The bosses are increasingly fearing a double dip recession, that is a return to recession after the small climb out of recession late last year. Companies surveyed for the British Chamber of Commerce want a dual strategy from whoever wins the next election: cut sending and reduce the £178 billion budget deficit, whilst also demanding support in the form of continued state aid to the financial system. Either way, be it through cuts in services, jobs and pay; or in increased taxes to reduce the deficit (with a 1% increase in VAT the choice for most businesses)it is clear that ordinary people are going to be forced to pay.(1)
The collapse of Dubai's financial system late last year put the fear of god into ruling elites that a new contagion was on the way. The relatively mild after effects did cause a brief period of relief, boosted by earnings reports of the major Western Banks. The money banks have been making in recent months is all predicated on state bail outs. The state creates money and lends it at 0.25%. The banks lend it out at 4%, 5% for Mortgages, or even lend it back to the government at above 3%. Meanwhile, though, the banks are compounding things by refusing to lend the money to the mainstreet. The money lent by US and UK banks has fallen every month for the past nine months. The profits of the industrial sector-the real economy-continue to decline, although the boom in China has lessened the fears of major energy and mining corporations.
China to the Rescue?
Figures published on Thursday January 21st showed that Chinese GDP grew by 10.7% year on year in the fourth quarter. Industrial production jumped by 18.5% in the year to December, while retail sales increased by 17.5%, boosted by government subsidies and tax cuts on purchases of cars and appliances. This sounds miraculous, especially when compared to doom laden predictions of year or so ago, with negative growth and mass social unrest viewed as a genuine perspective for China. The ruling bureaucracy of the Chinese Communist Party were slightly smarter than the Western economists whose models have long been proven to be defunct. A massive stimulus package, made all the more effective by the network of state investment banks and state owned infrastructure firms, allowed the Chinese political economy to avoid falling over the cliff. However, this cannot continue indefinitely given the stagnant growth in the Euro-zone and the North American market, together responsible for 70% of Chinese exports, which are themselves responsible for 50% of Chinese GDP. The Chinese economy’s slack is shrinking fast, raising the likelihood of a new crisis of overproduction. The massive expansion of money and credit over the past year could quickly spill into inflation, as it has recently done in Britain-the natural result of massive quantitative easing in a stagnant World economy. The growth in bank credit slowed to 32% in the year to December, but that is still far too fast. The central bank has started to drain liquidity by lifting banks’ reserve requirements, and some banks have been told to reduce their lending.(2) With China slowing once again, the outlook for UK banks which extort large portions of their earnings from Chinese investments, begins to look shaky.
Despite this unstable and diseased outlook, most business leaders, bankers and think tank cronies are calling for a massive reduction in the state budget, tax rises and a return to business as usual. The only thing the ruling class are united on is that workers will pay for a crisis not of their making. As Nouriel Roubini stated on Monday: "For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don't. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation)...But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation."(3)
Both main parties are lining up to voice their commitment to stand 'strong' and attack the poorest sections of the working classes who use the services they plan to cut. There is absolutely no evidence that Labour are going be nicer than the Tories, especially given how craven the trade union leaders have been in defending their poorer members and the wider class. If the union leaders who now effectively run the Labour Party and fund it almost in total are not going to fight for a pro worker manifesto before the election, i.e. when they have the leverage, why would they be expected to do so after an election, when the refrain from the Parliamentary Labour Party will be: 'look, we are the only party with a hope of winning the next election and defeating the Tories. Don't mess things up with calls for working class reforms', the language of Blair and Brown after 1994.
We need urgently to convene local, regional and national committees of action-based around the Unemployed Workers Union-to prepare to fight back and support workers and unemployed who are fighting against being made to pay for the bosses crisis. This would also be a good forum in which to discuss how we fightback politically.
(1) http://www.ft.com/cms/s/0/c9524704-180e-11df-91d2-00144feab49a.html?nclick_check=1
(2) http://www.economist.com/businessfinance/displaystory.cfm?story_id=15327942
(3) http://www.telegraph.co.uk/finance/financetopics/recession/6080523/Nouriel-Roubini-warns-threat-of-double-dip-recession-is-rising.html
