The dizzying falls in world stock markets this week and the US Federal Reserve’s emergency three quarter point interest rate cut on 22 January show that the global credit crunch that opened last summer is far from dissipating – but rather, it is building towards a deeper economic crisis. The three quarter point interest rate cut is the largest for 25 years. Richard Brenner reports
The sharpest fall in world stock markets since 9/11 met with a panicked response from fiscal policymakers and uniformly pessimistic estimates of the state of the US economy from bankers, brokers and the bourgeoisie’s financial analysts. Suddenly the gentlemen who insisted that the “fundamentals of the US economy were sound” are talking of recession as a near inevitability. A few are even using the D word, depression.
Writing in the midst of the share falls, Richard Crossely a leading analyst and charter of trends at NCB observed weakness in global mining and financial companies allied to sharply rising food prices produces “a clear picture in prospect, recession and inflation.” And Morgan Stanley’s chief European strategist announced “More bad news on global growth. We think it is quite safe not to start buying equities [shares] before US economic weakness clearly spreads.”
Referring to the idea held by some that China’s boom will be able to withstand a US recession, which is called the ‘decoupling’ thesis, Morgan Stanley added: “ We do not believe in decoupling, and interestingly that is indeed where we get the most investor pushback currently, showing that recoupling would be a nasty surprise to investors. Investors are well aware of the US recession, but appear not to be expecting it to spread globally in a meaningful way. We do.”
Sandy Chen, banking analyst at Panmure, added to the gloom: “We think there is far more pain to come. If/when the major bond insurers are downgraded, a whirlwind of downgrades and writedowns would be triggered … This whirlwind of rising defaults would threaten to topple one of biggest structures of all – the US $45 trillion in credit derivatives contracts.” And indeed Ambac, the biggest insurer of bonds, has been downgraded by rating agencies last week.
David Buik at Cantor Fitzgerald spoke of the ‘acrid stench of fear’ permeating the City, while Michael Metz, chief investment strategist at Oppenheimer in New York, said the federal Reserve had “ no power to reverse what in my opinion is the worst post-war recession".
With the housing slump getting worse, unemployment rising, retail sales stagnating and the highest inflation for 17 years, many commentators – including investment bank Merrill Lynch – believe the USA is already in recession. Citigroup, the biggest bank in the world, is now predicting negative growth in the USA for the first quarter of 2008.
Asian markets fell sharply, with India’s stock exchange falling by more than 7% for two days running and a similarly large fall in the Chinese stocks listed on the Hong Kong Hang Seng exchange.
The impact of China’s boom has not been to create the conditions for a ‘long wave’ of world economic upswing. Its effect was to create historically low inflation levels because of the export of cheap manufactures – but since April 2007 all indicators are that Chinese prices are now rising and that this anti-inflationary effect has come to an end.
A major US recession will have a decisive impact on the world economy as a whole – as the financial markets are already signaling. Of course the industrial cycles of the United States and the other main imperialist blocks (Japan and the EU) are not yet synchronized. Continental Europe- especially Germany and France- took much longer to pull themselves out of the early 2000s recession. But even the huge block of the Eurozone would not be able to resist a sharp reduction of its markets in North America.
The role of Marxists in this crisis is threefold:
• to analyse the crisis, demonstrating how only the Marxist analysis of capitalism can explain its dynamics
• to warn the working class of the attacks on jobs and living standards that the bourgeoisie will launch against us and the heightening of global tensions between the major capitalist and imperialist powers that will follow in the course of the crisis
• to show how the existing ‘moderate’ leaders of the working class are unprepared to resist a heightened wave of attacks, have no theory to explain the crisis, and above all have no understanding of the origins of the crisis in the inner nature of the capitalist system itself
For more on the economic crisis see Global credit crunch – towards a crisis of globalisation?