[PAA-Discuss] Recession, Recovery, Banks, and Bubbles - Workers Face Jobless Recovery

[Ron and Kris Graham]

Published by SocialistAlternative.org

Read online at: www.SocialistAlternative.org/news/article12.php?id=1179

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Recession, Recovery, Banks, and Bubbles - Workers Face Jobless Recovery

    Oct 28, 2009
Alan Jones   

The stock market reached the 10,000 mark in the middle of October. Wall
Street investment banks like Goldman Sachs were preparing to dole out a
record $140 billion in pay to their traders. If you only watch the mass
media, it's as if the shock of the economic collapse that was triggered by
the collapse of Lehman Brothers two years ago never happened. More and more
optimistic predictions of economic recovery are everywhere. 

But while the happy talk continues on Wall Street, for regular folks the
crisis is getting worse and worse. One commentator called it "one nation-two
economies." Unemployment is continuing its inexorable rise to double digits,
while even mainstream economists now recognize that if the underemployed and
those no longer looking for work were included this rate could easily reach
20% of the workforce. Business Week warned that we may see an absolute
decline in wages in 2009 for the first time in 60 years. 

CNN reported that third quarter foreclosures reached a record 940,000 - a
23% increase over the third quarter of 2008 - a sign that the crisis is
spreading deeper and deeper in the real economy. World trade, one of the
major engines of world economic growth over the past period, is expected to
contract by almost 10% this year for the first time since the early 1980s. 

In the U.S., consumer credit has been falling fast for seven consecutive
months. Bank lending is off 14% since October 2008 despite interest rates
remaining at very low levels. This is starting to threaten the viability of
the dollar as the world reserve currency. 

A new speculative bubble 
The absence of any attempt to regulate the U.S. financial sector has led to
a return to high-risk speculation. Behind the "green shoots" and talk of
"economic recovery" is in fact a return to a new speculative, and probably
short-lived, bubble. 

While massive government spending - $11 trillion of taxpayer funds to
support the financial sector - has temporarily stabilized the economy and
prevented a collapse, the Financial Times warned that, once the effects of
the temporary, cushioning effects of these tax cuts, government liquidity,
and stimulus measures begin to wane, the deep problems of bad debts and
toxic assets threaten to burst to the surface. 

Major economists like Nouriel Roubini and Nobel Prize Laureate Joseph
Stiglitz warn that we are going into an extended period of "economic
malaise" and a "double-dip recession" or at best an anemic recovery. These
far more sober forecasts confirm the general analysis of socialists that the
world is not facing a routine cyclical recession but a deep structural
crisis which will probably extend for years. 

There is an enormous overhang of spare capacity in industry and
construction. Combined with the massive debt levels of government, business,
banking, and household debt, this creates an extremely difficult situation
for a sustained recovery. In every major capitalist economy, it is estimated
that there is now more than 30% overcapacity in virtually all sectors of
industry and construction. 

In its special report on the world economy in October, The Economist warned
that in the "new normal," 25 million will have lost their jobs in the
advanced capitalist countries and "several million may never regain them,"
demand in rich countries will remain weak, and emerging economies will not
be able to compensate. 

Protectionist pressures 
Since the onset of the crisis, we have seen an unprecedented degree of
global coordination among the major economies. This reflects the enormous
interdependence of the world economy today. However, on the basis of
capitalism, each capitalist government inevitably is forced to fight for
advantages for their own companies and markets. This can be seen in the
sharp trade conflict that has erupted between China and the U.S. over tires,
which threatens to escalate after Obama increased tariffs 35% for
Chinese-made tires. Similar tensions exist between the U.S./Boeing and the
European Union's Airbus over protection of their respective aircraft
production industries. 

Tariffs and protectionist measures can easily begin to be used by other
countries against Chinese exports, leading to further retaliations. A
similar process is reflected in the secret discussions of a number of
countries on replacing the weakened dollar as the world reserve currency. An
escalation of protectionist measures and retaliations would have a
devastating effect on world trade and living standards and could easily open
the door to new, sharp national and regional conflicts as each country tries
to solve its problems at the expense of others. 

New banking crisis 
The banking sector could face another serious crisis not too far into the
future. Toxic debts, credit card defaults, and the continued crisis in real
estate will continue to be a serious problem. More foreclosures because of
increasing unemployment and falling wages could lead to new, huge losses for
the banks. Nouriel Roubini of the Financial Times, one of the few economists
who predicted the crisis, believes that up to 1,000 banks and financial
institutions could go under. It should be remembered that in the 1930s
depression, the worst year for bank failures was in 1933, four years into
the crisis. 

A Financial Times editorial warned that "according to IMF calculations the
savage losses incurred by the banks since the beginning of 2007 - about $1.3
million - are only the beginning. It expects them to write down another $1.5
trillion by the end of 2010.All this means that the financial sector remains
on extremely shaky ground." (10/1/09) 

If such a crisis develops again, it will be questionable if another bailout
along the lines of the past year will be possible. A number of economists
make the point that the banks today are "too big to fail" and the government
has no choice but to rescue them. Socialists argue that, in reality, there
is a strong case for nationalization of the banks under democratic workers'
control and management - i.e., genuine nationalization, not corporate
welfare or "socialism for the rich." 

Workers pay the price 
It is not the barons of Wall Street who are expected to pay the price for
this economic catastrophe. The plans of both major parties that support and
are supported by Wall Street and big business is to make the workers and the
middle class pay for the crisis of their sick system with massive job and
wage losses and cuts in public services such as health care and education. 

In reality, a whole new period of austerity and savage attacks on the rights
and living conditions of working people has opened up. The important gains
in living standards that workers made since World War II have come to be
seen as "normal" in the advanced capitalist countries. Socialists always
warned that this was not at all "normal," but a historical exception under
capitalism during the postwar economic upswing. 

There will not be a return to "normality." For the working class, this will
be a jobless recovery. There will be no return to easy credit. Stiglitz
forecasts that it may not be until 2012 that unemployment levels will begin
to decline. 

The OECD predicts another 25 million workers in the advanced capitalist
countries may lose their jobs by the end of next year. The stage is
increasingly set for a savage confrontation between the classes, with fierce
attacks on living standards, cuts in services, and increased taxation
against the working class and the middle class. This will inevitably lead to
increased class struggles in the U.S. and on a world scale.

 

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