Fever on the Stock and Financial Markets: Sign of Relapse of the World Economy
(«Proletarian»;Nr. 8; Spring 2012)
A real tumult has shaken the stock and money markets from the middle of August. Falling stock market indices of 5% or more per session were spoken of as “stock market panic” in the media and forced the political leaders of major European states to interrupt their summer vacations and to multiply their soothing declarations in an attempt to «reassure the markets».
Not a chance! Traders and other speculators thought they were reliving the darkest hours of the tempest that followed the 2008 bankruptcy of Lehman Brothers. Nouriel Roubini, the famous money expert nicknamed “Dr. Doom” a reputation gained by his 2006 forecast of the imminent occurrence of a severe economic crisis in the United States, gloomily declared to reporters of the Wall Street Journal, the organ of the financial community: “Marx said it right. At some point capitalism can destroy itself...” (1).
The current imbroglio began as a result of new concerns about the ability of Greece to repay its debts, a default of the Greek state would have very serious consequences on the banks of this country, on European banks in which they are often subsidiaries and, in turn, on the euro. The ink on the signature of the agreement for yet another “plan of aid to Greece” (in fact: aid to the banks) decided at an emergency summit, was barely dry as the tumult broke out again because of concerns about Italy.
Then it was the deterioration of the debt rating of the United States by a rating agency that caused shockwaves worldwide, the largest economy in the world and central motor of world capitalism is also the biggest global borrower and the U.S. public debt (bonds, treasury bills, etc. ....) plays a key role in the equilibrium and flow of global finances.
But if those who hold the debt of the banks, States or individuals (2), are at risk of seeing it devalued, they will logically tend to turn away from U.S. debt to seek safer investments (moreover many financial institutions have a statutory obligation to have in their portfolios only “products” with the maximum score, AAA), making the financing of American debt more difficult and therefore more expensive: to attract buyers, interest rates will have to be raised. But an increase in U.S. interest rates is an impediment to economic growth, already very weak. This shows that the deterioration in the rating of the United States has potentially important consequences for the entire international economy.
The markets had barely digested this sad event, when concerns about France and its banks triggered a new wave of market panic ...
NEARING A RELAPSE IN THE GLOBAL ECONOMY
The media and bourgeois economists have exponentially increased their fantastical “explanations” of the stock market and financial crisis: the actions of shadowy speculators, attacks by Anglo Saxon financiers hostile to the euro, spreading of malevolent rumors, use of computer programs to buy and sell stocks, etc. In fact beyond all contingent aspects, it is the slowdown in the global economy for the past several months which is the real cause of the exacerbation of all financial and debt problems that depress the stock markets.
At the time of the economic crisis of 2007-2009, the capitalist governments in all countries had taken recourse in a massive indebtedness: it was a question of saving the banks threatened by bankruptcy, of preserving the banking system essential to the operation of capitalism, and of restarting the economic machine. These measures, more or less important depending on the country, managed to avoid an economic collapse and led to a generally sluggish but undeniable revival in production. This influx of cash, however, had the perverse effect of fueling speculative bubbles, whether in the stock market or in various raw materials; which was the quickest way for banks or large companies, including industrials (3), to rebuild their profits, due to the sluggishness of a market that could not easily absorb additional goods: those that the media criticize as “speculators” without naming them, are indeed most often the same very large companies, banks and various financial institutions that are glorified as defenders of the nation!
However, after having made it possible to avoid the economic crisis, at least temporarily, the indebtedness of these States became an increasingly urgent problem to solve, because it imposes an important weight on the budget of the State, more especially as its financing becomes increasingly expensive because of the mistrust of the “markets” (in other words investors: banks, various financial institutions, etc.).
The ratio of debt to GDP, which is currently published by the media, does not mean much, what matters is the debt service, that is what needs to be repaid each year. Taking France for example, government debt in 2010 was equivalent to 82.3% of GDP (against 83% in Germany, 91.6% in the United States, 220% in Japan) (4), but the burden of debt (payment of interest on loans) represented about 11% of the revenue (after Education and ahead of Defence), while total service (interest plus repayment of principal) was approximately 40% of revenue (5): in fact, the government borrows to pay what it owes!
Jacques Attali, formerly advisor to Mitterrand who aspires to be the advisor to Sarkozy, stated sententiously in an interview with Le Monde: “the only thing that could solve the debt problem (...), is war or inflation or growth. The first two solutions are not desirable. What’s needed is (...) therefore growth”(6). The problem is precisely that growth is not on the road ahead and it is rather a deepening new plunge in the recession which is taking shape throughout the world.
In the United States, where statisticians have recently concluded that the drop in production at the height of the crisis was far greater than had been believed and therefore the recovery was less vigorous (which led many economists to say that there had been too little stimulus), the GDP figures for the first and second quarters of 2011 already showed a sharp slowdown in economic activity. But other recent indicators of industrial activity seem to suggest a decline even lower than this (7), while the number of job seekers remains high (the official unemployment rate is around 9%, but the actual unemployment rate is more like 16-17%!) (8) signaling the stagnation of the economy: in all likelihood the U.S. is about to go into recession if they are not there already.
In France, the INSEE (Institut national de la statistique et des études économiques) announced second quarter economic growth was ... 0%, while the numbers for industrial production showed a decline in March, April and especially in June, not offset by increases in May and July: growth forecasts set by the government (more than 2% for 2011) will clearly be impossible to maintain, which reinforces the mistrust of the international financial community concerning the ability of the French State to meet its commitments.
But it was Germany, the champion of exports, growth and the economic engine of Europe, which caused the most surprise by announcing an increase in its GDP worthy of France (0.1%) and worse still, a decline in its industrial production in June (-0.6%) and a deficit of foreign trade because of declining exports!
The OECD indicators, which are expected to provide a forecast of economic developpement in the coming months, “continue to signal a slowdown for the month of June 2011 in most OECD countries and major non-member economies”.
The slowdown is even more pronounced for countries like China, Brazil or India, often presented as the new engines of the global economy, than for the United States or European countries (9): in reality, these “emerging” countries still depend on the markets of the large capitalist countries: USA, Japan, Europe.
BOURGEOIS SOLUTIONS AND REFORMIST LIES
Confronted with these serious financial and stock market crises, the economic and political leaders in Europe and the world have embarked on austerity plans and measures of fiscal rigour to “balance the accounts”. Greece has served as a testing ground, before the recipe is implemented in Portugal, Ireland and other countries such as Romania. Austerity measures, with intensities lower for now, have been subsequently adopted by Spain, Great Britain, Italy.
However these measures, which mainly affect the proletarians but which also affect the petit-bourgeois, inevitably entrain an economic slowdown or even a brutal decline in the countries that take them (industrial production in Greece has plunged 13% in June compared to the previous year, and GDP could decline by 4.5% this year, according to the government itself); the economic recession reduces tax revenue thus making it difficult to repay debt and to restore account balances, leading to new austerity. It also accentuates the differences in Europe between the economically strongest nations (Germany and its “satellites” such as Austria or the Netherlands) and those weaker (the southern countries), resulting in more and more acute tensions in the euro area.
That’s why some unorthodox economists whose theories are taken up by the petit-bourgeois “left” or “far left” reformist currents, recommend other solutions: not austerity, but a recovery based on major projects through new borrowing, taxes on capital income in order to increase wages which would boost consumption, the fight against speculation and control of banking activities, etc..
For example, consider the proposals in the journal of the NPA (Nouveau Parti Anticapitaliste) (10), our Trotskyists (or is it post-Trotskyists?) who want to avoid “ the trap” of “ being limited to general denunciations of capitalism and calling for its overthrow as the only solution, and dissociating itself from and even denouncing contesting ideas that circulate in society as reformist or opportunistic”, and who recommend “declaring a moratorium on existing debt” that should be subject “ to a public audit” to determine the part that should be repaid and that which should not; to “reform the statutes of the European Bank to end its independence and allow financing of the deficit,” to achieve “ broad tax reform” to tax the highest incomes, of “financial restraint”, to “put all financial institutions under the strict control of society”, etc..
The reader will find without any doubt that it would be necessary to be quite sectarian to see in these proposals for reform only the most abject reformism and opportunism!...
In an attempt to justify its lamentable proposals, which it grudgingly acknowledges “do not exhaust all the demands on the agenda” (!), the article concludes by writing that they however “ synthesize what seems the most urgent to deal with a crisis that is not only economic and produces risks of social decomposition conducive to the resurgence of the extreme right in Europe”. It took only the missing specter of fascism to make this infamous reformist brew pass!
The NPA does not even pretend to stand above all for the interests of workers and to address itself primarily to the working class: it is “society” that must control financial institutions. This language isn’t accidental and is used to address the petit-bourgeois, to the small and medium- patronate who have difficulty finding financing from banks or at least to the intellectuals who are their spokesmen and it makes it possible to avoid the slightest criticism of the political institutions of the bourgeois state, implicitly advocating instead the use of these institutions: they are indeed the only ones that theoretically can “control” the banks (by voting for laws or regulations), from this point any revolutionary perspective is discarded.
This is the language of supporters or lackeys of capitalism who fear the disintegration of bourgeois society, who, like the very bourgeois Roubini whom we quoted at the beginning, fear only the risk that the crisis poses to capitalism itself!
The workers must understand, and what they will quickly understand if they are in doubt, that what lies ahead are more austerity policies (and still mezzo voce, they are announced – both by politicians of the party in power and the Socialist Party which aspires to replace them), new attacks by the capitalists and their state to extract the additional quantities of profit needed by capitalism in this difficult time.
It is futile to lament when faced with these inevitable attacks and to regret the lost heyday of capitalist prosperity: in this mode of production, prosperity naturally generates crisis, it is absurd to give credence to the alternative solutions of the reformists, who not only have always failed but more especially disarmed the proletariat against capitalism: these are just the smoke and mirrors, the lies intended to block the path of open confrontation between the classes, including frightening the workers with the threat of the extreme right. There are no reforms imaginable to avoid or soften the capitalist attacks, there is no defending the “social cohesion”, another name for class collaboration.
The coming period will inevitably be one of social confrontations, of the open struggle between classes, not only in the poor countries located on the south side of the Mediterranean, but in the ultra-developed capitalist countries from which the bourgeoisie dominates the world.
This is what the proletariat vanguard must prepare themselves and their comrades for, by rediscovering the means and methods of the class struggle, in working to rebuild the appropriate organs for this struggle and especially the party which must lead it to finally triumph.
( from “le prolétaire” Nr. 500; May-September 2011)
(1) see: http : // europe.wsj.com / video / nouriel- roubini- karl- marx- was- right / 68EE8F89- EC24- 42F8- 9B9D-47B5 10E473B0.Html
(2) A third of the U.S. “sovereign” debt is in the form of bonds and various obligations, in the hands of foreign creditors. In 2010 China held 21%, Japan 20%, Britain 11%, Brazil 4%, Russia 3% (Germany had only 1%, Italy 0.5% France, 0.4%, etc.).. see: International Herald Tribune, 20/7/11 and the blog: criseusa. blog. lemonde.fr;
(3) For example, the American General Electric, which is the largest private industrial enterprise in the world, takes a third of its profits from its financial activities.
(4) see: www.aft.gouv.fr/aft_fr_23 / indicateurs_ economiques_20/comparaisons_ internationales_ 143/dette_ administrations_ publiques_152/index.html
(5) see: http:// fr.wikipedia.org / wiki / Dette_publique_de_la_France
(6) see: Le Monde, 08.11.11. To “restore the conditions for growth”, he proposes ... “a huge loan” Debt to solve the debt problem, it took a thinker of the caliber of Attali to dream this up!
(7) see: http://www. philadelphiafed. org / research-and-data / regional-economy / business-outlook-survey / 2011 / bos0811. cfm
(8) Calculated from official figures themselves, see: http://www. bls.gov / news. release/laus.nr0.htm. Other estimates give a figure even higher, such as the Conservative website: http:// www. shadowstats.com
(9) see: http://www.oecd.org/dataoecd/15/44/48494466.pdf
(10) see: “Tout est à Nous” 8/14/11
International Communist Party