“Fire-storm” warning for global economy
A World to Win’s view of the capitalist economy is often pooh-poohed by those who tell us that the system is unchallengeable. We are told that we exaggerate the instability of the world economy. But over the last few days, one financial expert after another is outdoing us in predicting extreme crisis and break-down to come. Warnings are flying thick and fast as the credit crunch is conducted throughout the world economy via the global financial system.
From the high office of the Governor of the Bank of England down to broadsheet newspapers, commentators are united in saying that the damage from the financial storms to the real economy is as yet unknown and that the global economy is moving into recession. “This particular crisis is proving a more sustained fire-storm,” Jeremy Warner of The Independent said this week. “What in September was still looking as if it would be only a temporary financial storm with relatively limited consequences for the real economy has turned into something much more drawn out and potentially damaging.”
And in the run-up to what should be the annual Christmas spending spree, Mervyn King, the Governor of the Bank of England, yesterday warned parliamentarians of “rather uncomfortable” times to come. King told MPs there were was a “big risk” that the credit crunch would intensify with consequent risks to growth and inflation. He spoke of "sheer uncertainty" and that fear of what lies ahead among US banks in particular was already pushing up interest rates.
And writer Sean O’Grady, asks:
“Is the roof falling in on the housing market? . . . Has the bubble burst? The signs are ominous. For some months the property market has been cooling, the bubble showing distinct signs of strain . . . How bad can things get? The worst scenario is that the UK follows trends in the US. There the bubble burst last year, with the toughest market since the Great Depression.”
“The pain has just begun,” he concludes.
As municipal housing has declined and people buy instead of renting, so much money has been ploughed into bricks and mortar that British households have accumulated more debt than any other major advanced economy. The cruel reality of so-called “home ownership” (actually home indebtedness) is that of a dream turning into a nightmare – an unattainable fantasy. Those who have managed to scramble on to the first rung of the ladder pay an unprecedented one-fifth of their income on mortgage repayments. At about £200,000, average house prices are at nine times average earnings, the highest ever.
The stark reality facing mortgage payers on both sides of the Atlantic adds substance to the analysis made in A World to Win’s new book, A House of Cards. What we are seeing is the crash of almost infinite amounts of debt, based on an unsustainable house price bubble. This is combined with the creation of countless and ever-more exotic financial products leveraged on debt, itself secured on ever-diminishing actual values.
Will the credit melt-down and economic down-turn automatically lead to the overthrow of the capitalist system and its replacement by a co-operative, not-for-profit economy? Of course not. But what it does mean is that for billions of people around the world, the conditions of their lives are changing dramatically. Confidence in the system at all levels is being shaken to the core. Until now, many people have been affected by a feeling of powerlessness that has made them reluctant to challenge the existing economic and political structures. But now reality underneath all the glossy images of homeownership and endless consumerism is breaking through. An understanding of how the system has reached this point is crucial. It is a good time to debate and develop the ideas for composting capitalism and building up a not-for-profit economy put forward in A House of Cards.
30 November 2007