interest rate difference between German and Italian government bonds,[13] which rises with every impending crisis in the EU, as capital flees to “safe havens” such as the FRG or the US. This spread has just climbed to its highest level since the outbreak of the pandemic.

That is why the European central bank is much more hesitant than the Fed in raising key interest rates – a new euro crisis, in which rising interest rates could cause the mountains of debt in the south of the currency union to collapse, must be avoided at all costs.[14] In “German Europe,”[15] two decades after its founding and a decade after the first euro crisis, the monetary impasse that threatens to blow up the currency area is once again emerging: the ECB should actually raise interest rates quickly and significantly in order to curb inflation, which now stands at more than eight percent.[16] But at the same time the “guardians of the currency” would have to keep interest rates low to prevent a new debt crisis in the south. Italy, whose public debt ratio is 134 percent of GDP, is the third-largest economy in the eurozone.

The Crisis Trap of Monetary Policy

Again, the European Central Bank could, on the one hand, fight inflation by raising interest rates rapidly and significantly, but in doing so it would risk a debt crisis in southern Europe and, in effect, the disintegration of its currency area. On the other hand, the ECB could continue to give priority to economic policy and keep interest rates low in order to prevent a new euro crisis. But this would give inflation a further boost, so that there would be a danger of the Eurozone following Turkey’s example,[17] where “interest rate critic” Erdogan has repeatedly lowered key interest rates despite the rapid rise in prices in the country – which has now driven inflation in Turkey to an impressive 73 percent.

The political class can either choose the option of further indebtedness up to hyperinflation or take the path of harsh austerity programs that lead to recession with the onset of a deflationary spiral, as exemplified by Schäuble’s austerity sadism during the euro crisis in Greece. In the permanent capitalist crisis, bourgeois monetary policy would in fact have to lower and raise interest rates at the same time, which is only an expression of the aporia of capitalist crisis policy, an impasse in which the capitalist “administration” of the systemic crisis finds itself at the end of the neoliberal age.[18]

This crisis trap[19] does not only apply to the euro area, it is effective in all capitalist core countries, which have so far been able to postpone its snapping shut by the expansion of the financial sphere, by permanently rising mountains of debt and ever new financial market bubbles.[20] A look at the long-term development of key interest rates shows this self-contradiction of monetary policy, which has unfolded further and further with each push of the historical crisis process.[21] Both the ECB[22] as well as the Fed[23] have historically tended to continuously lower their policy rates since the 1980s, with the major financial crisis episodes of the 21st century acting as the triggering moments of each low or zero interest rate phase. Key interest rates in the euro area, sometimes in negative territory, were more than three percent when the euro was introduced. After the bursting of the dot-com bubble (2000), the housing bubble (2007) and the outbreak of the euro crisis, they have gotten lower and lower. Since 2014, the eurozone has had a de facto zero interest rate policy, accompanied by ever more money printing.

The situation is similar with the Fed, which pursued a very expansive monetary policy after the outbreak of the real estate crisis in 2007 and thereby contributed significantly to the formation of the gigantic liquidity bubble, which had to be laboriously stabilized with further injections of trillions of dollars throughout the course of the pandemic.[24] The distortions on the inflated financial markets, which began even before the outbreak of war, indicate that this financialization of capitalism can hardly be maintained. The increasingly massive global financial house of cards is threatening to collapse. At its core, this was a debt dynamic that raised the debt burden of the world system currently choking on its own productivity to 351 percent of global economic output.[25]

Should the capitalist crisis management no longer succeed in initiating a new bubble formation on the world financial markets in reaction to the “multiple crises” – a phrase used by leading German media to describe the capitalist systemic crisis – currently being faced, then a gigantic devaluation push is inevitable. Not only would many “financial market goods,” which circulate in the financial sphere in the most diverse forms – as shares or derivatives – be devalued, but also the financial market junk, which has been accumulated in the balance sheets of the central banks (mostly government securities and mortgage or loan securitizations).

The collapse of the financial markets, for example in the form of a European debt crisis, would spill over into the “real” economy, which is highly dependent on lending and the credit-financed demand generated in the financial sphere. This would lead to the devaluation of production capacities in the form of company bankruptcies, of resources that can no longer be sold, and of the commodity of labor, which would suddenly become superfluous. And only here is there still “room for maneuver” for bourgeois crisis policy: as described above, it can determine the form that this devaluation process will take. Either monetary policy can follow Erdogan’s example and march in the direction of hyperinflation, or it can follow Schäuble’s example and take the path of deflation through austerity.

For a progressive, emancipatory left, however, there is only one perspective left if it still wants to act in the crisis according to its concept: the perspective of categorical critique. Instead of concentrating opportunistically on immanent pseudo-alternatives or bourgeois trivialities[26] it would rather be a matter of denouncing as such the monstrous end in itself of capital. This remains the fundamental prerequisite for making an alternative to capitalism and thus a system transformation conceivable at all.

Support the author at Patreon.com

---

[1] https://www.tagesschau.de/wirtschaft/weltwirtschaft/iwf-weltbank-fruehjahrstagung-konjunkturprognose-101.html

[2] https://www.tagesschau.de/wirtschaft/konjunktur/weltbank-konjunktur-103.html

[3] https://www.konicz.info/?p=4616

[4] https://www.spiegel.de/wirtschaft/unternehmen/weltwirtschaft-oecd-senkt-wachstumsprognose-deutlich-sieht-begrenztes-stagflationsrisiko-a-1cc0db29-8efa-451b-86ca-82bf9db06355

[5] http://www.konicz.info/?p=4389

[6] https://www.nytimes.com/2022/06/07/us/politics/inflation-yellen.html

[7] https://tradingeconomics.com/united-states/full-year-gdp-growth

[8] https://lowerclassmag.com/2021/04/13/oekonomie-im-zuckerrausch-weltfinanzsystem-in-einer-gigantischen-liquiditaetsblase/

[9] http://www.konicz.info/?p=4389

[10] https://www.handelsblatt.com/finanzen/geldpolitik/beige-book-fed-us-wirtschaft-moderat-gewachsen-inflation-und-zinsen-machen-sich-aber-bemerkbar/28393622.html

[11] http://www.konicz.info/?p=4591

[12] https://www.heise.de/tp/features/Der-Aufstieg-des-deutschen-Europa-3370752.html

[13] https://www.ft.com/content/2869a8f3-bf59-437f-a795-4a3fbdc35cd4

[14] https://www.zeit.de/wirtschaft/2022-06/ezb-leitzins-inflation-notenbank-wende

[15] https://www.heise.de/tp/features/Der-Zerfall-des-deutschen-Europa-3370918.html

[16] https://www.spiegel.de/wirtschaft/statistisches-bundesamt-inflation-im-mai-erreicht-7-9-prozent-a-1ee957d1-5a15-463e-a58c-a6f423225cc5

[17] https://www.tagesschau.de/wirtschaft/weltwirtschaft/tuerkei-leitzins-erdogan-101.html

[18] http://www.konicz.info/?p=4892

[19] https://www.heise.de/tp/features/Politik-in-der-Krisenfalle-3390890.html

[20] https://www.xn--untergrund-blttle-2qb.ch/wirtschaft/theorie/stagflation-inflationsrate-6794.html

[21] https://lowerclassmag.com/2020/04/27/corona-krisengespenster-kehren-zurueck/

[22] https://www.ft.com/content/2869a8f3-bf59-437f-a795-4a3fbdc35cd4

[23] https://tradingeconomics.com/united-states/interest-rate

[24] https://lowerclassmag.com/2021/04/13/oekonomie-im-zuckerrausch-weltfinanzsystem-in-einer-gigantischen-liquiditaetsblase/

[25] https://www.reuters.com/markets/europe/emerging-markets-drive-global-debt-record-303-trillion-iif-2022-02-23/

[26] https://exit-online.org/textanz1.php?tabelle=autoren&index=46&posnr=613&backtext1=text1.php

Originally published on konicz.info on 06/11/2022