His performance was delivered with all the fluency of someone who has managed to obtain a superficial grasp of the economic crisis and yet delivers these crumbs as if they were profound and significant insights.
This amounted to no more than a re-statement of the paternalistic platitudes circulating among the equally economically-challenged European political elite.
Basically, he suggested that those in Brussels as well as European Governments need to get their finger out and save their bankrupt banks (like in he did in the USA), plan for short-term economic growth, and return to fiscal responsibility over a number of years. In that way the ‘markets’ will have confidence to keep lending to governments and businesses and things can get back to normal.
Obama’s concern for Europe had more than a little self-interest, for he recognised that Europe was USA’s largest trading partner. In other words a further downturn in Europe would lead to lower demand for American exports. He prattled on repeating such platitudes a number of times no doubt with a view to the forthcoming US Presidential elections. When the crisis deepens, as it must, he will be able to blame it on Brussels and Europe, rather than global Capitalism and the US, and therefore escape his own role in ‘presiding’ over the triggering source of crisis.
He glossed over the fact that the whole speculative ‘bubble’ which rebounded across Europe and the UK, first burst in the USA, due to the Sub-Prime housing loan strategy and their packaging into ‘derivatives’. His repeated concern to placate the ‘markets’ indicated his total commitment to the form of finance capital developed within Wall street and its off-shore annex in the City of London.
These financial ‘markets’ are currently fluctuating wildly on an hourly as well as daily basis as the masses amounts of money capital, built up by the rich over the past 50 years, searches for safe, or relatively safe, places to put it. The previous problem for the super-rich was where to place their billions in order to get as much trading profit as they could. This led to the huge speculative investments, some in US and UK sub-prime mortgage derivatives, which eventually caused the banking crisis of 2008. Now things are different. Their problem now is to hang onto the ‘value’ of as much of it as possible. Banks, because of their past speculative record, do not seem safe, shares are hardly safe havens, as companies face slow or negative growth and even increasing instances of bankruptcy.
SOVEREIGN DEBT IN EXCESS OF TAX REVENUES
Purchasing government bonds, now seems dodgy as sovereign debt in all countries (Germany included) is massively in excess of what they take in in tax revenues. A default by any country would see them lose these ‘investments’. For this reason investors in the money markets, globally, are scratching their heads and chasing any possible safe-haven they can think up. One section of finance capitalists, are circulating like sharks around anything that is struggling whether countries, currencies or company’s. Increasingly they are ‘selling short’ and ‘hedging’ in complex deals which are nothing more than bets upon something falling in value. In this way they make money out of someone else’s difficulties and cause further problems for them.
There are a couple of ‘tricks’ some of the big players are trying. One is termed ‘wash trading’. This involves an investment entity (Bank, Investment Trust, Hedge Fund etc.) simultaneously buying and selling the same stock. It creates the illusion of greater market volume and interest reflected in a higher price on the stock market. Once the higher price attracts other investors – such as pension fund administrators – the instigators of the ‘wash’ can sell at the higher price, get out of the market with some profit whilst the later investors suffer a loss. Another is by using complex algorithm programs on powerful computers, which issue buy and sell instructions based upon any fluctuation which could produce a profit.
The recent public launch of Facebook shares in the USA demonstrated a similar type of manoeuvre. A lot of the action took place behind closed doors, but it appears that before the sale the potential value of each share was talked up to a figure well beyond a reasonable price. Insiders, who had options to buy these shares, sold them to institutions before the market opened at this high price. When the market opened and the price was revealed as much lower, guess who, apart from Zuckerberg made a substantial profit? Wall Street banks who were the greatest promoters of the earlier derivatives scandal were allegedly involved in this Facebook scam. There are now legal proceeding pending against some of these institutions and the agents within them.
Yet despite this ‘casino’ type activity, the real problem facing capitalism and the state is structural not fiscal. The problem for the economic system is that it is producing far more than it can sell at a profit. Globally, production capacity can now create greater quantities of products and services with fewer workers, who can then buy less of capitalist production. More of the 21st century workers in all advanced capitalist countries are also low paid workers, which along with a shrinking middle-class, is making the problem worse.
This structural change was offset for a decade or two by borrowing and citizens going into debt. Now the debt bomb has exploded, not only banks are transparently insolvent, but so are millions of people. Capitalism has once again hit its periodic, endemic and systemic crisis of overproduction and its economic and political class is set to make the situation worse.
CHINESE STATE CAPITALISM SLOWING DOWN
China, the 21st century turbo-charged state-capitalist engine of global capital is now slowing down. Some of this is due to the crisis in Europe and the USA, but it is also a result of the past growth resulting in what is often termed ‘over-capacity‘. The government of China, faced with a reduction in tax revenue is set to stimulate economic growth by a $315 billion spending spree. This fiscal stimulus will obviously sustain some of the existing over-capacity but also increase productive capacity elsewhere. Thus repeating the same pattern of over-production and under-consumption.
The reason for the ‘Communist’ oligarchy in China stimulating the economy is based upon its need for tax to sustain the state institutions and its present regime in power. But this difference in increased state expenditure and reduced state income is not just a problem for China! It is a structural problem in all capitalist countries.The European problems of government debt is now fairly widespread, but one of the greatest examples is the USA itself.
Obama in his recent dumbed-down press conference failed to reveal that US government debt has risen to $15 trillion! Borrowing to fund this extra debt has been necessary because tax income has fallen by $1 trillion per year at the same time as military spending has increased (11%) along with other government spending (12%). In reality, the USA Government, like European Governments and the UK is also insolvent and entirely dependant upon its ability to keep rolling over debt, a process which cannot be sustained indefinitely.
The only shrewd thing for a pro-Capitalist Government to do to temporarily save Capitalism from the coming huge crisis, would be to effectively declare bankruptcy now, refuse to pay the sovereign debts and start all over again with new regulatory restraints. Although this was done a couple of years ago by Iceland, it is unlikely to happen in the rest of the capitalist world.
The international brotherhood of Capital (as yet) exerts too strong a hold on the political actors of Europe, the USA and UK to countenance such a tactic. Their present strategy is to continue to draw their exorbitant salaries and muddle through. Thus making the situation worse for their system and mostly for the working and oppressed ‘captives’ of this outmoded form of social production. A further crisis is therefore in the offing. It will see runs on Banks, currency restrictions, further bank defaults and closures along with huge job losses in the public sector.
The developing economic and financial crisis will inevitably be transformed into a further massive social crises particularly in Europe and North America, but also elsewhere. It will be a situation in which amid the fight-back fundamental questions will be asked of how societies, economically, financially and politically should be run and in whose interests.
The anti-Capitalist movement has an important role to play in explaining the basic contradictions of Capitalism and the real historic choices facing the working and oppressed classes along with dispelling the competing illusions and deliberate confusions produced and peddled by the left, right and centre ’spin-doctors of Capitalism.
See for example; ‘Currencies are not the Problem’ and ‘Capital and Crisis.’ at www.critical-mass.net
Roy Ratcliffe (June 2012.)