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United States

Worst Postwar Economic Crisis

[This unsigned article is reprinted from Peking Review, #6, Feb. 7, 1975, pp. 17-18.]

THROUGHOUT the United States, from New York to Los Angeles, from the auto centre of Detroit to the steel city of Pittsburgh, the picture is one of declining production, depressed markets, sharply rising unemployment, chaotic monetary markets and slumping stock exchanges. The country is in the grip of a deepening economic crisis, the worst since World War 11.

Several Economic Ills Concur

Industrial production has been falling since December 1973. The overall index had dropped 7.3 per cent by the end of last year, 5.8 per cent in the final quarter alone—the sharpest postwar quarterly slide. The housing, auto and steel industries, the three pillars of the U.S. economy, have all registered big declines in output. Housing construction plummeted 60 per cent last November compared with January 1973 (the pre-crisis peak). Car production plunged 24 per cent in 1974 from that of the previous year, with December output down 35 per cent from a year before. Steel production fell more than 10 per cent in November compared with the same month of 1973. There were marked declines in the electric home appliances, textiles, tires, lumber, glass, paper and other industries.

Business orders are decreasing. Durable goods orders diminished by 11.1 per cent from November to December last year—the sharpest monthly drop in 20 years. Orders for machine tools nosedived 56 per cent in November as compared with the same month of 1973. The steep fall in auto production caused the industry to order 50 per cent less steel in the current quarter. A further industrial production shrinkage is forecast for the months ahead.

A depressed market has caused a piling-up of unsold stocks. The country’s inventories increased 24 per cent last October from a year earlier, with unsold machine stocks (electric machines excepted) rising 27.4 per cent. Stockpiles of unsold cars were even greater.

Fixed investment has also dropped. In the third quarter of 1974, total domestic investment was down 8.8 per cent from the fourth quarter of 1973. Lacking confidence in economic prospects, the capitalists, one after another, have cut their originally planned investment. It is estimated that total investment in the country will continue to dwindle this year. Business failures are also on the increase.

With the deepening of the economic crisis, unemployment is mounting sharply. The rate jumped to 7.1 per cent in December when the official jobless figure stood at 6.5 million—the first time since 1940 it topped 6 million. Plus the officially announced number of 3.2 million semi-employed workers, the jobless total reached nearly 10 million.

The country’s stock markets have been in a seldom seen protracted slump. For instance, the New York stock price index in early December sank to its lowest point in 12 years, or nearly 50 per cent lower than the peak in January 1973.

U..S. News & World Report acknowledged that ”the country will have suffered its longest and deepest business slump since World War II.”

Like the one besetting the capitalist world as a whole, the current economic crisis in the United States is characterized chiefly by a periodic crisis of overproduction interwoven with rampant inflation and financial and monetary crises, that is to say, a concurrence of several economic ills. ”This is an almost unprecedented economic ailment,” The New York Times lamented.

Keynes’ Theory Doesn’t Work

Since the Great Depression of the 1930s, U.S. monopoly capital has used the state apparatus to intervene in economic affairs along the lines advocated by the bourgeois economist John Maynard Keynes. In the hope of avoiding economic crises, it adopted policies of increased government spending, arms expansion and war preparations, budgetary deficits, easy credit and currency inflation to stimulate the lopsided development of the economy and create false boom. But, as the Manifesto of the Communist Party points out, such measures adopted by the bourgeoisie to avoid crises are “paving the way for more extensive and more destructive crises,” and “diminishing the means whereby crises are prevented.” Constant state intervention and currency inflation more and more have aggravated the contradictions in both production and circulation of commodities and have become less and less effective and in time proved disastrous.

Every postwar U.S. administration greatly increased military expenditures and government spending. In 1929, federal government spending accounted for only 3 per cent of the GNP. Now it stands at close to one-fourth. The country’s domestic production and employment are to a great extent dependent on government spending. Deficits appeared in 19 of the 25 fiscal years from 1950 to 1974, totalling 155,000 million dollars. An official announcement recently said that a 35,000 million dollar deficit is estimated for the current 1975 fiscal year, and that there will be a deficit of rouuhly 50,000 million dollars in the budget for fiscal 1976. For the two years alone, the deficits will total more than 80,000 million dollars.

The U.S. Government has always resorted to printing banknotes and issuing national bonds as a means of making up deficits. Compared with 1960, the money supply in 1973 increased 184 per cent. Government and private indebtedness also reached the staggering total of 3,000,000 million dollars at the end of June 1974, one-sixth of which was federal government debt. To pay the interest on the debt, the federal government has to spend more than 30,000 million dollars a year, or over 10 per cent of its entire expenditure. Corporation indebtedness exceeded 1,000,000 million, more than 15 times the total of annual net profits (after taxes) of all U.S. companies and corporations. Individual indebtedness reached over 800,000 million, or 93 per cent of the country’s annual after-tax personal incomes total.

This, coupled with other factors, has brought about a spiralling inflation which reached a new serious stage in the last two years, with prices up by a big margin. In 1974, the U.S. consumer price index rose 12.2 per cent, more than 5 times the average annual increase rate in the 1960s. As a result, purchasing power has been greatly reduced. The retrenchment policy (raising interest rates, tightening credits, etc.) adopted by the U.S. Government to deal with the rampant inflation has not only failed to turn the tide but worsened the over-production crisis.

The policies pursued by the U.S. ruling clique during the postwar years have also caused grave consequences in the financial and monetary field. The military and economic expansion abroad has resulted in huge deficits in international payments with a consequent large-scale dollar outflow. Inflation on its part has diminished the value of the dollar, weakening its position in the world market. In the years from 1960 to 1973 ten dollar crises broke out which plunged the Western financial and monetary system into chaos. Suspension of dollar convertibility into gold beginning as from August 1971, coupled with two devaluations, one in December 1971 and the other in February 1973, forced the West European countries and Japan to float their currencies one after another. The postwar Western monetary systcim with the dollar as its mainstay completely crumbled. Hit by serious inflation, the currency exchange rates of various capitalist countries fluctuated violently, interest rates rose to record levels, speculation on foreign exchange markets was rife, the dollar position became even weaker, and there were repeated waves of dollar sales and gold rush. Moreover, while the enormous domestic indebtedness and the serious disproportion between bank credits and deposits have already created a dangerous situation, the present acute shortage of funds and increasingly weakened capability to repay debts have added to the threat of a credit crisis. It is noteworthy that quite a number of bank failures have occurred. The U.S. Franklin National Bank with 5,000 million dollars worth of assets closed down last October. On the brink of bankruptcy, the Security National Bank was taken over by another bank not long ago. The Long Island Bank is also reported in financial difficulty. According to an announcement of the U.S. Federal Deposit Insurance Corporation, commercial banks in fund shortage difficulties increased by 50 per cent last year.

All this shows that government interference and the inflationary policy pursued in the past by the U.S. ruling clique to stimulate the economy no longer work. They have not only failed to prevent economic crises, but on the contrary deepened and worsened the present crisis.

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