New improved 'fantasy finance' fuels the crisis
The maelstrom of scandal and political in-fighting that is shaking the New Labour government to its foundations – who knows what other ministers may have resigned by the time you read this – is fuelling the fires of the global crisis of capitalism.
The political meltdown, with its constitutional consequences, has added new dimensions to the economic, financial and ecological hydra-headed mother of all crises. Each of its parts is interacting and adversely affecting the others.
Just the suggestion that Brown would replace Chancellor Alistair Darling with Ed Balls, for example, triggered a negative reaction on the financial markets. The political crisis in the UK is undermining its credit rating – and hence its ability to raise new funds. So Darling is staying on at the Treasury to try and calm the markets if nothing else because it’s either borrow or bust (or should that be borrow and bust?).
Capitalist governments have been competing with each other in their zeal to replace decades of kow-towing to the free market demands of transnational corporations with supersized versions of Keynesian-style intervention to try and get the economy moving.
It’s easy to lose sight of the reason for all of this frenetic activity. The over-riding motivating force is a hopeless endeavour – trying to reverse the inevitable collapse of consumer demand which has exposed the mountains of overproduced commodities and production overcapacity.
To pay for it, treasuries have been pumping more oil on the fire, offering government bonds to the gamblers in the global casino and adding zeroes to their own balance sheets – simply by printing money, aka quantitative easing – to finance the issue of “new, improved” fantasy finance.
In doing so, they are attempting to burden generations to come of their increasingly unemployed populations with unsustainable levels of tax, whilst preparing to greatly reduce spending on health, education, pensions, social services, and the benefits on which tens of millions depend.
According to the Organisation for Economic Co-operation and Development, governments will this year attempt to issue almost $12,000 billion of debt, up from $9,000 billion two years ago (and many times the level a decade ago.) The US alone is projected to sell almost $8,000bn.
The weakest links are showing signs of breaking, however. In Latvia, a bond auction on Wednesday which saw no bidders triggered a minor panic in Eastern European markets. Latvia's economy is set to contract by 18 per cent this year and unemployment is soaring. Already in May, the credit ratings agency Standard and Poor issued a warning reducing the UK government’s triple-A credit rating from stable to negative, adversely affecting its ability to raise funds to bridge the gap.
According to the Financial Time’s Martin Wolf, real spending in the UK is forecast to rise by 7.2 per cent alone this year, while the value of goods and services produced shrinks by a (probably over-optimistic) 2.75 per cent. This is the vice that the capitalist system is caught in. It’s also the recipe for hyper-inflation in the near future.
Wolf puts the scale of the problem in its historical context:
A financial implosion can do fiscal damage comparable to that of a sizeable war. Indeed, this is quite likely to prove the fourth most adverse fiscal event since 1800, after the second world war, the first world war and the Napoleonic wars.
It is time to acknowledge that the cost to ordinary working people of repairing the broken system of production for profit will be just too great, just as the burden of New Labour is too heavy for society to carry. The combined political and economic crisis offers tremendous opportunities to shake not just the Brown government but the entire edifice of the capitalist system. Let’s not miss it.
5 June 2009