Tell Goldman Sachs to get lost

The cracks in the global economy are widening at a hard-to-grasp rate. Contraction is accelerating in Europe, and growth is slowing in the United States and China, the world’s two largest economies.

One of the key measures of the health of the capitalist economy – Markit’s purchasing managers’ index (PMI) for manufacturing in the eurozone – dipped to a four-month low of 46.5 in April. On this measure anything below 50 means contraction. The composite index for Germany, the eurozone’s largest economy, fell sharply to a six-month low.

Banco de Espana, Spain’s central bank estimates that its country’s GDP was 0.5% lower in the first quarter of 2013 than the same period in 2012. One of the consequences is that migration out of Spain is soaring as people desperate for work move to other parts of Europe.

Greece’s economy is expected to contract a further 5% this year, bringing the total since the crash to 25%. Optimists, with no evidence to support them, hope and pray that the decline will stop there.

Debt levels continue to mount. Overall, eurozone sovereign debt rose to 90.6% of economic output (GDP) last year, the highest on record. Of the four eurozone countries receiving bailout funds only Greece saw its debt levels decrease, from 170% of GDP in 2011 to 157%  – still the highest in the EU. Irish, Spanish and Portuguese debt levels all hit euro-era highs last year, with Portugal close to surpassing Italy as the second most indebted nation in the eurozone.  

Despite all the efforts to arrest the contraction by injecting monstrous amounts of fantasy finance they call “quantitative easing”, and imposing austerity budgets to deal with the debt mountains, some are indicating that the game is up. 

President of the European Commission José Manuel Barroso now believes that the assault on living standards through slashing cuts in government expenditure known as austerity “has reached its limits in many aspects”. Revolt throughout Europe has convinced him that “a policy to be successful not only has to be properly designed. It has to have the minimum of political and social support.”

What his next step might be isn’t clear, apart from lowering the European Central Bank’s base interest rate from its current 0.75%, a move that’s been tried and failed in the US and the UK.

And elsewhere, in the world’s largest economies?

The PMI index for the US fell in April to its weakest level since last November. A similar measure for China dipped to a two-month low at a rate that’s just half a per-cent from contraction territory.

It’s no wonder that the world’s governments are impotent. There are powers greater than all of them. Some 97 of the top 100 multinational corporations pay no corporation tax. So when Goldman Sachs’ chairman and chief executive Lloyd Blankfein says the UK government has to stick to austerity or face the wrath of the markets, you know who actually decides the country’s economic policy.

Amidst the crisis, there’s the best ever opportunity to move to something much better. The capitalist “mode of production”, as Marx called it, has nurtured the social forces who, as he also wrote, have nothing to lose but a world to win. 

For the 99% the question is not how to bring about a recovery for the capitalist system. The best of the global elites have applied their minds to this task and have patently failed.

Instead, let’s look to co-operative, collectively-owned democratically-run productive enterprises like Mondragon in Spain, founded in 1956 and the brand new Vio.me in Northern Greece. These are models we can develop throughout the rest of the economy when we achieve the power to do so. We could begin by telling Goldman Sachs to take a running jump.

Gerry Gold

Economics editor

Junk bonds frenzy points to a new crash

After five years of austerity budgets, the headline on the latest survey from global financial information services company Markit sums it up: “Downturn deepens as business conditions deteriorate in all euro nations”.

Or put another way, the brutal assault on living standards of the people of the eurozone is certain to accelerate as the system’s self-destruct mode strengthens. 

It’s not just the weather that’s gone into deep freeze this spring. Markit reports a worsening of “manufacturing conditions across the currency union”. Germany and Ireland both fell back into recession, while rates of decline quickened in nearly all other nations. France’s rate of slowdown did not actually increase but its present speed of contraction is bad enough, only exceeded by that of Greece.

The survey’s gloomy report adds: “March saw total new orders decline for the twenty second successive month, dropping at the fastest pace since December. Demand was weaker in both domestic and export markets, reflecting lacklustre client confidence. The outlook for manufacturing also deteriorated, as the ratio of new orders-to finished goods inventories dipped to a three-month low.

“Job losses were reported for the fourteenth straight month in March, with steep rates of declines reported in France, Italy, Spain, the Netherlands, Ireland and Greece.”

  

So the terms of the Cyprus bailout “agreed” by its government at the point of a Troika gun, bad as they are, can only be an opening to something far worse.  There’s a huge 60% tax on bank deposits over the guaranteed limit of €100,000, which means that many businesses are closing with the loss of tens of thousands of jobs – 4,500 in the public sector alone– a heavy blow for a population of less than a million. Those in work will pay a “temporary insurance fee” of 1.5% on salaries for access to healthcare.  

The people of Slovenia are next in line for attention by the punishment squad led by the International Monetary Fund and the European Central Bank. Its economy is shrinking rapidly and its budget deficit is ballooning towards 5% of GDP. According to the IMF, “a negative loop between financial distress, fiscal consolidation and weak corporate balance sheets is prolonging the recession”.

This spiral of decline isn’t limited to the eurozone. Markit’s figures for the UK are hardly encouraging:  manufacturing output fell in March at its fastest pace since July last year, along with a further decline in new orders and employment. The Bank of England reported that lending to households and companies contracted in February in spite of its efforts to increase the flow of credit to the real economy.

The Bank of England has, of course, taken part in the unprecedented pumping of billions into the financial system via quantitative easing, aka as printing money. Since the crash started at the end of 2007, central banks around the world have created a staggering $12 trillion of new money in a desperate bid to stave off total collapse.

All this has done is to fuel inflation, encourage speculation in basic commodities like wheat and, all in all, create the conditions for another financial bubble to burst. According to Daily Telegraph finance writer Harry Wilson, huge sums have gone into sales of high-yield debt, formerly known as junk bonds.

In January alone, non-investment grade Asian companies, whose debt is ranked by credit rating agencies as riskiest, sold just over $9bn of high-yield bonds, a year-on-year increase of more 6,000%, he reports.

Wilson warns: “The massive increase so soon after a financial crisis that was caused in part by the credit meltdown has raised fears that less than five years on from the bankruptcy of Lehman Brothers and the near failure of Royal Bank of Scotland and HBOS, the world is setting itself up for another crash.”

Reports of investment banks and other institutions borrowing to buy junk bonds – what is known as leverage – only adds to the tendency towards a new, even more destructive crash.

All attempts to fix the capitalist system are just making things worse. These are the conditions which must make the campaign against austerity into a movement to replace the broken, bankrupt system of production for profit, once and for all time.

Gerry Gold

Economics editor