The Next Looming Great Recession

Observations on the Latest Stock Market Slump and the Structural Crisis of the
Capitalist World Economy

Commentary by Michael Pröbsting, International Secretary of the Revolutionary Communist International

Stock markets around the world experience another slump. We do not know if this is already the
beginning of the next Great Recession. But we know that the combination of a crisis-ridden capitalist
world economy and the accelerating tensions between the imperialist Great Powers create a powder
keg which can explode at any moment.

At this stage, global stock markets experience “a bit of a bloodbath”, to quote a senior portfolio manager
in New York. (1) U.S. stocks have fallen for a sixth day and experienced the biggest fall in eight
months. By now, market value of U.S. common stock plunged by 6.8% for October to date. Stocks
were hit particularly hard in Asia, where no market was spared in the sweeping sell-off. Stocks in
Shanghai, Tokyo, Seoul and Hong Kong dropped 4% or more. China’s stock market is at it’s their
lowest level since November 2014. Europe’s major stock indexes fell less drastically — by about
1.5%— because they had already been on a downward trend for several months. (2)

No doubt, panic is spreading among the capitalists. The International Monetary Fund (IMF) – one of the
central global institutions of capitalism – already warned a few days ago in unusual blunt language
that “large challenges loom for the global economy to prevent a second Great Depression.” (3) A journalist
expressed his worries when viewing the stock market slump in combination with the convulsions in
world politics: “That not the end of the world, per se. But with trade battles intensifying and dormant old
devils re-emerging, all bets could soon be off. That is a lot more than depressing: it’s terrifying.” (4)

Now, as a matter of fact, we are not in a position to say if the current stock market slump is already
the beginning of the next Great Recession or if the capitalists manage to delay this for some time.
However, even if a new Great Recession has not already begun, it is clear that the convulsions on the
stock market are its harbinger.

The RCIT has drawn attention for many years to the colossal contradictions which characterize the
capitalist world economy. We have warned in the past years that capitalism was incapable to
overcome its structural problems which led to the Great Recession in 2008/09. Consequently, we
predicted that another Great Recession – most likely an even “Greater” Recession – will shatter the
capitalist world economy. (5)

Here is not the place to repeat our extensive analysis and we will limit ourselves only to a few
observations. As we have demonstrated in past works, the capitalist world economy is in a long-term
decline which has, as its basis, the over-accumulation of capital and the tendency of the rate of profit
to fall. This results in declining growth rates, less investment and lower productivity.

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What we will briefly show at this place is that the capitalist world economy today is in a worse
position than it was before the last Great Recession in 2008/09 and, consequently, the economic
collapse will be most likely even worse this time.

Stagnation Tendencies

First we reproduce a figure showing the growth of the global profit rate which has been weaker in the
current cycle than in the one before. (See Figure 1)

Figure 1. Global Corporate Profits 1998-15 (6)

This is related to lower growth rates of labor productivity as well as lower growth of the productive
capital stock. In Figure 2 we show the relevant data for the old imperialist states – the U.S., Western
Europe (the Euro Area) and Japan.

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Figure 2. U.S., Euro Area and Japan: Growth of Productive Capital Stock and Labor Productivity
Growth (7)

Rising Debts

At the same time, indebtedness – a major trigger of the last recession – has substantially increased all
over the world and in all sectors. In 2008/09 an even worse slump was only avoided because the
China’s economy was still robust and because the capitalist state apparatus in many imperialist
countries was able to intervene and to bail out the banks. A repetition of such a development seems to
be excluded.

The reasons for this are several. Corporations, governments as well as households have substantially
increased their debts. According to the latest report of the IMF, “total nonfinancial sector debt—
borrowings by governments, nonfinancial companies, and households—has expanded at a much faster pace than
the growth rate of the economy. As a result, total nonfinancial debt in countries with systemically important
financial sectors now stands at $167 trillion, or over 250 percent of aggregate GDP, compared with $113 trillion
(210 percent of GDP) in 2008.” (See Figure 3)

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Figure 3. Growth of Global Debt in the Nonfinancial Sector, 1998-2017 (8)

Significantly, debt has risen in particular in the corporate as well as the public sector and less in the
private household sector. As we show in Table 1 global corporate debt has increased from $37 trillion
to $66 trillion in the past decade while government debt more than doubled from $29 trillion to $60
trillion.

Table 1. Global Debt, in $Trillions, 2000-2017

2000 2007 2017

Non-Financial Corporations
Debt to GDP 78% 79% 92%

To this one has to add that official figures for government debt usually do not cover large parts of
public debts. This is the case because in most cases figures for accrued pension liabilities are excluded
in these statistics. However, according to latest issue of the IMF’s Fiscal Monitor, “the standard measure
of general government public debt compris[es] 94 percent of GDP for these countries. This is only half of total

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public sector liabilities of 198 percent of GDP, which also includes 46 percent of GDP in already accrued
pension liabilities.” (9)

In an article on the world economy which we published half a year ago we stated: “The dramatic effects
on the world economy in 2008/09 could be softened by the massive state-capitalist intervention. The capitalist
governments were prepared to bail out the banks, take over their debts and pump money since then into the
economy (the so-called “Quantitative Easing”). However, again, this instrument is no longer available. The
governments are now much higher indebted than they were last time and therefore their room for maneuver is
much more limited.” (10)

The IMF arrives at similar conclusions in the latest issue of its World Economic Outlook: “Nevertheless,
large challenges loom for the global economy. The extraordinary policy actions to prevent a second Great
Depression have had important side effects. The extended period of ultralow interest rates in advanced economies
has contributed to the buildup of financial vulnerabilities, as discussed in the April and October 2018 GFSRs.
The large accumulation of public debt and the erosion of fiscal buffers in many economies following the crisis
point to the urgency of rebuilding those defenses to prepare for the next downturn. Moreover, some of the crisis
management tools deployed in 2008–09 are no longer available (the Federal Reserve’s bailouts of individual
institutions, for example), suggesting financial rescues in the future may not be able to follow the same
playbook.” (11)

U.S.: As if there is no tomorrow

The American bourgeoisie lives as if there is no tomorrow. The Trump Administration has massively
increased public debt in an extremely short-time-span. The deficit for this year will rise to $890 billion
(it was about $660 billion when Obama left office). The shortfall in government expenditures will rise
above $1 trillion next year. All in all, publicly held U.S. government debt has tripled in a decade. (12)

Corporate debt has also risen in the last decade. This was to a large degree because of massive
borrowing to finance fusions between companies. A recently published article of Bloomberg which
dealt with corporate debt in the U.S. was characteristically entitled “A $1 Trillion Powder Keg Threatens
the Corporate Bond Market”. It concluded: “After a decade-long buying spree, many companies have pushed
their leverage to levels that are typical of junk-rated borrowers in their sectors. The result has been a surge in
debt issuance in the lowest rungs of investment-grade—the biggest share of it driven by corporate acquisitions.
There’s now about $2.47 trillion of U.S. corporate debt rated in the BBB tier, more than triple the level at the end
of 2008. (...) When it’s all said and done, some $1.1 trillion of investment grade debt could end up as junk.” (13)

Debt of U.S. corporations stands now at a new high of $6.3 trillion. The cash-to-debt ratio, which was
14% in 2008, has dropped to 12%, i.e. $1 in cash for every $8 of debt. (14)

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China too

The effects of the last recession in 2008/09 could be mitigated because China avoided a slump.
However, it did so via a massive state-capitalist interventionist program and a rapid rise of its
corporate debt. As a result, China’s “corporate debt has increased by $15 trillion, or more than half of global
corporate debt growth. As a share of GDP, China’s corporate debt rose from 97 percent of GDP in 2007 to 163
percent in 2017, one of the highest corporate debt ratios in the world apart from small financial centers that
attract offshore companies.” (15) This development is also reflected in the outstanding bonds of
nonfinancial corporate. (See Table 2) All in all, China’s combined debt (Non-Financial Corporations,
Government and Household) as a share of GDP has increased from 145% (2007) to 256% (2017).

Table 2. Nonfinancial Corporate Bonds Outstanding, $Trillion, 2010-2017 (16)

2010 2017
United States 2.8 4.8
Western Europe 1.6 2.6
China 0.4 2.0
Other Advanced Economies 0.7 1.2
Other Developing Economies 0.6 1.2

We note, as an aside, how bizarre it is that there still exist various Stalinists and pseudo-Marxists
which continue to defend the nonsense that China would be a “socialist” or “workers” state! (17)

Furthermore, the global banking system suffers from the extraordinary imbalances in the current
accounts, reflecting the fact that major economies like Germany, Japan and China export much more
than they import while the U.S. “lives beyond its means”, i.e. it imports much more than it exports. An
economist comments: “Hedging the foreign exchange risk in this half-trillion-dollar per year business has
exhausted the balance sheet of the global banking system. That explains a large part of the jump in the US 10-
year note yield to 3.2% last Friday from 2.85% in early September. Hedging the foreign exchange risk in these
massive flows created a derivatives mountain, and it has started to spew smoke and lava.” (18)

Nearly three years ago, we made the following prediction in the annual RCIT World Perspective
document: “First, the coming recession – in contrast to the previous one – seems to be spreading to and
assuming a severe character in all major regions of the capitalist world economy. Secondly, financial speculation
– a central trigger for the Great Recession in 2008/09 – has not decreased since then. In fact, today the financial
bubble is bigger than it was in 2007. And third, corporate and public debt has risen in nearly all imperialist
countries, which is why the bourgeoisie will not be able to use massive state-capitalist interventions yet another
time to help their corporations escape the worst consequences of the recession simply by raising the national
debt.” (19) We have every reason to stand by our assessment.

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Global Trade War

In fact, the factors aggravating the situation have increased. The economic causes of the capitalist crisis
are exacerbated by the accelerating political contradictions between the imperialist Great Powers. This
is particularly evident with the Global Trade War. As we have elaborated in a number of articles in
recent months, the Global Trade War – in particular between the U.S. and China – is a major factor not
only in determining the world political situation but also for the future of the world economy. (20)

Chang Shu, a Bloomberg economist, wrote: “The U.S.-China trade war is shaping up to be a long
confrontation. In our view, piling pressure on China is unlikely to result in concessions. A strategic misstep by
the U.S. risks further escalating the tariff war, which would add to the drag on growth – with larger implications
for Asia’s supply chains.” (21)

In fact, there are several crucial political factors which will influence the dynamic of the world
economy. We already pointed this out in a recently published article: “We are experiencing the final
phase of the current business cycle, the first cycle within the period of the Great Depression which began in
2008. The Global Trade War, in combination with the warmongering of US imperialism against Iran, could
trigger an early economic collapse. While Washington’s attempts to exclude Iran – the third biggest global oil
producer – from the world market will inevitable result in a massive rise of oil prices, the increase of tariffs will
increase prices both for industrial as well as for consumer commodities.” (22)

Conclusions

There are a several indications that we are living in a historic moment: the contradictions of the
capitalist world economy are exacerbating; the rivalry between the imperialist Great Powers is
accelerating (the Global Trade War between the two most important powers, the U.S. and China; the
saber-rattling, alternating with deal-making, between Washington and Moscow; etc.); the never-
ending domestic political crisis of the rotten Trump Administration; wars and political tensions all
over the world – beginning from the last stand of the glorious Syrian Revolution in Idlib, the ongoing
Saudi war of aggression against the Yemeni people, the shocking rise of the arch-reactionary
presidential candidate Bolsonaro in Brazil, the barbaric butchery of the critical journalist Jamal
Khashoggi in the Saudi embassy in Istanbul – and so on. History is in the making and we might be
close to the beginning of a new world political phase.

The central problem is not the strength of capitalism – in fact this system is in its death agony. The
problem is rather the lack of political preparedness of the working class and its vanguard to utilize the
bankruptcy of its class enemy. It is the task of Marxists to help the working class to organize its
defense against the inevitable attacks of the capitalists.

No one should have any illusions: the bourgeoisie will do everything in its power to make the popular
masses pay for the capitalist crisis. Reactionary forces – imperialist warmongers, chauvinist rabble-
rousers, etc. – will spread the message of national hatred in order to divide and defeat our
international class. Reformist muddle-heads will confuse and mislead the workers and oppressed.

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All authentic socialists must unite in order to build a Revolutionary World Party based on a program
for liberation struggle under the present conditions. The RCIT is dedicating its forces to this big,
indeed this historic goal. Join us in this struggle!

Footnotes

(1) Quoted in Asia Times: Carnage as markets plunge across Asia, October 11, 2018
http://www.atimes.com/article/carnage-as-markets-plunge-across-asia/

(2) See e.g. Asia Times: Global selloff continues in New York despite glimmer of trade hope, October
12, 2018 http://www.atimes.com/article/global-selloff-continues-in-new-york-despite-glimmer-of-
trade-hope/; Jeremy Herron and Sarah Ponczek: U.S. Stocks Pare Earlier Losses on Tech Strength:
Markets Wrap, Bloomberg, 11. Oktober 2018, https://www.bloomberg.com/news/articles/2018-10-
10/asia-braces-for-losses-after-u-s-stocks-plunge-markets-wrap?srnd=premium-europe; Alexandra
Stevenson, Jack Ewing and Matt Phillips: Wall St. Extends Drop Into Sixth Day After Global Sell-Off,
The New York Times, Oct. 11, 2018 https://www.nytimes.com/2018/10/11/business/stock-market-
global.html; Sudden jump in US interest rates prompts Wall Street stock plunge, 2018-10-10
https://www.aljazeera.com/news/2018/10/sudden-jump-interest-rates-prompts-wall-street-stock-
plunge-181010202647267.html ; Martin Farrer: World stock markets dive as Trump attacks 'crazy' US
rate hikes, The Guardian, 11 Oct 2018 https://www.theguardian.com/business/2018/oct/11/asian-stock-
markets-dive-as-trump-attacks-crazy-us-rate-hikes; John Lonski: Will Thin High-Yield Spread Again
Overrule Above-Trend VIX? Oct 11, 2018, https://www.economy.com/dismal/analysis/todays-
economy/347146/Will-Thin-HighYield-Spread-Again-Overrule-AboveTrend-VIX/; David P. Goldman:
Has the derivatives volcano already begun to erupt? October 9, 2018
http://www.atimes.com/article/has-the-derivatives-volcano-already-begun-to-erupt/

(3) Tyler Durden: World Economy At Risk Of Another Financial Crash, IMF Warns, 10/04/2018,
https://www.zerohedge.com/news/2018-10-04/world-economy-risk-another-financial-crash-imf-warns

(4) William Pesek: ‘Great Depression’ ahead? IMF sounds dire warning, October 9, 2018
http://www.atimes.com/article/great-depression-ahead-imf-sounds-dire-warning/

(5) For the RCIT’s analysis of the capitalist world economy since the Great Recession in 2008/09 see
e.g. Michael Pröbsting: World Perspectives 2018: A World Pregnant with Wars and Popular Uprisings.
Theses on the World Situation, the Perspectives for Class Struggle and the Tasks of Revolutionaries
(Chapter III), RCIT Books, Vienna 2018, https://www.thecommunists.net/theory/world-perspectives-
2018/; Michael Pröbsting: The Latest Stock Market Panic, 8 February 2018,
https://www.thecommunists.net/theory/the-stock-market-panic-february-2018/; RCIT: World
Perspectives 2017: The Struggle against the Reactionary Offensive in the Era of Trumpism, Chapter I,
in: Revolutionary Communism No. 59, https://www.thecommunists.net/theory/world-perspectives-
2017/; RCIT: Advancing Counterrevolution and Acceleration of Class Contradictions Mark the
Opening of a New Political Phase. Theses on the World Situation, the Perspectives for Class Struggle
and the Tasks of Revolutionaries (January 2016), Chapter II and III, in: Revolutionary Communism
No. 46, http://www.thecommunists.net/theory/world-perspectives-2016/; RCIT: Perspectives for the
Class Struggle in Light of the Deepening Crisis in the Imperialist World Economy and Politics. Theses
on Recent Major Developments in the World Situation and Perspectives Ahead (January 2015), in:
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Revolutionary Communism No. 32, http://www.thecommunists.net/theory/world-situation-january-
2015/; Michael Pröbsting: World economy – heading to a new upswing? in: Fifth International,
Volume 3, No. 3, Autumn 2009, https://www.thecommunists.net/theory/world-economy-crisis-2009/;
Michael Pröbsting: Imperialism, Globalization and the Decline of Capitalism (2008), in: Richard
Brenner, Michael Pröbsting, Keith Spencer: The Credit Crunch - A Marxist Analysis, London 2008,
https://www.thecommunists.net/theory/imperialism-and-globalization/

(6) Michael Roberts: It’s greed and fear, 18.09.2018,

(7) OECD: Interim Economic Outlook, High Uncertainty Weighing on Global growth, 20 September
2018, p. 12

(8) IMF: Global Financial Stability Report, October 2018, p. 8

(9) IMF: Fiscal Monitor, October 2018, p. VIII

(10) Michael Pröbsting: The Latest Stock Market Panic, 8 February 2018,
https://www.thecommunists.net/theory/the-stock-market-panic-february-2018/

(11) IMF: World Economic Outlook, October 2018, p. 85

(12) George F. Will: Another epic economic collapse is coming, Washington Post Op-Ed, August 18,
2018, https://www.washingtonpost.com/opinions/another-epic-economic-collapse-is-
coming/2018/08/17/c26fb12c-a182-11e8-93e3-
24d1703d2a7a_story.html?noredirect=on&utm_term=.e61009e0c452

(13) Molly Smith and Christopher Cannon: A $1 Trillion Powder Keg Threatens the Corporate Bond
Market, Bloomberg, 11 Oktober 2018 https://www.bloomberg.com/graphics/2018-almost-junk-credit-
ratings/?srnd=premium-europe

(14) John Feffer: There’s a New Crash Coming, September 19, 2018, https://fpif.org/theres-a-new-crash-
coming/

(15) McKinsey Global Institute: Rising Corporate Debt Peril Or Promise? Discussion paper, June 2018,
p. 2

(16) McKinsey Global Institute: A Decade After The Global Financial Crisis: What Has (And Hasn’t)
Changed? Briefing Note, September 2018, p. 5

(17) On the RCIT’s analysis of China as an emerging imperialist power see the literature mentioned in
the special sub-section on our website: https://www.thecommunists.net/theory/china-russia-as-
imperialist-powers/. In particular we refer readers to Michael Pröbsting: The China-India Conflict: Its
Causes and Consequences. What are the background and the nature of the tensions between China
and India in the Sikkim border region? What should be the tactical conclusions for Socialists and
Activists of the Liberation Movements? 18 August 2017, Revolutionary Communism No. 71,
https://www.thecommunists.net/theory/china-india-rivalry/; Michael Pröbsting: The China Question
and the Marxist Theory of Imperialism, December 2014,
https://www.thecommunists.net/theory/reply-to-csr-pco-on-china/; Michael Pröbsting: China‘s
transformation into an imperialist power. A study of the economic, political and military aspects of
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China as a Great Power, in: Revolutionary Communism No. 4,
http://www.thecommunists.net/publications/revcom-number-4

(18) David P. Goldman: Has the derivatives volcano already begun to erupt? October 9, 2018
http://www.atimes.com/article/has-the-derivatives-volcano-already-begun-to-erupt/

(19) RCIT: Advancing Counterrevolution and Acceleration of Class Contradictions Mark the Opening
of a New Political Phase. Theses on the World Situation, the Perspectives for Class Struggle and the
Tasks of Revolutionaries (January 2016), 23 January 2016, in: Revolutionary Communism No. 46, p. 16
(chapter III), https://www.thecommunists.net/theory/world-perspectives-2016/

(20) See Michael Pröbsting: The Global Trade War is Escalating. Trump’s new Tariffs on about $200bn
worth of Chinese Imports Reflect the Accelerating Rivalry between the Great Powers, 19 September
2018, https://www.thecommunists.net/theory/the-global-trade-war-is-escalating/; Global Trade War:
No to Great Power Jingoism in West and East! Neither Imperialist Globalization nor Imperialist
Protectionism! For International Solidarity and Joint Struggle of the Working Class and Oppressed
People! Joint Statement of the Revolutionary Communist International Tendency (RCIT), Marxist
Group ‘Class Politics’ (Russia), Alkebulan School of Black Studies (Kenya), Pan-Afrikan
Consciousness Renaissance (Nigeria), Courant des Jeunes Penseurs Congolais (Democratic Republic of
Congo), and Sınıf Savaşı (Turkey), 4 July 2018, https://www.thecommunists.net/rcit/joint-statement-
on-the-looming-global-trade-war/; Michael Pröbsting: The Global Trade War has Begun. What is its
Meaning and what should be the Response of Socialists? 13 July 2018,
https://www.thecommunists.net/theory/the-global-trade-war-has-begun/; Yossi Schwartz: Capitalist
Trade and the Looming 3rd World War, 15 July 2018,
https://www.thecommunists.net/theory/capitalist-trade-and-looming-3rd-world-war/; Michael
Pröbsting: Where Do Socialists Stand in Face of the Looming Global Trade War? A Showcase of the
Practical Consequences of the Assessment of the Class Character of the Chinese State, 17 June 2018,
https://www.thecommunists.net/theory/where-do-socialists-stand-in-face-of-the-looming-global-
trade-war/; Michael Pröbsting: World Perspectives 2018: A World Pregnant with Wars and Popular
Uprisings. Theses on the World Situation, the Perspectives for Class Struggle and the Tasks of
Revolutionaries, RCIT Books, Vienna 2018, https://www.thecommunists.net/theory/world-
perspectives-2018/

(21) Andrew Mayeda, Jenny Leonard, and Enda Curran: China Vows to Retaliate After Trump's $200
Billion Tariff Hit, September 17, 2018, https://www.bloomberg.com/news/articles/2018-09-17/trump-
ratchets-up-tariff-pressure-on-china-with-200-billion-hit?srnd=premium-europe

(22) Michael Pröbsting: The Global Trade War has Begun. What is its Meaning and what should be the
Response of Socialists? 13 July 2018, https://www.thecommunists.net/theory/the-global-trade-war-has-
begun/

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