Beware the light at the end of the tunnel

Some optimists are saying that things are beginning to look up because of a fall in unemployment, particularly in the US but also to some small extent in the UK. Yesterday, those closer to the action put things in perspective.

Ben Bernanke, chairman of the US Federal Reserve, dampened the optimism that had seen stock markets rise. January’s fall in the unemployment rate to 8.3% “understates weakness in the U.S. labour market”, he said. “It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work. There are also a lot of people who are either out of the labour force because they don’t think they can find work or in part-time jobs.”

That’s another 15.1%. Bringing the total to more than 23%.

But what about the unexpected 243,000 increase in jobs? Bernanke wasn’t impressed. He’s keeping the interest base rate as near to zero as it can go – at 0.5%, until 2014 - to avoid a further brake on the economy. And even with inflation below the 2% target, the fact that it remains above the interest rate means that businesses are being paid to borrow. No wonder there’s a few jobs appearing.

Meanwhile, millions of families have already lost their homes and millions more are stuck with impossible mortgage payments on houses whose market value has dropped like a stone. As Bernanke put it “the amount of negative equity in the United States is about $700 billion (£447 billion), which is enormous and so there is no conceivable programme [that will get] everybody in the country above water.”

The US is only one part of the global capitalist economy, albeit a very large one, and the health of the two are inseparable. The increase in US jobs is supposed to reflect confidence that there’s a solution in sight for the eurozone crisis, but who’s kidding who?

The process of dismantling the monstrous, decades-long accumulation of credit and debt is underway. “They” call it “deleveraging” and tell us that we’ve all been living way beyond our means. The consequences are just beginning to appear.

Greece was gripped yesterday by another general strike as its government again postponed agreement to the €130 “bail-out” that would see wages slashed by another 20-30%, another 15,000 public sector jobs eliminated, and pensions chopped. People with good jobs, homes and cars last year, are this year homeless, hungry and cold on the streets.

Spain’s economy shrank 0.3% in the last quarter of 2011, and is expected to be officially in recession in 2012. France cut its growth forecast from 1% to 0.5%. Unemployment in the eurozone has been rising throughout 2011, hitting a new record of 16.5 million in December, and it is expected to continue rising throughout 2012. In the 27 EU countries, 23.8 million are unemployed – 9.9%.

And don’t forget Iceland, where the banking crisis hit early and hard. It is now on the brink of new catastrophe. Thousands of households face poverty and loss of property because of loans that, in some cases, have more than doubled as a result of the last currency crash and subsequent price inflation.

The International Labour Organisation says this in its Global Employment Trends 2012: “After three years of continuous crisis conditions in global labour markets and against the prospect of a further deterioration of economic activity, there is a backlog of global unemployment of 200 million – an increase of 27 million since the start of the crisis.”

Astonishingly, the ILO says that 400 million new jobs will be needed to avoid a further increase in unemployment. “Hence, to generate sustainable growth while maintaining social cohesion, the world must rise to the urgent challenge of creating 600 million productive jobs over the next decade.”

That is simply not going to happen. Even the ILO admits that a “dangerous third stage” in the world economic crisis is on the cards, noting that “policy space has been seriously limited, making it difficult to stop, or even to slow down, the further weakening of economic conditions”. The light at the end of the economic tunnel is actually a train crash in the making.

Gerry Gold
Economics editor.