PRODUCTIVE PRODUCTION IS THE LIFEBLOOD OF CAPITALISM :The most serious problem is the lack of productive investment. In the US, private investment remains below even its long-term share of national output, while public investment peaked with the stimulus in 2010 and has been falling ever since. The capitalists are not investing in the kind of productive activity that would lead to the hiring of American workers in sufficient numbers to allow the economy to take off. The reason is because there is no market for their goods; that is to say, there is no “effective demand”. The economic outlook is dark and uncertain. Nobody wants to spend or invest because they cannot predict the future. The number of jobs increased in 2013 but factory employment continued to decline. Initial forecasts that the US recovery would be led by a manufacturing rebound have been comprehensively falsified. A healthy and sustainable recovery must be based on productive investment, not a larger number flipping burgers in McDonald’s. The costs of investment are actually far lower now than in 2008. Yet business investment in the US is running at only slightly above its 2008 level. A recent survey of the 40 biggest publicly traded US companies recorded that roughly half of them intended to curtail their capital expenditures in the course of 2013. What is the point in building new factories and investing in costly new machinery and computers when they cannot use the productive capacity they already have? In the UK, a mere 15% of total financial flows actually go into investment. The rest goes into supporting existing corporate assets, real estate, or unsecured personal finance. Instead of investing in new plant and machinery, the big companies are borrowing large sums of money at negligible rates of interest in order to buy back their own shares. In the first nine months of 2013 alone, $308 billion was spent for this purpose in the USA. The problem is therefore not lack of liquidity. In the USA, businesses are awash with cash yet they do not invest in productive activity. In the last four years vast sums of money have been pumped into the economy, particularly the banks. The result has been to increase the public debt to alarming levels, without producing any economic recovery worthy of the name. Yet Moody's estimate at the beginning of 2013 (reported by Forbes in March 2013) was of $1.45 trillion in cash stashed away by US non-financial corporations. The increase for the year 2012 alone (included in the total) was of $130 billion. This is not a new phenomenon. In the late 1920s, there was a massive accumulation of unspent cash in the economy—just before the crash. The bourgeois economists have an aversion to pronouncing the word “overproduction” (strangely, some self-styled Marxist economists suffer from the same affliction). But from a Marxist point of view the root cause of the crisis is very clear. Surplus value is extracted in the process of production, but this does not exhaust the process of money-making. The ability of the capitalist to realize the surplus value extracted from the labor of the workers ultimately depends on his ability to sell his commodities on the market. But this possibility is limited by the level of effective demand in society, that is, by the ability to pay. The capitalists’ urge to produce in order to obtain profit is virtually unlimited, but his ability to find a market for his produce has very definite limits. The world economy is perilously dependent upon the USA. In reality, the whole world now depends on US consumption. But consumption in the USA is hardly in an ideal condition to act as the engine of world growth. Median earnings have fallen by 5.4 per cent since the US recovery began. Unemployment hovers around 7 per cent. Consumption accounts for roughly 70 per cent of US gross domestic product and about 16 per cent of global demand. Exporters everywhere are thus hoping the US consumer will come to the rescue. But this creates new contradictions. Last year, surging imports pushed the US trade deficit up by 12 per cent to $45bn per month, which was the largest jump in five years. Imports from China accounted for almost two-thirds of that. If this continues, the US-China deficit will exceed $300bn. On the other hand, US exports fell. Obama’s goal of doubling exports in five years is a hopeless dream. The US recovery might peter out, dragging the global economy down with it.This resembles the old Russian fairy tale of a hut supported by chickens’ legs

THE CRISIS IS STILL ON :Since 2008, all the factors that drove the system upwards have combined to drive it downwards. The massive increase in credit has become a huge mountain of debt, a colossal burden on consumption, which is dragging the economy down under its weight.

While the press and politicians talk about a recovery, the serious strategists of capital are plunged into the blackest pessimism. The more far-sighted economists are talking not of recovery but of the danger of a new and even deeper crisis. The “recovery” is really a convenient fiction, calculated to soothe the nerves of investors and restore “confidence”.

Insofar as it is possible to speak of it, the partial recovery in the USA is the weakest recovery from a slump in history. Normally after a slump, the economy tends to rebound strongly on the basis of productive investment, which is the lifeblood of the capitalist system. But this is not the case now. According to the IMF, the world economy is on track to grow just 2.9%, which is roughly half its pre-crisis level.

The irrational nature of capitalism, trapped in the vice of insoluble contradictions, has been given an even sharper and more painful and destructive character through globalization. “National sovereignty” has become an empty word, as every government is subjected to the vicissitudes of the world market.

Speculation flourishes despite all the talk about regulation. A vast amount of money is sloshing around the world, adding hugely to the danger of an unprecedented economic collapse. The global derivatives market, which amounted to $59 trillion in 2008, had risen to $67 trillion by 2012. This is a measure of the unbridled speculative frenzy that has gripped the bourgeois in our times. The tangled interconnections of the derivatives market, which it seems nobody truly understands, have introduced complex and new risks.

The nervousness of the bourgeois is mirrored in the feverish rise and fall of the markets. The slightest incident can cause a panic: political tensions in Portugal; social unrest in Egypt; uncertainty over the outlook for China’s economy; the possibility of military action in the Middle East leading to a sharp rise in oil prices; any of these things can cause a panic that can plunge the world economy back into a deep recession. The yields on government debt play approximately the same role as the charts on the bottom of a hospital bed that denote the rise and fall of a fever. Beyond a certain limit, the increase in the level of a fever threatens the patient with death.