The Bank of Japan’s decision yesterday to further reduce its close to zero interest rate looks suspiciously like one of the opening shots in an exchange rate war that will intensify the problems besieging the already weakened major economies.
In dropping below its lower limit of 0.1%, and looking at a small programme of quantitative easing (QE) (aka printing more money), Japan managed to get the yen to fall on currency markets. This has the effect of making its exports cheaper.
But Tokyo didn’t start it. They just followed Brazil’s finance minister who, on Monday, took measures to hold down the value of the real. Guido Mantega warned: “We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness.”
Both Japan and Brazil pre-empted the widely expected “return to QE2” – a sequel to the fading effects of the previous programme of money creation by the now struggling Obama administration. Washington wants the dollar to fall to give its exports an edge.
So the alarm bells are ringing at the International Monetary Fund, which is warning that the “recovery” has run out of steam. IMF head Dominique Strauss-Kahn told the Financial Times: “There is clearly the idea beginning to circulate that currencies can be used as a policy weapon. Translated into action, such an idea would represent a very serious risk to the global recovery.”
It’s not long since world’s leaders in government, banking and finance came together to hammer out the agreements that enabled at least the semblance of a co-ordinated programme of measures designed to restart lending and bring about a return to growth.
Whilst the previous concerted action is credited with averting a financial and economic Armageddon, its effects are best described as a phony recovery. And that is now over. The optimism induced by unprecedented measures couldn’t and didn’t overcome the uncontrollable logic of the capitalist system of production.
The global crisis may have erupted in the financial system but its roots are elsewhere. Throughout its short period of existence on the planet, the capitalist system has been racked by contradictory forces. Competitive pressures have obliged companies to invest in productivity enhancements which, whilst giving the front runners a temporary advantage, inevitably reduce costs, prices and profits for all.
To offset the tendency for profits to fall, greater volumes of every product have to be cranked out and sold, and the pressure for even more productivity accelerates and accentuates the growing economy.
This irresistible objective logic created the globalising corporations that came to dominate the world. And when the surging millions of cars, computers and mobile phones overwhelmed the market, a house of (credit) cards and mountains of debt were created so that consumers who could buy them up. At least until we, and the rest of the economy found ourselves drowning in that very same debt.
Optimism is now being replaced with realism. Cuts in government spending to reduce the budget deficits they’ve accumulated over years of trying to keep growth on track are just one part of the story.
The phony recovery allowed manufacturers to restock their warehouses and showrooms, but there’s still not, and won’t be enough buyers. So the factories that restarted production after the 2008 collapse will go back onto short time and no time.
Competition for the remaining market will sharpen, and the intensification in the rate of exploitation will prove truly shocking, sparking social unrest to match. These are the objective laws which shape the decisions in the boardrooms and in government buildings.
Successful resistance will depend on individuals and communities creating new forms of democracy – People’s Assemblies with the power to terminate the web of contracts and property relationships that tie workers to capitalist employers and ensnare us all in debt. The system of profit-chasing growth must be torn up at its roots. Let’s compost capitalism!
Gerry Gold
Economics 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 currency markets. Show all posts
Showing posts with label currency markets. Show all posts
Wednesday, October 06, 2010
Monday, April 14, 2008
Meltdown hits New Labour
The turmoil in global financial markets is now reflecting itself as paralysis and confusion in the minds and actions of politicians, amid opposition from bankers to their plans for more regulation. Most significantly, the crisis is also finding a strong echo in the opinions of voters, especially in Britain where confidence in the Brown government has plunged to a record low.
Over the weekend, the Group of Seven industrialised nations and the International Monetary Fund governing council made up of global finance ministers and central bank governors, endorsed nothing less than 65-point plan to reform global financial markets. The plan involves raising the amount of capital banks have to hold if they want to invest in complex credit securities, new disclosure requirements and the creation of a “college of supervisors” from different countries to monitor banks.
This plan was dead in the water almost as soon as it was announced. Wall Street bankers rejected the G7 call to raise more capital, saying they were opposed to selling shares at the current depressed prices while others advocated self regulation. In any case, there was no particular timetable for implementing the changes, which would be left up to national governments to carry through.
As to the present crisis, there was nothing in the way of either a plan or a strategy. Ministers actually rejected the IMF’s call for globally co-ordinated public intervention to tackle the problems in the financial system directly. With the dollar and the pound continuing their free fall on currency markets, the G7 also ruled out any intervention in this area despite their fears that the slide could spiral out of control and intensify the economic recession.
Grandiose plans combined with lack of actual activity are a graphic illustration of the impotence of the G7, IMF and other global institutions in the face of the credit crunch. Last week, for example, the Bank of England cut interest rates only to see lenders not only fail to pass this on to homeowners but in some cases increase rates to borrowers. Now Alistair Darling, the chancellor, has called a meeting to urge them to respond to interest rate cuts while the bankers say the credit crunch prevents them from doing so. The problems of banks was shown today when Bradford & Bingley led a fall in shares after reports that it was going to have raise new capital to fill a large hole in its balance sheet.
There was more bad news for the government today when a poll revealed that Gordon Brown is less trusted to steer his country through the global financial crisis than any other major western European leader. A Financial Times/Harris poll suggests Britons no longer trust his government on the economy – 68% said they were “not confident at all” in its ability to deal with the economic crisis. The figure was 52% in Germany, 51% in the US, 50% in France, 43% in Italy and 36% in Spain. This came the day after a Sunday Times poll which gave the Tories a 16 point lead over New Labour.
Even previously pro-government newspapers like the Financial Times are beginning to have doubts. Its editorial said: “If British voters are worried about the global credit squeeze – more than a third expect their finances to worsen – then they are right to be. They have no more reason to trust politicians’ assurances that the UK can weather a US recession than believe their next-door neighbour’s.”
The paper added: “Like the US, the UK has relied on a debt-fuelled boom in consumer spending to drive growth. As the credit squeeze begins to bite and households cut back borrowing, overall demand is likely to weaken. A long-predicted correction now under way in the UK’s inflated property market will be painful too.” New Labour is unravelling almost as fast as the financial system itself and the need to create alternative political movements to challenge corporate and financial power is more urgent than ever.
Paul Feldman
AWTW communications editor
Over the weekend, the Group of Seven industrialised nations and the International Monetary Fund governing council made up of global finance ministers and central bank governors, endorsed nothing less than 65-point plan to reform global financial markets. The plan involves raising the amount of capital banks have to hold if they want to invest in complex credit securities, new disclosure requirements and the creation of a “college of supervisors” from different countries to monitor banks.
This plan was dead in the water almost as soon as it was announced. Wall Street bankers rejected the G7 call to raise more capital, saying they were opposed to selling shares at the current depressed prices while others advocated self regulation. In any case, there was no particular timetable for implementing the changes, which would be left up to national governments to carry through.
As to the present crisis, there was nothing in the way of either a plan or a strategy. Ministers actually rejected the IMF’s call for globally co-ordinated public intervention to tackle the problems in the financial system directly. With the dollar and the pound continuing their free fall on currency markets, the G7 also ruled out any intervention in this area despite their fears that the slide could spiral out of control and intensify the economic recession.
Grandiose plans combined with lack of actual activity are a graphic illustration of the impotence of the G7, IMF and other global institutions in the face of the credit crunch. Last week, for example, the Bank of England cut interest rates only to see lenders not only fail to pass this on to homeowners but in some cases increase rates to borrowers. Now Alistair Darling, the chancellor, has called a meeting to urge them to respond to interest rate cuts while the bankers say the credit crunch prevents them from doing so. The problems of banks was shown today when Bradford & Bingley led a fall in shares after reports that it was going to have raise new capital to fill a large hole in its balance sheet.
There was more bad news for the government today when a poll revealed that Gordon Brown is less trusted to steer his country through the global financial crisis than any other major western European leader. A Financial Times/Harris poll suggests Britons no longer trust his government on the economy – 68% said they were “not confident at all” in its ability to deal with the economic crisis. The figure was 52% in Germany, 51% in the US, 50% in France, 43% in Italy and 36% in Spain. This came the day after a Sunday Times poll which gave the Tories a 16 point lead over New Labour.
Even previously pro-government newspapers like the Financial Times are beginning to have doubts. Its editorial said: “If British voters are worried about the global credit squeeze – more than a third expect their finances to worsen – then they are right to be. They have no more reason to trust politicians’ assurances that the UK can weather a US recession than believe their next-door neighbour’s.”
The paper added: “Like the US, the UK has relied on a debt-fuelled boom in consumer spending to drive growth. As the credit squeeze begins to bite and households cut back borrowing, overall demand is likely to weaken. A long-predicted correction now under way in the UK’s inflated property market will be painful too.” New Labour is unravelling almost as fast as the financial system itself and the need to create alternative political movements to challenge corporate and financial power is more urgent than ever.
Paul Feldman
AWTW communications editor
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