Causes Of Economic Depression - Online Article

The global capitalist system has changed much over the several hundred years since its inception, but it continues to be based on profit, selfishness and greed. It excludes more people than it benefits. Today nearly half the world’s population lives, suffers and dies in poverty.

Because of its inherent contradictions, the global economy is doomed to crash, causing a great depression.Here are several causes of economic depressions.

  1.  The first is great concentration of wealth. Since 1960, the wealth of the world has multiplied eight times, but the world’s richest people are hoarding almost all of this wealth. For example, the chief executive officers (CEOs) of multinational corporations are now paid salaries with stock options that Fortune magazine describes as “outrageous!” In the year 2000, the director of Citibank was paid $151 million. Disney paid their CEO US$575 million. The head of Oracle received US$707 million. Apple Computers paid CEO Steve Jobs $872 million, more than 30,000 times what the average Apple employee is paid each year!
  2. The wealth of the world’s 200 richest people more than doubled during the last four years, to more than $1 trillion.3 This is more than the combined annual income of half the world’s population – three billion human beings.
  3. Another cause of global depressions is blockages in the circulation of money. For example, in 1970, about 90% of international capital was used for trade and long-term investment--more or less productive things. By starting new companies, paying more salaries, and producing more goods, money flows through many hands and benefits many people. In 1970, about 10% of international capital was used for speculation. By 1990, those figures had reversed.
  4. About $1.5 trillion per day is shuffled around in the great casino of speculation as investors gamble in the world’s stock markets to get rich quick.
  5. Stock market prices represent a speculative bubble of incredible proportions, completely based on investor confidence – a misplaced confidence. 

    The professors of the prestigious Duke University School of Business in the U.S. are debating whether to ban their students from bringing laptops to their lecture halls. Why? Not because they are typing notes in class. It is because with their cell phones, they connect to the Internet and buy and sell stocks, sometimes
    earning thousands of dollars of profits during class!

    Sadly, more than half of U.S. households have invested their savings in the stock market, sometimes involuntarily through their retirement programs. Common people cannot afford to risk losing all their savings in a downturn of the ever-volatile stock markets.

    What significance do the investments of the super rich have for the rest of the world? A lot! Today the capitalist economy is more and more interconnected and interdependent. If the New York Stock Market starts to fall, or if the value of the dollar falls, within minutes the world’s other stock markets and economies will also begin to fall.

    Great wealth, when it is concentrated in the hands of a few and not circulating productively, decreases the purchasing power of people. The North American economy is today the strongest in the world, yet in the month of October 2001, 415,000 Americans lost their jobs. In the United States, more than one-and-a-half million individuals and businesses went bankrupt in the year 2001.
  6. In Brazil, the government of Sao Paulo reports that nearly 70 percent of small businesses fail within the first two years, and there are many more bankruptcies by small businesses that do not legally register. 

    Poverty and suffering on our planet is increasing. Latin America has 442 million people, but more than half of them – 250 million – live below the poverty line. UNICEF reports that of every two inhabitants of the planet, one lives on less than $2 per day. Of every three inhabitants, one has no access to electricity. Of every four, one lives on less than $1 a day. Of every five, one has no clean drinking water. Of every six adults, one suffers from hunger.

    In addition to this terrible human suffering, the excessive greed of capitalism is destroying the environment. In the last fifty years, our planet has lost one-third of its forests, one-fourth of its topsoil, and one-fifth of its arable land. Deforestation would cause a global water crisis in this decade. 

    Another destabilizing factor is monetary devaluation and the resulting inability of the unit of money to be the unit of economic stability. This is evident in the economy today, with the dollar and other currencies no longer being based on gold reserves or other real wealth. Governments and corporations are printing more and more “virtual money”, i.e. government securities and bonds, stock shares and especially credit creation, encouraging consumers and businesses to buy on credit. In the United States, mortgage debt rose US$700 billion in 2003 to a total of US$6.2 trillion. On a global level, there is US$100 trillion of debt outstanding.
  7. Global capitalism will crash because of its critical flaws. We need to consider alternatives that aim for the welfare of everyone, not just a few. We need to envision a future after capitalism.

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