Le Monde Diplomatique
It has never happened before. For the first time in modern economic
times, three major crises -- affecting finances, energy and food --
are coinciding, coming together and merging. Each interacts with the
others, exponentially worsening the deterioration of the real economy.
As much as the authorities try to minimize the seriousness of the
moment, the truth is that we're facing an economic cataclysm of
unprecedented magnitude, whose social effects are just beginning to be
felt and will explode with total brutality in the next several months.
Disaster is never certain and numerology is not an exact science, but
the year 2009 could very well turn out like the grim 1929.
As feared, the financial crisis continues to worsen. To the problems
suffered by prestigious U.S. banks -- such as Bear Stearns, Merrill
Lynch and the giant Citigroup -- add the recent disaster afflicting
Lehman Brothers, the world's fourth-largest bank, which on June 9
announced a loss of 1.7 billion euros. Because this is Lehman's first
deficit since being listed in the Exchange in 1994, the loss had the
effect of an earthquake in a financial America that was already
Every day there are new reports of banks going under. So far, the most
affected entities have admitted losses totaling almost 250 billion
euros. And the International Monetary Fund estimates that, to emerge
from the disaster, the system will need about 610 billion euros -- the
equivalent of twice the French budget!
The crisis began in the United States in August 2007 with subprime
mortgages falling in arrears and has extended throughout the world.
The crisis' ability to transform and spread, through the proliferation
of complex financial mechanisms, likens it to a lightning epidemic
that's impossible to stop.
Banking entities no longer lend money. They all mistrust the financial
health of their rivals. Despite the massive injections of liquidity
made by the major central banks, the drought of money in the markets
has been unprecedented. And what some people fear most is a systemic
crisis, in other words, a collapse of the world's entire economic
From the financial sphere, the crisis has moved to the whole of the
economic activity. Suddenly, the economies of the developed countries
have cooled. Europe (particularly Spain) is in full deceleration and
the United States is on the brink of recession.
The harshness of this adjustment is most noticeable in the real-estate
sector. During the first quarter of 2008, home sales in Spain dropped
29 percent! Nearly 2 million apartments and homes could not find a
buyer. The price of land continues to fall. And the rise in mortgage
interests and the fears of recession plunge the sector into an
infernal spiral, with ferocious effects on all fronts of the huge
construction industry. All the construction businesses are now in the
eye of the hurricane and witness with impotence the destruction of
tens of thousands of jobs.
From financial crisis we have gone on to a social crisis. And the
authoritarian policies emerge again. The European Parliament on June
18 approved the infamous "directive of return," and the Spanish
authorities have announced their willingness to arrange for the
eviction from Spain of one million foreign workers.
On top of this awful situation comes the third oil shock, as the price
of a barrel of crude rises to about US$140. That's an irrational
increase (in 1998, a barrel cost less than US$10), due not only to an
excessive demand but, above all, to the action of many speculators who
are betting on the continuing rise of a fuel on its way to extinction.
Investors flee the real-estate bubble and shift colossal sums of money
because they are now betting on the price of oil rising to US$200 a
barrel. Oil is now financialized, with the consequences we see: a
formidable rise in the prices at the pumps and explosions of anger on
the part of fishermen, truckers, farmers, taxi drivers and all the
professionals who are most affected. In many countries, by staging
demonstrations and confrontations, those professionals demand help,
subsidies or tax breaks from their governments.
As if this whole context weren't gloomy enough, the food crisis has
suddenly worsened, reminding us that the specter of hunger continues
to threaten almost 1 billion people. In about 40 countries, the high
cost of food has provoked uprisings and general revolts. The summit of
the United Nations Food and Agriculture Organization (FAO), held June
5 in Rome to consider alimentary security, could not reach an
agreement to relaunch worldwide food production. Here, too,
speculators fleeing from the financial disaster are partly
responsible, because they're betting on a high price of future
harvests. So even agriculture is being financialized.
This is the deplorable balance left by a quarter-century of
neoliberalism: three venomous intertwined crises. The time has come
for the citizens to say "Enough!"