George W Bush's inauguration this weekend may not go according to plan. 'Bitter Protests May Mar Bush's Coronation', the Financial Times predicted last Saturday.
No less than three separate protests are planned for Washington DC itself on the day known as 'I20'. There will be other demonstrations around the US, from the Florida state capital of Tallahassee to Seattle, where the King County Labor Council has endorsed a 'March for Democracy'. And when the vote-stealer finally sneaks into the White House he will be faced with what looks set to become an increasingly serious economic crisis, not just in the US but around the world.
As evidence of a US economic slowdown began to pile up after Christmas, the financial press was filled with articles invoking statistical models that supposedly show that a US recession won't have a significant impact in Europe. This is starting to sound like whistling in the dark.
On Thursday last week the Japanese stock market fell to its lowest level for two years. The yen also dropped sharply against the dollar. Hiroshi Okuda, chairman of Toyota and the Japan Federation of Employers' Associations, warned that the stock market slump could trigger a repeat of the panic that gripped first Asian and then global financial markets in 1997-8. 'The possibility that a financial system crisis could be induced is strong,' he said.
Japan, the second biggest economy in the world, has experienced a protracted depression over the past decade. The limited recovery of the last year or so has relied on increased Japanese exports either directly to the booming US, or to other East Asian economies that are themselves heavily dependent on the US market. A US recession could thus send Japan and the rest of East Asia into a tailspin, with serious consequences for the rest of the world. Much hangs on how deep the American slowdown is. One crucial factor is the state of the stock market.
The huge bubble of speculation on Wall Street, and especially on the Nasdaq index of high-tech shares, has played a critical role in sustaining the boom in the US through the so called 'wealth effect'. Middle class households that invested in the stock market saw their shares rise in value. Feeling richer, they spent more, thereby increasing the demand for goods and services.
Now the wealth effect is going into reverse. As share prices fall, investors feel poorer and cut back on spending, reducing demand and helping to slow the economy down.
Writing in the Financial Times last Saturday, the historian David Schwartz points to the similarities between the behaviour of the Nasdaq index, whose spectacular rise up to last March he calls 'the greatest stock market bubble of modern times', and the Wall Street boom that led to the October 1929 crash and the Great Depression of the 1930s.
Schwartz predicts that the Nasdaq index, which has already dropped from a peak of over 5,000 to around 2,300, could fall as low as 1,600. Of course, Alan Greenspan, chairman of the Federal Reserve Board, the US central bank, will do his best to stop this happening. That's why the bank made the surprise move of cutting US interests rates by half a percentage point on 3 January.
Schwartz is one of a growing body of critics who argue that Greenspan's interventions, though they may stave off an immediate crisis, will make the eventual collapse even worse when it comes. In the autumn of 1998 Greenspan and other major central bankers made a series of rapid interest rate cuts.
This contained the financial panic that was spreading rapidly through the system after the collapse of the Russian currency that August.
But, by rescuing the financial markets, Greenspan led speculators to believe that any of their future gambles would be underwritten by the US state. As Schwartz puts it, 'Perceptions of an all-powerful US central bank encouraged investors to bid up share prices to unrealistic levels.'
The new year interest rate cut may have the same effect, keeping the stock market and therefore US economic growth going for a while longer. This will only postpone the severe crunch that is coming when the bubble finally bursts.
None of this means that we are facing a world depression on the scale of the 1930s. But the brutal realities of the capitalist cycle of boom and slump are cutting through the songs of praise that establishment politicians of all hues send up to the market.