Global Oil Price & Stock-Market Rout

By Kumar David –January 31, 2016

Prof. Kumar David

Do not imagine that the topic discussed here matters little to little Lanka. If the world economy goes into a tailspin we won’t find investors, markets for our products will dry up and Middle East employment will decline. This time with the world much more integrated it will be worse than the 1929-1944 depression and capitalist crisis induced WW2. So read on, duly warned

Is last week’s downturn a forerunner of a big crash to come later in 2016? Analysts are divided and at a guess pessimists outnumber fence sitters and optimists 2:1. Many expected an immediate bloodbath following the January market rout and the collapse of oil prices to below $30 a barrel. I doubted this since fundamentals need time to work themselves through the US and global systems and correctly opted for a delayed-crash theory. Yes, the price bubble in equities and property is spurred by ceaseless money printing and near-zero real interest rates in the US, Euro and Japan, yes spurts in US GDP and job growth may be dubious and jinks in the Chinese economy were unexpected. Yes oft quoted “top 1% owns more than lower 90%” jibes are symptoms of systemic disorder in global capitalism. However, systemic failure like fine wine needs time to mature.

British Marxist Michael Roberts shows that invest movement lags profit, up and down, by 12 to 18 months and adds: “Currently global corporate profits (weighted average of US, UK, Germany, Japan and China) have turned negative and US corporate profits are falling.  That suggests business investment will start to drop too within a year or so. If that happens the US will likely head into recession”.

Since the Great Financial Crisis eight years ago I engaged in lively debates with Professor Harsha Sirisena (HRS), Professor Sivaguru Ganesan and Asela Dahana. HRS graduated from the Engineering Faculty (there was only the classic one then) a year after I did so I have known him for 50 years. Though friends, we are ideologically apart. I am a Marxist, he thinks socialists are balmy; he concedes Marx’s stature as a thinker but holds that on socialism he got it wrong. I had access to EFac records till I quit and HRS had the highest scores except for Alagiah Thuriarajah; so he is an exceptionally bright fellow.

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