US slides into recession - whos next
Core Argument¶
The central thesis is that the US economy was already heading toward recession as a result of the normal contradictions of capitalist accumulation, and the sub-prime mortgage crisis served not as the cause but as the detonator of a deeper structural crisis. The housing bubble, the proliferation of fictitious capital through securitised debt, and the subsequent credit crunch are presented as symptoms of an underlying systemic dysfunction, not as a discrete financial accident. The article argues that the idea of "decoupling" — that the rest of the world could insulate itself from a US downturn — is a fantasy, because the US consumer, propped up by housing wealth, had been the motor of global demand. The recession is therefore not a national event but the first stage of a world crisis.
Theoretical Grounding¶
The analysis is rooted in the Marxist theory of crisis, particularly the understanding that financial bubbles and credit crunches are expressions of the underlying anarchy of capitalist production, not exogenous shocks. The article draws implicitly on Marx's distinction between real capital and fictitious capital — the "bits of paper" that claim a share of future surplus value but have no intrinsic connection to productive activity. The sub-prime mortgage-backed securities are a textbook case of fictitious capital: claims on future income streams that, once the underlying borrowers cannot pay, are revealed as worthless. The article also deploys a Keynesian insight about the limits of monetary policy — "you can pull on a piece of string, but you can't push on a piece of string" — but situates this within a Marxist framework that sees state intervention as incapable of resolving the fundamental contradictions of overaccumulation. The piece sits firmly in the tradition of Marxist crisis theory associated with the work of Michael Roberts and the broader In Defence of Marxism current, which emphasises the tendency of the rate of profit to fall as the underlying driver of periodic crises, even where the immediate trigger is financial.
Conjunctural Relevance¶
The article was written in March 2008, at the precise moment when the US financial crisis was transitioning from a housing market correction into a systemic banking crisis. The data points are specific and telling: 100,000 private sector job losses in a single month; 1.5 million repossession proceedings in the preceding year; a 15% decline in house prices in some states; the Federal Reserve cutting interest rates from 5.25% to 3% in a matter of months; Citigroup facing $18 billion in further write-downs. The article cites Nouriel Roubini's then-controversial prediction of total financial system losses reaching $3 trillion — a figure that mainstream commentators like Goldman Sachs were beginning to take seriously. The piece also notes the commodity price surge — up 288% in six years, with energy up 358% — and identifies the structural demand from China as a key driver, pointing toward the global dimension of the crisis. The conjuncture is one in which the ruling class is panicking: the Federal Reserve is doubling its lending facilities in a matter of days, and bourgeois commentators are openly discussing the possibility of nationalising bank losses.
Where the Argument Continues¶
This article is an early intervention in what became a sustained series of analyses of the 2008 financial crisis and its aftermath. It explicitly references Mick Brooks's earlier piece "World economy in crisis — The financial panic: where are we now?" (January 2008) and the companion article "1929: Can it happen again?" (March 2008), which draws historical parallels with the Great Depression. The argument about the limits of state intervention and the inevitability of further crisis is developed in subsequent IDOM articles throughout 2008-2009, particularly as the crisis spreads to Europe and the sovereign debt crisis emerges. Michael Roberts's "Panic!" (January 2008) provides the theoretical backbone on the tendency of the rate of profit to fall. The article's claim that decoupling is a fantasy is tested and confirmed in later pieces as the crisis spreads to Asia and Latin America. The broader corpus — including Against the Stream episodes from this period — tracks the evolution of the crisis from financial panic to sovereign debt crisis to the long stagnation that followed.
Connections¶
This article should be read alongside the contemporaneous work of Michael Roberts on the rate of profit and crisis periodicity, and alongside the broader Marxist literature on fictitious capital and financialisation. The analysis of sub-prime mortgage-backed securities as fictitious capital connects directly to Marx's discussion of credit and banking in Volume III of Capital, particularly the chapters on interest-bearing capital and the role of the credit system in accelerating crisis. The article's scepticism about the efficacy of monetary policy echoes the Marxist critique of Keynesian demand management as incapable of resolving the underlying contradictions of accumulation. For readers seeking to understand the theoretical framework more deeply, the IDOM archive from 2007-2009 provides a running commentary on the crisis as it unfolded, with the theoretical claims tested against real-time events.
Key Quotes¶
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"The financial crisis is worsening the recession, which was coming anyway."
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"These sub-prime mortgages were sliced and diced with other financial assets and sold on all round the world as pieces of paper that would pay the owner an unearned income. Nice for some. The problem is that the sub-prime mortgage holders can't pay and are being evicted, literally in their millions. So these bits of paper are worthless and the sub-prime scandal has been 'globalised' to continents unconnected with the scam."
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"Every unemployed building worker is a 'consumer' who won't be buying a new car. Every unemployed car worker is someone who won't be moving in to a new house."
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"Note that the representatives of the bourgeoisie don't have an ideological objection to nationalisation. They are all in favour of losses passing into the ownership of the nation, as long as profits remain in their pockets."
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"The alarm and consternation that has greeted every bit of bad news from the States in Tokyo, London and Shanghai shows that the idea that the rest of the world can decouple and float away on its own from the economic problems in the USA is a fantasy."
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"Even if capitalism doesn't fall over and crush you this time, it will always be a threat to the welfare and happiness of workers all over the world. It's high time we got rid of it."