As they gather in Davos with the leaders of the global capitalist economy for the annual World Economic Forum, Britain’s New Labour is struggling to find some crumbs of comfort in the 0.1% “return to growth” for the last quarter of 2009. The figure is worse than the most pessimistic of predictions and knocks a huge hole in Chancellor Alistair Darling’s fanciful budget.
Warning: This first estimate from the Office of National Statistics is based on around 40% of the returns. It is subject to revision. Whichever way it goes, the statistically insignificant figure is itself the outcome of an unprecedented programme of emergency aid for capitalist society.
New Labour has reduced interest rates to 0.5% - its lowest level ever; invented and then added £200 billion of “quantitative easing” to its own balance sheet; poured squillions into the banks which have squirreled it away in their vaults; and allowed, better to say encouraged, unemployment to rise to 10%. Around the more polite £1,000 a plate election fund-raising dinners for New Labour it is called “cost-cutting”. And for all that you get 0.1% “growth”. How much would it take to engineer a boom?
Things can only get worse. Among the other measures used in the attempted stimulus was to temporarily reduce value added tax (VAT) from 17.5% to 15% and join in market manipulation measures (of dubious legality under EU and WTO free competition laws) like handing over tax money to car manufacturers in the form of scrappage vouchers. VAT is now back up to 17.5% and the scheme encouraging people to throw away perfectly serviceable old motors is ending. Insolvency practitioners predict company collapses will hit record levels this year and stay high in 2011.
In Davos, the International Monetary Fund will intensify its warning that Britain is approaching state bankruptcy and caught in a double-handed stranglehold. For 20 years the ratio between Britain’s combined public and private debt and the value of its annual production (GDP) has been soaring faster than any of the other rich countries. Last year it outstripped Japan and now leads the world. The home of capitalist production is officially the most indebted. By the middle of 2009 its debt exceeded its GDP by 480% - nearly five times. That’s one hell of a mortgage by any standards.
The double bind works like this: Heavily-indebted countries like the UK, Spain, US and South Korea face state bankruptcy over the next few years as interest rates - and hence the cost of borrowing - start to rise. The same thing started to happen to sub-prime mortgage holders in the US from around 2004. Everybody knows what happened. So they must start reducing their debt – by cutting government expenditure and raising taxes.
But, oh dear, countries that have been using debt to climb out of recession mustn’t cut it too soon – listen up Alistair! – because if they do they’ll risk (actually no risk at all, it’s a dead cert) tipping back into slump. Its no wonder the vultures, sorry, investors are hovering ready to swoop. Whichever way Alistair swings, the economy is a dead parrot.
Bill Gross, co-founder of California-based fund mangers Pimco, the world's biggest buyers of bonds is warning that the UK is a "must to avoid" for his investors as its debt was "resting on a bed of nitroglycerine". Gross described the UK as posing risks for investors because it has "the highest debt levels and a finance-oriented economy – exposed like London to the cold dark winter nights of deleveraging".
As soon as the UK looks like devaluing its currency, as looks increasingly likely, the speculators will move in. Who would want to win an election under those conditions?