World Economy, What Next?*

EDITORIAL, 28 Mar 2016

#421 | Johan Galtung

Washington, DC

The Big View is the West doing badly, euro and pound down with miserable growth rates; US $-growth rate better but erratic; China, India, Islam growing, Latin America (CELAC) getting its act together and probably growing.  This matters for essentially bankrupt USA: China, India, Islam, CELAC are huge powers with huge minorities inside the USA: they could move in, take over. Last week’s prediction about Trump’s foreign policy came true the next day (Washington Post 22 Mar 2016): less wars, not affordable, less NATO, let Europe do it, no nation-building, building our own. He was then branded “isolationist” with US incapacity for a third option: foreign policy by peacefare.

Diagnosis:   Any economy has two key faultlines: high vs low class, with inequality by exploitation; real vs finance economy, with crises by speculation. LEAP Press Review ( 17 Feb 2016) traces “something Big was about to happen” to February 2006: no more M3 published (money printing); Iran’ stock market based on the euro, Iraq following (invasion). Before that, the Rest manufacturing, beating the West.  Slow in coming, but then quickly; leaving the USA with agriculture and speculation, maybe to be followed by a Brexit UK.

Martin Wolf (Financial Times, 24 Feb 2016) points to the world exhausting “monetary policy 1,2”-lower interest, printing money-and calls for nº 3: more spending, less saving to beat the “chronic demand crisis”. A non-starter: given the inequalities and crises, people will save for worse to come and for their children, not spend unnecessarily, and not accumulate debts to their children.

Joseph Stiglitz (above) puts it this way: “Banks choose financial speculation over lending /for/ economic growth”.  The money supply “stimulated sharp increases in-financial-sector profitability”.

Rune Skarstein, the leading Norwegian global economist, focuses on the slipping locomotive effect from the Chinese economy; buying resources from developing countries, giving cheap credit to developed countries indebted by bailing out failing banks (and selling cheap consumer goods, alleviating the austerity policies).  Nevertheless, why blind reliance on a China that might change economic policy, also in USA? (Klassekampen 2 Mar 2016, for similar points, see INYT 11 Jan 2016).

Paul Buchheit (Nation of Change 9 Dec 2013), “Three Ways the Super-Rich Suck Wealth Out of the Rest of Us”, on quantity and mechanisms: from the 2008 recession till the end of 2013 “the richest US 5% (six million households) own–$ 10 trillion of the $ 15 trillion gained–from stock market gains rather than from job-creating business” (The Nation, 7 Mar 2016, pp. 13-16, has even more shocking figures, so does the OXFAM Briefing Paper “An Economy for the 1%”, 18 Jan 2016).

“The speculative-derivatives market has increased to-over $ 1 quadrillion-twenty times more than the world economy-US driving the expansion of this great bubble of wealth-global inequality between rather than within countries has become even worse than for any one country. Just 250 individuals have more money than half the world”.

The working class is not rewarded for productivity–financial industry-extracts wealth from society. Median household income dropped from $73,000 to $57,000 over 25 years. A major livelihood decrease.

Joseph Stiglitz, with an academic life spent on inequality, is summarized in a review by James Surowiecki (NYRB 24 Sep 2015), ending with “high marginal tax rates on the rich and meaningful investment in public infrastructure, education and technology”.  However, the funds generated these ways may easily end up in the “financial industry”.

Zhou Xiaochuan, People’s Bank of China governor: “The growth target of 6.5-7% for 2016 was made on the basis of China’s growth-in the past and its growth potential”. Adding, “China now seeks growth by relying more on domestic demand, while export is unable to contribute to growth the way it used to” (The Weekly Mirror, Nepal, 18 Mar 2016).

More investment-consumption in China; more GDP, less GNP, growth; no money printing-speculation; massive job creation-investment-infrastructure, massive inequality (mostly territorial), massive lifting up the bottom, in the field, locally. With “silk (rail)roads” for all.

Prognosis.  Larry Summers in 2009 predicted “the new economy”: “Unemployment would be normal-the market the center of economy and finance-social welfare would no longer be the economy’s concern”. Klaus Schwab, founder of the World Economic Forum: “In a decade robots will account for 52% of industrial production, up from present 12%”. (Roberto Savio, “Are We Entering a Long Term Stagnation?” 17 Mar 2016). Self-fulfilling predictions by people not hit by the social disasters.

Therapy.  USA pins its hopes on TPP(TTIP), but other countries worry greatly about Chapter 28 on “Dispute Settlement”, in Washington, so far in favor of USA; not counteracting Summers and Schwab visions.

Go straight to the basic problems: speculation and exploitation!

Derivative-based speculation is a US economic cancer metastasizing around the world. Criminalize, separate savings and investment banks, and US banking from the world.  Fail to do so, and suffer the crises.

Inequality due to exploitation is built into the present “free” market; some state control is indispensable.  Yet, even better, people control at the roots. What China did in the poorest communities, the West can do in the worst companies, boycotting companies with CEO-worker income ratios above 10, building cooperatives, sharing benefits-risks.  By reviving all economic sectors, trading with all, dependent on none.

Anthony Atkinson, Inequality: What Can Be Done? Harvard, 2015, is superb but not on what is said above. Thomas Piketty’s Capital relies much on taxing the rich-like most economists-a negative approach. A greener economy is as indispensable for nature as fighting speculation and exploitation to humans. We need all three, not only two, or one.

And Pope Francis covered them all in Laudato Si’. A strong force.


* The reader will find much more in Johan Galtung, Peace Economics, TRANSCEND University Press 2012.


Johan Galtung, a professor of peace studies, dr hc mult, is founder of the TRANSCEND Network for Peace, Development and Environment and rector of the TRANSCEND Peace University-TPU. He has published 164 books on peace and related issues, of which 41 have been translated into 35 languages, for a total of 135 book translations, including ‘50 Years-100 Peace and Conflict Perspectives,’ published by the TRANSCEND University Press-TUP.

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This article originally appeared on Transcend Media Service (TMS) on 28 Mar 2016.

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18 Responses to “World Economy, What Next?*”

  1. Muhammed Bouthari says:

    Dear Mr. Galtung

    Try agin without your inverse US/China bias….

  2. Thomas Krogh says:

    “essentially bankrupt USA”?

    Could we get some evidence for that – especially in the light of the massively exploding Chinese debt….

    Or is it just another US-hating Galtungism?

  3. Feng Luo says:

    @Johan Galtung

    Many good points and a (mostly) valid analysis, but the diganosis is hardly an accurate picture of China. Zhou Xiaochuan is in fact pursuing a money-printing path and that coupled with the housing bubble and falling infrastructure investments will reflect badly on Chinese economy. The increase in M2 money supply is argued as necessary to bolster property prices but the cost in inflation and downward pressure on the Renminby will open and widen fault lines in the economy.

    I agree China needs to look inwards, but the massive inequality will not ease out before the economy is fully reversed. And I don’t see that in the next decade.

  4. Christian Herø says:

    More great points from Galtung with good references. I don’t see this as any negative biased towards the US.
    To point out that a CDS fulled speculation economy is not a good idea is just common sence.

    Also changes outside the US and the West should not be ignored. Demographic is destinsy with an increasing middle class population outside the traditional West.
    Inside the US demographic is something that can not be ignored and may very well give roots for a viable political party as an alternative to the Democratic Party and the Gap.

    To point out that banking in US is broken, that capitalism is somewhat broken is not an attack on the US. It is facts that needs to be addressed.

    • Thomas Krogh says:

      Christian Herø

      OK, could I then ask you to explain Galtung’s ““essentially bankrupt USA” claim?

  5. deldano says:

    The US does have a long term bankruptcy problem because it has a long-term debt issue. Under normal circumstances, any debtor with over 100% of debt as compared to their income would simply crumble under their debtservicing debt. The question is why isn’t it? Pointing that out has nothing to do with not liking the debtor. It is a legitimate inquiry: why is the natural course of proceedings not happening. Just a basic common sense question to ask.

    • Thomas Krogh says:


      A few points.

      Bankruptcy is defined as being unable to repay debts. And the US is nowhere near that from a market perspective – as you can see from the very low interests the market is paying for US bonds.

      This is based on several factors – the first one being that the US can cover its foreign debts by basically printing money – as of today. The market is scooping up US debt issued in $ – they don’t ask for it to be issued in Yen, Renminby or Euro. The second one is that the debt-to-income ratio is irrelevant compared to the debt-to-asset ration. Ask any home owner. If I have a – say – household income of 100K$/year, a 1M$ Mortgage in a 3M$ valued house, am I then “essential bankrupt”? Of course not. Even though my debt-to-income ration is 1000%

      Beside that the real debt bomb is not the US – it’s China. Chinese growth has be fueled by an immense mountain of debt, and despite the tremendous GDP groth in China, the explosion in debt has outpaced this.

      Yet Galtung still believes that it is the US that is “essential bankrupt”. Either he is utterly ignorant about economy, or he is so absorbed by hate that he has to pretend that the facts are irrelevant….

      • Deldano says:

        Thanks for clearign up this interpretation of why the U.S. is not bankrupt in your and so many economist’s view. I’ll think about it a little longer and try to find my own stance on this before answering. I remember reading from an anarcho captialist source, that the networth of the USA was no more no less than 17,7 Trillion in deficit because “the U.S’ official liabilities, including debt held by the public and federal retirement benefits, total $20.7 trillion whilst the U.S’ government’s assets, including the value of the entire federal highway system, the national parks, cash balances, etc. totals just over $3 trillion.” But as I don’t really folow the Ayn Rand & Hayek people, I have reservations with the source.

  6. deldano says:

    Rather worried with who is doing the editing on this editorial: LEAP Press Review ( 17 Feb 2016) OBVIOUSLY, it says so what is it being quoted for?

  7. Reply from Prof. Johan Galtung:

    Dear Commentators,

    Thanks for asking me to present more data. “Essentially bankrupt” (as opposed to officially declared bankrupt) about the US economy is based on two indicators (from Wikipedia):

    [1] the USA Government (all levels) debt to GDP ratio, which passed 100% in 2011 to 104% in 2015 –it was 64% in 2006. The 2016 US GDP is estimated at 18.7 trillion, US$ and the debt now exceeds 19 trillion; more than $58,000 per person living in the USA (,/2016/02/02). There is no debt limit and “spending growth is projected to outpace economic growth”. Debt in 2020: 26.3 trillion

    [2] the (accumulated) current account balance. No 1 in deficit far ahead of the others is the USA, followed by UK, India, France, Turkey, Spain, Hong Kong, Italy, Japan, Egypt, Greece. The top 11 in surplus are Saudi Arabia, Germany, Russia, China, UAE, Kuwait, Qatar, Norway, Nigeria, the Netherlands, Iran. Some time ago China was no. 1; the range was from China to USA. Comparing the two lists the EU North-South (Germanic-Latin) axis becomes very clear, with France in the South.

    Less than 4% of the GDP is based on manufacturing of non-durable and durable goods; by far most is based on services; 10% on retail trade. Moreover, the White House estimates that “the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion in 2009”.
    There are two aspects to inequality: difference between top and bottom, and the bottom so far down that it is suffering, expressed in morbidity and mortality rates. USA and China both suffer from huge inequality, but China lifts the bottom up, into the economy, USA not. As a result there are now more really poor people in the USA than in more than four times bigger China (Credit Suisse).

    But “austerity” lower down is not an indicator of bankruptcy but politics; nor is costly warfare; picked up by Sanders and Trump respectively. In my view what matters most for the US economy future is:

    * the producing as opposed to the consuming or marginalized parts of the population ratio;
    * the serving debt as opposed to serving people ratio;
    * the finance economy as opposed to real economy ratio;
    * the money in circulation as opposed to the values of US assets ratio

    I am afraid all four move in the wrong direction in the USA, less so or not in China.

    Best regards from Johan Galtung, having an apartment close to Washington DC because I love the US republic, worry about US economy, dislike most of US foreign policy, and hate US imperialism. Hence the proposals about what to do about the US economy and my worry it will not be done. Hence the foreign policy proposals to end the killing of 20 million in 37 countries after the Second World War

    PS: the point about LEAP may be well taken. But they focused 10 years ago on M3 no longer being published and the switch to euro by some oil producers–I am more worried bout economists and politicians who did not read those signs on the wall.

    • Thomas Krogh says:

      Dear Johan Galtung (and as facilitator, Antonio Rosa),

      Thanks for the reply. However your explanation fails on a number of counts:

      1) Bankruptcy – imagined or real – is still not directly correlated to debt-to-income. Neither for a household, nor for a country. What is much more important is a) the debt-to-assets, and b) the ability to service debts. On neither of these two measures, the US is anywhere *near* bankruptcy. The overall national debt-to-assets ratio is significantly below 1.0 and the ability to service debts is trivial today. A small fraction of the current – compared to the global average – government expenses, is today use to service debts. Check them out if you like.

      2) Another measure is the market expectations and gauges. On that account the US is much stronger than – say – China. The current 10Y Gov bond yield is a full percentage point lower for US bonds, than for Chinese bonds. Somehow the market is much more apprehensive about the Chinese outlook.

      And why is this? Well, as I showed above, the Chinese debt problem is actually much, much worse than the US’. While the US debt-to-GDP ratio grew under the financial crisis, the Chinese virtually exploded. Even though the Chinese GDP grew fast. From 160% og GDP in 2007, to 282% in 2014. The Chinese debt growth the last 7 year is probably the most massive short-span accumulation of debt in human history.

      On paper the Chinese government debt is lower than in the US, but as many corporations in China are state-owned, the real figure is much higher.

      Even worse. The financial sector debt, compared to GDP is already twice as large in China as in the US. But as this is based on an extremely inflated property market, the real downside is several times larger. China is heading towards a housing bubble that exceeds the bubbles in the West in 2007-2009.

      All this starts to explain why Chinese bonds are yielding more. The market knows all this and – correctly – gauges that the detaulting risk in China is larger. Much larger. Check the yields yourself if you doubt me.

      3) You state that “manufacturing” is of the essence. But no – it’s not. Increasingly services is where money – and jobs and knowledge – is been made. The Service sector is growing much faster than the goods sector. And no country is doing better in services than the US. The US is the worlds largest exporter of services, and have huge surplus’es in that area compare to other countries. In a world where services and growth of these are outpacing manufacturing, this is becoming more and more important. The last decades has seen doubling of US exports. Every decade.

      4) And no. There is absolutely not more “real poor” people in the US, than in China. By the most narrow definition (earnings < $1.25/day) 157 million people lived in poverty in China. The next-most narrow alone (< 2$/day)gives 362 million people. Thats more than the entire population of the US….. China has lifted many people out of poverty, yes. But don't fool yourself. Even with the most narrow and most likely tweaked government figures, poverty in China is still massive and includes many many more than in the US.

      So yes, the US has lot of problems and significant work cut out for it in the future, but this is absolutely nothing compared to China. Neither will go bankrupt, but China is much, much closer to an economic meltdown than the US is – and has ever been. The data speaks for itself.

  8. Muhammed Bouthari says:

    Dear Mr. Galtung

    Quote: “Hence the foreign policy proposals to end the killing of 20 million in 37 countries after the Second World War: End Quote

    How on earth do you get to “20 million in 37 countries”?

    Is this counting in other countries resposibilities you count as American?

  9. Answer to the answers
    By Johan Galtung

    1. I have explained what I mean by “essentially bankrupt” as I was asked to do; and mentioned some of the many negative projections into the future. On the Wikipedia list of countries by foreign debt USA is by far no. 1 with the more than 19 trillion (above 58 thousand per capita, 103% of the GDP) I quoted, followed by the UK. No 10. is China with 8%of the US debt, 1,200 per capita, 16% of their GDP; very much below the levels of (Anglo-)America. And it has to be seen in the light of the current account balance where China and the USA are almost on the opposite ends.

    The US economic situation limits US options both domestically and globally considerably, I would say “essentially”. Whatever we think about Trump and Sanders the many who want them as candidates seem to agree.

    2. We differ when it comes to China. I see it more in terms of changing economic policy, as they have done often, from growth to distribution to growth and so on. Others see it in terms of lacking reform in a (neo-)liberal direction. The future will show, but whatever happens, China’s problems do not make US less problematic, two wrongs do not make one right.

    3. “The United States Has Killed More Than 20 Million People in 37 Nations Since WWII” is the title of the very well documented paper by JamesA. Lucas– Readers tend to recognize almost all or most; what he has done is to put them together.

    • Thomas Krogh says:

      Dear Johan Galtung (and as facilitator, Antonio Rosa),

      Thanks for the re-reply. None of the anawers make sense however.

      1) Your definitions of “essential bankrupt” are all based on wrong data and wrong understandings. As I wrote before, the debt-to-GDP is not a measure of “bankruptcy”. And the “19 trillion” in debt is not the net figure. If you use the gross figure, Luxembourg is 3443 % (!) of GDP in debt. Is Luxembourg then “essential bankrupt”? No, I guess, If you want to use the external debt, you have to use the net value or NIIP instead. Which for the US in 2013 was 5.3trillion. Compare that to the value of all US assets. Which in 2013 was 225 trillion $.

      In that case the US external debt/asset rate is 5.3/225 = 2,36% !). Which is why the US is nowhere near bankrupt in any meaningful definition of the word. And why the market is still paying very very low interest on US bonds.

      2) You are kidding yourself if you think China is safe. You are basing your hope on the old assumption that government rather than privat debt is the driver of crisis. The financial panic of 2007+ showed that that was not the case. The uncontrolled explosion in chinese debt is significantly closer to the picture that thew Japan into problems in 1991 and the US in 2008. Just worse:

      People use to talk blindly about the BRICS miracle, the unstoppable Chinese growth and their “Silk Road” infrastructure plans. Nobody that know anything about economy is doing that any longer. The signs of problems are too obvious.

      The US economy has shown to outgrow all problems and managed the transition from a manufacturing- to a service-based economy at a breathtaking speed. The BRICS countries on the other hand are mired in strutural problems of staggering proportions.

      3) This is utterly rubbish. As Muhammed Bouthari points out, Lucas’ figures are based on counting the Hungariana killed in by Soviet troops in 1956, and in Afghanistan in the 1980es as people killed by the US. And so on.

      Using Lucas’ defintion on what constitutes “responsibility” you can easily argue that – say – China has killed more than the US. And if you count the people killed internally the figure will be several times higher. When will we hear Johan Galtung talk about the 70+ million killed in the Chinese democides? Never I assume.

      Because he doesn’t hate the Chinese dicatorship, whereas he hates the US. There are simply no other explanations.

  10. Deldano says:

    So the Krogh does have some some substance behind his bark. Thanks for the substantial response. Very good stuff to read. Galtung came back with substance too, this was good for me as a reader of tms. There should be more such conversations on this website. Very very good points made here. And there is no need to impute hate to anyone here. At any point.

  11. Muhammed Bouthari says:

    So let us get this straight – in order to get to the 37 countries/20 millions deaths you include actions such as the Soviet invasions of Afghanistan and Hungary???

    You REALLY hate the US, Dr Galtung, don’t you?

    • Deldano says:

      now who exactly are you trying to fool here “Muhammed” or “Mohammed” Bouthari? Who mispells his own first name? This is ridiculous.