capitalism is a sick animal

Nouriel Roubini became world famous almost overnight being one of the few capitalist economists who predicted the burst of the credit bubble.  Marxist economists were not surprised of course but they don't count. Roubini, thinks there is a 20% chance of a double dip much like there was in the 1930's.  The US economy is still very weak.  In fact, the recent productivity gains could be an "illusion" writes Justin Lahart in the Wall Street Journal.  The reason being that US producers are buying parts and materials form cheaper foreign suppliers rather than domestic ones and these imports are often not counted or udercounted by the government statisticians which means domestic production appears greater than it is which overstates productivity.

Then there's Greece.  The situation in Europe is extremely precarious with the possibility of Portugal, Spain and Ireland taking the Greek road home.  Sovereign debt has been called the next subprime as states have borrowed excessively from Greece to California.  The attempts to impose drastic austerity measures are problematic as the scenes from the streets of Athens make clear.

French and German banks and insurance groups hold about $80 billion in Greek sovereign debt and some analysts still consider the likelihood of a Greek default reasonably high.  The situation is so precarious that banks are unwilling to lend to each other for fear that they might not get their money back if Greece defaults or the contagion spreads; a scenario many of them will not survive. 

It's a staggering waste of time resources and money, the way they run society.  They know things are bad because the cost of insuring their financial dealings has skyrocketed.  The cost of buying protection against default on European banks has risen to $283,000 for every ten million Euro of bonds annually over five years according to the Financial Times.  The capitalist class are also not confident that even if the loans Greece is getting slow the bleeding, the government will not be able to implement the austerity measures the moneylenders need due to opposition from the working class.

This situation is very bothersome for the US.  If the situations worsens in Europe, investors will shift funds to US bonds much like they did in the earlier part of the crisis.  They often use the term, "flight to safety."  The effect of this is to depress US interest rates and strengthens, temporarily at least, the US dollar.  But it also weakens the euro, which makes US exports less competitive and Europe is a very important export market for the US. This will increase the likelihood of a further crisis in the US economy.
 
And the spreading of the crisis in Europe would expose US institutions further at a time when the country is heavily indebted.    As Clive Crook points out in the FT, "Any new financial waves would crash over a US government whose fiscal capacity is all but maxed out and a country whose willingness to rescue banks is exhausted" 

We must not forget that there are trillions of dollars invested in complex financial dealings that most people don't understand.  Not only do they not understand them, they have no real grasp how much is actually involved and who owes whom what. The US understanding about the economy is much like its understanding of geography.  In economics it doesn't know what is involved until the crisis hits and most Americans are not well informed about where a country is until after its government has bombed it.

It is impossible to predict the future, but it is this one blogger's guess that the economy will falter sooner than we think and that the crisis is far from over.  The other side of it is the issue of social unrest. It cannot be ruled out that if the contagion spreads in Europe that strikes, huge street clashes and almost semi insurrections could occur.  And at some point, the situation in the US will break more violently in to the open such is the anger and hatred of the rich and the bankers.

The main point is that it is a very volatile and unpredictable period.  As Marx said, the only thing constant is change.  The type of change depends on what role we can play to send the rotten system they call free anything to its grave.