Wednesday, August 19, 2009

Counting the cost of the meltdown

While the International Monetary Fund suggests that the recession has bottomed out, all the signs merely indicate a pause in the crisis before a further lurch towards slump in the coming months.

The recession continues to deepen in Chile and South Africa, for example. Further shocks are to be expected as commercial property values decline, and rising unemployment forcing more workers to default on mortgage and credit card debt adds another twist to the downward spiral.

Germany’s economic ministry is working with its central bank on measures to deal with a second credit crunch expected early next year. Hartmut Schauerte, the economic state secretary says firms with weak balance sheets may struggle to roll over loans as they come due in coming months. Negotiations with banks could prove "very difficult", he admits.

The UK government’s gamble with quantitative easing, its last-ditch largely failed attempt to restore the flow of credit by printing money, is looking dangerously inflationary and is leaving buyers of government bonds increasingly jittery.

The costs of slowing the decline to slump, let alone any return to growth, are appearing in many forms. Alongside short-lived government sponsored scrappage schemes designed to clear millions of over-stocked cars, billions have been poured into “restructuring” the industry worldwide – the costs of mothballing factories and sacking workers.

Where workers have resisted – as in the now ended 77–day occupation of Ssangyong’s plant in South Korea – the price included the mobilisation of state forces in scenes evoking dystopian medieval pitched battles, with besieged workers armed with slingshots and bamboo staves taking on company thugs, helicopters dropping teargas and taser-wielding riot police.

UK tax income has fallen as economic activity has shrivelled and, at best, will continue at low levels for the foreseeable future while government borrowing to bail-out the banks will result in huge cuts in public sector spending in every area, whoever wins the next election.

It’s already beginning in at least 12 of the 50 states in America, and many more of its counties and cities. They have begun slashing services and forcing unpaid holidays on their employees as revenues from sales taxes, property taxes, investment income and service/building fees continue to plummet.

California's economy, the world's eighth largest, is expected to register a jobless rate near an agonising 13% next year. That state's attempt to reduce its massive $24 billion budget deficit includes three unpaid days a month for state workers to save $820 million. The unemployment figures leave out many of the illegal migrant workers from Mexico on whom the economy depended in the boom times. The loss of remittances is having a devastating impact on the families they left behind.

Michigan, home state of the bankrupt car industry in Detroit, has scheduled six days – a day a week- on which it won't pay about 37,400 employees to save $21.7 million by September 30.

The corporate-sponsored backlash against Barack Obama’s modest proposals for a state health insurance scheme in parallel with the existing for-profit schemes run by insurance companies are the palest of indicators of the political struggles to come.

Obama’s crisis also signifies that this is not the period when capitalism is prepared to grant reforms. Quite the reverse is true. For the mass of the world’s population there can be no acceptable solution to the deepening crisis without a wholesale transfer of productive resources to common ownership subject to democratic control.

Gerry Gold
Economics editor

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