Global recession is striking right now !
The finance crisis is now spreading into a full-blown economic crisis all over the globe. The US, the EU and Japan are all in recession, while economic growth is rapidly slowing down in the rest of the world. Worse hit are the poorest countries and the poorest sections of society.
The bungy-jumping of the stock markets continues, as does the banking crisis. The Bank of England estimates global bank losses so far at 2,800 billion US dollars. Thousands of billions of dollars in different ”rescue packages” have stopped bank bankruptcies, but not the credit crunch. Everyone with debts – from households to companies and states – are facing worsening conditions.
At the same time, the financial crisis has 'shed its skin' growing into an economic crisis for world capitalism. Jobs and living standards are threatened for hundreds of millions, as are the economies of entire states. According to Oxfam, 200 million people have dropped below the poverty line this year.
Global recession
The US bank, JP Morgan Chase, says in a recent report that the entire world economy will shrink by one per cent in the last quarter of this year and the first of 2009. For the whole of 2009, the bank predicts a global growth of only 0.4 per cent. The prognosis – called ”A bad week in hell” – would if borne out mean a social and economic disaster. Population growth alone demands a growth of 3 per cent globally to keep the economy per capita constant.
The extreme wealth and resource distribution means that poor people will lose more from the downturn in the economy. The World Bank has produced a shortlist of 28 countries, 13 of them in Africa, which are especially vulnerable from the triple threat of food and fuel price hikes, and the financial crisis.
The seriousness of the crisis is underlined by the extreme crisis measures taken by the governments. Preachers of privatisation have suddenly become evangels of massive state interventions, including state ownership of banks and companies. Theories and ideologies are put to one side – if nothing is done, the recession will lead to ”xenophobia, nationalism and revolution”, wrote Martin Wolf, chief economics commentator of the Financial Times. For politicians and capitalists, it’s a question of saving the entire profit-run system.
In Germany for example, the government this week launched a package of 50 billion euros for industrial companies, and to support consumption. France's president Sarkozy has similar plans to save French industry from ”global predators”.
Deepened crisis
A number of signs point towards a worsened crisis:
In the US, consumption which stands for 70 per cent of GDP fell by 3.1 per cent in the third quarter. All confidence indicators consumers as well as managers have dropped at record pace.
The collapse on stock exchanges, 50 per cent according to global indexes, will now affect the huge hedge funds. Many speculators want to sell or pull out. The rise of the dollar and the yen recently can be explained by ”carry traders” (speculators borrowing in these currencies when interest rates were low) now being forced to pay back in yen and dollars.
World trade is slowing. Within a month, the IMF has cut its world trade prognosis from 4 per cent growth for next year to only 2 per cent. The Baltic Dry Index (BDI), a leading index of cargo shipping for steel and other bulk goods, has dropped 86 per cent in value since its peak in May.
Production of steel and other key products is falling. Chinese Baosteel, the world's biggest producer, will cut production by 10 per cent in the 4th quarter.
Many multinationals have huge debts. Many will now apply for rescue packages, at the same time as they intend to sack workers.
A global investment crisis is developing, arising from a drop in demand and the reduced flow of credit. Investments in the US fell by 1 per cent in the third quarter, and in the housing sector by 19 per cent.
After the latest cuts in interest rates, central banks have very little room left. The US Federal Reserve's rate is at 1 per cent, while Bank of Japan is down to 0.3 per cent.
Political effects
The political effects of the crisis are only in the beginning. Many politicians have raised their nationalistic tone, but so far they have been forced to attempt common measures with other governments.
We will see further unconventional methods used in efforts to save the capitalist system, as was the case in the 1930s. Governments in the West now try to persuade surplus countries, such as China and states in the Middle East, to stimulate the world economy. Such attempts will, however, not be able to stop the crisis, not more than the plans already presented.
Among workers and youth, anger is rising against the thousands of billions going to the bankers, while welfare is under attack and nothing is done to save jobs. This will prepare the way for the only real alternative and the only way out of the crisis – democratic socialism on a world scale.
The bungy-jumping of the stock markets continues, as does the banking crisis. The Bank of England estimates global bank losses so far at 2,800 billion US dollars. Thousands of billions of dollars in different ”rescue packages” have stopped bank bankruptcies, but not the credit crunch. Everyone with debts – from households to companies and states – are facing worsening conditions.
At the same time, the financial crisis has 'shed its skin' growing into an economic crisis for world capitalism. Jobs and living standards are threatened for hundreds of millions, as are the economies of entire states. According to Oxfam, 200 million people have dropped below the poverty line this year.
Global recession
The US bank, JP Morgan Chase, says in a recent report that the entire world economy will shrink by one per cent in the last quarter of this year and the first of 2009. For the whole of 2009, the bank predicts a global growth of only 0.4 per cent. The prognosis – called ”A bad week in hell” – would if borne out mean a social and economic disaster. Population growth alone demands a growth of 3 per cent globally to keep the economy per capita constant.
The extreme wealth and resource distribution means that poor people will lose more from the downturn in the economy. The World Bank has produced a shortlist of 28 countries, 13 of them in Africa, which are especially vulnerable from the triple threat of food and fuel price hikes, and the financial crisis.
The seriousness of the crisis is underlined by the extreme crisis measures taken by the governments. Preachers of privatisation have suddenly become evangels of massive state interventions, including state ownership of banks and companies. Theories and ideologies are put to one side – if nothing is done, the recession will lead to ”xenophobia, nationalism and revolution”, wrote Martin Wolf, chief economics commentator of the Financial Times. For politicians and capitalists, it’s a question of saving the entire profit-run system.
In Germany for example, the government this week launched a package of 50 billion euros for industrial companies, and to support consumption. France's president Sarkozy has similar plans to save French industry from ”global predators”.
Deepened crisis
A number of signs point towards a worsened crisis:
In the US, consumption which stands for 70 per cent of GDP fell by 3.1 per cent in the third quarter. All confidence indicators consumers as well as managers have dropped at record pace.
The collapse on stock exchanges, 50 per cent according to global indexes, will now affect the huge hedge funds. Many speculators want to sell or pull out. The rise of the dollar and the yen recently can be explained by ”carry traders” (speculators borrowing in these currencies when interest rates were low) now being forced to pay back in yen and dollars.
World trade is slowing. Within a month, the IMF has cut its world trade prognosis from 4 per cent growth for next year to only 2 per cent. The Baltic Dry Index (BDI), a leading index of cargo shipping for steel and other bulk goods, has dropped 86 per cent in value since its peak in May.
Production of steel and other key products is falling. Chinese Baosteel, the world's biggest producer, will cut production by 10 per cent in the 4th quarter.
Many multinationals have huge debts. Many will now apply for rescue packages, at the same time as they intend to sack workers.
A global investment crisis is developing, arising from a drop in demand and the reduced flow of credit. Investments in the US fell by 1 per cent in the third quarter, and in the housing sector by 19 per cent.
After the latest cuts in interest rates, central banks have very little room left. The US Federal Reserve's rate is at 1 per cent, while Bank of Japan is down to 0.3 per cent.
Political effects
The political effects of the crisis are only in the beginning. Many politicians have raised their nationalistic tone, but so far they have been forced to attempt common measures with other governments.
We will see further unconventional methods used in efforts to save the capitalist system, as was the case in the 1930s. Governments in the West now try to persuade surplus countries, such as China and states in the Middle East, to stimulate the world economy. Such attempts will, however, not be able to stop the crisis, not more than the plans already presented.
Among workers and youth, anger is rising against the thousands of billions going to the bankers, while welfare is under attack and nothing is done to save jobs. This will prepare the way for the only real alternative and the only way out of the crisis – democratic socialism on a world scale.
