world in crisis, central banks not providing the anser

Increasing concerns and contradictions Per-Åke Westerlund, from Offensiv, newspaper of Rättvisepartiet Socialisterna (CWI Sweden) The severe downturn in 2008-09 made the world economy into an experimental workshop. But neither extreme austerity or trillions to the banks has led to a solid recovery. Now there is growing concern among politicians and economists. At the center of concern is the crisis in Europe. In early 2012, both Italy and Spain were close to sovereign defaults, which in turn would have made the whole euro project collapsing. EU’s leading politicians and institutions were scared into taking extreme measures. The European Central Bank, ECB, promised "unlimited access" to capital for both states and banks. Since then, the ECB lent 360 billion euros to Spanish banks and 260 billion into Italian. A large part have been used to buy their respective state bonds. The interest rate gap - how much more it costs for Spain or Italy to borrow than Germany - have fallen from 6-7 percentage to 2-3 percent. The ECB’s generosity is matched by other central banks. The U.S. Federal Reserve is in its fourth round of Quantitative Easing which means that the Fed buys government debt notes for $ 85 billion each month. Japan’s new right-wing government has now embarked on a "quantitative and qualitative" monetary policy in double pace compared to Fed. In two years, the central bank (Bank of Japan, BOJ) will use equivalent to a quarter of Japan’s GDP - the third largest economy - to purchase government bonds, equities and real estate. Central Banks But now there is increasing concern that central banks’ intervention is not the solution, but rather deepens the crisis. "Some of the leading figures in central banking concede they were flying blind when steering their economies," reported the Financial Times (18 April), from the International Monetary Fund’s (IMF) spring meeting. Lorenzo Samgh of the the ECB’s executive board: "We do’nt fully understand what is happening in advanced economies." The head of the Bank of England, Mervyn King, said that no one can be sure that the expansionary monetary policy is correct and wondered if they are “running the risk of reigniting the problems that led to the financial crisis in the first palce?”. Central bank intervention has eased the immediate crisis for the most vulnerable banks and states. But they do not kick start economies - investments in the advanced capitalist countries is still at a record low. However, the new policy opened for sharper conflicts between nation states. The Japanese currency, the yen, has fallen by 25 percent since last year. It has benefited the Japanese export industry, at the expense of for example German and South Korean industry. The IMF’s semi-annual reports from April (Global Financial Stability Report and World Economic Outlook) notes that central banks’ actions have achieved “a broad market rally” but also created new risks. Capital now flows back from the richer countries to developing countries, creating potential instability. The Fed boss Ben Bernanke recently warned that banks’ speculation may increase. IMF But especially worried is the IMF for what happens when easing ends. There is no equivalent in history to learn from. "Continued improvements will require further balance sheet repair in the financial sector and a smooth unwinding of public and private debt overhangs. If progress in addressing these medium-term challenges falters, risks could reappear. The global financial crisis could morph into a more chronic phase marked by a deterioration of financial conditions and recurring bouts of financial instability", writes the IMF. The conditions raised here - balance sheet repair and unwindling of debts - have so far failed, which points towards a more chronic crisis. The second leg of the crisis policy - the extreme austerity measures - have had worse immediate effects. 19.2 million are now unemployed in the euro zone, of which six million in Spain alone. In Greece, youth unemployment is 59.1 percent. The New York Times reported in an article on Greek school children who faint and are searching for food in the bins. The Portuguese Prime Minister Pedro Passos Caolho - a strong proponent of the infamous Troika (IMF, EU and ECB) austerity - promised in 2011 that "two terrible years" would be followed by recovery. But as a result of the extreme austerity, in 2013 Portugal "faces a much deeper and longer recession than the government or international lenders had foreseen" (Financial Times). The IMF estimated in April that the risk of recession (the economy contracts) in the euro zone was 50 percent. Since then, the ECB president Draghi warned that even France is dragged deeper into the crisis. The EU has given Spain and France two additional years to meet the rule that budget deficits should not exceed three percent of GDP. Under new rules they would otherwise been fined. In a large survey among capitalists and finance investors in Europe, made by the credit rating company Fitch, a large majority believe this year’s calm in Europe is transient. "Fitch warns in a statement that it [2013] can once again become a summer marked by the euro crisis, just as in 2011 and 2012, since there is a strong contradiction between the recent stock market rally and euro zone recession and rising unemployment." (From Swedish daily, Dagens Industri). No capitalist solution None of the capitalist institutions have a solution. Many warn that austerity has gone too far, but stil emphasise the need for a balanced budget for the "medium term". How quickly the Cyprus crisis threatened to spread shows that EU countries need a banking union, writes the IMF in its report. And before the ECB’s "limitless" capital flow eased the crisis, leading EU politicians like Germany’s Angela Merkel and European Commission President Barrosso put forward the EU needed a much tighter budget policy and synchronisation. But national interests and conflicts makes especielly German politicians hesitating. The risk, in their view, is that Germany then definitely become the guarantor of banks across Europe. In parallel with the growing contradictions within the EU member states there is a sharp increase of distrust against the EU itself. In Spain today 72 percent are critical of the EU, against 23 per cent before the crisis. Germany the increase is from 36 to 59 percent. The crisis has been exploited to push through many of the counter-reforms the capitalists dreamed of. Worse pensions in Italy, easier to fire workers in Spain, pay cuts of 50 per cent in Greece and so on. Now the capitalists increase their pressure on French President Hollande go the same way. He has already abolished the capital gains tax and promised to reduce the cost of unemployment insurance, pensions and municipalities. At the same time, the political pressure from below is increasing. In a French opinion poll, 70 percent believes a "social explosion" is possible in the coming months. The IMF in April again lowered its forecast for world economic growth this year to 3.3 percent (though 3.5 in October). World trade is expected to only increase by 3.6 percent this year after 2.5 percent last year. The index of large corporate purchasing managers in both the EU and Japan is still below 50, indicating that the economy is not growing. But even the index for China is just over 50. China China’s economy - the world’s second-largest, estimated to overtake the U.S. before 2020 - is now slowing sharply. The large stimulus package in 2009, which held up growth through massive investment, is now hitting back with full force. Debts of municipalities and provinces is estimated at between 20 and 40 percent of the country’s GDP. In the first quarter of this year these debts increased twice as fast as in the same period in 2012. The IMF and politicians in the West are talking about how consumption in China must increase and investment must go down. But lowering the investment share of GDP from the current 50 percent to 30 percent in a position when economic growth will be 6 percent instead of the previous 10 percent "would cause a depression, all on its own", concludes economics columnist Martin Wolf of the Financial Times. Demand would collapse, with considerable effects on the world economy. Governments and capitalist classes now places greater pressure on other states. The U.S. wants to see greater demand in Germany and Europe, while European politicians requires that the deficits in the U.S. and Japan are reduced. The budget deficit in Japan this year is near 10 percent of GDP for the fifth consecutive year. Public debt is expected to be 255 percent of GDP in 2018. The U.S. deficit is five per cent of GDP and the debt is 110 percent. Growth in the US is expected this year to be the highest of the developed capitalist countries, 1.2 percent. But the forecast is uncertain since the automatic cuts, the sequester, will have effect in the latter half of the year. With the failures of "unorthodox methods" more and more people will realise that there is no solution within the framework of the capitalist system. The resistance from workers and poor will grow, like for example the general strike in Portugal in early March, which was the largest since the revolution in 1974. The task for socialists is to build new workers’ parties with a clear socialist answer to the crisis.

5 years into the crisis any signs of improvement ?

Some date the crisis to August 9 2007, the day it became clear that Europe’s banks were up to their necks in US housing debt. The ECB flooded markets with €95bn of liquidity. It seemed a lot of money then. We have since seen a lot lot more money pumped into the banking system to plug the huge gaps that will not go away. 5 years into one of the biggest capitalist crisis’s ever possibly eclipsing the great depression in the 30’s industrial output has still not picked up. There is no country in the world that this crisis has not affected in some shape or form, Be they strikes, demonstrations, cuts, austerity tax hikes everywhere is being affected to some extent. China is sufficiently alarmed by the flint hardness of its "soft-landing" to talk up trillions of fresh stimulus. The European Central Bank is preparing to print “whatever it takes” to save Spain and Italy. Markets are pricing in an 80pc chance of yet more printing by the US Federal Reserve in September or soon after. The world remains in barely contained slump. Industrial output is still below earlier peaks in Germany (-2), US (-3), Canada (-8) France (-9), Sweden (-10), Britain (-11), Belgium (-12), Japan (-15), Hungary (-15) Italy (-17), Spain (-22), Greece (-27), according to St Louis Fed data. By that gauge this is proving more intractable than the Great Depression. Investors were pulling money out of America’s $2.5 trillion money market industry in panic. This was the long-feared heart attack in the credit system, even if the economic malaise behind it did not become clear for another year. The original trigger for the Great Recession has since faded into insignificance. America’s house price bubble -- modest by European or Chinese standards -- has by now entirely deflated. Warren Buffett is betting on a rebound. Fannie and Freddie are making money again. Five years on it is clear that subprime was merely the first bubble to pop, a symptom not a cause. Europe had its own parallel follies. Britons were extracting almost 5pc of GDP each year in home equity by the end. Spain built 800,00 homes in 2007 for a market of 250,000. Iceland ran amok, so did Latvia and Hungary. The credit debacle was global. If there was an epicenter, it was Europe’s €35 trillion banking nexus. Stephen Cecchetti at the Bank for International Settlements concludes that debt turns “bad” at roughly 85pc of GDP for public debt, 85pc for household debt, and 90pc corporate debt. If all three break the limit together, the system loses its shock absorbers. “Debt is a two-edged sword. Used wisely and in moderation, it clearly improves welfare. Used imprudently and in excess, the result can be disaster,” he said. Right now it’s the working class that is being saddled with this mountain of debt and being forced to pay through what seems like endless austerity. This what we are living through now austerity is the norm now before the crisis it was a debt field credit boom which was unsustainable and many knew this but were unprepared to speak out. Marxists knew this as we understand the fundamental workings of capitalism. Karl Marx uncovered this in the 1800’s. Many modern economists turned to Marx when the financial crash happened saying ah ha Marx was right. They are no longer saying that as his analysis of capitalism was far greater than they can imagine and get their pro capitalist heads around. Their system is bankrupt and has no life left in it. It will continue but at the expense of the 99% the workers. It will drag itself with its claws to life again sucking the life out of workers for life. We must not let it bring itself back to life. As Marx correctly pointed out there is no “final crisis” in capitalism it will not collapse on its own it‘ll find a way to recover most likely at the expense of us, ordinary working people. It must be over thrown and only the working class has the power to do this. I read in the Telegraph today that even one of their writers is suggesting debt needs to be written off. We can fully support that that is one of the things we’re calling for. Make the rich pay, cancel the debt, Nationalise the banks and the commanding heights of the economy, and put controls on capital flows in and out of the nation as first steps towards changing society towards a socialist world... With extracts and references from http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9471018/Five-years-on-the-Great-Recession-is-turning-into-a-life-sentence.html

How the Japanese earthquake and Tsunami may affect us all

So over the weekend the tragic news of a huge earthquake that hit just off the north east coast of the japanese mainland hit on friday i think it was now. Awful devastation in the north of the country with big towns such as Sendai affected hugely with many homes and buildings flattened and often washed out to sea.

Japan who lie slap bang on the fault line of a major fault line which is part of teh pacific ring of fire as they call it was always under threat from this huge quake and this appears to have been the big one. Coming in at a collosall 8.9 and many argueing it could be a 9 on the reicter scale is huge on anyones estimation.

Firstly i wantt o send all of our condolances from this blog and many who read this. I intend to pledge a donation to the Red Cross in solidarity with the Japanese people. I must say the Japanese people have handled this amazingly with faced with such tradegy they havent moaned or groaned or pleaded to the world about their troubles they have quietly gone about rescueing any survivors they can rescue from the quake and any who have been affected by the Tsnami which brought a huge huge wave clattering against the Japanese coastline washing in 10 miles inland at some parts and destroying anything that lay in its path.

Absolutely awful scenes we saw over the weekend on our news. Many countries around the world including New Zealand and Chile who have also been recently hit with big earthquakes have pledged to support Japan in its rescue efforts and rebuilding efforts.

Not just teh loss of life and destruction of buildings and land though a big problem that now has occured now as a direct result of fridays earthquake is the major nuclear power plants and reactors that keep the Japanese electricity supply going. It is rumoured due to the shut down and the damage caused to these reactors which are still not stable by any means the Japanese electricity supply is now down by 25% roughly. This is major i would say as Japan as what is the 3rd or 4th biggest global economies in the whole wide world relies heavily on nuclear power and electricity for its production which in itself is huge.

It is said in times of disaster around the world the world looks to the ever reliable Yen to invest in and it has always been seen as a safe currency to invest your money in.

Now it is Japan in troublea nd the Yen taking a tumble in the stock market loosing 6% of its worth apparently today what affect will this have on the rest of the world i ask you.

Well i dont think we know the full extent of the aftermath of the Japanese earthquake of 2011 yet. But small things are emerging it is being estimated that the insurance cost for this will rocket into the billions of dollars and Japan who's economy is already in dire straights with a financial deficit estimated to be 4 times bigger than the UK's i fail to see how this wont have a major impact on the world and the global economy.

I dont think many have stopped to think of the knock on effects the problems in Japan will have. Alot of the business and production and trade in the world today is carried out with Japan with them having to heal their damaged economy and possibly take a loan out with a country like America for example i can only see the japanese economy taking a tumble in the world market.

As a socialist i find this fascinating and also very worryign how a major capitalist country goes about healing itself. No doubt to help pay for the damage and the aftermath of a broken economy already not coping with the recession it has been in for the last 8 or 9 years now will be sent to the working class's to help pay for this as usual. This is a tactic often used when a capitalist society gets into trouble financially. But i can only see this benifitin America to be honest as i said before i see America one of the Japanese closest allies now according to Barac O'barma will be sure to come to their aid with a recovery economic package to help their economy get back on its feet. The world needs a strong Japan with its huge infrustructure and production power on the world stage.

We are facing one of the most uncertain economic times for a very long time and i really do see this Japanese situation and unfortunate as it is how it will affect the global economy. I really feel the damage and long lasting damage done to that country will send the rest of the world into recession as teh capitalist system fails to grasp how it can get out of its own mess.

I really do think the events in Japan over the last week or so will affect us all be it with the worry of nuclear power making its way back onto the agenda of world governments. I may well do a blogpost on nuclear energy and its pro's and con's in the next week or so but it has brought it back on to the agenda for modern day governments to assess whetehr it really is the best way to go.

With a ever expanding China aiming to build over 300 nuclear power plants over the next 10 years and with China on a few big major fault lines of its own it is quite worrying that we may end up with another chernobyl nuclear disaster which ruined a large amount of the Ukrainian countryside when a nuclear meltdown caused the plant to leak for miles around the site writing off land for years and still many birds and animals will not return to this land deeming it un usable. I myself am anti nucler i am scared by it to be quite honest the power it pocess's and can weirld is frightening. I am glad i wasnt alive during the times of the cold war that would have scared the crap out of me. I feel in a socialist society there would be no need for nuclear power and the rich capitalists using these sorts of dangerous energies to gain more profit out of. I would hope in a socialist society the money that was shared out between everyone would be used to create long lasting greener energies that were renewable and usable.

So i do think the question will return to many western governments whether nuclear really is the best way forward possibly leading to higher energy prices as Japan depends more on oil over the next few yearsas a result of its broken nuclear system. This i feel will havea result as this will drive up the price of oil even further so do watch this space with this situation. This could affect us all.