The failure of the G20 summit in Toronto to find a common approach to tackling the global economic and financial crisis had an air of inevitability about it. After all, capitalism is not exactly a rational system where sensible men and women come together to sort out an international crisis.
If that were really the case, the 20th century would not have experienced two catastrophic world wars, for example. Nor would the inter-war years have been dominated by the calamity of the Great Depression in Europe and America, which only ended when the major powers took to the battlefields.
In reality, what the Toronto communiqué – which apparently took all of 54 hours to negotiate – heralds is another period of intense competition and rivalry. In an abandonment of the unity of the past three crisis-era Group of 20 summits, the leaders decided to adopt "differentiated and tailored" economic policies for each country. Earlier proposals for a unified approach to limiting the activities of major banks by imposing tighter capital requirements were also put on the back burner.
In other words, it’s every country for itself. Sound familiar?
President Obama’s plea not to start cutting budget deficits too soon because it might harm the “recovery” was simply ignored. All the major economies are cutting deficits – and America won’t be far behind. Obama, it was noted, praised Britain’s “courageous budget” of last week.
He is aware that his stimulation package has failed to revive the US economy. On the contrary, unemployment continues to grow despite an increase in state spending. The recession has wrecked the finances of many states too, which are dependent on local property and sales taxes.
The small southern California city of Maywood is disbanding its police force and firing all public sector employees. Every service is being contracted out. US states have an estimated $200bn budget shortfall, equivalent to 30% per cent of all state budgets. The federal government’s deficit is about $1.3 trillion and rising.
The impotence of the political elites who gathered in Toronto reflects a stark reality of the problematic and contradictory relationship between capitalist nation-state systems and the globalised economy. Masked while the world economy expanded, this conflict has worsened since the 2008 meltdown of the banks.
Modern globalisation has created immense economic and financial forces that are greater in their impact and power than the sum of their parts. They are way beyond the control of even the most powerful states. Take, for example, the financing of government borrowing through what is known as the bond market. This isn’t some single marketplace, with a sign outside the door but is a series of inter-linked buyers and sellers in Europe, Asia and America, trading electronically around the clock.
Participants include commercial and investment banks, hedge funds, insurance companies, pension funds and – of course – the governments that guarantee interest on fixed-term bonds. Identifying all the various buyers and sellers globally is a task in itself; “bucking” this market is virtually impossible because states never know when they might come under attack. Just ask the Greek government.
Toronto, with its insistence on halving budget deficits by 2013, makes the transition from recession to depression much more certain. The political classes in every country are locked in a deadly embrace with economic and financial forces too powerful and inaccessible to cope with. So they take it out on ordinary workers, cutting their wages, pensions, jobs and services.
Remedial, curative action is not an option, just as it wasn’t in the 1930s. Telling the bond markets to take a running jump off a short pier, that they can whistle for their interest payments, for example, requires something quite different and quite revolutionary. The G20's failure at Toronto is a turning point. Now it’s our opportunity to seize the initiative.
Paul Feldman
Communications editor
For revolutionary solutions to create a sustainable, not-for-profit economy in place of global capital alongside a real democracy based on People’s Assemblies. Visit our web site at www.aworldtowin.net
Showing posts with label Toronto. Show all posts
Showing posts with label Toronto. Show all posts
Monday, June 28, 2010
Friday, June 25, 2010
Vuvuzela politics won't beat the banks
On the eve of the G20 meeting in Toronto this weekend, which will see further attempts to bring about a recovery from global economic and financial crisis differences have emerged between the US and Europe. Representatives of the world's 20 richest nations will be arguing over how to "manage their divergence".
US president Barack Obama has criticised the European imposition of austerity programmes of spending cuts and tax increases. At this point, the US is much more concerned with increasing spending to stimulate demand than reducing sovereign debt. This international tension is the political reflection of the battle between opposing teams in the Capitalist Rescue cup.
When the debt-fuelled global financial system went into meltdown in 2008, there was a sudden rush of enthusiasm for a new age of regulation that would, it was said, prevent a recurrence of the conditions that resulted in the worst credit crisis since the 1930s. The ghost of economist John Maynard Keynes was raised from the grave.
In the panic-stricken meantime central banks and governments around the world turned to the injection of ‘liquidity’ in the form of trillions of every currency to prop up the previously hugely profitable but now bankrupt commercial and investment banks and non-bank financial institutions. The marvellous rediscovery of the fool's gold of ‘quantitative easing’, the modern, electronic equivalent of printing money, allowed balance sheets and credit to be further expanded – miraculously treating like with like.
Controversy raged around the world about the actions to be taken over institutions judged ‘too big too fail’. Some were indeed ‘taken over’ by the state. Others were allowed to go to the wall.
Many of the best brains in banking and finance were set to work, tasked with designing a package of measures that would restore a degree of sanity to the madness that had drowned the world in a tsunami of unserviceable credit and debt. The team in favour of regulation, led by the Basel Committee on Banking Supervision, have been on the pitch, slugging it out with their opponents, amongst them the Institute of International Finance. The IIF are worried about the damaging effects of regulation. Basel’s captain Nout Wellink says ‘Raising capital and liquidity standards will reduce the probability of the event of a crisis. We will get greater stability of economic output and associated increases in welfare.” The IIF fought back with a warning that ‘global growth in the eurozone, the US and Japan would be cut by three percentage points between now and 2015 and as a result, 9.7m fewer jobs would be created over the period.’
Amongst the most important of the reforms put forward was to be a return to a more prudent relationship between a bank’s easily available capital assets and the amount of money it lent out.
Despite the chorus of calls for regulation, the pressure for a return to growth continues unabated, and the banks have lost little, if any, of their power. As a result synchronised bubbles and speculative excesses will re-emerge to undermine those who seek to regulate the financial markets.
As the G20 opens, the Financial Times reports that ‘Plans by global regulators to compel banks to set aside billions of dollars in extra capital to cope with future crises are to be pared back after intense lobbying by the industry. The committee is likely to shelve the idea that banks should be forced to maintain a longer term “net stable funding ratio” that aligns the maturity of their assets and liabilities.’
And then comes the bottom line ‘Analysts had also calculated that the Basel III reforms, were they implemented in conjunction with new taxes around the world – such as the liability tax announced by the UK government this week – could have cut a typical bank’s return on equity from 20 per cent to 5 per cent.’ For the capitalists and the masters of finance that would be an entirely unacceptable attack on profitability.
The rest of us need a way of ending the rule of the banks. Protests, resistance, shaking fists or even blasts from the vuvuzela won’t be enough. We need to build the forces which can take the economic and financial systems into social ownership and recast them on a not-profit basis.
Gerry Gold
Economics editor
US president Barack Obama has criticised the European imposition of austerity programmes of spending cuts and tax increases. At this point, the US is much more concerned with increasing spending to stimulate demand than reducing sovereign debt. This international tension is the political reflection of the battle between opposing teams in the Capitalist Rescue cup.
When the debt-fuelled global financial system went into meltdown in 2008, there was a sudden rush of enthusiasm for a new age of regulation that would, it was said, prevent a recurrence of the conditions that resulted in the worst credit crisis since the 1930s. The ghost of economist John Maynard Keynes was raised from the grave.
In the panic-stricken meantime central banks and governments around the world turned to the injection of ‘liquidity’ in the form of trillions of every currency to prop up the previously hugely profitable but now bankrupt commercial and investment banks and non-bank financial institutions. The marvellous rediscovery of the fool's gold of ‘quantitative easing’, the modern, electronic equivalent of printing money, allowed balance sheets and credit to be further expanded – miraculously treating like with like.
Controversy raged around the world about the actions to be taken over institutions judged ‘too big too fail’. Some were indeed ‘taken over’ by the state. Others were allowed to go to the wall.
Many of the best brains in banking and finance were set to work, tasked with designing a package of measures that would restore a degree of sanity to the madness that had drowned the world in a tsunami of unserviceable credit and debt. The team in favour of regulation, led by the Basel Committee on Banking Supervision, have been on the pitch, slugging it out with their opponents, amongst them the Institute of International Finance. The IIF are worried about the damaging effects of regulation. Basel’s captain Nout Wellink says ‘Raising capital and liquidity standards will reduce the probability of the event of a crisis. We will get greater stability of economic output and associated increases in welfare.” The IIF fought back with a warning that ‘global growth in the eurozone, the US and Japan would be cut by three percentage points between now and 2015 and as a result, 9.7m fewer jobs would be created over the period.’
Amongst the most important of the reforms put forward was to be a return to a more prudent relationship between a bank’s easily available capital assets and the amount of money it lent out.
Despite the chorus of calls for regulation, the pressure for a return to growth continues unabated, and the banks have lost little, if any, of their power. As a result synchronised bubbles and speculative excesses will re-emerge to undermine those who seek to regulate the financial markets.
As the G20 opens, the Financial Times reports that ‘Plans by global regulators to compel banks to set aside billions of dollars in extra capital to cope with future crises are to be pared back after intense lobbying by the industry. The committee is likely to shelve the idea that banks should be forced to maintain a longer term “net stable funding ratio” that aligns the maturity of their assets and liabilities.’
And then comes the bottom line ‘Analysts had also calculated that the Basel III reforms, were they implemented in conjunction with new taxes around the world – such as the liability tax announced by the UK government this week – could have cut a typical bank’s return on equity from 20 per cent to 5 per cent.’ For the capitalists and the masters of finance that would be an entirely unacceptable attack on profitability.
The rest of us need a way of ending the rule of the banks. Protests, resistance, shaking fists or even blasts from the vuvuzela won’t be enough. We need to build the forces which can take the economic and financial systems into social ownership and recast them on a not-profit basis.
Gerry Gold
Economics editor
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