Even the IMF is now insisting that growth must have priority over continuing austerity, but neither the growth-sayers nor the austerians have yet recognised that the fundamental problem for post-crash capitalism is lack of economic demand.
Equity markets have surged in recent weeks, not because the real economy is recovering, but because central banks – the US Federal Reserve, the Bank of England, and now the Bank of Japan – have flooded the global economy with cash, to the point where markets have now become addicted to it.
As soon however as the junkie is removed, as now seems likely with the Fed withdrawing from its $85bn a month QE because the US debt is now coming down much faster than expected, the market surge collapses especially when it is combined with weak business news from China.
There are two threats here. The first is that the central banks will continue their money-printing on this colossal scale because the global economy is hooked on it and cannot be kept going without it. In that case we are seeing the mother-of-all financial bubbles being inflated which, if it blows up, would trigger another global slump.
The banks will assure you that all this printed money will eventually deliver greater business and consumer confidence, and they are prepared to let asset prices shoot up in the process rather than risk deflation. But if the bubble pops before the recovery dawns – and the recovery’s being regularly pushed further into the future – then there will be an almighty credit bust.
The second threat is that the central banks withdraw their life-support system on the grounds that the patient should be weaned off medicines that become more pernicious the longer they last, and then the Achilles’ heel of neoliberal capitalism will be exposed. That is the lack of long-term sustainable economic demand.
Previously the level of demand sufficient to maintain steady growth had been supplied after the Second World War first by the reconstruction of Europe, then by a wave of ground-breaking new technologies, then by soaring defence expenditure in the Cold War arms race, then by artificial demand creation by a rampant advertising industry.
Gradually all these faded or at least couldn’t continue adequately to pump up demand. Come the neoliberal, ultra-free-marketssystem since the 1980s and the problem has been resolved, temporarily and disastrously, by the banks with the connivance of governments initiating colossal housing and credit bubbles.
When the sub-prime mortgage spoof then collapsed in 2007-8, the global financial crash followed in 2009, and the Great Recession stretched out over the next decade, no further prop has been found – except regular dollops of quantitative easing with all the huge underlying risks of creating the most massive asset bubble of them all. Take your pick.