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World World Economic Economic Crisis: Crisis: Implications for Implications for South Africa South Africa ! " " # # $ $ # # %& %& ’()**+ ’()**+

World Economic Crisis - Home - Events & Action

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Page 1: World Economic Crisis - Home - Events & Action

World World Economic Economic

Crisis:Crisis:Implications for Implications for

South AfricaSouth Africa

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Page 2: World Economic Crisis - Home - Events & Action

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source: US Fed, Gagnon, 2009

Page 3: World Economic Crisis - Home - Events & Action

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source: US Fed, Gagnon, 2009

Page 4: World Economic Crisis - Home - Events & Action
Page 5: World Economic Crisis - Home - Events & Action

1) 1) Underlying Underlying capitalist capitalist

crisis crisis tendenciestendencies

Page 6: World Economic Crisis - Home - Events & Action

Background:Stagnant

global real annual GDP

growth, 1970-2008

Source: IMF Global Financial Stability Report

…apparent 2000s uptickbut per capita growth declined since 1960s…

2008

… longer term cause of 2008 financial bubble…

Page 7: World Economic Crisis - Home - Events & Action

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US corporate profits derived much less from manufacturing products;much greater sources of profits came from abroad;profits also came more from returns on financial assets.Source: Gerard Dumenil and Dominique Levy

Page 8: World Economic Crisis - Home - Events & Action

because of overinvestment, a

subsequent investment drought from early

1980s(late 1990s was mainly IT, especially software)

(source: John Bellamy Foster and Fred Magdoff, 2009)

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Page 9: World Economic Crisis - Home - Events & Action

overaccumulation of capital remained

through 1980s-2000s(source: John Bellamy Foster and Fred

Magdoff, 2009)

Page 10: World Economic Crisis - Home - Events & Action

2) 2) Financial Financial

bubbling as bubbling as mode of mode of

crisis crisis managementmanagement

Page 11: World Economic Crisis - Home - Events & Action

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Page 12: World Economic Crisis - Home - Events & Action

US economy becomes debt-addicted from

early 1980s(source: John Bellamy Foster and

Fred Magdoff, 2009)

Page 13: World Economic Crisis - Home - Events & Action

US corporate profits become finance-

addicted in mid-1980s(source: John Bellamy Foster and

Fred Magdoff, 2009)

Page 14: World Economic Crisis - Home - Events & Action

‘hollowing corporations’from mid-1980s

(source: John Bellamy Foster and Fred Magdoff, 2009)

Page 15: World Economic Crisis - Home - Events & Action

3) 3) Volatility: Volatility: financial financial bubbles bubbles

start start bursting bursting

Page 16: World Economic Crisis - Home - Events & Action

Stock market crashes,pre-2008

… leading to speculation

and then vast devaluations

of Western finance even before 2008…

Page 17: World Economic Crisis - Home - Events & Action

Volatile $ flows into US stock market, 1990-2008

Source: International Monetary Fund Global Financial Stability Report

… e.g. $7 trillion devaluation in even New York, 2000-02…

Page 18: World Economic Crisis - Home - Events & Action

Stock market volatility: emerging markets

Source: International Monetary Fund Global Financial Stability Report

… smaller stock markets in middle-income countries

especially prone to boom/bust during late 2000s …

Page 19: World Economic Crisis - Home - Events & Action

Volatility inexorably worsens

(source: Unctad 2009)

Page 20: World Economic Crisis - Home - Events & Action

4) 4) Critical Critical mass of mass of financial financial

devaluation devaluation

Page 21: World Economic Crisis - Home - Events & Action

Short-term gut reaction: flight to ‘stability’ –

US government bonds…how long can this madness last?!...

Source: IMF

Page 22: World Economic Crisis - Home - Events & Action

Short-term gut reaction: run from the

emerging markets

Source: UNCTAD

Page 23: World Economic Crisis - Home - Events & Action

Stock market volatility: all markets in ‘08

Source: Unctad

… widespread, dramatic loss of paper wealth

Page 24: World Economic Crisis - Home - Events & Action

Housing devaluations:

Change in prices,

Jan 2007-July 2008

Source: IMF, World Economic Outlook,October 2008

…and the bursting of the bubble began in the US, Japan, Denmarkand Ireland in 2007…

Page 25: World Economic Crisis - Home - Events & Action

Commodity devaluations:

Change in prices, July – December 2008…particularly devastating for African countries

addicted to export-led extractive-industry ‘growth’…

Source: Unctad, The Global Economic Crisis, May 2009

Page 26: World Economic Crisis - Home - Events & Action

US and European banks, insurers

Devaluation of banks and insurers…vast financial sector write-offs…

Source: IMF, Global Financial Stability Report, April 2009

Page 27: World Economic Crisis - Home - Events & Action

US and European banks

Devaluation of commercial loans

Source: IMF, Global Financial Stability Report, April 2009

…to levels last seen in the early 1930s…

Page 28: World Economic Crisis - Home - Events & Action

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Page 29: World Economic Crisis - Home - Events & Action

5) 5) Real sector Real sector

devaluation of devaluation of overover--

accumulated accumulated capital?capital?

Page 30: World Economic Crisis - Home - Events & Action

Crash of GDP, industrial production and FDI

… vast implications for the ‘real sector’ too…

Source: The Economist

Page 31: World Economic Crisis - Home - Events & Action

Keynes, PLEASE HELP!

… note that North is allowed to do deficits, but South is discouraged…

Page 32: World Economic Crisis - Home - Events & Action

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Page 33: World Economic Crisis - Home - Events & Action

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VOLCKER SHOCK

“Volcker was selected [as Fed chair in 1979] because he was the candidate of Wall Street. This was their price, in effect.” – Jimmy Carter’s domestic policy advisor Stuart Eizenstat

Source: Gerard Duminil and Dominique Levy

Page 34: World Economic Crisis - Home - Events & Action

6) 6) South South

AfricaAfrica’’s s story:story:

A mirror of A mirror of the USA the USA

Page 35: World Economic Crisis - Home - Events & Action

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Page 36: World Economic Crisis - Home - Events & Action

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Page 37: World Economic Crisis - Home - Events & Action

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Source: IMF

Page 38: World Economic Crisis - Home - Events & Action

Credit card and home mortgage bond‘non-performing loans’ soar since early-2007

Source: IMF Executive Board Article IV Consultation, October 2008

Page 39: World Economic Crisis - Home - Events & Action

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Source: ABSA Bank testimony to Competition Commission

Page 40: World Economic Crisis - Home - Events & Action

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Page 41: World Economic Crisis - Home - Events & Action

Investment reactions: capital strike

Capital escapes to

London

Investment reactions: capital strike

SA’s biggest firms moved offshore, many after getting permission byTrevor Manuel to relist financial hq on London Stock Exchange

Anglo American, DeBeers, Old Mutual, SA Breweries, Didata (following Gencor, Liberty Life)�

Page 42: World Economic Crisis - Home - Events & Action

Biggest property bubble: 389% increase, 1997-2008

…fifth currency crash since 1996…

Page 43: World Economic Crisis - Home - Events & Action

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Page 44: World Economic Crisis - Home - Events & Action

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Page 45: World Economic Crisis - Home - Events & Action

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Page 46: World Economic Crisis - Home - Events & Action

The Economist, 25 Feb 2009

SA is world’s most risky emerging market, #1 of 17

Page 47: World Economic Crisis - Home - Events & Action

Result: a wave of social protestsResult: a wave of social protests(recorded by SA Police Service)(recorded by SA Police Service)