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Hoping for the best - preparing for the worst

When the Governor of the Bank of England says it out loud, it’s because it has already happened. As Mervyn King said himself, he’s not paid to make predictions. It’s why only six months ago he didn’t even acknowledge the possibility. So, in confirming the obvious he says the UK economy faces its deepest recession since the post-war years of 1945 and 1946, and its worst peacetime decline since 1931.

He has also warned that unless governments around the world are able to bring the banking crisis to an end, the consequences for the economy could be even worse. Can they do it? Can they hell! And the gamblers on the financial markets know it.

When Barack Obama’s treasury secretary Timothy Geithner this week presented the vaguest outline of his $2 trillion plan to buy the banks’ bad debt (how crazy can he be?) investors started piling in – but to buy Japanese government bonds. Rather than attracting funds to the promise of a recovering US economy, Geithner’s offer actually drove them away. In fact, the extent of US government bail-outs, far from easing the credit crunch, has actually forced up the cost of borrowing. Buyers of government debt are demanding higher returns because of the risk.

As one leading commentator explained: “Who can blame bond vigilantes for going on strike? Nobody wants to be left holding the bag if and when the global monetary blitz succeeds in stoking inflation.” The switch from American to Japanese bonds is no vote of confidence, however. In fact, it’s a desperate move because the crisis in Japan is perhaps the gravest of all.

Japanese companies are forecasting an 83% decline in profit this year. Next week’s figures are expected to show that economic output is falling at almost three times the pace of contractions in other major economies and could plummet by as much as 50% by the middle of the year. With the world economy in freefall, external demand has collapsed, especially in “emerging markets” of south-east Asia. Exports from Japan fell by almost a quarter in the fourth quarter as global credit markets seized up.

Toyota, Toshiba and Hitachi are forecasting losses and have fired thousands of workers. The sackings have intensified in the last two weeks, with Nissan, NEC and Panasonic announcing a combined 55,000 job cuts. The jobless rate surged to 4.4% in December from 3.9 percent, the biggest jump in four decades. “You’re getting mass unemployment,” said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo; “it’s really scaring the households.”

Jobs lost
Nov 08 500,000
Dec 08 500,000
Jan 09 600,000

Obama’s America is also shedding jobs at a record rate. The number of Americans collecting unemployment benefits rose to a record 4.81 million in the last week of January as companies such as Caterpillar and Home Depot slashed jobs. The US lost 2.6 million jobs last year in the biggest workforce reduction since 1945. “The housing sector was already weak, and now we are seeing deeper employment reductions,” said Brian Bethune, chief financial economist at IHS Global Insight. “Every round of job cuts means fewer people who can get a mortgage and buy a house.” Sales of properties with mortgages in default accounted for 45% of all transactions at the end of 2008.

There is a last throw of the dice left to try and get the capitalist economy off intensive care – the printing of money (or “quantitative easing” as it is euphemistically known as). Governor King said that the Bank of England was moving in that direction. The capitalist press regards it as a "last chance solution" (or should that be "saloon"?), with the Evening Standard saying: “These are uncharted waters; in unprecedented times, Mr King can only hope for the best.”

At the same time, the ruling elites are preparing for the worst. In Britain, New Labour is in government but hardly in power and is disintegrating under the tsunami of events. These are also unchartered waters politically and we should redouble our efforts to build a movement for change around the demands of the People’s Charter for Democracy.

Gerry Gold
Economics editor
13 February 2009

Phil says:

The article successfully shows the difficulties that some countries are going through. But the IMF is forecasting 1.5% world growth for this year. Repeat: growth. So the recession is confined to only some countries.

Robbie says:

Actually, the IMF has been forced to downgrade their predictions. In a new report published 28 January 2009 under the title World Growth Grinds to Virtual Halt they are predicting worldwide growth for 2009 of 0.5% with what they call the advanced economies shrinking by 2%. And let's face it, how good has the IMF been so far in calling this crisis? For example, when in 2007 A World to Win were preparing our A House of Cards, from fantasy finance to global crash which describes what is happening today, Gordon Brown was trumpeting how wonderful the City was, and the IMF hadn't spotted what was really going on.

It makes you wonder - how come a small organisation like A World to Win could accurately describe 2 years ago the global crash which is happening today, when the all-powerful IMF can't even report it now?

IMF growth!
Dylan says:

I agree Robbie, it beggars belief how governments and 'leading' financial bodies didn't predict the crisis, won't report the crisis and don't know what to do about the crisis. Do we need any of these organisations? No.

Dylan says:

Why not make The New Governor Gerry Gold? What's in a name? All the credentials required.

Bruce says:

It's a good question Robbie, How do they do that!

Is it because they (AWTW) use and study a scientific method called Dialectical Materialism developed by Karl Marx and his collaborator Fredrick Engle's. Marx used this logic to write many books, papers and articles amongst them his best known work Das Kapital, where he used this method to penetrate beneath the surface gloss of capitalism. Showing that rather than being something fixed or permanent he revealed the hidden contradictions within itself this allowed him and us to understand the laws that govern its birth and development into nation, empire and global system, also contained within are the conditions for its replacement (and its death agonies).

Since its 1st edition published in 1867 Capital has been used by and inspired the actions of individuals and groups of workers including the struggles of the early trade union moverment. Dialectical materialism has been studied, developed and used by many women and men from Marx through to the present. Two of the more notable were Lenin and Trotsky both leaders of the Russian revolution, it allowed them to have a view of the world and events inside Russia, with all of its subtle twist and turns, which they developed into a theory to guide and enrich there practice. One of its most striking uses, in the last century was the preparation and carrying out of the October revolution of 1917.

I think that the AWTW carries on these principles, this is what lets them daily to unfold the realities of what is going on in the global crash and expose the desperation of capitalim and to put forward workable solutions for a better world.

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