Irish budget won't stop the rot

The Irish Parliament’s vote to implement a further, more savage €6 billion programme of spending cuts and tax increases has done nothing to stop the worsening debt crisis transforming the political landscape throughout Europe and beyond.

Quite the opposite. As Ireland follows Greece, and with Portugal and Spain jostling for position in the queue for aid, the conditions of the Intenational Monetary Fund-sponsored package for the Irish Republic are reverberating throughout the continent. And the pressure is mounting across the Atlantic too.

In the United States, Democrats are in open revolt against President Obama’s deal with the Tea Party-inspired Republicans to continue Bush’s 10-year-old tax breaks for the wealthy, which were widely expected to be allowed to expire at the end of the year.

This proposed new deal is part of the political price for agreement on a further debt-funded stimulus. But the markets are worried, and the cost of US borrowing has started to rise.

Dominique Strauss-Kahn the managing director of the IMF says the “piecemeal” country-by-country approach can’t solve the crisis but Germany’s chancellor Angela Merkel is not alone in blocking proposals for a Europe wide rescue scheme. In the Netherlands, Geert Wilders far-right Freedom party teamed up with the so-called Socialist Party to oppose the deal for Ireland.

For the Irish people, the new budget slashes social welfare benefits, public pensions and capital projects, whilst forcing the 45% of low wage earners to pay income tax for the first time in order to rescue the banks and pay the interest on government bonds.

Michael Noonan, finance spokesman for the centre-right Fine Gael party stated the obvious: "This budget is the budget of a puppet government who are doing what they have been told to do by the IMF, the EU Commission and the European Central Bank."

But what he didn’t say is that the demands of these agencies are themselves orchestrated and conducted by the much more powerful forces at work in the rapidly contracting global capitalist economy.

Even as the captive Irish government was applauding itself, warnings of further mass assaults could be detected in the absurdly optimistic growth forecasts underpinning the new budget.

Finance Minister Brian Lenihan pins Irish hopes on gross domestic product national income (GDP) expanding by 1.7 percent next year, nearly double the European Commission's forecast of 0.9 percent.

The government is forecasting growth of 3.2 percent in 2012, 3.0 percent in 2013 and 2.8 percent in 2014, but Danny McCoy, head of the Irish Business and Employers Confederation said he saw little in the budget to help job creation or restore economic competitiveness.

In reality, governments throughout the world are in a competitive race to destroy living standards, driven by the needs of an economic system of global corporations competing for declining profits as markets shrink and collapse.

The crisis began when credit-funded stimulus reached its limits. Political parties of the left and right are ganging up together to design and implement “austerity” programmes that can only accelerate the process of contraction. Despite the rhetoric of recovery it is what they are required to do.

Campaigns to resist the assault on people’s lives must be brought together with the democratic and legislative means to replace the moribund capitalist system rather than patch it up. People’s Assemblies can begin to construct a richer form of democratic control based on social ownership and not-for-profit production and finance. Check out A World to Win’s proposals for transforming social relations in our new Beyond Resistance booklet.

Gerry Gold
Economics Editor
reposted from www.aworldtowin.net

US economy on the brink

The self-created mirage of recovery that helped sustain the tattered remnants of the American Dream evaporated yesterday as reality came calling.

The desperate measures taken to halt the imminent sacking of hundreds of thousands of public sector workers was only one event in a day of reckoning.

Five stark paragraphs comprising the statement issued by the Federal Reserve – America’s central bank – reek of the stench of exhausted defeat. The first outlines the problem. It needs no interpretation:

Information received since … June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in non-residential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.

In the action paragraphs, the committee explains that base interest rates will be kept at their historic low, but reiterates that “resource slack”, which means massive overcapacity in production, eliminates any hope of anything changing for years or decades to come.

In what is seen as a reversal of previous policy, the Fed is intent on printing even more money in a bid to stimulate the economy. It plans to use the income from repayments on mortgages it bought during the financial meltdown of 2008 to pump out more dollars.

If nothing else it gives a new meaning to recycling. Once the money has been captured from American families, the figures just keep moving around inside the Federal Reserve’s computers. Paul Ashworth of Capital Economics called the decision a "symbolic gesture".

Yesterday, Obama recalled the members of the House of Representatives back from their summer recess so that they could pass an emergency bill approving $26bn (£16.4bn) funds for states which have run out of money, and $16.1bn to extend funding for the Medicaid healthcare programme for low-income Americans.

Without the emergency aid, states would have laid off police, teachers and firefighters and all of the key services would have ceased functioning. The states themselves have suffered during the recession through a loss of revenue through sales and property taxes. The aid will only get them through the current financial year, however.

Those who claim that public spending is the answer to the economic crisis have had their fingers burnt by the US experience. Obama’s government has spent trillions in various stimulus packages – all to no avail.

That’s because the crisis of capitalism is global and marked by the classic symptoms of over-production, over-capacity and falling demand. The boom was artificially fuelled by mountains of credit and debt which inevitably proved unsustainable and led to the implosion of the financial system. Without easy credit, consumers are in general spending what money they have on necessities like food and shelter.

It all adds up to the American economy being on the brink of collapse, adding to the sense of political crisis gathering around the Obama presidency.

Gerry Gold
Economics editor
11 August 2010
www.aworldtowin.net

Obama and the banks

President Obama's announcement last week that he would demand the US public's money back from the banks was telling. It told us that with a vital election coming up Obama knows when to bow to popular opinion.

In immediately rejecting it ("The Americans are doing something different" said Darling) it told us that New Labour are less concerned about public opinion - something the public reflects back to them in opinion polls regularly.

Obama went further saying the US bank bailout was "distasteful, but necessary". He also described bankers' bonuses as "obscene" and referred to the banks as "the very firms who owe their continued existence to the American people" - almost LEAP-esque . . . almost.

Gordon Brown told an audience in London yesterday, "We believe we will probably make a profit from what we have done in helping out the banks. Our aim is that no member of the public has to pay for the rescuing."

Really? So why is he pressing ahead with the Fiscal Responsibility Bill to halve the UK deficit in four years if we're just waiting for a windfall? Under Brown's Bill every member of the public will pay with worse services. Universities are already paying thanks to New Labour's cuts.

Government of the banks, by the banks and for the banks

Nothing quite explains the current crisis like this graph of the rate of US delinquencies - households in serious arrears (over 3 months) with their mortgage payments.

The graph covers the period between from 1985 to 2009. Until 2006, the delinquency rates never passed 1% of all households. Now it is 4.5% of US households who are at serious risk of losing their homes - and this excludes all those who have already been repossessed. As Graham Turner notes in his new book 'No Way to Run an Economy', more than 1 million US households received foreclosure notices between March and May 2009 alone.

This demonstrates how the economic growth of the latest period of neoliberal capitalism was achieved by the loading of excessive debt onto households - the story is not dissimilar in the UK.

The latest US delinquency figures, which came out last week, show that the Obama Administration's 'Making Home Affordable Program' (MHAP) has been a woeful failure. Serious delinquencies are still rising. This is a structural problem since MHAP does not offer a bailout to those at risk of losing their homes (after all bailouts are for banks with $billion turnovers) simply refinancing.

Just as in the UK, banks and their shareholders are bailed out while hard-pressed people get tea and not much sympathy. Welcome to capitalism, the system that redistributes wealth from poor to rich.

The apostles of growth have had their day

following on from Andrew's post on the Tobin Tax.................

Gordon Brown is in big trouble. The financial system he piloted to prominence during his years as Chancellor is in ruins. Rupert Murdoch has turned The Sun against him. The majority of the UK population is in favour of a withdrawal from Afghanistan, and his letter-writing skills have slipped, angering army wives and mothers.

Brown’s plight is a pale reflection of the political crisis engulfing capitalist governments throughout the world as disaffection grips the masses whose lives are being destroyed by attempts to prevent a slump unparalleled in history. Despite trillions of stimulus dollars, pounds, euros, and the lowest interest rates ever set by central banks, unemployment is soaring worldwide.

In an attempt to repair the damage to his reputation as warm-hearted saviour of the global economy, Brown is trying a populist appeal to the massed ranks of the Trades Union Congress (TUC) and the many other well-meaning members of the Stamp Out Poverty Coalition.

At the weekend G20 meeting of finance ministers and central bankers in Scotland, Brown took up Brendan Barber of the TUC’s call for a tax on financial transactions within the UK – something within the powers of the national government, at least in theory. Having resisted the 30 plus year-old Tobin-tax campaign till now, the UK’s prime minister upped the stakes on the TUC, declaring his support for a tax on global financial transactions.

The chorus of disapproval was almost deafening.

The response from Barack Obama’s Treasury Secretary Timothy Geithner gave a clear and succinct voice to the objective force that is capital. Geithner said there was broad agreement that "growth remains the dominant policy imperative across our economies". US unemployment, which hit a 26-year-high at 10.2% in October, highlighted a "very tough economic environment" that will take a period of sustained growth to correct.

"Government policy has to provide a bridge to growth led by the private sector," he said. "We're now in the middle span of that bridge." In an interview with Sky News, Geithner added: “A day-by-day financial transaction tax is not something we are prepared to support."

Geithner, late of Goldman Sachs, insisted that government had to stay cautious (apart from giving bankers untold billions) and warned: “If we put the brakes on too quickly we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater." In other words, business as usual is the goal.

Canadian finance minister Jim Flaherty and Dominique Strauss-Kahn, the head of the IMF joined the opposition to a transactions tax. Flaherty said Canada was working out how to reduce taxes, while Strauss-Kahn opted for a politer more diplomatic response – it’s just too difficult to measure international transactions. Unsurprisingly the banks including Barclays and HSBC aren’t in favour either.

All of the voices in this song-fest are united in their blind subservience to the status quo. The chorus against a tax on financial transactions shows two things. Firstly, reform of the global capitalist financial system is out of the question. Secondly the dependent relationship that links the state to the productive and financial components of the capitalist economy has to be shattered before we can move forward.

The world is now ready for a society that places the satisfaction of needs as its primary goal. Rather than attempting to tax the proceeds of gambling in the global casino, the casino should be shut down and the capitalist state deconstructed. Geithner, Brown and the other apostles of capitalist growth have had their day.

Gerry Gold
Economics editor
www.aworldtowin.net

If you think it's bad here . . .

The consumer comfort index in the US has declined to -53, which compares with what we call consumer confidence at -25 in the UK for June. Of course such measures are subjective, but such measures of collective subjectivity are often valid.

Data will soon be published for how the US economy performed in the second quarter of 2009, and it is expected to show another contraction. If confirmed this would be the first four quarter contraction in US post-war history.

And the signs don't look good. US manufacturing production declined in May to its lowest level since 1998.

It was confirmed on Thursday that US job losses were again high, with 467,000 people losing their jobs in June. This means 7.2 million US citizens have lost their jobs since December 2007. US Unemployment is now at 9.5%. As if to prove the old adage 'if the US sneezes, Europe catches a cold', Eurozone unemployment hit 9.5%, Eurostat announced this week.

On Friday it was reported that US salaries have dropped 2.3% in the year to May 2009. With rising job losses and pay contracting it is hardly surprising that mortgage foreclosures are rising - hitting a record high in the three months to May.

This in turn explains the low level of 'consumer comfort', despite Obama's much heralded $787bn fiscal stimulus. As the world's major power in the global capitalist economy, what happens in the US ultimately affects us all.

US turns to socialism?

OK, apologies for the sensationalist title, but a recent US poll shows a marked increase in US citizens questioning the capitalist system. Only 53% favour capitalism over socialism.

Young Americans (under 30) are the most socialistic. The pollsters say they are "essentially evenly divided", 37% prefer capitalism, 33% socialism, and 30% are undecided.

It is perhaps unsurprising that people are questioning the capitalist system at a time when its caused the biggest crisis for a generation (and possibly much longer). However, the point is to offer a coherent alternative.

Like in the US, the mainstream political parties are all embedded with neoliberal capitalism - and because of that the mainstream media rarely reports anything that counters that world viewpoint.

It is therefore necessary for those of us who don't want capitalism to articulate a coherent vision for a socialist society. That cannot be wrenched from ancient Marxist tomes, but has to be developed in the contemporary context. That is what LEAP has been seeking to do the last few years - and what our conference on Saturday 25th April will continue.

What would a similar poll in the UK reveal?

Sat 18 Apr update: And now there's even pictorial evidence of the shift to the left in the US - Obama and Chavez warmly embrace. Roll on to the United Socialist States of the Americas!

G20: The IMF consolation prize isn't enough

Graham Turner (Graham will be speaking at the LEAP Conference 'Capitalism Isn't Working' on 25th April)

In the end, Brown and Obama could not get the Europeans to agree on yet another fiscal boost at the G20 meeting. But the consolation prize – an infusion of $500bn into IMF coffers – gave the Anglo Saxon leaders something to trumpet.

Their brand of casino capitalism may have spawned multiple credit bubbles across a wide swathe of emerging market economies. But as eastern Europe and many other countries slide towards depression, their governments can rest assured. The global cop of last resort, the IMF, will come to the rescue.

Many will shudder at the thought. When the SE Asian bubble burst in 1997, IMF staffers were sent to Bangkok, Seoul, Kuala Lumpur and Jakarta to impose tough conditions for loans that still failed to prevent exchange rates from collapsing.

In return for emergency loans, they demanded a draconian and anti-Keynesian tightening of fiscal policy that drove the Asian economies deeper into recession.

We wait to see if similar terms and conditions will be applied today. Judging from the myriad bailouts launched by the IMF since last year, nothing has changed since 1997. It is still one rule for the west, another for the rest.

Indeed, it was the IMF intervention in 1997 that persuaded central banks across developing countries never to be left so dependent upon the west again. They vowed to drive their foreign exchange reserves higher, to provide a cushion against financial crises. But that merely aggravated trade imbalances and provided the fuel for the global credit bubble of 2004-2008.

When it all came crashing down, record reserves were still unable to cushion these countries from the incompetence of western governments.

And trebling the IMF's kitty will not resolve the core immediate problem facing the world economy – a collapsing US housing market. Ironically, the Bank of England's rapid fire rate cuts are gaining traction, with some signs of a stabiliation in the UK housing market.

Obama can only dream. The US took the world into recession, and it may take many countries into depression yet. The collapse of the US housing market is accelerating because, for ideological reasons, the Obama administration will not nationalise its banks and intervene to stabilise its housing market. Obama's plans are little different from those seen in the final months of the Bush administration.

February saw a record decline in house prices across 20 major US cities, because banks are unable and unwilling to pass on rate cuts to homeowners. Average property values are now 30% below their peak, but they could easily fall that far again.

Unemployment in the US is soaring. March could be the worst month yet for job losses, as the wider "U6" unemployment rate, including discouraged and involuntary part-time workers, soars to 20% and beyond.

One in eight homeowners with a mortgage will have been in arrears or in default by the end of March. That could climb to one in seven or one in six over the summer. Obama is not facing up to the scale of economic and social catastrophe facing his country.

And not even a bigger IMF will be able to fix that.

Events and Opportunities

Last night was a night of events and opportunities. LEAP hosted a meeting in the House of Commons, based around our publication Building the New Common Sense - social ownership for the 21st century. Speakers at the meeting 'The Economic Crisis - what role for social ownership?' included many of the contributors to the pamphlet: Gerry Gold, Rosamund Stock, Maria Exall and Professor Gregor Gall.

There was an excellent debate about the role of social ownership in the crisis - and a poignant warning from Gregor Gall, "an opportunity is only an opportunity if we have the resources to act. Otherwise it is just an event". While the crisis brings capitalism into sharp relief, and gives us the opportunity to explain its inherent weaknesses, the opportunity to change things relies on us mobilising around these issues and that requires resources.

One contributor to the pamphlet who could not make the meeting was LEAP Chair John McDonnell MP. John was locked in the House of Commons chamber attempting to convince a Labour government to repeal a few technical measures of Thatcher's anti-trade union laws. The amendments to the Employment Bill were derived from the Trade Union Freedom Bill which was passed as both TUC and Labour Party conference policy in 2005.


John forced the largest rebellion - 45 Labour MPs - since Gordon Brown became Prime Minister, but it also showed that even with every union in support and most actively campaigning in favour only 45 MPs from the party of Labour support strengthening trade union rights.

Over the pond, and the US was electing a Democrat President to great fanfare. This was an event - with great opportunities. However, it remains to be seen whether reality will match expectations.


LEAP's own Graham Turner said: "'Change We Need' was the popular slogan of the Obama campaign, and while it would be churlish to ignore the wider political significance of yesterday's election, there is a harsh reality. Unless the Democrats execute a major policy U-turn, there will be no change. A more expansionary fiscal policy, courtesy of a stronger grip on Congress, will not solve the crisis. It may make it worse. Paul Volcker is tipped by some to be the new Treasury Secretary, but that too provides real cause for concern. It is more of the same, ensuring that the US will slide towards a debt trap. Other candidates in the frame, including Lawrence Summers, offer little encouragement. Democrat policies to date have been contributing to the rise in mortgage rates, which has culminated in a plunge in mortgage demand. The point was underlined this morning by the steep decline in the MBA's purchase index to just 260.9, its lowest level since early January 2001. There is no chance of stabilising the housing market in 2009. Unemployment will soar. Choosing Volcker or Summers as the new Treasury Secretary will be a mistake. In the absence of a radical shift in monetary policy, Obama will not be the next Roosevelt."