Over the summer, world stock markets trod water. Indeed, the movement up or down in share prices was the smallest since 1979. That tells us that investors in capitalism are really unsure whether the world economy is set for sustained growth (as their political leaders tell them it is) or not.

Certainly in the first half of this year, the US economy seemed to increase its output at a very fast pace, at something like an annual 4.5% increase. Japan grew even faster, although of course this was from a low level, after years of comparative stagnation. The rest of Asia too, led by China, was racing along at around 6% a year. Only Europe, Latin America and, of course, the Middle East and Africa were limping along.

But investors remained worried over the summer. Sure, the government and the Federal Reserve, America’s monetary authority, were saying that all was well and prosperity was returning after the recession year of 2001 and the weak recovery of 2002 and 2003. But the summer figures for job growth in the US and for wages and incomes were poor.

Indeed, despite all the efforts of Messrs Bush and Greenspan, it looks certain that there will be fewer people employed in the US at the end of Bush’s first four years than there were when the president came into office in January 2001. And that would be the first time that had happened since President Hoover presided over the Great Depression of the 1930s.

And many of the jobs that had been created were low-paid, unskilled work in the retail and catering industries without decent incomes, pensions, healthcare or sick pay. Other jobs were in government (“homeland security”), which in no way contribute to boosting output and an efficient economy.

Even this improvement from the recession of 2001 had only been possible through a massive increase in credit not backed by productive investment. First, Mr Greenspan at the Federal Reserve, drove down interest rates to 1%, an unbelievably low level. So low, alongside average inflation of prices in the shops of 1.5-2.0%, that in effect the monetary authorities in the US were lending money for nothing in real terms! As a result, the supply of money increased at over 20% a year during 2001 and 2002. That’s credit with a vengeance.

Alongside that, the Bush administration launched a whole series of tax cuts, aimed mainly at the rich and big business, but also affecting middle-income groups. Also they increased government spending by over 20% a year. Americans found that they could borrow money for virtually nothing to buy houses and cars and other goods. And as long as they had a job, they also had to pay less in taxes. The US was flush with paper money and credit. No wonder Americans went out and spent like there was no tomorrow.

But there is a tomorrow and that’s when this binge comes to an end. So far, the huge American credit bubble has continued right up to this summer. How has it lasted so long? Well, the main reason has been the weakness of economic recovery in the rest of the world. Americans have spent more with their credit and bought goods from the rest of the world. The US is now running a deficit on trade equivalent to nearly 6% of its annual output. That’s a record high.

That deficit has been financed by the rest of the world. Japanese, Chinese and European exporters have sold their goods to Americans and piled up the dollars. These dollars have been put in the banks and not spent (on the whole). In turn, the banks in China, Japan and Europe have promptly used all these savings to buy US government bonds and shares, or just kept dollar accounts, even though they could expect only 1% interest on their accounts. So in effect, the rest of the world has given the US its savings to finance the spending of Americans. The whole great credit bubble has gone on inflating.

Why have foreigners gone on doing this? The monetary authorities of China, Japan and Europe do not want America and the dollar to collapse. If they stopped buying American bonds or stopped holding dollars and switched into yen or euros, America would come tumbling down and push the world into recession. So they have gone on perpetuating this imbalance in world capitalism. It’s another example of how capitalism never develops the productive forces of the world in a planned or balanced way.

This very imbalance cannot last forever. It’s gone on much longer than expected already. There can be no more tax cuts because the US government is running up a huge deficit on its annual budget and the Fed cannot lower interest rates any more. The answer to the problem is for the US to grow steadily, not through a credit binge but through increased investment in equipment and more employment of labour. Then the US can sustain its economic recovery, at least for several years. That would mean the dollar was secure and Japan, China and Europe could also expand in the same way.

Then world trade would grow much faster than world production and so provide the markets for capitalism. The worry this summer was that the US might be faltering in its recovery. Several factors suggest that all is not well for the hope of sustained and balanced growth.

First, there is the oil price. Demand for energy has rocketed over the last few years. China is sucking up as much oil as it can find to run its industries that are flooding US and European shops with cheap goods. At the same time, the supply of oil has been restricted by the US occupation of Iraq and subsequent guerrilla resistance, which has cut off most of Iraq’s oil exports. And there is just too little leeway in excess production capacity for comfort. So the oil price has rocketed.

The trouble with oil is that both industry and households cannot do without it to run businesses and transport. So if more is spent on petrol and fuel, then there is les to go round to spend on other things. As a result, Americans are starting to cut back on more spending in the shops. Less spending means fewer sales for business and eventually lower profits.

And here is the crux. From the depths of recession in 2001, American and European businesses have raised their profits massively. They’ve done so by ruthlessly cutting their workforces to the bare minimum. Millions of Americans lost their jobs. And companies also boosted profits by not spending anything on new computers, machinery, building etc. They saved money. And with American households increasingly flush with borrowed money, sales rose sharply. The growth in profits hit 30% a year by 2003.

But things don’t look so good from here. As companies start to employ more people and start to invest more, they will drive up costs. And US, European and Japanese companies still find it difficult to raise prices when faced with competition from low-wage China in world markets. And with oil prices so high, it all adds up to sharp decline in profit growth just at a time when Americans are starting to spend less in the shops. Profits are set to be squeezed.

The government and the Federal Reserve are hoping that America’s economic growth will continue. Then Bush can expect the huge budget deficit to narrow and Greenspan can start to raise interest rates (as he is gingerly doing) and so keep foreigners financing the American economy.

But if American consumers spend less and businesses do not increase investment because profits are weaker, then the game could be up. Any slowdown in US growth in the rest of 2004 and into 2005 will hit growth in Europe (still weak) and in Japan (dependent on exporting to the US).

The world capitalist economy has also relied on the expansion of world markets. In the boom of the 1990s, world trade grew at an average rate of 7%, about twice as fast as world production. That provided real support to each national capitalist economy. However, since 2001, trade has grown only slightly faster than production. In 2003, it rose about 4% compared to a similar rise in production. The big hope for 2004 was that it would double that pace and so generate new demand for capitalist industry.

The huge rise in oil prices and the slowdown in American spending could put pay to that hope over the next six months or so. And if trade growth does slow down, the competition for markets will intensify, put further pressure on profits and so stifle investment.

The boom of the 1990s for capitalism was a product of many things apart from world trade. One was the collapse of Stalinism. That meant capitalist governments could cut back on defence spending, reduce taxes and so boost profits of the private sector. Another was very low prices for commodities like copper, zinc and oil used in industry and the poor countries of the world were unable to raise prices. Another was the boost in hi-tech innovations like the Internet and e-commerce that raised productivity and reduced the need to take on too much labour. Finally, there was the massive credit bubble.

All the factors that helped capitalism in the 1990s are no longer around. The credit boost is coming to an end. House prices are beginning to flag everywhere. The cost of government is rising dramatically for capitalism in this era of American imperialist adventure. Commodity and oil prices have reached new heights. And the great hi-tech productivity revolution is exhausted.

Maybe the American credit bubble will go on expanding for a little while longer. Maybe oil prices will subside and things will improve in Iraq, North Korea and other hotspots to allow a reduction in the spending on the ‘war on terror’. Maybe world trade growth will accelerate and China will go on growing at 9-10% a year. But the risks are rising that none of these maybes will happen. That’s what has been worrying capitalist investors as we go into the autumn north of the equator.