The crisis in
The post-war expansion of credit that funded globalisation showed itself to be unsustainable when the effects of the credit crunch emerged into the open in 2007. Attempts to limit the effects of a global collapse of production with colossal amounts of credit invented by governments and central banks simply spread responsibility for the problem.
Toxic debt was in effect transferred from a failing system of global financial and manufacturing corporations to sovereign states which are, in turn, forcing it on to their increasingly resistant populations. In
On a global scale, contradictory pressures are at work. Growth is giving way to contraction. The hard line views of the Bank for International Settlements (BIS) are in the ascendant, causing consternation amongst softer, liberal Keynesians, like Martin Wolf of the Financial Times, and Adam Posen, a member of the Bank of England’s influential Monetary Policy Committee
The real message from the BIS in its annual report published this week is precisely the opposite of a confident recovery. Challenges left in the aftermath of the 2007/8 crisis require further actions that will most certainly produce a severe contraction. That is what they are intended to achieve.
Challenges are grouped under several headings. At the top of the list is public sector debt. The BIS believes that governments have hardly begun bringing debt down to “sustainable levels”. In addition to short-term measures, pension schemes and social benefits will have to go. “Governments that put off addressing their fiscal problems run a risk of being punished both suddenly and harshly,” the report warns.
Next comes private sector debt. In the
“Growth during the pre-crisis years was heavily weighted towards finance and construction. In a number of countries, these sectors grew disproportionately to the rest of the economy and now have to shrink. [emphasis added]. Like most adjustments, it will be painful in the short run. Not only will this reallocation impose suffering on the people who worked and invested in those sectors, it will weigh on aggregate growth and public revenues as well.”
The BIS sees the need for globally co-ordinated action to deal with “global imbalances in financial flows”. As the report states: “The financial crisis showed us that the build-up of gross investment positions can lead to substantial currency, liquidity and other mismatches that can propagate and magnify shocks, creating damaging volatility in the international financial system.”
But they are whistling in the wind if they think that governments have any more hope of controlling the movement of capital corporate interests after the crisis than before.
And then there’s the problem of monetary policy. “Unconventional actions” including negative real interest rates and quantitative easing – central banks inventing credit to lend money to governments - have led directly to soaring inflation, especially in food and fuel. The BIS “solution”? Monetary easing must be reined in and interest rates must rise – especially in the
Fixing the aftermath of the global capitalist crisis is too painful for countless millions to bear. The workers of