Following the economic crisis

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Alf
Following the economic crisis
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The lead article in the new World Revolution starts off by talking about the bourgeoisie’s fear of a new explosion in the economic crisis. Following the instability in China, the fall of the oil price, and the growing impact of these phenomena around the world, several authorities have already released statements warning of "deflationary crashes" for 2016.

As a communist organisation, the ICC attempts to follow and interpret the significance of capitalism's economic development. However, we are a small organisation and tracing the development of a global crisis can be challenging.

With this thread, we are opening a discussion that anyone can contribute to and that will keep tabs on key economic developments. By producing an easily accessible repository of links to articles, we can create a resource for both the organisation, but also our sympathisers and the wider milieu, to refer to when reflecting on these difficult questions.

As a minimum, linked articles should be accompanied by some sort of indication of their relevance.

Of course, following the crisis is not merely a question of accumulating facts. The bourgeoisie puts its own spin on the facts, sometimes minimising the gravity of the crisis, sometimes sowing panic with deliberate exaggerations, as we saw in the ‘Credit Crunch’ of 2008 . Understanding the evolution of the crisis is above all a theoretical and political task, so we would encourage comrades to interpret the immediate events from a broader, and deeper, historical framework.  

 

Demogorgon
This interesting graph tracks

This interesting graph tracks profit warnings from UK public companies over the last eight years:

As we can see, profit warnings are at their highest level since the height of the financial crisis in 2008 ... although they still have a long way to go before they reach that level.

Demogorgon
Hours

The UK economy has reached a new milestone, with workers now contributing over a billion hours per week, more than ever before. There have been lots of other positive figures on employment rates and even wage growth. What would do these things mean for a marxist analysis?

The fact that working hours are growing should certainly be seen as a positive for capitalism. Ultimately, socially necessary labour time is the source of value for capitalism. Simply put, the more hours worked (as long as it takes place under conditions of average productivity, of course) the better for the system. Likewise, the increase of hours demonstrates that accumulation of variable capital is still ongoing, thus acting as a counterweight to the tendency for a falling rate of profit.

However, we should also consider what these figures don't tell us. They don't take into account the question of productive vs unproductive labour (a complex question in itself). Nor do they say much about changes in the rate of surplus value or the rate of profit. Capital may be accumulating variable capital but how successfully is it exploiting it? Labour, and the production process as a whole, is only of interest to capital in so far as it produces surplus value. Nor do these figures provide much detail concerning the realisation of any surplus value being produced.

Of course, even considering the idea that these figures may be unalloyed good news for capitalism, it is always worth remembering that capitalist growth, by its very nature, produces the conditions for crisis. Crisis is an essential, systematic feature of capitalist production - the growth of today (if such it is) is already preparing the crisis of tomorrow.

Fred
good news for capitalism?

Yes, you're right Demogorgon, it isn't all good news for capitalism.  

MarketWatch wrote:
 Bank of England on Thursday cut its U.K. growth forecasts for the next three years, pointing to sluggish global economic activity. U.K. gross domestic product is expected to expand by 2.2%, down from a previously expected 2.5% rate. Growth in 2017 and 2018 is pegged at 2.4% and 2.5%, respectively. The BOE had previously forecast 2017 growth of 2.7%, and 2018 growth of 2.6%. The BOE, in its Quarterly Inflation Report, noted the "U.S. economy has grown by less than expected," over the past three months as have emerging-market economies. "There have also been considerable falls in the prices of risky assets and another significant fall in oil prices," it said. Bank of England Governor Mark Carney said Thursday he doesn't expect U.K. inflation to return to its 2% target until 2018.

In other revelations about our favourite economic system, some pundits have been suggesting that the wonderful news about China's continuing economic growth miracle is fake.  And that the figure of 7% growth achieved recently in China according to The Communist government is probably nearer 2%. 

It's  also being suggested by other pundits that if the UK opts to leave the EU, the pound will be devaluated by 20%.  That may be fun for importers, but not much fun for workers, who will be able barely to afford to buy anything: and forget that holiday abroad!  In the 'sixties when the pound was devalued a limit of £50 was placed on how much foreign currency you could take abroad.  Even in those days this was gruesomely small  and the law generally broken. 

Yes, it isn't all good news for capitalism, even given the happy spin the bourgeois press gives to it all. 

 

Demogorgon
There has long been

There has long been scepticism about China's reported growth rates, but it's important to remember a few points:

  • The figures may be slightly massaged but you'd be hard pressed to find a credible account demonstrating that they are actually fabricated in Stalinist Five Year Plan style.
  • China, depending on the cirucmstances, seems to be as prone to talking growth figures down upon occasion, so the massaging doesn't go only one way.

There's a good article from the Economist on this here.

If Britain manages 2% growth this year, it'll be doing pretty well compared to its performance in the last decade.

For a clearer understanding of the difficulties facing the capitalist economy, you have to look at long-term trends. For example, the long-term trend for UK growth since the 50s is clearly going down.

This isn't just a flash in the pan limited to the UK. Ever since the end of the post-war boom, the long term trend for global growth is also downwards, although it's worth noting that there has only been one short period when the world economy stopped growing entirely (i.e. the Global Financial Crisis).

 

Demogorgon
The Apocalypse according to the Daily Telegraph

The Telegraph is taking its usual catastrophic view of the economic situation, with a prediction that the coming crash will be "like nothing we've seen before". There's a useful graphic summing up the worries. The article points out that the current gloom is primarily located in the financial and commodity markets and has not yet been seen at the level of actual economic activity.

That's not to say that growth rates aren't falling slightly in some areas, but these are not yet indicative of any kind of unravelling catastrophe ... yet.

Nonetheless, we would do well to remember that, although crises have their origin in the underlying metabolism of the production process, they appear empirically as crises in the arena of the market - and, as finance has become more important in the decadent period - in the financial markets. In bourgeois-speak, the markets are "forward indicators".

In a separate article, from the same stable, the Bank of International Settlements is stated as warning that "liquidity is now drying up". BIS is worried that the oil price falls will puncture a global debt bubble. For all the talk of "deleveraging" after the GFC, very little has taken place since the situation was stabilised.

McKinsey pointed this fact out back in February 2015: "Since 2007, global debt has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points. Developing economies account for roughly half of the growth, and in many cases this reflects healthy financial deepening. In advanced economies, government debt has soared and private-sector deleveraging has been limited." In addition, "China’s total debt has quadrupled, rising from $7 trillion in 2007 to $28 trillion by mid-2014. At 282 percent of GDP, China’s debt as a share of GDP, while manageable, is larger than that of the United States or Germany".

This trend is confirmed by these two graphs:

As we can see, household debt has expanded far more rapidly than state debt. On the one hand, this represents the success of supposed efforts of the Chinese state to 'rebalance' the economy towards 'consumption'. (Of course, this is capitalist double-talk. Consumption is not the driving force of the capitalist economy, production is, with the former being a consequence of the latter. What is consumed cannot be accumulated and rising consumption is always a harbinger of crisis, unless it is accompanied by an increase in relative surplus value.)

This might be a good thing, except for the fact that it finds its origins in the recognition that China's manufacturing boom has reached its limits. China is now shifting its economy towards services, but I'm unsure how much China is actually exporting services. Even so, it would seem that this paradigm shift is a significant factor in the collapse of commodities which is having such a destabilising effect on the markets.

lem_
good posting demogorgon,

good posting demogorgon, thanks. i had no idea that a mainstream paper would be soo apocalyptic, i only ever read one, except for the links on facebook

baboon
There's a decent article on

There's a decent article on the economic crisis on the ICT's website which is an editorial for its publication. The article talks of the falling rate of profit but overall it seems to avoid the optimism of the Economist in relation to the official economic figures coming out of China which it quotes as "non-credible data" and this within a general estimation of a lack of transparancy of such data. We could look here at the state-controlled "shadow banking" system which has been inflated by the Chinese government's massive credit creation (Q.E.) in 2010. The Brookings Institute says that China should be able to manage its shadow banking system and then admits that this view is "optimistic". You can see the basis for this confusion from the various estimates of the size of the shadow banking system by six major world banking institutions: Standard Charter estimates it at between 8 to 22% of Chinese 2013 GDP to a very precise 81.2% of 2013 GDP from J.P. Morgan - with 4 wildly different figures in between. Similarly you can find estimates of Chinese debt ratio to GDP from 40% to 240% with most going in the latter direction.

 

The Chinese slow-down also affects other economies as it has taken the short-term role of an engine for the world economy. Brazil is one example where massive job losses outweigh the job creation of its mini-boom. Obviously the proletariat in China is greatly affected by this with the Hong-Kong based Labour Bulletin saying last week that strikes and walkouts had reached a new peak in the last quarter of 2015 (many over unpaid wages) and crackdowns and arrests of striking workers.

Demogorgon
Deutsche Bank - The Shape of Things to Come?

Yesterday, there was much speculation about the solidity of Deutsche Bank, not to mention other major banks, with some serious falls in share prices. The banks have recovered somewhat today, but the nervousness around the banking sector indicates the underlying worries around liquidity that stretch as far back as January 2015 and resurfaced at Davos most recently.

The fear around the banking sector is potentially much more serious than the other fluctuations we've seen in the markets because it raises the spectre of a new credit crunch. When banks refuse to lend to each other, weaker banks may be unable to meet their funding requirements and thus go to the wall. This is serious enough, but lending also affects the real economy, especially trade.

"Letters of credit" issued by banks are an integral element of the international trading system. They aren't loans in the traditional sense, but an agreement to honour the terms of a deal between two parties, using banks as intermediaries. During the credit crunch, this system began to break down as banks were afraid to deal with other banks, with the result that tonnes of goods was sitting in ports on ships unable to be handed over even though the buyer had already effectively purchased them!

This is one of the mechanisms through which a serious financial crisis can generate a "heart attack" in the functioning of the so-called "real economy". Most manufacturing companies now operate on LEAN and "just-in-time" procurement models, meaning that they rarely build up large reserves and inventories. While this increases efficiency (and also smooths out certain crisis-tendencies by enabling supply and demand to adjust to each other almost instantly) it also makes the manufacturing economy far more vulnerable to seizures of this sort.

We are, of course, nowhere near such a breakdown in the credit markets at this time. But the fragility of the banking sector and the growing realisation that while a world of permanently low interest rates will depress banking profits in the long-term seems to be worrying the bourgeoisie. Indeed, the current crisis has been partly precipitated by the move to negative interest rates in Japan and the EU - a move intended to prevent a credit seizure!

Speaking of the real economy, new figures reveal that UK industrial production shrank by 1.7% last year. All the talk of rebalancing the UK economy towards manufacturing has turned out to be empty night. It's worth noting, however, that UK manufacturing is not enormously smaller than other major economies and is actually larger than that of France as a share of GDP. Nonetheless, UK manufacturing never recovered from the crisis and is still 9.8% smaller than its 2008 peak. To add to the woe, the UK trade deficit in goods reached a new high at the end of last year, a staggering £128 billion ...

Fred
the misery piles up

Thank you Demogorgon for your detailing of bad news for the bourgeoisie. I find I can't get enough of it. Phrases like "shrank by 1.7%", "fragility of the banking sector"and  "credit seizure" are extremely cheering.  While the thought that the return of a serious financial crisis may generate no less than an economic "heart attack" for our sad little clapped out world bourgeoisie and their pathetic politicians who deserve nothing less does much to restore flagging spirits. 

Talk of rebalancing the UK economy in the direction of manufacturing "has turned out to be empty night." If that is a night without sleep then they deserve it. UK manufacturing is "9.8% smaller than its 2008 peak" in any case.  

And the misery just piles up. 

KT
BIS Report

Link to a Guardian report of the Bank of International Settlements' view of the recent period's 'market turbulence' in the context of medium-term trends, as the Bank sees them. The BIS "is known as the central bank of central banks."

The Guardian report is not very detailed but the BIS report itself may provide useful data.

http://www.theguardian.com/business/2016/mar/07/gathering-storm-for-global-economy-as-markets-lose-faith

 

 

Demogorgon
A creeping crisis

Well, we're in April and so far no global economic meltdown. Good news? While in the central economies, the economy has been struggling, things are much worse in the Third World. Commodity prices have collapsed in the past few years, smashing apart the economic strategies that the commodity-exporting countries relied upon.

The collapse in prices has resulted in countries facing a much higher burden of debt than predicted. The answer, of course, is more debt to keep them afloat as can be seen with demand for World Bank Loans reaching levels normally seen during crises.

Two of the BRICs, Brazil and Russia, have crumbled. Brazil in particular is in the midst of a severe and rapidly accelerating recession, having contracted over 5% during 2015. Russia lost 3.8% of its GDP. India and China continue to grow, however at 7.3% and 6.8% respectively.

The crisis, so far, seems to be contained in "localised" recessions, with the weaker countries paying a far higher price than the stronger.

This doesn't mean all is rosy for the winners. Global growth remains anaemic, according to the World Bank, which is running around half of what it was before the Global Financial Crisis:

Low growth means one of the fundamental elements of the classic Keynesian strategy - where debt increases absolutely but declines relative to GDP - is failing. Public debt continues to rise around the world, but nowhere more-so than in Japan which now has by far-and-away the biggest public sector debt in the world. Japan has managed its current path for nearly two decades now, reaching astonishing levels of indebtedness, but everyone agrees it is a matter of when, not if, the strategy will reach its limits. Apparently, this will be a bad thing.