Blaming China for economic crisis takes heat off US imperialism

Ned K.

In 2015 when the Free Trade Agreement with China was being put in place, the Australian people were told what a great benefit such an agreement with China would be for us all.

A few months later and leading in to 2016, the headlines are different. China is being blamed for the economic problems of capitalism in Australia. China still has economic growth of over 6% per annum while the economies of the so-called developed countries including Australia struggle to achieve economic growth of 3%.

The mainstream media also say that China's economy may collapse altogether, implying that it is their fault that the Australian economy lurches from one crisis to another. The press imply that China for our benefit must keep growing at a much higher rate than 6% and how dare it possibly decline even further in growth terms!

Troubled US economy

What the mainstream media do not splash on the front pages or lead stories in their news bulletins is that the economy of US imperialism is still in deep trouble.

An article tucked away in the business section of the Australian on 19 January 2016 by Robert Gottliebsen highlighted finance capital’s vulnerability to the anarchy of production in the energy resources sector.

 "...(S)ome of the world's greatest threats in 2016 will be just how deep US non-bank institutions have become trapped in the American shale oil and emerging economy morasses. While we don't have the extent of the exposure, huge sums are involved and large amounts will be lost....The US has developed a complex web of hedge funds, private equity partnerships and internet lenders that gain their initial impetus lending to energy stocks and emerging countries, plus trading commodities. Wealthy Americans who are usually very skilled at moving liabilities on to others to avoid losses, often own many of the non-bank institutions involved in these transactions."

The irony is that the drop in world oil prices has impacted negatively on the profitability of the shale oil ventures and "the hundreds of billions in energy loans".

In this situation, the article reports that big US banks such as Goldman Sachs and Morgan Stanley have increased their "loan loss reserve" as a result of energy loans to the tune of billions. "Morgan Stanley has a whopping $15.9 billion exposure."

You don't need to be a Rhodes Scholar to see what could happen any day any time - another crash similar to 2008 with its origins in the finance markets of US imperialism.

Overproduction at the heart of the oil price drop

While capitalist media try to blame OPEC or China for the drop in oil prices, the core issues are overproduction and the anarchy of the market.  The US CNN Money website described US oil production as “defiant”.

It said, “While demand fears are on the rise, the oil crash has mostly been fueled by a massive supply glut. That excess supply was largely created by the American shale oil boom.

“U.S. oil production has not taken nearly the hit that many thought it would. The U.S. pumped an average of 9.35 million barrels per day in October, down just a bit from the April peak of 9.7 million, according to the government.

“That hurts oil prices because American production likely needs to come down to ease the supply glut” (CNN 12/1/16).

US overproduction is likely to be exacerbated by the lifting of sanction on Iran’s sale of oil to the world market.

CNN’s Money reported on this development in language dripping with references to over-production: “Investors remain jittery over the flood of supply Iran is preparing to unleash on the saturated market in the coming months after the lifting of Western sanctions.

“Iran's return to the oil market is deepening an already huge supply glut in the industry.

“The International Energy Agency warned this week that the world is "drowning" in oil, especially in light of lackluster demand around the world” (CNN Money 19/1/16).

Blame game detracts from need to socialise production of oil

Perhaps the strategy of US imperialism is to prepare the people for a new GFC by blaming China for the state of the imperialists' world economy. New rising powers on the imperial global economy are never welcomed with open arms by the prevailing but declining economic power, in this case the US.

The other message the mainstream media are sending to the Australian people is that economic crisis is beyond their ability to resolve and eliminate, so grin and bear it and blame the 'yellow peril'.

This is a strategy to disempower the people which will fail as Australian people want to have real control over the economic destiny of our country.

What’s behind the oil price drop?

Josh S

The recent drop of over 40% in oil prices only presages increasing price fluctuations in the future.

The price drop has been caused by decreased international demand due to sluggish economies, and to serious overproduction.

The production increases have been mainly due to a massive increase in oil shale drilling in the USA, which now produces over 30% of the world’s oil, and is the largest producer of oil and gas. Increased prices this century, and the development of fracking technology, have made the extraction of oil from previously unviable shale deposits profitable.

20,000 new wells have been drilled since 2010.   In the Bakken field in North Dakota-Nebraska, the number of wells increased from 200 in 2005 to 78,000 in 2014. Not surprisingly, this oil rush in the Bakken is accompanied by the highest worker fatality rate in the US. This is besides the environmental consequences; serious spills of highly saline fracking residue have occurred as recently as early January 2015, and last July. Another spill in 2006 is still being cleaned up.

Shale oil comprised 0.5% of world production in 2008, but 3.7% in 2014. It involved 20% of world oil investment  in 2013.

Shale oil wells are quick and relatively cheap to initiate. A well can be drilled in a week for as little as $1.5 million. A field can be developed in a few weeks. Compare this to conventional drilling: Exxon Oil and Russian company Rosneft recently took 2 months and $700 million to drill one well north of Siberia.

Shale wells typically have a very short life: output usually falls by some 60 – 70% in the first year.

US shale oil companies carry huge debt. Shale accounted for 20% of the world investment in oil production last year. Total US debt for oil exploration and production has doubled since 2009.

Several hundred wells have already closed down in the past few months, and the number of drilling applications in the Bakken field dropped by 40% in November alone. This trend is expected to continue; many companies are likely to go bankrupt at current prices.

This situation presents a serious dilemma for US imperialism.

As world (over)production levels are maintained, as insisted on by Saudi Arabia, many US companies will go bust and US production will decline significantly.

However, the US and its allies and clients, like Saudi and the Arab oil sheikhs, want to weaken rival oil-dependent countries such as Russia and Venezuela.

The Future

Some capitalist mouth pieces, such as The Economist magazine, pronounce hopefully that shale oil, of which there are enormous deposits across the globe, will ensure stable supplies for the future and an end to price volatility.

However, given the complete anarchy of capitalist investment and production cycles, as capital desperately chases the highest returns regardless of need or rational planning, and the ease and speed of opening shale oil wells, increasing overproduction and price fluctuations are far more likely.

The oil boom – bust cycle, and the price instability, will become worse, not better. And these will have flow-on effects to the rest of the world’s economies, and to the pressures on people’s livelihoods.