Marx's Theory Used To Predict Stockmarket Woes
Posted 15th January 2001
by DR. RAVI BATRA

In my new book, The Crash of the Millennium: Surviving the Coming Inflationary Depression, published in September 1999 by Harmony Books, Random House, I predicted that US financial markets would start to unravel by mid-2000 and then crash in the course of the new millennium, with much of the damage occurring in 2000 and 2001. With the Nasdaq index crashing in April 2000 and then again at the end of that year, it is clear that one of the major pillars of American asset markets and wealth has collapsed. In fact the pace of the collapse accelerated on the first trading day of the new year, as the Nasdaq index sank another 7%. Unfortunately, the pain to the investor has just begun. More will follow soon after the presidential inauguration of George Bush on January 20th. Call it the exploding imbalance between production and consumption, the apex of bursting speculative bubbles, the wrath of a blistery winter, or just the revenge of the gods against Bush's election machinations. Call it what you will, the real pain in US financial markets is yet to come.

The Dow itself is likely to crash soon after January 20th. The premise of my new book is as simple and powerful as the law of supply and demand. Wages are the main source of demand and productivity the main source of supply. When wages lag behind productivity for any reason, demand trails supply, so that debt must be created to maintain a balance between production and consumption. A day comes when the debt is so large that it cannot rise any more; then demand trails supply, and the over-inflated financial markets crash one by one. Hence economic policy should aim at preserving a balance between real wages and productivity. (This is one of the basic premises of Marxist analysis of capitalism.

The other premise, that capitalism would collapse from within has yet to be shown, quite the opposite, socialism collapsed from within - AM) When the speculative bubble bursts, the country faces a deflationary recession or depression if its trade is in balance or surplus. But if it has a trade deficit, then its currency collapses and the end result is an inflationary recession or depression. With the trade deficit mushrooming in the United States for more than two decades, I foresee a collapse of the dollar and an inflationary depression in America unfolding in the next two years. The Crash of the Millennium describes how individuals, businesses, and governments can prepare for the hardships that lie ahead. But the long term future of the world is very bright, for we are now evolving toward the first global golden age. .