March 18, 2009: the tipping point that signals the beginning of the end?

I’m realizing I’m on thin ice here, as I have no professional understanding of economics, but nevertheless, I want to relay a convincing scenario, that some of my p2p friends have been sending to my mailbox.

Starting point is the recent creation of an additional $1 trillion of public debt by the Federal Reserve on March 18, 2009, also called ‘quantitative easing

The first alert came from the blog of Paul Jonrion in France, who calls it the ‘date for the end of capitalism’

This is almost certainly hyperbole, but nevertheless, it reports on the alarm bells that have been ringing, including with well respected economists like Nouriel Roubini.

The importance of this decision by the Obama administration is that an important fraction of analysts are now convinced that the wheels of hyper-inflation has been set in motion, and the the value of the dollar will most definitely loose substantial value at some point.

The Asia Times brings us a detailed and well-documented must-read three partanalysis predicting the end of the dollar-centric world:

“Increasingly ominous clouds are gathering in what could soon be the perfect storm against the United States dollar and against the present dollar-centric global financial order.”

In another article, it analyses that China has secretly set in motion a policy to divest itself from its US dollar holdings, so that it will no longer possess more than a 50% share of it, a reduction that would be sufficient to function as a hedging strategy (with any loss of the dollar being compensated with the rise of the other 50%).

If true, and the article offers good documtation on this, then this would be extremely significant, because it is the effective end of the China-U.S. compact that sustained the neoliberal model, and means that China has given up on the U.S.

The Asia Times shows that part of the divestment is going to buying depressed western assets, thereby positioning itself a leading role in a post-meltdown world.

They write:

“There is mounting evidence that China’s central bank is undertaking the process of divesting itself of longer-dated US Treasuries in favor of shorter-dated ones. There is also mounting evidence that China’s increasingly energetic new campaign of capitalizing on the global crisis by making resource buys across the globe may be (1) helping its central bank to decrease exposure to the dollar, while (2) simultaneously positioning China to make much greater profit on its investment of its reserves into hard assets whose prices are now greatly beaten down, while (3) also affording it greatly increased control of strategic resources and the geopolitical clout that goes with it.”

Effects on the P2P Scenarios

As our readers may recall, we have in the past offered two contrasting scenarios for a transition towards a more p2p-oriented world, with a first expected phase, of emergency to parity, occurring within a renewed green-capitalist expansion phase, that could occur after the bottoming out and restructuring during this meltdown. We’ve called this first scenario, the ‘high road to peer to peer’.

We are partly inspired by Carlota Perez’ interpretation in her book, Technological Revolutions and Financial Capital. This book analyses the history of industrial capitalism as a series of great surges, coinciding with upswings of the Kondratieff economic cycles. In short, she witnesses cycles of 60-70 years, characterized by an upswing of high growth based on new technological revolutions, and a stagnating downswing based on speculative financial capital. Each times such a downswing ends, occurs a great depression, in which the old order and social compact dies and needs to be replaced by another.

We are precisely in such a bottoming-out, a process that may take up to 15 years as in the previous Depression, so that any talk about any recovery in 2010-2011, can at most be a short blip.

As previously the crisis period may be accompanied by periods of great social dislocation, such as can occur through hyper-inflation.

After this, we could presume that structural reforms, and in our interpretation, a new social compact based on a partial compromise with the demands arising out of the new structure of desire around open and free, participatory, and commons oriented practices, may usher in a green-capitalist expansion phase, which would bring peer to peer practices to parity level (at the end of this 30 year process) with the market forces.

A complicating factor is of course that the combined effect of Peak Oil and Climate Change, what some have called the Long Emergency, may greatly complicate such a hypothetical recovery and instead set in motion a period of much longer decline.

As we indicated previously, the tragedy of Obama may be that he has come too early on the scene, and not be the Roosevelt that we expected, but rather the Herbert Hoover that attempted fruitlessly to save the previous system and the ailing financial system of the 1920’s.

The desperate measures of March 18, which do not offer any structural solutions, could instead be the agent of doom, pushing the U.S. into hyper-inflation, breaking the final back of the old order, without creating the conditions for recreating the new.

If the restructuring fails, and complicated decline perpetuates the crisis, then the high road scenario, i.e. the relatively peaceful rise of peer to peer social forms in a context of economic expansion, may not occur, and instead we may have to turn to the scenarios of observers like John Robb, who see peer to peer then only occurring amongst resilient communities, but which exists amongst the rubble of global dislocation. This is what we have called the ‘low road to peer to peer’.

It’s too early to have a definitive judgment, and Obama clearly has exhibited a reformist zeal in the other aspects of this endeavours, but nevertheless, it would certainly seem that March 18 is the tipping point that signals the definitive burial of the old neoliberal order and the break-up of the U.S.-China compact that sustained it.

For more reflection on the current crisis, please watch the following must-see video, by David Harvey and Alexander Cockburn:

2 Comments March 18, 2009: the tipping point that signals the beginning of the end?

  1. AvatarTere

    A highly important topic.

    Just want to add something on the Peak Oil part. The Oil Drum is now calling several peaks:
    Saudi-Arabia in 2005:
    The world in 2008:

    One possible scenario is that the financial debt-driven hyperbubble was in part a necessary (necessitated by the need of “growth”) reaction to the lack of energy-based growth (the per-capita use of energy having stopped growing in the US in the late 80’s). After the stagnation of oil production growth in 2005 the financial bubble super-expanded and finally the relentless rise of oil price in 2008 (up to 147 dollars per barrel) started the burst by putting a cap on world trade.

  2. AvatarMarc Fawzi

    This may sound cryptic, but every design carries within itself the seed for its own destruction.

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