“2012 will not be a walk in the park”, warns Christine Lagarde, head of the IMF. The world capitalist economy is on the brink of a new downturn, with a recession in Europe and a marked slowing of China, India and other semi-developed economies. The eurozone debt crisis is far from resolved and could trigger a new global banking and economic crisis at any time. LYNN WALSH reports.
AT THE BEGINNING of a new year, capitalist leaders like to promise better times ahead. Indeed, in the US, Barack Obama is once again talking of ‘green shoots of recovery’, pointing to the small fall in the official unemployment figures. In Europe, however, German chancellor, Angela Merkel, is predicting that 2012 will be more difficult for the eurozone than 2011. French president, Nicolas Sarkozy, is warning of a “year of all risks”. In India, Manmohan Singh, the prime minister, has warned Indians not to take rapid growth for granted – and this warning also applies to China, which has appeared as the locomotive of global growth in recent years.
These leaders have dropped all pretence that the financial crisis and economic downturn of 2007-09 was merely a cyclical crisis and that everything will soon be back to ‘normal’. In fact, Europe has already entered a recession, and it is too late for the major capitalist powers to take any action that would avoid this. The only question is whether it will be a shallow recession, to be reversed in another year or so, or a deep, more prolonged downturn.
Under pressure from the growing fear of a double-dip recession, and spurred by the need to boost his image, on September 8 President Obama made his much-anticipated jobs speech. He urged Congress to pass, without delay, a jobs bills that he argued would at the same time create much-needed jobs and provide a framework for debt reduction. This plan has been described as Obama’s chance to appear strong, to score a win on the economy, and to influence the upcoming presidential elections. The jobs bill comes as a blend of Obama-style bipartisanship, “free market” economic doctrine, and electoral positioning.
On Septmber 19, Obama went a step further with his pre-election fake populism, calling for - meager - taxes on the super-wealthy and an end to talk of attacks on Social Security. This is a smokescreen for historic attacks on New Deal programs as the economy goes from bad to worse. Like the jobs speech and all the “hope and change” before that, we are dealing with inadequate and mostly empty rhetoric. Socialist Alternative will provide a response to the more recent speech in the coming days.
“Is Capitalism Doomed?” was the revealing title of a recent article by influential business economist Nouriel Roubini. In an interview with the Wall Street Journal about the present economic and financial instability, Roubini said: “Karl Marx had it right. At some point, capitalism can destroy itself. You cannot keep on shifting income from labor to capital without having an excess capacity and a lack of aggregate demand. That’s what has happened. We thought that markets worked. They’re not working.”
Nouriel Roubini, who almost alone among mainstream economists had predicted the 2008 financial meltdown, warned that if things stayed in their current course, the perspective is “like in the 1930s - unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.”
These comments were triggered by global stock market plunges in August, which in a few days wiped over $6 trillion from world equity market values worldwide. The forecast for the economy continues to be bleak as the German economy has now stalled. This reflects a significant downturn in the entire Eurozone and the U.S. economy, which grew by under 1% in the first half of 2011.
Republicans emerged from the debt deal as the apparent victors, achieving bipartisan agreement on massive cuts with zero tax increases. The dominant narrative of liberal commentators echoed Republican chest-pounding, painting Obama and Congressional Democrats as weak negotiators who caved to the Republican right wing. Commentator Paul Krugman’s July 31 column was titled “The President Surrenders.” Matthew Rothschild titled his article “Obama Just Got Run Over,” and Robert Reich lamented, “Ransom Paid.”
However, the narrative of Democratic Party “weakness” is dangerously one-sided because it implies that Obama, left to his own devices, would perhaps chart a course away from austerity.
In fact, Obama came into the White House wanting to enact fiscal austerity, as he himself explained in a 2008 speech: “Our economy is trapped in a vicious cycle: the turmoil on Wall Street means a new round of belt-tightening for families and businesses on Main Street … we’ll have to scour our federal budget, line-by-line, and make meaningful cuts and sacrifices as well.”
It is hard to overstate the depth of corporate corruption and political dysfunction on display in Washington, D.C. this past summer. Even veteran political cynics stood in awe.
When the bipartisan debt reduction deal was announced on the eve of the debt default deadline, Matt Taibbi expressed the popular rage well: “The general consensus is that for the second time in three years, a gang of financial terrorists has successfully extorted the Congress and the White House, threatening to blow up the planet if they didn’t get what they wanted.” (rollingstone.com, 8/1/11)
A rotten deal of historic proportions has been cut. Using the looming threat of a disastrous debt default as cover, Democratic and Republican leaders rushed a bill through Congress to raise the debt ceiling and cut $2.5 trillion over ten years from the federal budget. There were no tax increases on the wealthy, not even a limited closing of some tax loopholes. Virtually all the pain will fall on working-class and poor people through cuts to programs and services.
A colossal $1 trillion in cuts will be implemented immediately, but the biggest dangers lie ahead. The bill established a bipartisan “Super Committee,” whose makeup consists of six conservative Democrats and six Republicans, appointed to cut another $1.5 trillion. The bill places stunning authority in this unelected Super Committee, whose proposals for sweeping cuts will not be subject to any amendments. Instead, cuts will be put to a simple up-or-down vote by the end of the year. And if Congress dares to vote down the Super Committee’s proposal, this will automatically trigger a broad series of brutal cuts anyway!
Capitalist strategists are filled with gloom at the prospect of a new economic downturn. Fear of recession in the US, its credit rating downgrade and political dysfunction, not to mention the ongoing eurozone crisis, Japanese stagnation and slowdown in China, have all led to convulsions on world stock markets.
The world economy appears to be sliding into a ‘double-dip’ recession or, more accurately, a continuation of the ‘great recession’ of 2008-09, following a feeble ‘recovery’ in 2010. The advanced capitalist countries are most severely affected, but the brightly burning furnaces of the semi-developed giants of China, India and Brazil (so-called ‘emerging markets’) are beginning to flicker. Until recently, signs of a slowdown which appeared in the second quarter of 2011 were regarded by many capitalist commentators as merely a ‘soft patch’. But the outlook changed dramatically with the convulsions in global stock exchanges during the first three weeks of August.
Thursday, 4 August was a black day on world stock exchanges. In New York, the Dow Jones index fell by 4.3 per cent and the Nasdaq index closed down 5.3 per cent “and all the gains that have occurred since year end were deleted to zero” (as the financial website E24 said, 5 August). “It was an outright massacre,” said John Richard, head of strategy at RBS Global Banking & Markets, to the Wall Street Journal about yesterday’s events.
“What was unthinkable six months ago, the U.S. running the risk of falling into recession in 2012, is a thought that more and more now consider. It is this insight that makes the entire ground shake,” Businessweek wrote on 5 August.
A rotten deal of historic proportions has been cut. Using the looming threat of a disastrous debt default as cover, Democratic and Republican leaders rushed a bill through Congress to raise the debt ceiling and cut $2.5 trillion over ten years from the federal budget. There were no tax increases on the wealthy, not even a limited closing of some tax loopholes. Virtually all the pain will fall on working-class and poor people, through cuts to programs and services
When Wall Street imploded in 2008, plunging the world into the “Great Recession,” even corporate-sponsored politicians were forced to place blame squarely on the big banks and deregulated markets. Politicians everywhere demanded accountability from greedy financial titans and piously pledged their support to closing tax loopholes and re-regulating casino capitalism.
Now, just three years later, the only real change is the political rhetoric! Suddenly, it’s “overpaid” public sector workers and “bloated budgets” for public services that are to blame for economic stagnation, unemployment and declining tax revenues. Meanwhile, the once-reviled financial oligarchs, whose reckless gambling destroyed our economy, are now being re-cast as “job creators” deserving of further tax breaks and deregulation!
This new mantra is repeated endlessly in the corporate media and by right-wing pundits and is designed to make working people pay for the capitalists’ crisis. But the storyline is also accepted by most Democratic Party leaders who, at both the state and federal level, are proposing far more budget cuts and attacks on public sector unions than tax hikes on the rich or corporate regulation.
In this context, a basic task for socialists remains to expose the lies of the corporate politicians and media. Here we provide brief answers to some of the most pernicious capitalist myths now circulating……