Is the Worst of the Crisis Over?

Two years on and it is difficult to understate the depth of the debt crisis which has followed in the wake of the bursting of the financialisation bubble. As Martin Wolf reported in the Financial Times on January 27 2010;

“According to the IMF’s Global Financial Stability Report of April 2009, total support for the financial system from the governments and central banks of the US, the eurozone and the UK has amounted to $8,955bn (£5,436bn, €6,132bn) - $1,950bn in liquidity support, $2,525bn in asset purchases and $4,480bn in guarantees.”

And this was the figure extant as of last April. More state financing has gone into the system since then as programmes such as quantitative easing have increased state expenditures. This volume of debt, as all the pundits agree, is unprecedented in peacetime and cannot keep on growing at the current levels. On the other side of the coin the collapse in economic activity makes narrowing state budget deficits all the more difficult. As a Financial Times special supplement on the Future of Finance noted last November

“… 2008 saw a decline of $16,000bn or 8%, in the value of global financial assets, the largest absolute fall on record. Falls in equity and property values lowered global wealth by $28,000bn in 2008 and the first half of 2009. International capital flows fell by 82% from 10,500bn in 2007 to a mere $1,900bn in 2008 as money rushed home. The flight of bank lending was, as usual in a crisis, dramatic. The notional value of derivative contracts declined by $92,000bn between June and December 2008 though to a still massive $592,000bn.”

These figures tell us three things. The first is that the tax receipts from finance, which made up a huge part, particularly of US and UK government revenues, have been slashed. Second that future investment will be threatened and therefore the real economy will recover only slowly, and third that the state is also counting on a revival of the casino culture of speculative capital to increase tax revenues.

Governments have superficially responded to popular anger against the banking bonus culture. But capping bonuses or talking about “regulating markets” hasn’t substantially changed anything. They are actually still feeding the hands that have already bitten us.

This was underlined by Gillian Tett et al in article entitled A Course to Chart.

After telling us that $2,600bn losses were created in two years of financial crisis which were covered by the issue of $12,000bn in sovereign bonds (i.e. state loans) in 2009 the authors conclude that “the debt markets are still a lucrative area of activity”. They go on

“One reason is that the governments have flooded the financial system this year with liquidity in response to the crisis creating rich trading opportunities for banks that can borrow at ultra-cheap rates and then invest in higher yielding assets, at a time of considerable volatility.” (Financial Times 4 Jan 2010)

In short they are still gambling with the money the state produces for them.

McKinsey Consultants reckon that the amount of “leverage” (banking debt to you and me) in the Western financial system has increased in the last two years.

There is little doubt that without state intervention the entire capitalist edifice would have unravelled. We would be faced with an unprecedented capitalist collapse. Our rulers are now quietly congratulating themselves on “saving the world” as Brown’s Freudian slip had it. Now they are enticing us to accept more austerity by promises that recovery is just around the corner.

Rumours of Recovery?

In November 2009 the acting head of the OECD’s economics department told the Financial Times that

“Overall, unprecedented policy efforts appear to have succeeded in limiting the severity of the downturn and fostering a recovery to a degree that was largely unexpected even six months ago.”

Jean Claude Trichet, head of the European Central Bank talks of “progressive normalisation” as capitalism’s leader audibly breathe sighs of relief. This year US and Canadian growth is predicted (by the IMF amongst others) to be above 2% of GDP, and positive, though less impressive, predictions are also made for all the other advanced capitalist countries. Figures for the so-called BRICS countries are even more positive (with China’s famous 8-10% leading the way) and some are counting on these economies to underpin the coming global recovery. The OECD representing the richest countries in the world also predicts an average growth rate of 1.9% in 2010, not far below the historic norm since 1973.

At the same time unemployment is apparently stabilising with fewer jobs being lost and some places actually now reporting a fall in unemployment.

So is the worst of the current crisis over? The simple answer is “no”, not least because the crisis is not just one brought about by financial speculation.

It is a product of the contradictions inherent in the capitalist system that have been affecting the world since at least 1973. This was the point when the post-war boom came to an end, when the dollar was taken off the gold standard and the first steps in financial manipulation were taken by the US Government to maintain its own power and authority in the world. In our terms it was the end of the cycle of accumulation which had begun in 1945.

We have explained many times how the law of the tendency of the rate of profit to fall pushes the capitalist system to overproduction of capital and commodities (see, for example, our last issue or go to leftcom.org ). This provokes crises, the collapse of major sections of the economy and devaluation of capital which then allows accumulation to begin again. In the Twentieth Century when the amount of capital to be devalued was so swollen the primary means of devaluation was generalised imperialist war. However, since 1973 though warfare has been widespread it has not been sufficiently generalised to devalue enough capital to begin a new cycle of accumulation. Instead state intervention in the economy has been used to spearhead all kinds of policies to stimulate growth. In the 1970s, when workers resisted wage cuts and unemployment the capitalists resorted to inflation (via deficit financing). When this brought only further stagnation a more direct attack on the working class was undertaken with the destruction of manufacturing jobs in the advanced capitalist countries. And when all this failed to rekindle accumulation, we have had the birth of the speculative bubble from the early 1990s which extended credit to those who had no means to pay, on the assumption that somewhere in the ever receding future someone would create the wealth to repay all the so-called “securitised” loans.

The truth of the matter is that over the last twenty five years the working class in the advanced capitalist countries who form the bulk of the “consumers” have seen their real purchasing power reduced through the loss of once wellpaid manufacturing jobs, the increase in part time precarious work and the decline of the individual wage. All the indices of wealth through the last decade of speculation have seen the gulf between the richest 10% and the rest of the population widen significantly.

And even the slow down in the growth of unemployment in January and a few announcements of wage rises in the public sector are a bit of a mirage. As one commentator put it in the Financial Times

“The unemployment numbers out last week, while spun as wildly encouraging, were actually awful. They showed a loss of 113,000 full-time jobs, a nasty rise in the number of involuntary parttime workers and yet another fall in real wages. The headline number showed the weekly average wage up 1.1 per cent, less than half the rate of inflation. Worse, the number was only positive at all because of a 3.8 per cent rise in public-sector wages. Knock that out and the average privatesector worker ended last year about where he started it, even in nominal terms.” (Merryn Somerset Webb 23 Jan 2010)

1 in 6 households are now without a wage earner and those in work face increased casualisation and job insecurity. This can be seen in the number of male jobs which fell by 55,000 whilst female jobs rose by 41,000.

However you interpret the figures, the actual number of people doing jobs fell overall. There will be no “consumerled (i.e debt sodden) boom” in these conditions. Indeed, despite the loony fringe of capitalism (like the Institute for Fiscal Studies) which is calling for an immediate cut in spending and tax rises now, the prospect is for the state to keep on putting more money into the system for the foreseeable future.

As consumer price inflation is already at 3% the prospect of liquidating some of the debt at least on the back of inflation is not ruled out. In fact the IMF has proposed that central banks raise their stability threshold for inflation from 2% to 4 % to accommodate this.

And on top this there are still huge debts which have not yet been liquidated. Some new debts are due in the next few years. If we take the USA $250bn of commercial real estate debt came to maturity in 2009 whilst a further $200bn comes due in 2011.

The buy-out deals which lead to 1000 US companies going private in 2006 will land another debt of $300bn in 2012 and in 2013 more than $600bn of non-investment grade debt is all due for refinancing. But who is going to take it on? (All figures from the Financial Times 7 May 2009) The answer is that the state will be called on once again to come up with loans and bonds to finance all this. Here, in some ways, the USA is ahead of the game since it ahs already written off 60% of its bad debts from the bubble whilst Europe (including the UK) has only written off 40%.

And yet the leading economies of the world have entered this crisis with various degrees of public and private debt which are all at historic peacetime levels. The USA, for example, in 1929 had a state debt of 20% of GDP whilst in 2007 the US state debt was already 60% of GDP (according to the IMF - some commentators have higher figures). The UK’s was 80%.

Some commentators are saying the level of state debt is unimportant.

Perhaps they have forgotten Argentina’s economic collapse. Anyway the case of the Baltic states, Iceland and now Greece all demonstrate that when the debt level reaches beyond 100% of GDP then the financial sharks begin to gather. The very liquidity of sovereign debt comes into question and this makes further borrowing by already dangerously indebted states much more expensive. The UK, big though it is, is not entirely immune, as the recent fall in sterling demonstrates. The increased servicing costs of this debt means that the state will have to cut expenditure sooner, rather than later.

The Working Class Will Have to Pay or Fight

And how can they get out of this mess? There are several possible scenarios but, given the level of debt each state is saddled with, they all mean more misery for the world working class. Until now the working class everywhere (despite significant episodes of resistance from workers directly facing job losses and wage cuts) has largely accepted the need for some cuts. “The flexibility of the labour markets” is frequently cited by relieved capitalists who have cut wages and hours, as well as persuading workers to take unpaid holidays in the face of falling orders. There is a certain mismatch between the widespread knowledge that this current phase of the crisis is the product of financial speculation and the lack of opposition, so far, from workers about bearing the cost. In some ways it still reminds you of Robert Tressell’s novel The Ragged Trousered Philanthropists. Tressell (Robert Noonan) died in 1911 but his ironic description of the workers as “philanthropists” still holds good. He called them “philanthropists” because they “donated” wealth to society every day through the exploitation of their labour power. To that philanthropy we can today add that there is almost an acceptance on the part of the workers that bad times are inevitable.

Partially this is due to the historic retreat that workers have experienced globally since the early 1980s, partly it is because as yet they can see no alternative to individual survival under the capitalist system. The collapse of the false alternative of so-called “communism” in the USSR has also played a part in this. Furthermore, the full effects of the crisis have not yet made themselves generally felt and will not do so for some time. In the richer states the early effects of the crisis are still, to a certain degree, cushioned by welfare measures.

In Britain the impending general election has further induced a kind of stay of execution as all parties try to keep quiet about their austerity measures (the Tories have already blown a double digit opinion poll lead by being too open about their future plans to immediately “cut the deficit”). But whichever party wins a programme of making us pay is unavoidable. This could change perceptions. We say “could” because although the capitalist crisis is a necessary condition for the revival of working class resistance there is no mechanical link between deprivation and rising class consciousness.

The whole process is complex but the growth of resistance will expand the numbers of those in the working class who start to look for other ways forward. These could equally well be reactionary ones, especially given the way the ruling class can manipulate antiimmigrant and nationalist sentiment via their control of the media. Equally there will be some who will seek collective solutions. If they can unite and organise, and successfully indicate to wider layers of the class how they can get back to their own historic programme then the political and social scenario will alter. This is what the capitalists fear and they will do everything in their power to isolate us sector by sector in order to pit worker against worker.

We have already seen this in the postal strikes and in BA before Christmas.

Here the unions have been, as usual, the bosses’ best friends. They have called off strikes which have massive support (even under the bosses balloting system) and have continually postponed action whilst the bosses have prepared their positions. We are seeing this in BA currently where despite another overwhelming ballot (80%) for a strike, the union has postponed it. Instead it has called on the management to hold further talks.

All the while the BA management are already preparing scabs to take over jobs. In an all-out class war the gloves would already be off but with the union acting for the other side the workers are stymied. We will know when the working class in general has had enough when they don’t wait passively for union orders but carry out their own class actions. However, as long as each section of workers in each country sees its fight only in immediate terms, as one with their own bosses, then the struggles will remain isolated.

Isolated struggles are easy prey for the capitalist press who can point to the “greed” of this or that section of workers with exaggerated stories of perks and wages filling their pages. Or else the workers are told that they are undermining their “own” firm and thus their own long-term job security.

In a recession this is no mean threat.

The solution is of course solidarity, not only across trades but also across international boundaries. The bosses may not be able to agree at summits on climate change but workers can agree to black each others work and to support each other. One recent piece of heartening news was at the construction site of Staythorpe Power Station in Nottinghamshire. This was similar in nature to the Lindsey Oil Refinery struggle but here the workers did not call for “British jobs for British workers” but extracted from the main contractor the same wage rates for Italian workers at the site. This is an important recognition of the fact that workers are just variable capital everywhere to capitalists until they begin to show resistance to all the divisive antics of the bosses. In so doing they transform themselves into a class for itself and not just for capitalist exploitation.

The next couple of years will see the attacks of capital everywhere get stronger. As we go to press the announcement of massive cuts in local authority employment (in many areas the main employer now) is a sign of things to come. In Birmingham they are planning to cut 3000 jobs this year and every year for the next five years. The crisis will not go away and the attacks will continue. The more we acquiesce in them the greater they will be. The international working class is arriving at another historic test…