2008 has started in a thick cloud of bourgeois pessimism. There are few parallels in the last 30 years. The global financial crisis deepens visibly by the day, knocking hundreds of billions of dollars from the stock markets. Each day brings more disturbing news from the US economy.

On January 9 the investment bank Goldman Sachs sent out a research note to its capitalist clients entitled “Prepare for recession”. In this paper, Goldman Sachs cut its forecast for US growth in 2008 to 0.8% from 1.8% in its last forecast. Another US bank, Merrill Lynch, went even further: “According to our analysis, this [recession] isn’t even a forecast any more but is a present day reality.”

Goldman Sachs warns that US unemployment will rise from the current 5% to 6.5% this year. This is the price the US working class must pay for the speculative madness of the capitalists and the Bush government. But fewer jobs will also translate into more debt defaults, home foreclosures, and lower US consumption – and that means big problems for China’s and, in turn, Australia’s exporters. Australia’s economic boom is being held up by the mining sector and is closely linked to China through the export of raw materials.

The crisis is already colouring the US presidential race, notwithstanding the ’identikit’ economic policies of both Democratic and Republican contenders. The pre-election debate is dominated by economic issues. Whereas a few months ago Iraq featured in 40% of all candidates’ speeches, according to the New York Times, in the two state ’primaries’ of the last week, Iraq took up only 5% of the discussion.

The timing of the presidential election and the onset of economic crisis could increase the risk for major economic conflicts erupting. Both Democrat front runners, Obama and Clinton, flirt with trade protectionism and a ’get tough’ stance towards China, especially on the renminbi. For both, this is seen as a way to win votes in key states where manufacturing industry has been hammered during the Bush years.

Most capitalist economists have been blind to the dangers in China, India and other fast-growing economies from the deepening crisis in the US. The UN still predicts growth of 10 percent for China in 2008, moderating from the 11.4 percent in 2007.

But this forecast is based on the US escaping a recession. In the event of a US recession, the UN warned economic growth in China could fall below 8 percent this year! While for most countries, 8 percent growth would still be considered high, in China’s case this is close to a recession. It would mean a fall of nearly four percentage points in one year – a very rapid slowdown, or what economists call a ”hard landing”.

Socialists must take a leaf out of Goldman Sachs’ book (!) and ”prepare for recession”. We need to deepen our understanding of economic processes and prepare for the political fall-out. Strikes, protests, new political formations, increasing radicalisation and opposition to capitalism are all on the agenda in the medium term internationally.