Wednesday, May 30, 2012

Signals at red as wrecking crew take over

Trying to find an image that conveys the gravity of the global economic crisis is proving a real challenge. Since its far from being a natural disaster, like the earthquakes currently shaking Nothern Italy, transport analogies might help.

Consider a 17-carriage eurozone high-speed train crashing into a wall of concrete. The front coaches – Ireland, Greece, Spain – have already been crushed, whilst Italy and Portugal are just now rearing up into the sky.

Many of those on the following coaches are only dimly aware of the problem and their governments are driving blind, donkeys chasing tthe elusive recovery carrot, always just out of reach.

If we stretch the transport analogy, we might say that there are two, much longer trains: the United States and the European Union. They are meeting head-on on a cheaply-made, shoddily built and fragile Chinese bridge now disintegrating under the shock.

The highly volatile fuel that brought the trains together in a paroxysm of mutually-assured destruction was a dangerous mixture of coal, oil, gas – and most explosive of all - credit and debt, with the Chinese buying US debt like there was no tomorrow, to keep the whole global system of production and consumption in business.

As of yesterday, however, as part of measures to reverse the return to slowdown and slump the Chinese announced that, for the first time, they’ll bypass the dollar, scrapping the US currency as the intermediary exchange currency. From Friday, they’ll deal directly with Japan, their biggest trading partner, exchanging yuan for yen. The implications are far-reaching, especially for the US which is the world’s most indebted nation.

Or, perhaps to give a more urgent flavour we could use a nuclear analogy, as in the uncontrollable meltdown of the Spanish economy. Yesterday alone saw the EU turn down Spain’s plan to save the failed Bankia, which reported the biggest loss in the country’s banking history; the departure of the central bank governor; retail sales slumping by 9.8% in April; the cost of borrowing soaring to levels likely to trigger the need for a bail-out. 

We’ve all been made familiar with the internal, country-by-country-by-regional comparative accounts of falling, or slowing GDP, soaring levels of unemployment, declining house prices, unassailably essential reductions in supposedly oversized public sectors; all explained by specific national characteristics, mistakes, like the alleged laziness of the Greeks (whose working day just happens to be much longer than the average German).

But dig a little deeper, and you begin to realise, as many do, that the debt disease is systemic, something to do with the flow of almost worthless currency around the arteries and veins of the entire global economy. If only we could fix the money problem – that private interests have taken over the issue of “money” (actually credit, to be more precise), swamping “our democracy”, some say we’d be able to return to a kind of normality. 

Ah but, say others, it’s all down to human greed, human nature. Not us, of course, we’re the altruists, the good guys. It’s them, they’ve succumbed to it. They’ve got the world in their greasy palms. (In the 1930s, they, the bad-guy banksters of the day were called, made equal to “World Jewry”, with dire consequences).

No, it just won’t do. These are all partial, one-sided, half-assed “explanations” for something more fundamentally wrong. And that is the breakdown of the social, economic and political relationships that came to dominate as a result of post-1945 measures generated to satisfy the internal dynamic of the system, aka capitalism.

This depends on, and is defined by privately-owned, profit-seeking capital invested in factories, offices, networks, and the right, or rather necessity to use some of it to employ wage and salary earners as the source of its most necessary expansion. Otherwise known as “growth”.

It’s the system stupid. Let’s build a new, different one, using the best bits of the old one to plan the sustainable production of goods and services to satisfy need. Before they wreck it all.

Gerry Gold
Economics editor

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