EDITORIAL OF PEOPLE’S DEMOCRACY
THE current panic in the global stock markets, leading to sharp falls on concerns centering around the announced measures by the countries of the European Union to reduce fiscal deficits vindicates the analysis contained in these columns in the past that a new global capitalist crisis is impending. After having announced a $ 1 trillion financial lifeline for the Euro region, the European finance ministers decided to collectively work to reduce deficits in individual countries. The bankruptcy crisis in Greece has already seen massive cuts in government expenditures. Spain and Portugal have also announced budgetary cuts. One global finance executive has said “corporate debt risk was the 2008 story, now it is sovereign debt risk.”
It is no longer a European story. The Asian stock markets have seen a steady decline which has impacted on Indian stock markets as well. China’s Shanghai, Japan’s Nikkei, Hong Kong’s Hang Seng, South Korea’s Kospi, Thailand’s SET have all reported significant decline. In an economic world dominated and led by finance capital the natural tendency is to follow deflationary policies domestically in order to satisfy investors. This is precisely what the European economies are trying to do to appease finance capital in the face of sovereign insolvencies. The net result is that the livelihood status of the vast majority of the common people in these countries and globally would further deteriorate as much of the containment of deficits will be done by slashing already drastically cut social sector expenditures.
This is capitalism’s most familiar story. In order to retain, if not enhance profits, the degree of exploitation of the working people is intensified. All this is done in the name of generating economic recovery. The working people are told to lose their jobs today so that the economy can grow and therefore they may be employed tomorrow. There cannot possibly be a more gigantic deceit.
Sovereign insolvencies were bound to occur given the manner in which global capitalism chose to recover from the current recession. The bail out packages globally amounted to over $ 10 trillion. All this came out of the tax payers money. While the tax payers suffered, the governments were also reduced to bankruptcy. The consequence of such a global trend has increased the number of billionaires in the world by over 200 and their aggregate capital has expanded by over 50 per cent during this very crisis. Forbes Magazine has recently reported that as of late 2009, the number of billionaires soared from 793 to 1011 and their total fortunes from $ 2.4 trillion to $ 3.6 trillion.
Given the global recession such massive accumulation in the hands of the wealthy can only be put to good use on stock and raw material markets leading to the creation of new financial bubbles which neo-liberalism hopes will trigger growth based on speculation. The seeds of fresh crisis are being sown by replicating the process, which in the first place, created the current crisis. It is not surprising therefore that oil prices which had hit an all time low of $ 47 a barrel in December 2008 now stands over $ 80. A classic case is that of Russia which saw a GDP decline of 7.9 per cent in 2009 but had double the number of billionaires. The result is that the very same financial giants which caused the present crisis are now announcing super profits. J P Morgan Chase announced a record $ 2.7 billion profit in the second quarter of 2009.
As the bankruptcy crisis of Greece shows, much of this largesse to make the wealthy wealthier is being done at the expense of massive cuts in social security expenditures. The first four months of 2010 saw austerity packages being adopted by the Greek government of nearly $ 15 billion. This was painfully accompanied by four successful general strikes in the space of one month. A breather has now been provided to Greece with the $ 140 billion support package that it has received form the European Union and the IMF. It is still uncertain if this will prevent a complete sovereign insolvency in Greece. But the consequent pressure on all European countries to reduce their deficits has left global finance capital worried over yet another economic slow down. This is the catch 22 situation of global capitalism today. In order to appease finance capital they are forced to reduce deficits. This in turn means lower governmental expenditures depressing domestic demand and consequently depressing growth. This also means lesser revenues in the hands of the government to continue with bail out or stimulus packages. This further adds to depressing economic growth. Such economic slow down further discourages finance capital. This is the vicious cycle of capitalism and its crisis.
As the crisis of corporate insolvency appears to be overcome the shadows of sovereign insolvency lengthen.
Source: People’s Democracy dated 23-05-2010
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