It is a sure sign of the systemic breakdown of the global
capitalist system that the very measures put in place to try to prevent a
crisis are creating the conditions for a financial meltdown beyond even
the scale of 2008.
For almost five years the world’s major central banks have pumped an
estimated $7 trillion into financial markets with the stated aim of
trying to spark an economic recovery. Economic data from around the
world indicate that it has been a manifest failure.
The statistics on price levels are among the most significant. These
show that rather than prices increasing—a sign of recovery in so-called
“normal” conditions—deflationary pressures are intensifying.
In the US, consumer prices fell by 0.4 percent in May, the biggest
decline since late 2008, following a 0.2 percent decline in April. In
Europe, excluding food and energy costs, consumer prices in the
17-member euro zone rose by just 1 percent in April from a year earlier.
The downtrend has far-reaching implications. Confronted with falling
prices for their products, major firms and corporations seek to make
profits not by investing and expanding production, as they would seek to
do if a recovery were underway, but by savage cost-cutting coupled with
financial speculation. The consequent cuts in pay and jobs lead to a
reduction in consumer demand, further fueling the deflationary trend.
Other economic data highlight this process. Last month, US industrial
production fell by 0.5 percent, compared to a projected decline of 0.2
percent, prompting predictions that results for the second quarter would
be even worse than the last quarter of 2012, when the US economy showed
virtually no expansion.
In the euro zone, unemployment has risen for the 23rd consecutive
month and now stands at 12.1 per cent, a 1.1 percent increase over the
level a year ago. The euro zone economy contracted by 0.2 percent in the
first quarter, meaning the current contraction has lasted longer than
that experienced in 2008-2009.
Since the onset of the breakdown in 2008, the prospect has been held
out that China could provide the basis for the long-term expansion of
the global economy. But while industrial production and retail sales
both showed a significant rise last month, pointing to economic growth
of about 7.5 percent this year, these hopes are being dashed.
In a recent article pointing to the absence of “a strong source of demand growth” anywhere in the global economy, the
Financial Times
noted that “worries” about the Chinese economy were “widespread.” In
the long term it was clear that the double-digit growth of the past
decade was a thing of the past, while in the short term, despite an
expansion of credit the rise in GDP produced by this lending was near
its lowest level for a decade.
In contrast to the trends in the real economy, financial markets are
experiencing an unprecedented boom. The Dow Jones Industrial Average is
up by 15 percent since the Fed launched its third round of quantitative
easing last September. In Japan, the Nikkei index has climbed 44 percent
since last December and the election of the Abe government, which
demanded that the Bank of Japan boost the money supply. In the UK, the
FTSE index has gained 20 percent in the last six months on the back of
quantitative easing by the Bank of England, despite the fact that the
British “recovery” is weaker even than that experienced in the Great
Depression, while European stock markets have gained 30 percent since
last July.
These increases are being fuelled entirely by the trillions of
dollars being pumped into the financial system by the major central
banks.
But rather than expressing a “recovery,” the booming share markets
are a fever chart of the deepening crisis of the capitalist system.
Never in the history of world capitalism has there been such a
divergence of financial markets from underlying economic processes.
The unprecedented rise in global markets has sparked concerns that the conditions are being created for a crash. As
Financial Times
columnist Gillian Tett noted, “[W]hile the flood of central bank
liquidity is enabling the system to absorb small shocks, it is also
masking a host of internal contradictions and fragilities that could
surface if a shock hits” with the “potential for… future violent
instability rising apace.”
While any rational analysis points to the fact that the present
conditions are preparing the way for a disaster, the frenzy of
speculation continues according to its own mad logic. As the then-chief
executive of the US banking giant Citigroup, Chuck Prince, famously
remarked in July 2007: “As long as the music is playing, though, you’ve
got to get up and dance.” Little more than a year later, the global
financial system plunged into its worst crisis since the 1930s.
Today the situation is potentially even more explosive than five
years ago. This is because, unlike 2008, the central banks, having
bought up trillions of dollars worth of government and other financial
assets, are key market players themselves, and so will be directly
impacted by a collapse of financial markets.
Increasingly, they are being caught in a trap of their own making.
Withdrawal of the financial stimulus measures threatens to collapse the
bubble. At the same time, the pumping out of still more money draws them
deeper into the mire.
Last
week, economists at the International Monetary Fund published an
analysis warning that ending easy money policies could result in the
central banks suffering severe losses as interest rates spiked and bond
prices fell. The Federal Reserve could experience a loss equivalent to
as much as 4 percent of GDP ($628 billion), the Bank of Japan could lose
7.5 percent of GDP, and the Bank of England almost 6 percent.
In other words, a new financial shock could call the stability of the
central banks themselves into question. Unlike the situation in
2008-2009, they would be unable to mount a rescue operation.
The deepening global crisis of capitalism has the most far-reaching political implications.
The past five years have seen the pumping of hundreds of billions of
dollars into the coffers of the banks and speculators, and the financial
elite that benefits from their activities, while the impoverishment of
ever broader sections of the population has continued unabated.
These measures, far from producing an economic “recovery,” have prepared the way for even bigger disasters.
This article originally appeared on :
Global Research
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