As their system continues to slide into its worst crisis since the 1930s, the frantic efforts of world capitalist leaders to reverse the process are farcical, contradictory and ineffective. “Is anyone in control? Is this a runaway train?” asked a presenter on a British news programme on Monday evening – the day Wall Street crashed by 6% and markets everywhere plummeted.
In a matter of weeks, more than $5 trillion has been wiped from equity market values worldwide – half of that total in the past week. The creditworthiness of the most powerful economy in the world has been questioned. Eurozone leaders are stumbling from one summit to another without being able to solve the crisis.
Last Friday (5 August) the credit rating agency, Standard and Poor, down-graded US government bonds from AAA to AA+. This, they said, was due to the debacle between Democrats and Republicans over the debt ceiling for the US – now standing at $14 trillion – the highest in the world. Then S&P found its sums were wrong (by a mere $ 2 trillion!). But, extremely pessimistic about growth prospects, they still maintained that lenders would have doubts about buying US government bonds.
But, apparently, those who have the most invested in US ’Treasuries’ – namely the Chinese Government, with two-thirds of its foreign reserves of $3,187 billion in dollars – have no intention of selling! It may be diversifying more into Europe and elsewhere but, like most other creditors to the US government, they are not pulling out, and the cost for the US of borrowing money has not increased dramatically.
Nevertheless, the official Chinese ’People’s Daily’ newspaper took the opportunity to suggest that the US government should not “become blind to the great risks that a weak greenback could pose to the world’s fragile economic recovery by lifting dollar-denominated commodities prices…It is time for the US to tighten its belt and solve its structural problems, in order to resume its reputation and restore world confidence”.
The biggest concern in relation to the US economy is now whether it is facing a ‘double dip’. There are fears that the austerity measures needed to tackle high levels of debt in the US and some eurozone countries, could actually stifle their already weak economic recovery. There are renewed expectations that the Federal Reserve will announce a new round of quantitative easing, or QE3, in response to forecasts of the US having a 50-50 chance of entering recession before the end of the year.
Fears about the future of the world economy have been reflected in the price of gold and oil. Gold, always a favourite in uncertain times, jumped to a new nominal record of $1,720 an ounce by the end of Monday. The price of oil has considerably declined on concerns that weak global growth could lead to a fall in demand.
As the CWI has explained on many occasions, the very feeble recovery, due to massive injections of public money, has not been accompanied by any sizeable growth in gross domestic product. Apart from some notable exceptions it did not bring jobs for the tens of millions of unemployed nor stem what seems like a war on the poor – massive cuts in public spending. Further cutbacks and downturns in the prospects for young people lie behind the outbursts of anger seen this week on Britain’s streets. Seriously prepared strikes and general strikes are urgently needed in a series of countries now to stem the attacks on pension rights and other public spending.
The CWI warned that, without the trade union leaders giving a clear lead in the struggle against cuts – across Europe and in other countries – clashes with police and attacks on property could erupt in the most deprived urban areas. In Britain now, analogies are being drawn with the ’riots’ under Thatcher in the ’80s and the uprisings of the dispossessed in the ’banlieus’ of Paris two years ago. Looting and arson tend to harm the very communities in which the most oppressed live. But it is entirely understandable that the pent up anger of young people against the system and against the corrupt and often racist police should break out on the streets. Attacks on the real looters – the bankers and big business – are more to the point.
A programme of jobs and homes for all accompanied by a struggle for the nationalisation under democratic workers’ control and management of the banks and big monopolies can channel all the anger and frustration of youth and workers against the system.
Two weeks ago, there was a special meeting of Eurozone finance ministers to agree on another bail-out for Greece. Within hours it was clear this would not solve the underlying problems of that country or prevent a default on the national debt. (See article: Eurozone: Last-minute rescue package)
Before the July 21 agreement can even come into force, it has to be ratified by all of the Eurozone governments, mostly through their parliaments, which are not in session during the month of August. Willem Buiter of Citigroup made the comment that, “getting 17 eurozone parliaments to support major changes is like getting a centipede hurdling”!
Only two weeks after this – last Sunday – under pressure from the Eurozone leaders, especially Merkel and Sarkozy, the European Central Bank was forced to announce new measures to try and prevent the stock markets going into a tail-spin after Friday’s news from America! The previous policy of buying Italian and Spanish bonds on the open market was reversed. This has reduced, at least temporarily, the rates on these countries’ borrowings. Other discussions have taken place about expanding the powers to intervene by using the €440bn in the European Financial Stability Fund but they are hampered by the need for unanimity across the zone. Just these two governments alone need to find an extra €840bn over the coming 18 months – more than the total of bail-outs already found for Greece, Ireland and Portugal.
The ECB measure will ease the situation in relation to the debts of Italy and Spain. But the strings attached will bring them into head on confrontation with their populations.
Tobias Blattner, a former economist at the European Central Bank, said on Monday that the ECB’s intervention had done little to help the crisis of confidence gripping the share markets. “This reflects the fundamentals that growth is in a very bad situation on both sides of the Atlantic and this is why the ECB’s interventions will not change anything”.
Italy’s prime minister, Silvio Berlusconi, last week tried to give the impression there was no major problem in Italy. But his country has one of the biggest debts as a percentage of GDP (nearly 120%) and an economy which has failed to grow more than a fraction of 1% for the past two decades. He has now agreed, with his government, that the budget cuts planned for 2014 (well after the next general election) will be brought forward to 2013 – still after the next election is due! Berlusconi himself has said he will not stand next time round, but he desperately needs a government in power that will not allow three major court cases against him to proceed.
Spain’s prime minister, Zapatero, has also declared he will not stand in the next election, sensing the widespread dissatisfaction with his inability to get Spain’s economy back into healthy growth. He has nevertheless agreed to increase austerity measures as a condition of the new loans. The massive level of youth unemployment and a feeling of utter neglect by politicians has been behind the mass movement of the ‘indignados’ – young people disillusioned with political parties and looking for radical, even revolutionary solutions.
David Jones, an analyst at the firm IG Index, believes that investors will remain unconvinced about putting their money into anything, despite the various attempts by leaders and international authorities to reassure the markets. “It hasn’t changed the feeling that politicians both in Europe and in the US are always a few steps behind where the crisis is,” he said. “Markets still think there is a lot of talk from politicians but not much action”. This he sees as a major political reason “why the markets have been so weak over the past week”.
Richard Hunter, a broker from Hargreaves Lansdown, said: “The markets are looking for a concrete plan out of Europe and the US in terms of how they are going to deal with their deficits.” But because of private ownership and the states’ role in defending the national interests of their own capitalists, a clear plan is something that capitalism, by its very nature, can never provide.
Capitalist anarchy, socialist development
Trying to control an anarchic and blind system, none of the measures they take seems to stem the downward spiral into the worst crisis since the 1930s. The measures they take to try and rescue their system will mean yet more cuts and austerity, yet more suffering and anguish for the vast majority of the world’s population. As it is, according to a medical journal, the Lancet, as a direct result of economic collapse in Greece and Ireland, the suicide rates have soared in the past two years by 16 and 14% respectively.
The accumulating crises – economic and political – of the last few weeks, have only served to underline the chaotic and wasteful way in which capitalism works…or fails to work. Only 58.1% of Americans of working age now have a real job. Tens of millions of people world-wide – young and old – are on the scrap-heap when they could be producing goods and providing services.
On the basis of public ownership and democratic planning, all the human and physical resources of society could be harnessed for the benefit of the vast majority instead of the increasingly rich minority.
The stranglehold of the banks and capitalist politicians over the lives of millions, in fact, billions, has to be broken. Mass movements including general strikes will show the power that the working class can wield in society. Linked with the energy and anger of the youth, new mass workers’ parties can be rapidly built. Confidence in the idea of a socialist alternative to capitalism can and must be renewed without delay.