Crisis is alll pain and no gain for workers

The crisis in Greece, which comes to a head today with the vote in parliament to impose further massive cuts, also marks four years since the mother of all financial bubbles burst.

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 Greece, an estimated 80% are against “austerity” measures being forced through.

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 United States and Europe, households, financial and non-financial firms are still drowning in debt, despite millions of repossessions, massive write-offs, the disappearance of many financial and retail institutions, and mass unemployment across the world. Once again they’ve only made a start.

“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 UK. As soon as they do house-buyers in Britain will be facing a tsunami of house repossessions.

Fixing the aftermath of the global capitalist crisis is too painful for countless millions to bear. The workers of Greece are saying they’ve had enough and are not prepared to sacrifice living standards further on the altar of creditors and their profits. Up to 750,000 workers in Britain go on strike tomorrow, defying both the ConDems and Labour, in defence of hard-won pensions which are being cut to reduce the budget deficit. The message is clear: We can’t be doing with this unsustainable, ruthless system any more.

Gerry Gold
Economics editor

Crank up the printing machine

Adam Posen, an expert advisor to the US Congress and an influential member of the Bank of England’s monetary policy committee, is urging governments on both sides of the Atlantic to print more money to rescue the economy from impendng disaster.

In the US, Obama is preparing for mid-term elections in November and Posen’s particular worry is about the political consequences of economic collapse. He told a business audience in Hull, England, he said: “Let us not forget that it was sustained high unemployment and austerity, the sense that governments were unresponsive to average people’s dire economic conditions, which led to the rise of extremist intolerant parties in pre-war Europe”.

Posen is right to be worried. The global economy is in its deepest crisis in the wake of conventional and unconventional measures by governments and central banks. Negative interest rates, bailing out bankrupt banks, huge injections of credit borrowed from the money markets, and QE (quantitative easing) – aka printing money – had only a limited, temporary effect. Now it’s game over. Every country is sliding back into recession.

As these conditions mature, they shape the politics of the parties in and aspiring to power, as Posen rightly warns. You can see it in new leader Ed Miliband’s first speech as he sets out to make the British Labour Party acceptable to its capitalist masters. “Growth is our priority,” he declaimed, and “true patriotism is about reducing the debt burden we pass on to our kids.” Makes the hairs on the back of your neck stand up very straight. Or it should do.

So those who express the fear that history will repeat itself, that we’ll see a return to the long depression of the 1930s and the extension of Japan’s continuing 20-year slump to the rest of the world, are getting a hearing.

But there are more strident voices with different, opposed messages. Among them is Liam Halligan, economics editor of the Sunday Telegraph, and chief economist at Prosperity Capital Management, which is a major shareholder in some of the leading companies in Russia, Ukraine and Central Asia.

Halligan first made his mark in the 1990s. As Wikipedia puts it he “was heavily involved in the Russian government’s attempts to stabilise the country’s nascent post-Communist economy”. You might say Halligan turns the old phrase inside out – he puts his mouth where his money is.

Halligan wrote this attention-getting paragraph in his populist weekend column for the Telegraph: “Now, the Western world's policy response amounts to printing money and heaping debts upon debts, while shoving the banking sector's losses on to the general public – and, particularly, their children and grandchildren. This is perhaps the most systematic act of inter-generational theft the world has ever seen. But that's not the point – at least for now. The point for now is that QE and the related fiscal boosts simply are not working.”

Halligan ends his piece warning about the debasement of currencies and calls on Western governments to get tough. His prescription, borrowed from Simon Johnson, a former chief economist of the International Monetary Fund is “to break the financial oligarchy that is blocking essential reform.”

There’s a horrible truth in what Posen and Halligan have to say. The capitalist system at war with itself. The state is in conflict with finance capital which has successfully resisted re-regulation against a backdrop of a global sovereign debt crisis, which the printing of more money can only deepen.

Far from being part of the solution, Ed Miliband and the trade union bureaucrats who got him elected are the problem when it come to mounting serious opposition to Lib-Con cuts and the recession. They are for rescuing the system at any price.

Trade unionists are marching in Brussels today against Euro-wide budget cuts, while a general strike is taking place in Spain. The growing anger of working people deserves a leadership that will go beyond limited actions to settling accounts once and for all with the real problem – the maddened system of capitalism itself.

Gerry Gold
Economics editor