Last week a photo-opportunity thinly disguised as the G20 emergency economic summit; this week, the real world has reasserted itself. London endured days of synthetic bonhomie that saw world leaders grinning from ear to ear as if everything was under control. Now the smiles have vanished and a new phase of the global crisis is emerging.
The G20 summit had nothing all to say about the fact that the global financial system is still drowning in unknown volumes of toxic assets. Some estimates put these as high as $1.4 quadrillion. A quadrillion is a thousand trillion, while a trillion is a thousand billion (just imagine a very long line of 0s). Anyway, there is still no market for many of these “assets” because financiers are not sure if they’re worth any more than the paper they are printed on (they're not).
So the great unravelling of 30-odd years of fantasy finance has a long way to go and government schemes to help the banks out have only served to weaken state finances. Now it’s payback time. As one commentator in the Financial Times put it: “There lies the dilemma: the old capitalist model may be bust, but so is the government.” The Institute of Fiscal Studies estimates a government deficit of nearly £40 billion. Coming up are tax rises and public spending cuts, leading to higher unemployment and reduced living standards.
A number of major economies are at the same time close to collapse, notably Japan’s. The country’s industrial output fell 38% in the last 12 months, mostly after October when the bankruptcy of Lehman Brothers triggered a global economic meltdown. Observers point out that no major economy imploded at this speed in the 1930s. Japan’s export markets have disappeared and at the same time the yen has appreciated while the dollar has fallen, making it even harder to sell goods abroad.
Now Tokyo is planning a substantial devaluation of the yen to cheapen the cnountry’s goods in a desperate attempt to save its economy. This would almost certainly set off a protectionist response through what is known as competitive devaluations. Taiwan is already devaluing its currency and Korea, Singapore, and Sweden may follow. China, where unemployment is now an estimated 20 million and rising sharply, would be next. The US would retaliate if competing economies devalue and the recession would definitely become a slump.
In the end, the G20 was all spin and no substance, obscured by the effortless charm of the Obamas. No one should be surprised at this. The political elites have no answers because they are essentially part of the same social system that produced the economic and financial crisis in the first place. There are solutions to the crisis – but they lay outside of the existing political and social framework, which is why the G20 failed and why it’s each state for itself despite all the warm words about global co-operation.
Ultimately, it’s about who controls economic and financial resources and for what purpose. So long as they remain out of the reach of the majority in society, the crisis will deepen because the interests of profit will predominate and dictate the shutting down of workplaces and spending cuts. The Visteon car parts workers in Enfield have occupied their plant in response to its sudden closure with minimal compensation. Their action, if replicated on a large scale, would challenge the very concept of capitalist ownership and open up the possibility of a successful struggle for power itself. This is the revolutionary road we have to go down in order to avoid the looming global catastrophe.
AWTW communications editor