By: Nick Beams
Source: Global Research
There are increasing signs that the global
economy is about to enter a new period of financial turbulence, coupled with
deepening recession in a growing number of countries.
In the immediate aftermath of the global
economic breakdown that began in 2008, set off by the collapse of the US
investment bank Lehman Brothers, governments around the world took on increased
debt as they made available trillions of dollars to prevent a complete collapse
of the financial system. Meetings of the Group of 20 were dominated by pledges
there would be no return to the conditions of the 1930s and assurances that the
lessons of history had been learned.
The writings of John Maynard Keynes, the British
economist of the 1930s who advocated increased government spending to counter
depressions, were suddenly back in vogue. But a sharp turn came in June 2010,
when a meeting of the G20 initiated a turn to austerity, emphasising the
necessity to impose “fiscal consolidation.” The essence of this program was to
claw back the money given to the banks through massive cutbacks to government
spending, especially on social services.
However, this program brought a contraction in
economic growth leading to decreased profit opportunities for major
corporations. Faced with this situation, the US Federal Reserve initiated a
policy of “quantitative easing”—the provision of unlimited supplies of money to
banks and financial institutions. Central banks around the world cut interest
rates to record lows and followed that up with their own versions of
quantitative easing (QE). Under conditions of a stagnant real economy, these
measures were aimed at boosting the value of financial assets, thereby
providing a new avenue for finance houses to realise speculative profits.
While the QE program and its equivalents have
been touted as a means of preventing a slide into global recession—US Fed
Chairman Ben Bernanke claimed the recently enacted QE3 program was motivated by
continuing high unemployment—they have done virtually nothing to boost the real
economy. Their only significant impact has been to increase profits through
financial manipulation, with the ultra-cheap money provided by the central
banks.
But now there are signs that a new stage in the
global breakdown is underway, marked by growing recessionary trends, as the
impact of the central bankers’ program wanes.
Share prices in the US, which had been lifted by
the QE program, have started to fall as companies report a downturn in sales
and profits amid announcements of further job cuts. This week American
companies pointed to weakening global demand and the fears generated by the
continuing financial crisis in Europe.
Dow Chemical announced it would axe 2,400 jobs,
5 percent of its global workforce. It also said it would shut 20 plants and cut
capital spending by $500 million, citing a “slow-growth environment in the near
term.” DuPont, the largest US chemical group, announced 1,500 layoffs and a
loss for the third quarter. It pointed to a sharp drop in sales to the
Asia-Pacific region, where volumes were down 10 percent compared to a year ago,
dealing a blow to claims that so-called “emerging markets” would provide an
alternative source of global demand.
Overall, US corporate profits and earnings are
expected to fall for the first time since 2009. The latest data on the US
economy show that gross domestic product (GDP) grew at an annual rate of only 2
percent in the third quarter, well below that required to maintain employment
levels. Were it not for the effect of an increase in defence spending, the
figure would have been significantly under market expectations.
The most significant feature of the US GDP data
was investment spending. Its continuing decline reduced the overall growth
figure by 0.1 percentage points for the quarter, while imports and exports both
fell, taking off 0.2 percentage points.
While the central bankers will continue to pump
money into financial markets, these measures will do nothing to turn the
situation around. This week, in a major speech, the governor of the Bank of
England, Mervyn King, noted that every increase in the money supply had a
declining impact on the real economy.
His warnings are confirmed by historical trends.
Writing in the Financial Times, financial analyst Satyajit Das pointed
out that between 2001 and 2008, borrowing against the rising value of houses
contributed about half the growth in the US. “But ever increasing borrowings
are needed to sustain growth. By 2008, $4 to $5 of debt was required to create
$1 of US growth, up from $1 to $2 in the 1950s. China now needs $6 to $8 of
credit to generate $1 of growth, an increase from around $1 to $2 15-20 years
ago.”
At the meetings of the G20 in 2009, government
leaders insisted there would be no return to the protectionist measures of the
1930s which had such a devastating impact on world trade. But the QE program is
producing a twenty-first century version of the beggar-thy-neighbour policies
of the Great Depression. The flood of money from the US Federal Reserve has pushed
down the value of the US dollar, hitting the export markets of its competitors
and leading to the development of “currency wars” as they try to maintain their
position.
Furthermore, the boosting of financial assets
under conditions of slowing economic growth threatens to replicate the
conditions that sparked the 2008 collapse on an even broader scale. This is
because, unlike the situation four years ago, the central banks themselves are
now heavily involved in financial markets and stand to lose massive amounts in
a market collapse.
The central bankers and capitalist politicians
claim that while their actions may not have promoted growth, they have at least
averted a return to the conditions of the 1930s. These claims are belied by the
conditions in Spain and Greece, where unemployment is already at 1930s levels.
Moreover, when viewed from an historical
perspective, their self-congratulations are somewhat premature. The Great
Depression came after a decade of financial and economic turbulence set off by
the breakdown of global capitalism that began with the outbreak of World War I
in 1914.
This time around, the capitalist breakdown began
with a financial crisis that has now set in motion a deepening contraction in
world economy.
Like their counterparts in an earlier period,
the ruling elites have no response to the historic crisis of the profit system
other than a social counterrevolution against the working class, militarism,
and the imposition of dictatorial forms of rule.
Far from ending, the global economic crisis is
only just beginning. The working class must respond by developing its own
independent program based on an intransigent political struggle for the
overthrow of the bankrupt capitalist profit system and the bringing of the
banks and major corporations under public ownership in order to establish a
planned world socialist economy.
Nick Beams
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Thousands march in Madrid against government austerity measures
Demonstrators take part in a protest against the government's austerity reforms and the public payment of bank's debts in Madrid on October 27, 2012 (AFP Photo / Caesar Manso)
A massive police escort accompanied tens of thousands of Spaniards marching on the country’s parliament in Madrid as part of anti-austerity protests.
The 2.3-kilometers march organized by the "Surround parliament" protest group was closely guarded by law enforcement with dog teams, vans with reinforced windows, officers in full riot gear as well as mounted police.
At the Parliament, the crowd was greeted by an even larger police presence and pushed them back behind a chain of metal rail barricades.
Demonstrators were protesting against the latest measures introduced by Prime Minister Mariano Rajoy's government as tens of thousands of jobs were lost in the third quarter with a bank bailout in sight.
“And now they are going to give banks a bailout, rescue them as if they were princesses,” Alan Pipo told the AP. “They should be put out on the streets, just like all those families who are being evicted from their homes because they are unable to keep up with mortgage payments! "
Demonstrators held a minute’s silence with their backs turned on parliament to show their condemnation of the government’s policies, that’s as a quarter of Spaniards are now unemployed.
The crowd also moved in front of Bankia Bank, where a group of protesters have been camping out since Monday, in an effort to pressure the bank to halt evictions that have so far affected 400,000 families in Spain.
Earlier on Saturday, nearly 3,000 off-duty police officers had also taken to the streets to voice their anger over austerity measures and the withdrawal of their Christmas bonuses.
Overall the Spanish economy has been struggling for years and now faces a staggering unemployment rate among the young of 52.34 per cent according to country’s National Statistical Institute.
In an effort to rebound the economic growth PM Rajoy has hiked taxes, cut spending and introduced harsh labor reforms in an effort to persuade investors that his government can manage Spain's financial trouble without a full bailout.
But some researchers believe that instead of cutting spending, it might be wise to increase it.
“The alternative is actually not to cut spending, but to invest in the economy, to invest in growth to make sure that there’re jobs. And the only way to ultimately get out of this debt, is to grow out of debt and not to cut your way of debt,” Jerome Roos, a researcher on the EU debt crisis at the European University Institute in Florence, told RT.
Spain’s economic output has shrunk for five quarters in a row and the country’s banking sector has been given a €100 billion loan by the 17 Eurozone states.
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2012 Oct 27
Violent clashes erupt as Italy protests austerity
Screen shot from AP video
Violent clashes erupted between police and protesters in the northern Italian town of Riva del Garda as tens of thousands took to the streets of Italy in a nationwide anti-austerity demonstration dubbed ‘No Monti Day.’
Police used tear gas and batons to disperse the crowd of angry protesters who fought back with clubs and banners on the streets of Riva del Garda.
Reports say the country’s Prime Minister Mario Monti, who is seen by many as a root cause of the Italian people’s suffering, was attending a meeting in Riva del Garda when the clashes began.
The demonstration in Riva del Garda was just one out of many taking place in Italy on Saturday.
In Rome police expected some 30,000 to take to the streets, but activists estimate that up to 100,000 showed up.
Protesters marched through the city to demand more jobs, investment in schools and universities, more money for healthcare and the end of the austerity policy brokered by Monti and his technocratic cabinet.
Monti, who replaced Silvio Berlusconi last November, is accused of introducing tough austerity measures that have hit ordinary Italians hardest asthe country’s economy continues to falter.
The rioters torched cars, smashed windows, looted shops and even set the building housing Italy’s Defense Ministry on fire.
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2012 Oct 26
Spain jobless rate exceeds 25 percent in 3rd quarter
People wait in line at a government employment office in the center of Madrid on September 4, 2012.
Official data show that Spanish unemployment rate has exceeded 25 percent in the third quarter of 2012 as the country continues to grapple with economic woes.
New figures released by Spain’s National Statistics Institute on Friday showed that the country’s unemployment rate climbed to 25.02 percent in the third quarter, up from the previous 24.63 percent.
The institute also pointed out that a total of 5.78 million people were out of work in the July-September quarter, up 85,000 from the previous three months, while the number of Spanish households in which every member is unemployed rose to 1.74 million.
The release of the recent figures follows Spain’s labour unions call for a general strike for November 14.
With its high unemployment rate, Spain is under pressure to get its public finances back on track amid concerns in the markets over the state of the country’s banks and the wider economy.
The Spanish government has also been sharply criticized over the austerity measures that are hitting the middle and working classes the hardest.
Public protests have grown in the country over speculation that the government will seek a Greek-style European bailout to keep its borrowing costs in check.
Meanwhile, Spanish Prime Minister Mariano Rajoy’s proposed 2013 draft budget is expected to slash the overall spending by 40 billion euros ($51.7 billion), freeze the salaries of public workers, and reduce spending for unemployment benefits.
Battered by the global financial downturn, Spain’s economy collapsed into recession in the second half of 2008, taking with it millions of jobs.
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French banks get blow from S&P, as Eurozone crisis weighs
(AFP Photo /Philippe Huguen)
S&P downgraded three French banks, including the 3rd biggest lender in the world BNP Paribas, saying the outlook for another 10 lenders was negative. The agency said European turmoil was increasingly pressing, with economic data backing the gloom.
Banque Solfea and Cofidis were the other 2 French lenders that came into the S&P firing line. The agency cut the outlook on another 10 banks including such market giants as Societe Generale, and Credit Agricole to negative from stable.
In its decision, S&P lowered its long-term rating on BNP Paribas to “A+” from “AA-", while cuttingsmaller players Banque Solfea to “A-” from “A” and Cofidis to “BBB+” from “A-". The forecast on both short – and long – term ratings was negative.
“…the constraints of a relatively high public debt burden, reduced external competitiveness and persistent high unemployment are being aggravated in our view by the ongoing eurozone crisis, a more protracted recession across Europe, and lower domestic growth prospects”, S&P said in its press-release.
“We consider that this economic environment, including the persistence of low interest rates, will put pressure on domestic revenue growth for French banks in 2013-2014,” the agency added.
The recent economic data has indeed been saying that the second largest European economy is coming closer to a recession, agrees Anna Bodrova of Investcafe. “While it [France] remains one of the strongest European economies, the country is clearly suffering financial difficulties,” the analyst added.
Earlier this week the central Bank of France said the $2.56trln economy was set to contract 0.1% in 3Q, which will mark the first quarter of contraction since the start of 2009.
Another economic benchmark released this week was a preliminary Purchasing Manager Index (PMI) that is used as an indicator of business activity. Despite a slight improvement in October to 44.8 from a September reading of 43.2, the figure showed the French economy remained under pressure.
Any figures below 50 signal contraction.
“The latest Flash PMI data for France indicate a lack of any significant improvement from the severe weakness seen in September. With GDP looking likely to have contracted in Q3, the latest poor figures suggest that the downward momentum has been carried over into Q4 and the economy could well end the year in recession. A further weakening of business sentiment in the service sector to its lowest since the start of 2009 underlines the pervasive gloom among businesses at present as uncertainty drags on and investment decisions are delayed accordingly,” Jack Kennedy, Senior Economist at Markit and author of the Flash France PMI, commented in the report.
The country’s Government also cut its official forecast for the next year, with France’s President Francois Hollande saying the economy was expected to grow just a notch above zero – about 0.8% – which compares to a 1.2% expansion forecast before.