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
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 printing money. Show all posts
Showing posts with label printing money. Show all posts
Wednesday, September 29, 2010
Wednesday, August 11, 2010
US economy on the brink
The self-created mirage of recovery that helped sustain the tattered remnants of the American Dream evaporated yesterday as reality came calling.
The desperate measures taken to halt the imminent sacking of hundreds of thousands of public sector workers was only one event in a day of reckoning.
Five stark paragraphs comprising the statement issued by the Federal Reserve - America’s central bank - reeks of the stench of exhausted defeat. The first outlines the problem. It needs no interpretation:
In the action paragraphs, the committee explains that base interest rates will be kept at their historic low, but reiterates that “resource slack”, which means massive overcapacity in production, eliminates any hope of anything changing for years or decades to come.
In what is seen as a reversal of previous policy, the Fed is intent on printing even more money in a bid to stimulate the economy. It plans to use the income from repayments on mortgages it bought during the financial meltdown of 2008 to pump out more dollars.
If nothing else it gives a new meaning to recycling. Once the money has been captured from American families, the figures just keep moving around inside the Federal Reserve’s computers. Paul Ashworth of Capital Economics called the decision a "symbolic gesture".
Yesterday, Obama recalled the members of the House of Representatives back from their summer recess so that they could pass an emergency bill approving $26bn (£16.4bn) funds for states which have run out of money, and $16.1bn to extend funding for the Medicaid healthcare programme for low-income Americans.
Without the emergency aid, states would have laid off police, teachers and firefighters and all of the key services would have ceased functioning. The states themselves have suffered during the recession through a loss of revenue through sales and property taxes. The aid will only get them through the current financial year, however.
Those who claim that public spending is the answer to the economic crisis have had their fingers burnt by the US experience. Obama’s government has spent trillions in a various stimulus packages – all to no avail.
That’s because the crisis of capitalism is global and marked by the classic symptoms of over-production, over-capacity and falling demand. The boom was artificially fuelled by mountains of credit and debt which inevitably proved unsustainable and led to the implosion of the financial system. Without easy credit, consumers are in general spending what money they have on necessities like food and shelter.
It all adds up to the American economy being on the brink of collapse, adding to the sense of political crisis gathering around the Obama presidency.
Gerry Gold
Economics editor
The desperate measures taken to halt the imminent sacking of hundreds of thousands of public sector workers was only one event in a day of reckoning.
Five stark paragraphs comprising the statement issued by the Federal Reserve - America’s central bank - reeks of the stench of exhausted defeat. The first outlines the problem. It needs no interpretation:
Information received since … June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in non-residential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.
In the action paragraphs, the committee explains that base interest rates will be kept at their historic low, but reiterates that “resource slack”, which means massive overcapacity in production, eliminates any hope of anything changing for years or decades to come.
In what is seen as a reversal of previous policy, the Fed is intent on printing even more money in a bid to stimulate the economy. It plans to use the income from repayments on mortgages it bought during the financial meltdown of 2008 to pump out more dollars.
If nothing else it gives a new meaning to recycling. Once the money has been captured from American families, the figures just keep moving around inside the Federal Reserve’s computers. Paul Ashworth of Capital Economics called the decision a "symbolic gesture".
Yesterday, Obama recalled the members of the House of Representatives back from their summer recess so that they could pass an emergency bill approving $26bn (£16.4bn) funds for states which have run out of money, and $16.1bn to extend funding for the Medicaid healthcare programme for low-income Americans.
Without the emergency aid, states would have laid off police, teachers and firefighters and all of the key services would have ceased functioning. The states themselves have suffered during the recession through a loss of revenue through sales and property taxes. The aid will only get them through the current financial year, however.
Those who claim that public spending is the answer to the economic crisis have had their fingers burnt by the US experience. Obama’s government has spent trillions in a various stimulus packages – all to no avail.
That’s because the crisis of capitalism is global and marked by the classic symptoms of over-production, over-capacity and falling demand. The boom was artificially fuelled by mountains of credit and debt which inevitably proved unsustainable and led to the implosion of the financial system. Without easy credit, consumers are in general spending what money they have on necessities like food and shelter.
It all adds up to the American economy being on the brink of collapse, adding to the sense of political crisis gathering around the Obama presidency.
Gerry Gold
Economics editor
Wednesday, May 13, 2009
'Green shoots' fantasy world
From international speculator George Soros, to the Organisation for Economic Co-operation and Development (OECD), to global stock markets, there is a concerted attempt to declare that the worst of the economic crisis is over. That’ll be no comfort for 244,000 in the UK who have joined the ranks of the unemployed and the thousands of school and university leavers this summer, whose job prospects are the worst for a generation.
The unemployment rate reached 7.1% by the end of March, rising from 6.3% at the end of December, the Office of National Statistics has reported. Unemployment in the first quarter of 2009 rose by the biggest amount since 1981 and the total of 2.22 million without work is the highest since 1996, the year before Labour came to power and will pass 3 million within a year.
One in six 18- to 24-year-olds is now out of work. At 676,000 (16.1% ) the level of youth unemployment is as high as in the mid-1990s. It is up almost one-third on last year; 227,000 under-25s have been without work for over six months. Professor John Philpott, the chief economist at the Chartered Institute of Personnel and Development (CIPD), described the data as "truly appalling". He said: "Youth employment prospects are crumbling. With the toll of job losses falling most heavily on the under-25s it will be a bleak summer and autumn for this year's crop of young talent."
So what is this “green shoots of recovery” nonsense all about? Actually, says the OECD, “the pace of the deterioration is easing” and “severe declines in economic output across the world are moderating”. In plain English, the crisis in the major economies is deepening – but at a slower pace!
Not in China, the world’s third largest economy, however. Exports continue to collapse, while imports of raw materials are in steep decline. Hao Daming, analyst at Galaxy Securities in Beijing weighed in with this: “The trade figures are worse than we expected. We will see exports dropping by at least 20% for the rest of 2009 as uncertain world demand will remain a drag.”
The slump in exports and imports, which has been mirrored across Asia, underscores the dramatic downturn in Western consumer demand. Chinese officials estimate 23 million migrant workers have lost their jobs because of the closure of thousands of export-oriented factories, undermining the hope that domestic demand can reverse the downward trend.
The real story is that the global capitalist economy is on a state-funded life support system. Central Banks in the United States, Europe and Britain are printing money like there is no tomorrow in a desperate bid to keep the financial system alive. With untold sums in toxic, worthless assets still overhanging the financial system, there is still no sign of an end to the credit freeze, however.
Only last week, the Bank of England announced another £50 billion injection in freshly printed money, leading some analysts to suggest that a third wave of bank crashes was on the horizon. A number of mutual building societies are also said to be in trouble because of falling house prices and repossessions.
Meanwhile, large sections of industrial capacity are being wiped out throughout the world, from the Corus steelworks on Teesside to car factories in Detroit as demand melts away. All talk of the “green shoots of recovery” is strictly for the birds and a further indication that capitalist policy makers and politicians inhabit a fantasy world all of their own.
Gerry Gold
Economics editor
The unemployment rate reached 7.1% by the end of March, rising from 6.3% at the end of December, the Office of National Statistics has reported. Unemployment in the first quarter of 2009 rose by the biggest amount since 1981 and the total of 2.22 million without work is the highest since 1996, the year before Labour came to power and will pass 3 million within a year.
One in six 18- to 24-year-olds is now out of work. At 676,000 (16.1% ) the level of youth unemployment is as high as in the mid-1990s. It is up almost one-third on last year; 227,000 under-25s have been without work for over six months. Professor John Philpott, the chief economist at the Chartered Institute of Personnel and Development (CIPD), described the data as "truly appalling". He said: "Youth employment prospects are crumbling. With the toll of job losses falling most heavily on the under-25s it will be a bleak summer and autumn for this year's crop of young talent."
So what is this “green shoots of recovery” nonsense all about? Actually, says the OECD, “the pace of the deterioration is easing” and “severe declines in economic output across the world are moderating”. In plain English, the crisis in the major economies is deepening – but at a slower pace!
Not in China, the world’s third largest economy, however. Exports continue to collapse, while imports of raw materials are in steep decline. Hao Daming, analyst at Galaxy Securities in Beijing weighed in with this: “The trade figures are worse than we expected. We will see exports dropping by at least 20% for the rest of 2009 as uncertain world demand will remain a drag.”
The slump in exports and imports, which has been mirrored across Asia, underscores the dramatic downturn in Western consumer demand. Chinese officials estimate 23 million migrant workers have lost their jobs because of the closure of thousands of export-oriented factories, undermining the hope that domestic demand can reverse the downward trend.
The real story is that the global capitalist economy is on a state-funded life support system. Central Banks in the United States, Europe and Britain are printing money like there is no tomorrow in a desperate bid to keep the financial system alive. With untold sums in toxic, worthless assets still overhanging the financial system, there is still no sign of an end to the credit freeze, however.
Only last week, the Bank of England announced another £50 billion injection in freshly printed money, leading some analysts to suggest that a third wave of bank crashes was on the horizon. A number of mutual building societies are also said to be in trouble because of falling house prices and repossessions.
Meanwhile, large sections of industrial capacity are being wiped out throughout the world, from the Corus steelworks on Teesside to car factories in Detroit as demand melts away. All talk of the “green shoots of recovery” is strictly for the birds and a further indication that capitalist policy makers and politicians inhabit a fantasy world all of their own.
Gerry Gold
Economics editor
Friday, February 13, 2009
Hoping for the best - preparing for the worst
When the Governor of the Bank of England says it out loud, it’s because it has already happened. As Mervyn King said himself, he’s not paid to make predictions. It’s why only six months ago he didn’t even acknowledge the possibility. So, in confirming the obvious he says the UK economy faces its deepest recession since the post-war years of 1945 and 1946, and its worst peacetime decline since 1931.
He has also warned that unless governments around the world are able to bring the banking crisis to an end, the consequences for the economy could be even worse. Can they do it? Can they hell! And the gamblers on the financial markets know it.
When Barack Obama’s treasury secretary Timothy Geithner this week presented the vaguest outline of his $2 trillion plan to buy the banks’ bad debt (how crazy can he be?) investors started piling in – but to buy Japanese government bonds. Rather than attracting funds to the promise of a recovering US economy, Geithner’s offer actually drove them away. In fact, the extent of US government bail-outs, far from easing the credit crunch, has actually forced up the cost of borrowing. Buyers of government debt are demanding higher returns because of the risk.
As one leading commentator explained: “Who can blame bond vigilantes for going on strike? Nobody wants to be left holding the bag if and when the global monetary blitz succeeds in stoking inflation.” The switch from American to Japanese bonds is no vote of confidence, however. In fact, it’s a desperate move because the crisis in Japan is perhaps the gravest of all.
Japanese companies are forecasting an 83% decline in profit this year. Next week’s figures are expected to show that economic output is falling at almost three times the pace of contractions in other major economies and could plummet by as much as 50% by the middle of the year. With the world economy in freefall, external demand has collapsed, especially in “emerging markets” of south-east Asia. Exports from Japan fell by almost a quarter in the fourth quarter as global credit markets seized up.
Toyota, Toshiba and Hitachi are forecasting losses and have fired thousands of workers. The sackings have intensified in the last two weeks, with Nissan, NEC and Panasonic announcing a combined 55,000 job cuts. The jobless rate surged to 4.4% in December from 3.9 percent, the biggest jump in four decades. “You’re getting mass unemployment,” said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo, Schulz. “It’s really scaring the households.”
Obama’s America is also shedding jobs at a record rate. The number of Americans collecting unemployment benefits rose to a record 4.81 million in the last week of January as companies such as Caterpillar and Home Depot slashed jobs. The U.S. lost 2.6 million jobs last year in the biggest workforce reduction since 1945. “The housing sector was already weak, and now we are seeing deeper employment reductions,” said Brian Bethune, chief financial economist at IHS Global Insight. “Every round of job cuts means fewer people who can get a mortgage and buy a house.” Sales of properties with mortgages in default accounted for 45% of all transactions at the end of 2008.
There is a last throw of the dice left to try and get the capitalist economy off intensive care – the printing of money (or “quantitative easing” as it is euphemistically known as). Governor King said that the Bank of England was moving in that direction. The capitalist press regards it as a "last chance solution" (or should that be "saloon"?), with the Evening Standard saying: “These are uncharted waters; in unprecedented times, Mr King can only hope for the best.”
At the same time, the ruling elites are preparing for the worst. In Britain, New Labour is in government but hardly in power and is disintegrating under the tsunami of events. These are also unchartered waters politically and we should redouble our efforts to build a movement for change around the demands of the People’s Charter for Democracy.
Gerry Gold
Economics editor
He has also warned that unless governments around the world are able to bring the banking crisis to an end, the consequences for the economy could be even worse. Can they do it? Can they hell! And the gamblers on the financial markets know it.
When Barack Obama’s treasury secretary Timothy Geithner this week presented the vaguest outline of his $2 trillion plan to buy the banks’ bad debt (how crazy can he be?) investors started piling in – but to buy Japanese government bonds. Rather than attracting funds to the promise of a recovering US economy, Geithner’s offer actually drove them away. In fact, the extent of US government bail-outs, far from easing the credit crunch, has actually forced up the cost of borrowing. Buyers of government debt are demanding higher returns because of the risk.
As one leading commentator explained: “Who can blame bond vigilantes for going on strike? Nobody wants to be left holding the bag if and when the global monetary blitz succeeds in stoking inflation.” The switch from American to Japanese bonds is no vote of confidence, however. In fact, it’s a desperate move because the crisis in Japan is perhaps the gravest of all.
Japanese companies are forecasting an 83% decline in profit this year. Next week’s figures are expected to show that economic output is falling at almost three times the pace of contractions in other major economies and could plummet by as much as 50% by the middle of the year. With the world economy in freefall, external demand has collapsed, especially in “emerging markets” of south-east Asia. Exports from Japan fell by almost a quarter in the fourth quarter as global credit markets seized up.
Toyota, Toshiba and Hitachi are forecasting losses and have fired thousands of workers. The sackings have intensified in the last two weeks, with Nissan, NEC and Panasonic announcing a combined 55,000 job cuts. The jobless rate surged to 4.4% in December from 3.9 percent, the biggest jump in four decades. “You’re getting mass unemployment,” said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo, Schulz. “It’s really scaring the households.”
Obama’s America is also shedding jobs at a record rate. The number of Americans collecting unemployment benefits rose to a record 4.81 million in the last week of January as companies such as Caterpillar and Home Depot slashed jobs. The U.S. lost 2.6 million jobs last year in the biggest workforce reduction since 1945. “The housing sector was already weak, and now we are seeing deeper employment reductions,” said Brian Bethune, chief financial economist at IHS Global Insight. “Every round of job cuts means fewer people who can get a mortgage and buy a house.” Sales of properties with mortgages in default accounted for 45% of all transactions at the end of 2008.
There is a last throw of the dice left to try and get the capitalist economy off intensive care – the printing of money (or “quantitative easing” as it is euphemistically known as). Governor King said that the Bank of England was moving in that direction. The capitalist press regards it as a "last chance solution" (or should that be "saloon"?), with the Evening Standard saying: “These are uncharted waters; in unprecedented times, Mr King can only hope for the best.”
At the same time, the ruling elites are preparing for the worst. In Britain, New Labour is in government but hardly in power and is disintegrating under the tsunami of events. These are also unchartered waters politically and we should redouble our efforts to build a movement for change around the demands of the People’s Charter for Democracy.
Gerry Gold
Economics editor
Tuesday, January 20, 2009
The bankruptcy of 'politics'
The failure of a second state bail-out to resuscitate the corpse of British banking, as Lib Dem spokesman Vince Cable so eloquently put it, is a dramatic indication that the entire financial system is close to the precipice. With this looms the increasing possibility of state bankruptcy and an end to what now passes for conventional politics.
An authoritarian national government of the major parties is an outcome that cannot be easily ruled out. Such a regime could use existing draconian powers to suppress dissent alongside the declaration of a state of emergency. It would have to rely heavily on the police and the army to maintain order.
Those of you who think this is simply a fantasy projection of someone who has read too many political thrillers have to answer the following questions: What happens when the state is unable to influence economic and financial events to the extent it can’t prevent the collapse of the banks, even by writing them a blank cheque? What are the consequences if Britain becomes “Iceland-on Thames”, needing a loan from the International Monetary Fund, or goes bankrupt, as economist and writer Will Hutton and others are now suggesting?
What will be the impact on social order if millions are thrown out of work overnight? And what are the implications of an unstoppable run on the pound, which gathered pace today, with Jim Rogers, the co-founder of Quantum fund with George Soros, telling Bloomberg News that “I would urge you to sell any sterling you might have”?
The fact is that we have entered a period of the unknown in British and world politics, where conventional or even unconventional policies cannot alter the course of the recession, which is now rapidly turning into a slump. Who could have predicted that the Royal Bank of Scotland’s shares would fall by 65% in one day to 12p each and that its losses for 2008 would total £28 billion? Or that banks which financed loans to British consumers and companies by borrowing on global markets would no longer be able to do so?
As Anthony Hilton, leading financial commentator for the London Evening Standard, put it: “The fall from grace not just of the banking system but the global economy is unprecedented in its suddenness, its pace and the extent of the decline. There is no bottom in sight yet. In this regard, today's developments, momentous though they are, will not change much. To avoid economic disaster you need solvent banks. But on its own, those are not enough. You also need confidence.”
Government ministers may rage at the banks for their reckless behaviour but the long and the short of it is that the expansion of the financial system ran alongside the rapid growth of the global economy, where consumers had access to buy goods they could barely otherwise afford. At the same time, the financial sector carried the economy – while producers of commodities struggled to make a profit – rewarding shareholders and providing employment for millions.
New Labour cheered at every increase in house prices and consumer spending, claiming that capitalism had entered a new golden age. Well, it turned out to be a new iron age. Cheap and easy credit vanished and that exposed almost immediately the unsustainable nature of corporate-driven globalsation and the capitalist economic model.
Now ordinary are people paying the price, whether they are taxpayers, workers facing the dole, people losing their homes, the retired dependent on interest from savings or pensions, or the school and university leavers without a future at all. The government has given the Bank of England permission to start printing money, the so-called nuclear option, in an attempt to get people spending and revive the economy. When that desperate last throw of the dice fails, as it surely will, the political and economic crisis will merge into one with all that implies.
AWTW communications editor
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