While most of the world’s media yesterday focused on the US plan for tighter regulations for the disintegrating financial sector and Gordon Brown’s grand tour aimed at talking up next week’s G20 summit, the real, productive economy was going to hell in a handcart.
Here, the exercise of people’s ability to work generates real value, including profit – at least it did when things were going well for the capitalist class. Not any longer. Now it’s shutdown time, and the actual destruction of productive capacity – including the jobs and prospects of many millions of workers.
The world's second-largest economy, Japan, suffered an almost 50% collapse in exports in February, compared with one year ago. The accelerating global slump drove exports to the rest of Asia down by 46% and to EU countries by 55%. This was the fourth successive month of record export declines, and the sharpest decline in at least 30 years.
Just as in the US and the UK, over-production of cars has intersected with a near-collapse in demand and the industry is grinding to a complete halt. Shipments of motor vehicles were down 64% , with those to the US tumbling 71%. Total exports to America fell by 58%.
The slump has meant that Japan's total industrial production fell by a record 10% in January. Japanese car manufacturers, in the UK and elsewhere, have reacted rapidly to the downturn, attempting to slash their overstocks by cutting output using short-time and no-time working. Union leaders have negotiated wage cuts in a futile bid to save jobs.
The production shutdown isn’t restricted to the oil-burning, climate-wrecking past-its sell-by-date car industry. In the US, electronics giant Agilent Technologies is sacking 2,700 workers – 14% of its staff. The company expects revenue from its electronic measurement and semiconductor businesses to fall between 30% and 50% from 2008 to the lowest in its 10-year history and sees "no prospects for a meaningful recovery in the foreseeable future."
The rate of growth - now decline - of industrial production is the key measure of the health of capitalist production. Without growth, profits decline, investment falls off and jobs are shed. While Timothy Geithner, the US secretary, was talking tough about regulation yesterday, figures released showed that US corporate profits fell at the sharpest pace for 55 years. Meanwhile the number of people continuing to claim unemployment benefits rose by 122,000 to 5.56m, the highest total since tracking began in 1967.
The impact of the global capitalist crisis is being felt everywhere. French president Sarkozy has been in the Democratic Republic of Congo with a raiding party of business leaders. The country’s only industry is copper mining. Exports, especially to the companies producing for the global corporations in China, soared during the explosion of commodity production. Now that it’s all over, tens of millions of Chinese workers have been sent home, whole towns shut down. In the Congo, mining production has been cut in half and 300,000 are without work, or income.
The descent into global slump is fast and furious and suggestions that it will bottom out this year and growth resume in 2010 are clearly off the wall. People without jobs don’t buy things and banks without capital don’t lend, sending demand ever lower. Governments that have over-borrowed (i.e. Britain’s) can’t launch the very “fiscal stimulus” that Brown is urging all other countries to adopt.
Solutions won’t come from telling the G20 to “put people first”, the official slogan of tomorrow's TUC-sponsored demonstration in London. Capitalism can’t change course. The financial and productive sectors are locked in a deadly embrace where the victims are ordinary working people in every country. We must plan for an ecologically-sustainable future, based on co-operation not competition, co-ownership not private ownership, and for meeting social need not the demands of bankers and shareholders. Ending the rule of capital is long overdue.
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 global slump. Show all posts
Showing posts with label global slump. Show all posts
Friday, March 27, 2009
Wednesday, March 25, 2009
'Cash for trash' is just rubbish
If someone suggested that you spend a sizeable proportion of your income on buying a pile of household waste from the local refuse tip, you would rightly think they were off their heads. That, however, is exactly what’s happening in the United States in what is now being dubbed by some as President Obama’s “cash for trash” programme.
The “rubbish” in this instance are the dodgy “assets” held by the country’s banks, which they can’t get rid of because no one is willing to put a price on them. Once described as toxic, the White House is apparently now describing them as “legacy” assets. Some inheritance for American working people!
The “cash for trash” programme is truly staggering in its complexity but the essence is that private funds will actually receive a subsidy from the US central bank and another state body to buy rubbish assets from the banks. If the asset miraculously rises in price, the funds keep the profits. If they fall in price, the state takes the hit. As one investor put it: “It’s a win win situation.” Up to $1 trillion could be involved in what is euphemistically called the “Public Private Investment Program”.
This mad-cap scheme is a sign of the desperate nature of the financial crisis in the United States and also reflects a growing rage over taxpayer bail-outs to profligate banks and insurance companies who, like AIG, use the money to pay executive bonuses. A Bill is in Congress that aims to impose a retrospective 90% tax rate on AIG bonuses, which Obama is under fire for doing nothing about.
Will it work? Many have serious doubts. New York Times columnist and economist Paul Krugman believes that not only is it the wrong policy but that the political mood is “getting ugly” and that the failure of the “cash for trash” policy will prevent Obama from going back to Congress for more funds.
Similar concerns are voiced by the Financial Times’ most eminent commentator, Martin Wolf who today admits to “becoming ever more worried” by Obama’s lack of decisiveness against a “grim background” of the “worst global economic crisis since the 1930s”. He is also concerned that if somehow if, against all odds, the scheme works, fund managers will make vast returns. “I fear this is going to convince ordinary Americans that their government is a racket run for the benefit of Wall Street.” Looking at the prospects for next week’s G20 summit, Wolf concludes that with the “US at an impasse” the outlook is ”frightening”.
For both Wolf and Krugman, the main issue remains the recapitalisation of the banks. And neither the money nor the political will exists for the state to undertake such a project. Certainly not in Britain, where the governor of the Bank of England yesterday pointedly told the New Labour government that the state is over-mortgaged and can’t spend any more. In fact, steep tax rises and sharp cuts in public spending lie ahead.
It’s not just the US that’s in an impasse. The crisis has already led to the collapse of the Czech government, the departure of the Hungarian prime minister as well as mass student and worker actions in France. There are no magic solutions that will end the global capitalist crisis and for all Gordon Brown’s determination to talk up next week’s G20 in London, it will come up with a big fat zero.
Ultimately, there are just two options: the major economies plummet uncontrollably into deep slump, with mass unemployment, wages cuts and the rest; or we put people first by establishing social control of economic and financial resources as the precondition for creating a more rational system. There is no middle way.
Paul Feldman
AWTW communications editor
The “rubbish” in this instance are the dodgy “assets” held by the country’s banks, which they can’t get rid of because no one is willing to put a price on them. Once described as toxic, the White House is apparently now describing them as “legacy” assets. Some inheritance for American working people!
The “cash for trash” programme is truly staggering in its complexity but the essence is that private funds will actually receive a subsidy from the US central bank and another state body to buy rubbish assets from the banks. If the asset miraculously rises in price, the funds keep the profits. If they fall in price, the state takes the hit. As one investor put it: “It’s a win win situation.” Up to $1 trillion could be involved in what is euphemistically called the “Public Private Investment Program”.
This mad-cap scheme is a sign of the desperate nature of the financial crisis in the United States and also reflects a growing rage over taxpayer bail-outs to profligate banks and insurance companies who, like AIG, use the money to pay executive bonuses. A Bill is in Congress that aims to impose a retrospective 90% tax rate on AIG bonuses, which Obama is under fire for doing nothing about.
Will it work? Many have serious doubts. New York Times columnist and economist Paul Krugman believes that not only is it the wrong policy but that the political mood is “getting ugly” and that the failure of the “cash for trash” policy will prevent Obama from going back to Congress for more funds.
Similar concerns are voiced by the Financial Times’ most eminent commentator, Martin Wolf who today admits to “becoming ever more worried” by Obama’s lack of decisiveness against a “grim background” of the “worst global economic crisis since the 1930s”. He is also concerned that if somehow if, against all odds, the scheme works, fund managers will make vast returns. “I fear this is going to convince ordinary Americans that their government is a racket run for the benefit of Wall Street.” Looking at the prospects for next week’s G20 summit, Wolf concludes that with the “US at an impasse” the outlook is ”frightening”.
For both Wolf and Krugman, the main issue remains the recapitalisation of the banks. And neither the money nor the political will exists for the state to undertake such a project. Certainly not in Britain, where the governor of the Bank of England yesterday pointedly told the New Labour government that the state is over-mortgaged and can’t spend any more. In fact, steep tax rises and sharp cuts in public spending lie ahead.
It’s not just the US that’s in an impasse. The crisis has already led to the collapse of the Czech government, the departure of the Hungarian prime minister as well as mass student and worker actions in France. There are no magic solutions that will end the global capitalist crisis and for all Gordon Brown’s determination to talk up next week’s G20 in London, it will come up with a big fat zero.
Ultimately, there are just two options: the major economies plummet uncontrollably into deep slump, with mass unemployment, wages cuts and the rest; or we put people first by establishing social control of economic and financial resources as the precondition for creating a more rational system. There is no middle way.
Paul Feldman
AWTW communications editor
Thursday, April 10, 2008
IMF predicts the unpredictable
Headline reports of the stark admissions, predictions and warnings in the two latest reports from the International Monetary Fund (IMF) literally overshadow the impact of the developing financial and economic crisis on the world’s population. A third report, also released this week, for the weekend spring meetings of the central bankers and finance ministers has been almost universally ignored.
The World Bank’s global monitoring report report deals with the results and prospects of action on the Millennium Development Goals (MDGs) such as child and maternal mortality, poverty, malnutrition, education, climate change, sustainable development. It’s not really surprising that nobody is paying them much attention now, since progress on the MDGs has always been made contingent on extracting crumbs from an ever-expanding capitalist economy.
Now the blunt statements from the IMF’s Global Financial Stability report and World Economic Outlook (WEO) tell us that “the financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression”.
Headlines refer to the $945 billion predicted losses to the banks and other financial institutions arising from the US sub-prime mortgage crisis. But you should put this together with a muted, unquantified reference in the WEO to “rising questions about the soundness of the credit-default-swap market’”, which has played a big role in the so-called spreading of risk. Some put the size of that market, now effectively worthless, at $45 trillion, dwarfing the sub-prime losses. Doesn’t bear thinking about.
And, as “both of the financial system’s twin engines [the banking system and the securities markets] are faltering at the same time” the present credit squeeze could “mutate into a full-blown credit crunch”, warns the IMF. Especially as the huge injections of additional liquidity by the Federal Reserve and other central banks intended to ease the problem appear to be having the opposite effect – credit is becoming less available and more expensive.
With the US already in a recession, the IMF has revised its previous predictions for growth sharply downwards offering a 25% chance of a global recession. But is this a prediction dependent on the success of proposed co-ordinated action by a broad group of countries, or is it what might happen if such multilateral initiatives fail? It is just not clear. At least to me.
What the newspapers don’t report is that the IMF points to “a collective failure” to appreciate the extent of growth of credit and “the associated risks of a disorderly unwinding”. In other words, all those who were supposedly in a position to steer the global economy failed to see the dangers of a 60-year boom made possible only by a ballooning of credit in a variety of forms.
So why aren’t they all resigning? And why should we believe any of the predictions they are now making? Like this one: “All the advanced economies are expected to face serious consequences if deepening losses to bank capital and a further loss of confidence in structured financing were to transform the current credit squeeze into a full-blown credit crunch.” The IMF also admits that no previous episodes of distress in the finance sector “provide much guidance for the current unprecedented situation”.
As the mathematically-based econometric models they use for prediction aren’t up to the job, they’ve invented a new one based on “a combination of negative shocks” just to see what might happen. They consider three related shocks:
• A temporary shock to consumption and investment from a further tightening of credit conditions while the financial system goes through a protracted rehabilitation period during which capital and credibility are repaired after extended financial turmoil.
• A permanent downward shift in expectations for long-term productivity growth in the United States.
• A shift in investor preferences away from US assets.
Once again, the global consequences of this combination of shocks - a deeper and longer recession - don’t bear thinking about. Except that the IMF recommends that countries should start contingency planning. The worst is yet to come.
The uncertainly around the unravelling of credit and its impact brings to mind the famous 2002 statement by the then US secretary of defence, Donald Rumsfeld:
As we know,
There are known knowns.
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don't know
We don't know.
Gerry Gold
Economics editor
The World Bank’s global monitoring report report deals with the results and prospects of action on the Millennium Development Goals (MDGs) such as child and maternal mortality, poverty, malnutrition, education, climate change, sustainable development. It’s not really surprising that nobody is paying them much attention now, since progress on the MDGs has always been made contingent on extracting crumbs from an ever-expanding capitalist economy.
Now the blunt statements from the IMF’s Global Financial Stability report and World Economic Outlook (WEO) tell us that “the financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression”.
Headlines refer to the $945 billion predicted losses to the banks and other financial institutions arising from the US sub-prime mortgage crisis. But you should put this together with a muted, unquantified reference in the WEO to “rising questions about the soundness of the credit-default-swap market’”, which has played a big role in the so-called spreading of risk. Some put the size of that market, now effectively worthless, at $45 trillion, dwarfing the sub-prime losses. Doesn’t bear thinking about.
And, as “both of the financial system’s twin engines [the banking system and the securities markets] are faltering at the same time” the present credit squeeze could “mutate into a full-blown credit crunch”, warns the IMF. Especially as the huge injections of additional liquidity by the Federal Reserve and other central banks intended to ease the problem appear to be having the opposite effect – credit is becoming less available and more expensive.
With the US already in a recession, the IMF has revised its previous predictions for growth sharply downwards offering a 25% chance of a global recession. But is this a prediction dependent on the success of proposed co-ordinated action by a broad group of countries, or is it what might happen if such multilateral initiatives fail? It is just not clear. At least to me.
What the newspapers don’t report is that the IMF points to “a collective failure” to appreciate the extent of growth of credit and “the associated risks of a disorderly unwinding”. In other words, all those who were supposedly in a position to steer the global economy failed to see the dangers of a 60-year boom made possible only by a ballooning of credit in a variety of forms.
So why aren’t they all resigning? And why should we believe any of the predictions they are now making? Like this one: “All the advanced economies are expected to face serious consequences if deepening losses to bank capital and a further loss of confidence in structured financing were to transform the current credit squeeze into a full-blown credit crunch.” The IMF also admits that no previous episodes of distress in the finance sector “provide much guidance for the current unprecedented situation”.
As the mathematically-based econometric models they use for prediction aren’t up to the job, they’ve invented a new one based on “a combination of negative shocks” just to see what might happen. They consider three related shocks:
• A temporary shock to consumption and investment from a further tightening of credit conditions while the financial system goes through a protracted rehabilitation period during which capital and credibility are repaired after extended financial turmoil.
• A permanent downward shift in expectations for long-term productivity growth in the United States.
• A shift in investor preferences away from US assets.
Once again, the global consequences of this combination of shocks - a deeper and longer recession - don’t bear thinking about. Except that the IMF recommends that countries should start contingency planning. The worst is yet to come.
The uncertainly around the unravelling of credit and its impact brings to mind the famous 2002 statement by the then US secretary of defence, Donald Rumsfeld:
As we know,
There are known knowns.
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don't know
We don't know.
Gerry Gold
Economics editor
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