Committee for the Abolition of Illegitimate Debt

But this story of boom is misleading. Yes, the US economy is doing better than Europe or Japan. But is it doing better historically? Take the recent piece in the UK’s Financial Times lauding the US performance relative to Europe entitled “why America’s economy is soaring ahead of its rivals”. The authors go on: “the US is growing so much faster than any other advanced economy. Its GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. has expanded by 11.4 per cent since the end of 2019 and in its latest forecast, the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org predicted US growth at 2.8 per cent this year.” And: “its growth record is rooted in faster productivity growth — a more enduring driver of economic performance….US labour productivity has grown by 30 per cent since the 2008-09 financial crisis, more than three times the pace in the Eurozone and the UK. That productivity gap, visible for a decade, is reshaping the hierarchy of the global economy.”

And more: “productivity growth the US is rapidly outstripping almost all advanced economies, many of which are caught in a spiral of low growth, weakening living standards, strained public finances and impaired geopolitical influence.”

The problem with this narrative is that it is all relative. Note the title of article: why America’s economy is soaring – ahead of its rivals. The US economy is soaring, wait… but only ahead of its rivals. Yes, compared to Europe and the rest of the advanced capitalist economies (of course, not compared to China or India), the US is doing much better. But that’s because Europe, Japan, Canada are stagnating and even in outright recession. In historic terms, the US economy is doing worse than in the 2010s and worse again compared to the 2000s.

Take productivity growth. Here is the FT graph that suggests US exceptionalism.

But if you look closely at the trajectory of the US productivity growth line, you can see that from about 2010, productivity growth in the US has been slowing. Its relative outperformance is entirely due the collapse of growth in the rest of the G7. As the FT article puts it: “Data from the Conference Board shows that, in the past few years, labour productivity has dropped relative to that of the US in most advanced economies.” Yes, relative to the US, but labour productivity growth in the US is slowing down too, if by not so much.

Indeed, if we go way back on the history of productivity growth, the real story is that capitalist economies are increasingly failing to expand the productive forces and raise the productivity of labour. You can see that from the table below. US productivity growth from 2006-18 is much better than other major capitalist economies, but the rate is half what it was in the 1990s.

The same narrative applies to productive business investment. The FT shows a graph where US business investment growth is outpacing other economies. But again, note that the trajectory of US investment growth is also slowing: compare the current growth rate with that of the 2010s and even more with the 2000s. US business investment is slowing over the long term, while in the rest of the G7, business investment is stagnating.

Let’s take another graph that shows the historic trend of economic growth in the US.

Average annual real GDP growth in the US has declined from the 4% rate in the post-war ‘Golden Age’ to 3% a year before the Great Recession and under 2% in the period since then, in what I have called the Long Depression. And current consensus forecasts for US growth in 2025 are just 1.9%. But that would still be the fastest of any G7 economy.

Moreover, we are measuring real GDP growth here. In recent years, much of the faster growth in the US has been due to immigration, boosting the labour force and overall output. Growth in output per person has been much less, if still better than the rest of the G7 after the pandemic.

The graph below of trend growth for the US versus Europe shows the story better. US trend growth rates have been slipping in the 21^st century; while Europe’s have been diving.

Moreover, the relatively better performance of the US capitalist economy over the other advanced economies does not indicate whether average Americans are doing better. As the FT article admits: “For all its economic power, the US has the largest income inequality in the G7, coupled with the lowest life expectancy and the highest housing costs, according to the OECD OECD
Organisation for Economic Co-operation and Development OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.

http://www.oecd.org/about/membersandpartners/ . Market competition is limited and millions of workers endure unstable employment conditions.” Hardly a recruitment poster for living in the US, even if stock market investors don’t care about that.

And if we are talking above relative growth in average income per person in the US, look at this table that I have compiled from the World Inequality Database. Average earners in the US are seeing less and less progress (even relatively), particularly in the 21^st century.

Nevertheless, the argument goes that a US productivity boom is now under way, driven by the introduction of AI and other technology investment that the rest of the capitalist world (and China) cannot match. As Nathan Sheets, chief economist at Citigroup, says that, despite these efforts and China’s push to become an AI superpower, the US is the “place where AI is happening, and will continue to be the place where AI happens”. And there are signs that US productivity growth may be picking up – although note that the graph below is an estimate.

Maybe so, but the huge investment spending in AI has yet to be see real results across the whole economy that could reduce significantly jobs and so sustain a a large rise in productivity per worker. That could take decades.

Indeed, there is plenty of evidence that the AI boom could really just be a bubble – a huge rise in what Marx called fictitious capital, ie investment in the stocks of AI-related companies and the US dollar that is way out of line with the reality of AI-realised profits and productive investment.

In the FT again, Ruchir Sharma, chair of Rockefeller International called the US stock market boom “the mother of all bubbles”. Let me quote: “global investors are committing more capital to a single country than ever before in modern history. The US stock market now floats above the rest. Relative prices are the highest since data began over a century ago and relative valuations are at a peak since data began half a century ago. As a result, the US accounts for nearly 70 per cent of the leading global stock index, up from 30 per cent in the 1980s. And the dollar, by some measures, trades at a higher value than at any time since the developed world abandoned fixed exchange rates 50 years ago.”

But “Awe of “American exceptionalism” in markets has now gone too far….Talk of bubbles in tech or AI, or in investment strategies focused on growth and momentum, obscures the mother of all bubbles in US markets. Thoroughly dominating the mind space of global investors, America is over-owned, overvalued and overhyped to a degree never seen before. As with all bubbles, it is hard to know when this one will deflate, or what will trigger its decline.”

And this bubble is very narrowly supported. US stock market drives world markets and just seven stocks drive US stock market: the so-called Magnificent Seven. For the vast majority of US companies, those outside the burgeoning energy sector, social media and tech, things are not so great. S&P 500 free cash flow per share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. hasn’t grown at all in three years (see the red line below). Forecasts of profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. growth are wildly out of line with what is being realised.

US corporate debt to earnings remains near all-time highs and interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. costs on this debt have not fallen much since the US Fed FED
Federal Reserve Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank : http://www.federalreserve.gov/ decided to start cutting its policy rate.

The difference in the average cost of debt for the smaller Russell 2000 companies and the big S&P 500 companies recently more than doubled to about 300 basis points. With intermediate and long-term interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. still backing up, it is not obvious that relief will come soon.

US corporate bankruptcies in 2024 have surpassed 2020 pandemic levels. Bankruptcies are surging as if the US economy was struggling.

In its recent Financial Stability Report, the Federal Reserve noted that “valuation pressures remained elevated. The ratio of equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. prices to earnings moved up toward the high end of its historical range, and an estimate of the equity premium—the compensation for risk in equity markets—remained well below average.” It was concerned that “While balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. sheets in the nonfinancial business and household sectors remained sound, a sharp downturn in economic activity would depress business earnings and household incomes and reduce the debt-servicing capacity of smaller, riskier businesses with already low ICrs as well as particularly financially stretched households.”

There is no bust yet in the stock markets. But if a bust comes, with many companies struggling and debt burden rising, a financial crash could well ricochet into the ‘real economy’. And spillover globally.

Productivity growth in the major economies has slowed across the board because productive investment growth dropped. And in capitalist economies, productive investment is driven by profitability. The neo-liberal attempt to raise profitability after the profitability crisis of the 1970s was only partially successful and came to an end as the new century began. The stagnation and ‘long depression’ of the 21^st century is exhibited in rising private and public debt as governments and corporations try to overcome stagnant and low profitability by increasing borrowing.

That remains the Achilles heel of the US exceptionalism. The story of US exceptionalism is really a story of Europe’s collapse – and that’s another story.