The decline of the Chinese stock exchange by 20% over the last weeks, and its general convulsive behaviour since early April this year, has many echoes of the Great Depression (1929 - 39.) Although the apocryphal story of that time was the account of stock brokers jumping out of Wall Street windows when the final crash occurred, inevitably it was the workers and small farmers who suffered the most. This was obvious later in the 1930s but one less known aspect of the time was the fact that in 1929 millions of US workers and their families, sold, borrowed and pawned to raise the cash to 'get into the market.' By the first half of 1929, as the market started playing 'loop de loop', small investors had been loaned over $8.5 billion by stock sellers. This was more than the total value of all the currency then circulating in the US. The final and definitive crash of 1929 destroyed any future financial stability for millions of ordinary people in the US - at a stroke. Since then, and despite the wave of Thatcherite selling of utilities etc, picked up across the western hemisphere through the 1980s, the overwhelming majority of shares sold on the stock exchanges of the west were, and are, held by big corporations and financial institutions. Conversely, for two years the leadership of the Chinese Communist Party has been encouraging ordinary Chinese people to 'invest' as much of their savings as they can in the market.
Naturally the leadership of the CCP understands it is in a pickle via a vis its relations with the generally politically cautious Chinese population. In April this year alone, the Peoples Bank of China bought $256 billion in stocks to prop up the market. It has become difficult to accurately report further spending in the market by the PBC since then. But the current overall debts of China, combining personal, corporation, local and national government debts, are $28 trillion. This debt amounts to 282% of China's Gross Domestic Product. In fact current estimates show the total value of China's economy as $10.4 billion. Looked at objectively there is the real prospect of an irrecoverable market collapse in China.
There has been considerable speculation in the western media about the impact of a serious economic collapse in China on the rest of the world. As China's voracious appetite for both commodities, and for luxury western goods diminishes, there are already serious problems emerging in the BRIC countries and the the EU. But a debt laden crash in the world's second largest economy is something else. Its fundamental character is of a classic crisis of overproduction - as with 1929 / 31. And this at least requires a root and branch reorganisation of global capitalism - with all its attendant political and social crises. When the preemptive, sui-generis Keynesianism that has already been used by Western governments and by Japan, to 'ease' the banking crisis of 2008 is added to the picture, the potential global prospects of a Chinese collapse are nothing less than calamitous.
In the US in the 1930s the Roosevelt administration used government spending to build infrastructure, advance new technology and to increase the wealth of subordinate classes, in effect the overwhelming majority of the US population, in order to promote spending. These are the classic Keynesian solutions to capitalist crises of over-production and debt. In a perverse, not to say lick spittle version of the same project, the US, UK, Japanese and now the EU have introduced 'quantatative easing' as a rich person's version of Keynesian model, to stem the effects of the 2008 financial crisis. This has meant the UK 'Bank of England' has spent $577 billion via banks on stocks and shares in the last 5 years. The US 'Fed' spent $3.8 trillion up to October 2014 in the same way. In Japan the national bank has already spent $923 billion; Japan originated QA as a result of its decade of stagnation. It is now spending $447 billion on QA every year, an open decision taken in October 2014. The European Central Bank's first serious act since its hurried, crisis ridden birth, has been to announce a $1.23 trillion QA programme. (January 22, 2015.) Amounting to a current global total of $4.51 trillion QA 's main impact has been to massively increase wealth (and the wealth of the wealthy) through the creation of a constantly inflating stock exchange. Leaving the busted finance industry, the global market became the next golden goose, the next security, indeed the next golden egg, for the world's rich.
This $4.51 trillion was not used to develop infrastructure and investment, not used to conquer disease, ease homelessness, was unavailable as a source of spending for the majority whose living standards lurched downwards. It secured and then increased the wealth of the rich. Accordingly, the national debt mountains and the personal debt mountains have increased in the west since 2008 as debt is the only means to secure peoples' spending - in reality, partly as a result of the remedy of QA. (For instance by June 2015 in the UK, people owed £1.441 trillion in personal debt - including their mortgages. The average debt per adult was £28 532 - 111% of average earnings. And UK people paid £53.497 billion in interest. This is all miles higher than it was in 2007/8. The national debt has also increased to over a £1 trillion.) And it is precisely this still expanding debt bubble, masking the chaos of capitalist overproduction, that renders western economies and ultimately their societies so vulnerable to the current Chinese disequilibrium.
Note: The data for this piece was drawn from many sources but three are worth particular mention.
Guardian 'QE Around the World' Katie Allen, 22 January 2015; Bloomburg April 2015 report on the Chinese market and indebtedness; The Money Charity, June 2015.
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