WHETHER IT'S a recession, a recovery or something in between, Corporate America will keep cutting jobs and closing factories in a drive to boost profits.

That's the grim message of Business Week, which estimates that the companies listed in the Standard & Poor's 500 stock index will need to eliminate 900,000 jobs next year just to boost profits by 12 percent.

"Under mounting pressure from investors and corporate boards to get their earnings up--without accounting tricks--executives are going to have to make deeps cuts in payrolls and productive capacity," the magazine reported.

Whether the predictions are accurate or not, Business Week highlights the fact that the U.S. economy is facing a crisis of profits--the lifeblood of capitalism. According to the magazine's estimates--minus the accounting con jobs of recent years--the ratio of after-tax profits to corporate plant and equipment is currently 5.2 percent. That's below the 8 percent rate of 1997--the peak of the last boom--as well as the 7.8 percent average during the "golden era" of the 1960s.

Those differences may not sound like much. But the sums involved are enormous in the context of the U.S.'s $11 trillion economy.

The corporate accounting scandals were an effort to camouflage the decline in profits. This ultimately failed because what matters most to capitalists isn't the overall size of profits on a particular balance sheet, but the rate of profit over the long term.

That's because capitalism is based on competition--with the more profitable companies taking over weaker ones or driving them out of business. The competitive scramble for profits during the 1990s boom led to massive investment that created a glut of factories and offices on a world scale.

For example, world steel production is at 850 million tons a year, while demand is only 750 million. Just 2.5 percent of fiber-optic cable capacity is being used, despite the growth of the Internet. The world auto industry has enough factories to supply the U.S. market for cars two times over--but manufacturers keep building more plants in a struggle for market share.

In the U.S., investment was equivalent to about one-third of economic output during the years 1997 to 2000--about twice the average rate. The resulting glut in factories has forced manufacturers to cut output. In September, factories were operating at 74.2 percent of capacity, compared to nearly 85 percent during the 1990s boom.

In other words, capitalism is in crisis not because there is too little to go around, but because there is too much to be sold at a decent profit. The capitalists' solution is to close plants and cut production until profits pick up again.

With the prospect for profits so poor, not even rock-bottom interest rates can tempt companies to borrow and invest at anything approaching 1990s levels. And the ones that do want to borrow are increasingly finding themselves turned down by banks already burdened with bad loans and leery of record corporate debt.

A similar pattern trapped the Japanese economy in a cycle of stagnation and recession throughout the 1990s. According to U.S. officials, Japanese banks should call in bad loans and force weak companies into bankruptcy--no matter how many jobs are lost. This, they claim, would clear out the rot from the economy and revive growth. The U.S. gives the same advice to Europe, where the banks are stuck with a mountain of bad loans and economic growth has slowed to a crawl.

But Washington won't practice the economic doctrine that it preaches to the rest of the world. While U.S. companies are more likely than Japanese or German ones to go into bankruptcy--witness Enron, Kmart and WorldCom--Washington stepped in with an airline bailout after September 11 and imposed tariffs on imported steel to try to save that industry.

And while lecturing developing countries to cut government deficits, George W. Bush burned up the U.S. budget surplus to give tax breaks to the rich and fund the Pentagon war machine.

U.S. economic growth rates--estimated at 3.5 percent in the third quarter of this year--are being carried by low interest rates that have boosted consumer spending, particularly on new cars and housing. This spending will peter out if unemployment rises--and in fact, joblessness increased in October to 5.7 percent.

At best, the U.S. economy is likely to grow only slowly, with rising unemployment and government budget cuts that will feel little different than a recession--a scenario that Fortune magazine called the "go-nowhere economy."

But there is the possibility that things could take a turn for the worst. The huge amounts of debt in the economic system--from U.S. and European corporations to governments in developing countries--could trigger a financial panic in the event of a bankruptcy or a default on loans. This could lead to another stock market dive in the U.S., where share prices remain even more overvalued than they were during the 1990s boom--despite a decline worth a total of $7 trillion.

Another wild card is the overvaluation of the U.S. dollar compared to other currencies. In the 1990s, investment poured into the U.S. to take advantage of the boom, allowing Americans to consume more than they produced. A rapid decline in the dollar would force Federal Reserve Chair Alan Greenspan to raise interest rates to keep investors happy. But such a move would strangle growth, just as it has in Argentina and other countries that suffered currency crises.

If foreign investors haven't yet pulled out of the U.S., it's because the alternatives are even worse. All these problems were summed up in an International Monetary Fund report in September. As the Reuters news agency put it, the IMF "paints a picture of a global economy stacked precariously like a house of cards, waiting for a hit from just one more morsel of economic misery to bring on a global recession."

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