II. Dire Consequences of Willful Monetary Expansion
The upcoming economic calamity in 2011 will not be anything but a magnified continuation of the 2008 crisis, aggravated by those stimulus policies supposed to rescue the economy, especially the monetary expansion on an unprecedented scale over the whole globe. The U.S. has not only adopted a zero-interest policy, but also stooped to “quantitative easing”, whereas Chinese bank loans reached the astronomical total of nearly10 trillion RMB in 2009.
But such stimulus measures have not produced any positive effects in the developed countries, especially in the U.S., because the money has mostly flowed out to emerging markets, particularly China, but not into the real economy there and, so, not spurring any real effectual demand. What has been done with it is aggravated speculation in key assets and commodities, thus further worsening the existing dire situation in the real economy there.
Why so? Because the stimulus measure has failed to address the root cause of the problem, that is, the excessively wide gap in income distribution, that has caused the deficiency of effectual demand. Such distributive gaps do not only exist within a nation but also between nations.
The widening of distributive gaps on the global scale has been going on for the recent four decades, starting from the years of Reagan’s and Thatcher’s liberalization reform in 1980s with “productivity” and “efficiency” gradually becoming the top priority throughout the world. Not co-incidentally, China was swept along the stream – her “reform and opening-up” aiming at marketization started almost at the same time, triggering an even wider gap in income distribution.
But all the governments of the world refuse to acknowledge that the real problem is with the real economy, still the less that its cause is deeply rooted in income distribution. Hence, they reject any structural adjustments or reforms; they only resort to fiscal, especially monetary, stimulus measures.Such economic stimulation short of structural adjustment can, instead of solving the problem, only make it even worse, till it bursts out at a later date in an even more violent way.
It has been one year and ten months now since the U.S. adopted zero interest rate, that was the beginning of global monetary stimulus. But what has resulted from it? The CPI in the U.S. has been lingering around 1%, and unemployment remains as high as almost 10%. Obviously, the stimulus has not worked in the U.S.
People might wonder: Where have the enormously increased U.S. dollars gone? Just take a look at China and everything might be clear. While the common people find it hard to increase their incomes, housing prices there shot up to an abnormal high in 2009. This could not have happened if the market was supported only by Chinese bank loans without the inflow of foreign cash, because by the end of 2008 housing prices had already been substantially coming down. At the same time China has experienced an abrupt shift from deflation to inflation – now the current CPI has exceeded 3%. Why is the effect so drastically different in China from that in the U.S. with the same super-strong stimulus? The only reasonable explanation: The increased U.S. dollars have flowed into China and the economic overheating there is more probably the combined effect of the monetary expansions in both countries.
Why could this happen then? The reason is simple: Nowadays, the global economy hinges on emerging markets and the latter on China – China has become the converging place and stronghold for global liquidity. Since there is little hope for recovery in the U.S. and Europe, only “China Concept” is capable of providing room for large-scale capital speculation.
However, without adjusting the economic structure, monetary stimulus cannot create real consumption demand but spur high speculation demand instead. What has produced the overheating in China is not any increase of real demand for consumption but the overflow of demand for speculation. The abundant capital inflow from all over the globe has not entered China’s real economy, not raising any demand for investment in production or consumption, but fed into more speculation activities centering round real estate and bulk commodities transactions, resulting in sharply pushing up their prices while real demand is still staying low. Such price hikes would only raise the costs for production and for daily life in China. And higher living cost without higher income would only mean suppression of already flagging demand for consumption. Whereas, higher production cost would end in either discouraging investment in production or in further suppressing consumption due to higher prices for terminal commodities.
In general, monetary stimulus on the global scale has shown effects only in emerging markets, especially that of China, but the effects are negative because they have suppressed effectual demand, especially that for consumption, and thus further worsened the situation of serious demand deficit in China, making it even worse than in 2008. And how things stand for China means how things stand for the world.
In terms of wealth distribution, monetary stimulus has only served to further widen the existing gap. On the one hand, it simulates inflation in the emerging markets, especially in China, with the result of robbing the poor and helping the rich. On the other hand, the newly increased money has in the end mainly flowed towards the privileged interest groups, big corporations, and government-backed businesses, not the medium and small businesses which can create jobs, nor the common people, making the poor still poorer and the rich even richer. The degree of distributive inequality at present is even higher than in 2008, thus further aggravating the effectual demand deficit.
In a word, the economic situation whether in China or in the whole world has not been substantially improved in spite of the salvage and stimulation measures adopted by the governments of the world, but on the contrary has become even worse than in 2008 just because of the large-scale monetary stimulus. An even more severe crisis will definitely break out sooner or later.
III. The Emerging Markets are “Flowers in a Mirror”
One of the important concepts supporting the current strategy for global economic recovery since the 2008 crisis is “emerging markets”.
But in terms of the deeper economic structure, the emerging markets are nothing new as they have the same problems, or even more serious problems than the developed countries, with income distribution. As the leader of the emerging markets, China is suffering from especially serious inadequate consumption. According to statistics, the consumption rate (the ratio of consumption to GDP) in China dropped from 53% in 1985 to 35.3% in 2008, in contrast to the current U.S. rate of about 70% and Japan’s 65%.
The root cause of such inadequate consumption in China is the wide gap in income distribution. According to a study (by Dr. 王小鲁), the 10% of city families with highest incomes had a per capita average income 26 times (not the official statistics of 9 times) that of the 10% of city families with lowest incomes; and nationwide, the 10% of families with highest incomes had a per capita average income 65 times (not the official 23 times) that of the 10% of families with lowest incomes. Such wide gaps have been caused mainly by power corruption, private usurpation of public assets, or huge profits from monopoly of resources and markets.
In short, the wide income gaps have prevented the potentially high consumption demand in the emerging markets from being realized and becoming effectual demand. Without improvement in income distribution, the hope for consumption growth in emerging markets to make up for inadequate consumption in the U.S. is like a flower in a mirror – a sheer illusion.
IV. New Energy Industry is like Elixir Making
“New Energy” is another important concept in the recovery strategy. But this is also a false idea. 2200 years ago, China’s First Emperor of Qin’s search for elixir of longevity attracted a lot of swindlers who falsely claimed to be able to make it or find it, of whom the most famous was Xu Fu (徐福), who finally escaped to today’s Japan, carrying with him large quantities of silver coins prepaid by the court. Today’s new energy industry is somewhat like the elixir-making trade of that time – In spite of the potentially high demand, the means for meeting it is far beyond human wisdom. The technology needed for developing new energy, though claimed by many as already available, is actually either non-existing or inadequate.
According to mainstream thinking, the most hopeful source of new energy is the sun. Though solar energy comes from outside the Earth system and is an endlessly sustainable source of supply, its initial energy density is much lower than that derived from burning fossil fuel. To raise solar energy density, large-scale facilities need to be constructed and, being limited in durability, to be replaced regularly. And all the materials for these facilities should come from inside the Earth system, though the solar energy to be captured comes from outside. For instance, silicon is currently used in making solar battery but natural silicon reserves are still limited and its extraction will still pollute and damage the environment. So, this cannot fundamentally solve the problems caused by traditional energy.
As a matter of fact, the “new energy” idea contains a paradox: On the one hand, humans want to live on this planet Earth, while on the other they hope not to use energy that is generated from inside. This is a same dilemma encountered by the Greek mythological hero Antaeus, who was a son of Gaia, Goddess of the Earth, and invincible when his body was in touch with the Earth, drawing inexhaustible strength from his mother. But the mightiest hero in Greek mythology Heraclius, on discovering the secret source of Antaeus’ strength, lifted the latter from the Earth in a battle and strangled him in the air. It is the Earth that has nurtured the human species, and, therefore, like Antaeus, humans may not be able to free themselves from dependence on Earth for energy. The day they break away from the Earth might be the moment of human extinction.
The root cause of energy crisis is not fossil energy itself but humans’ overindulgence in material satisfaction. The essential message from the energy crisis is: Even the Earth that has nurtured human life can no longer satisfy man’s ever-inflating material desires.
Since people have given up search for elixir of longevity, we should also give up the “new energy” idea intended for finding an inexhaustible source of energy outside the Earth system. We should restrain ourselves from willfully inflating our desire for material satisfaction just as we have restrained our desire for physical immortality.
What we need is not new energy, or alternative energy, but a new, alternative civilization, or a new, alternative way of life. To break loose from dependence on the Earth for resources, people are pinning their hope on technology. They willfully believe that whatever humans want can always be achieved through technological progress. This blind faith in technology is in essence that in human intelligence. The hope for a new energy industry to provide the impetus for economic recovery will surely turn out to be just like drawing water with a sieve.
V. China’s Housing Bubble will be the Trigger
After the subprime crisis, the U.S.-led global economic growth came to an end. The current hope for global growth is pinned on emerging markets and the hope for their economic growth focused on China, while China’s growth hinges on her housing market. But China’s housing prices have far surpassed the potential buyers’ purchasing power. In general, acceptable prices should not go beyond 3-5 times their income. However, according to some studies, in Beijing, Shanghai, Shenzeng and Guangzhou, the price-income ratio has soared to 14 times; or even 27 times in Beijing as some researchers found.
Once speculation capital massively pulls out of China market, housing prices there will tumble. This may happen around the end of 2011. Either of the two following situations will trigger the tumbling: Either signs of economic recession appear noticeably in China, or Both China and the U.S. signal a monetary squeeze at about the same time.
It has been demonstrated above that the extreme monetary stimulus in both the U.S. and China has had the combined effect of aggravating the inner imbalance of China’s economy – further suppressing effectual consumption while raising cost for production. Therefore, the occurrence of a serious recession in China will only be a matter of time. One or both of the above-said two situations will inevitably appear at a certain future time. In either case, global economy will break down along with China’s housing market.
VI. The Civilization Crisis and the Hope
Economic growth is a necessary condition for the existence and smooth functioning of capitalist market economy. The history of the development of capitalism shows that its economic growth has been realized unexceptionally by means of plundering in two ways: plundering of the non-capitalist world and that of the natural world. Capitalist civilization is in essence one of self-seeking brutality against others and nature.
However, with the globalization of capitalism, there is now no longer any non-capitalist world to be plundered. At the same time, with the rapid depletion of natural resources and grave damage of the environment seriously threatening human survival on Earth, the plundering of nature cannot go on for long either. Thus, economic growth has lost steam. The 300 years long capitalist civilization has reached an impasse. The general crisis of capitalism, a crisis even more severe than that in the Marxian sense, will soon break out. The 2011 economic disaster will mark the beginning of an age of civilization crisis, not only economic crisis.
Marx’s attention was focused on capitalism’s exploitation of human beings. But the coming general crisis of capitalism is also related with its exploitation of nature. As a matter of fact, we have been misled all the way by capitalistic education, by mainstream values of the capitalist society. Exploitation of nature on an ever-growing scale through technological progress is not only one way of plundering – it is a kind of plundering with more disastrous consequences than the exploitation of humans only.
What is called “technological progress” has served to put up a “peaceful” and “civilized” facade for capitalism, but actually technology has been used as an instrument by capitalism for preying upon and slaughtering human beings and nature. That used against humans is called “military technology” while that against nature “civilian technology”. But in fact, all technology is military in nature, is used to wage wars, no matter whether they are against man or against nature. And the civilization crisis of capitalism has actually been created by “technological progress”. Therefore, the current attempt to resolve the crisis through technological progress will only make things even worse.
Now, because of that, our immediate future will be an age of turmoil with continuous crises, not only economic crises but also resource crises and environmental crises, leading to a general crisis of capitalism, or a civilization crisis, which will threaten the survival of the capitalized global world and will not possibly be resolved by capitalism itself. If the Earth’s ecosystem sinks into systematic deterioration, what is in store for us will not only be the end of capitalism, but that of the whole human species. The only way out is to give up the capitalist way of life in exchange for the survival of the human race. If no change or reform of the existing civilization is effected, the result will be the extinction of the human society, or even that of the Earth’s ecosystem. This appalling scenario is compelling people to search for an alternative new civilization for the world. The upcoming age of continuous crises and disasters will not end till mankind gives up capitalist civilization with its way of life, and replace it with a new civilization with a new way of life that promotes rational thinking against excessive material desires and promotes harmony between man and nature.
Whether 2011 will be a year of the beginning of doomsday or dawn of hope depends on the awakening of the whole mankind, on man’s efforts to successfully draw the highest wisdom from the past experiences, positive and negative, of the world’s major civilizations for the solving of today’s problems. Immense sufferings from repeated and unprecedented crises and disasters will accelerate the process of man’s awakening and search. Therefore, the upcoming age of crises might also be an age giving birth to a new, alternative global civilization.
