Is the world economy heading for a new crisis?

By Ronnie Stevenson

A recent editorial in the Economist began with: “Looking for meaning in financial markets is like looking for patterns in a violent sea.

The information that emerges is the product of buying and selling by people with all their contradictions”.

The overwhelming mood of these people -the bankers, the investors, the so-called finance experts – is anxiety.

The lowering of interest rates means now that some lenders are using negative rates, meaning the borrowers have to pay less back than they borrowed – madness to you and me.

The interest rates on government bonds for a ten-year period are now below the two year rates, a phenomenon which has been a precursor to recession in the US over the past 100 years.

The markets, depending as they do on people’s reaction to their reading of the signs they observe are complex and, because of the comparison with gambling, just as hit or a miss.

Meanwhile despite what some political leaders seeking votes in elections say, none of the richest economies in the world are reporting strong economic growth.

In fact they report economic prospects which are far from rosy. There are also tensions between governments, the central banks, the stock exchanges and big business about what is the best way forward.

The markets are reflecting the uncertainty and often show a retreat away from investment, despite the low interest rates being set by the Central banks.

Recent reports in the serious journals of big business around the world tell a different story from the politicians.

Germany, the powerhouse of the European economy, recently reported that imports climbed more than expected in June whilst exports were almost flat.

This and the trade surplus falling and other poor data have signalled that the world’s fourth largest economy may be teetering on the edge of recession.

A similar picture is emerging in France. Industrial production dropped 2.3% month-on-month in June. Billions of Euros of tax cuts have failed to stimulate household consumption, causing a dip in the economic growth.

The net result is that fears for a recession in Europe are deepening.

trade wars

In the US, Trump’s increase in tariffs with all the major trading blocs around the world have set off trading wars, particularly with China.

These conflicts have set off sharp falls in financial markets around the world. It has increased prices for the American people which contributed to lower spending.

In turn this puts pressure on US business which invests less.

Despite Trump’s claims about continuing growth in the American economy, a trade war will have the opposite effect. We should remember Trump’s claims about increasing the income of people in America really only applies to the richest 1%.

The vast majority in the US have seen no increase in spending power. In fact taken with all his other policies, cutting welfare, education spending etc, has led to a fall in living standards.

In Britain, the threat of recession hangs over the economy despite Johnson’s declared intention to put “rocket boosters” under the economy.

The uncertainty of a no-deal Brexit or the current negotiated deal plays its part.

The recent contraction in Gross Domestic Product reflected a weaker than expected performance in almost every part of the economy, with a sharp fall in manufacturing and construction output, a renewed slump in business investment and barely positive growth in the service sector.

In Britain, Brexit has driven a wedge between big business and the Tories – the party which they see as their safe pair of hands to run the country. In the US, the economic policies of Trump are in direct conflict with the Federal Reserve.

We could go to virtually any country in the world and similar types of conflicts between the “leaders” is present. Even in China the rate of growth of the economy has fallen dramatically.

Into this economic stagnation has been thrown the Trump initiated imposition of tariffs and the breaking of decades old trade agreements between the US and major trading blocs throughout the world.

Trade wars introduce another major source of uncertainty for business in the decisions they make about investing, the engine of economic growth. More importantly workers are the major victims of trade wars.

In the US and China they are suffering increased prices but also actual job losses and wage cuts. (More on the USChina Trade war at www.socialismtoday.org)

There is nothing more that big business dislikes than uncertainty. It can add to the mood of anxiety and the greater chance of a recession in the next few months/years.

joyless recovery

The “joyless recovery” experienced by the working class globally since the 2007/08 crisis could just be the pre-cursor to a new downturn before long.

The victims will be the working class and the beginnings of a fightback we are already seeing could intensify.

In addition the numbers seeing capitalism – the private ownership of the global productive forces – as the problem will increase in the wake of new world crisis.

The future of humanity and the planet depends on the political character of that fightback. Clearly the insipid reaction of a majority of the leaders of the trade unions to the crisis, and the various political parties to which the working class give their allegiance, is no match for the depth of the crisis.

Fighting socialist policies that offer a complete rupture from the capitalist market are essential.

Public ownership, democratic workers’ control and socialist planning is crucial.

It will become increasingly obvious that only fundamental socialist change is the key to a decent future for humanity.