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Economy
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The Financial Times has hailed the
effective takeover of Fannie Mae and Freddie Mac by the US government as “what
could become the world’s biggest ever financial bail-out.” Treasury secretary
Henry Paulson has promised he will pump in ‘unlimited liquidity.’ Don’t you
wish the government would grant you unlimited liquidity? When it comes to the
food and fuel bills of the poor and the working class, the British and American
governments find that the cupboard is bare. But now it’s not bare. Predictably
markets all over the world have breathed a sigh of relief. Fannie and Freddie
have effectively been nationalised – and big business thoroughly approves!
As I write, it is one year since the great
global credit crunch began. On 6 August 2007, America’s second-largest mortgage
lender American Home Mortgage Investment Corp filed for bankruptcy. Three days later, France’s biggest bank,
BNP-Paribas announced that it was freezing redemptions on three of its
investment funds in sub-prime mortgages.
Immediately, the European Central Bank announced it was injecting E75bn
into the financial system. Only a few
days later, the US Federal Reserve Bank announced a 50 base points cut in its funds rate
and injected extra liquidity into the system.
The credit crunch had begun!
“Outsourcing of public services to the
private and voluntary sectors has almost doubled to close to £80bn in little
more than a decade and makes up a far larger part of the economy than
previously thought.” (Financial Times 09.07.08) A third of all public services – far
more than previously thought – are now delivered by the private and voluntary
sectors, according to this report commissioned by the government.
Wasn’t it good of
Mervyn King, the Governor of the Bank of England, not to accept a pay rise of
£100,000? What a model/example of restraint to us all! Instead he would only
take 2.5% pay increase each year for the next five years, out of his annual
salary of £289,551. We must feel sorry for him. That means he will only get a
bit more than £7,000 pay increase this year. How did anyone work out that he
should get such a pay rise in the first place? The way the economy has been going
over the last year, it can’t be .
For ten years Gordon Brown has been mouthing the
phrase “no return to boom and bust”. Now we see it is meaningless. Darling in
his Mansion House speech in June also brushed off the threat of recession,
asserting that “our
economy will continue to grow.” But there has been a boom and it has
turned to bust. Brown and Darling are denying what is going on in the real
world before their eyes. They can’t do anything about the recession since they
are not prepared to act against the source of the problem, the capitalist system.
More and more people will begin to see that if the only way we can control the
economic system and make it work in our interests is if we own it.
Fannie and Freddie Mac sound like two characters
out of the old West – with her in a gingham dress and him in a check shirt. But
Fannie Mae is the Federal National Mortgage Association and Freddie Mac is the
Federal Home Mortgage Corporation. They’re both in big trouble and, if they’re
in trouble, so are we.
Hedge funds are in the news again. They don’t much
like being in the public gaze. We wonder why. Does their speculation cause
prices to go up? Do they drive firms into bankruptcy so workers lose their jobs?
These are the questions being asked. Let’s see what they get up to.
British capitalism is in big
trouble. The official annual inflation
rate has hit 3.3%, its highest level for 16 years. The governor of the Bank of England, Mervyn
King, has been forced to send a letter to the Chancellor of Exchequer, Alastair
Darling, to explain why the Bank has been unable to keep inflation from rising
at more than 2%, which is the target set by the government for the Bank.
Bradford and Bingley are the latest bank to catch a cold in
the present financial crisis. They’ve declared a loss of £8m for the first four
months of 2008. This compares with £108m profits they made in the same period
last year. The main reason for the losses is because they’ve had to
write down £89m of their assets. ‘Write down’ is banker-speak for the fact that
they realise they can whistle for their money.
Stock markets around the world have been rallying. They are up 15% since they hit a low for the
year in mid-March and they are now hardly down in value since credit crunch
began last August. Investor optimism is
rising that the great global credit crunch is nearly over. Now
that the financial sector is in trouble, the weakness of capitalism in its
downphase of profitability is being exposed. It is paving the way for a serious worldwide economic recession, despite
the current optimism of the stock markets.
There's an old saying that, 'When the USA sneezes, we all catch
cold.' Alistair Darling and Gordon Brown know that the USA is already
in recession. They know that the financial crisis is causing the
hatches to be battened down all over the world. But, they say, Britain
is immune. They've even commissioned a Treasury report to try to prove
it. Don't believe them. The chill winds of economic crisis are
coming our way. The parallels between the US, which is already in the
mire, and the UK are stark.
Food prices have gone up worldwide by 75% since 2005. Since Gordon
Brown became prime minister (not that long ago) milk prices have gone
up by 17%, eggs by 28% and bread by 34% in this country. Other items
have shown even sharper increases. There's no sign of any letup. In the same way as we seem to have seen
the end of cheap oil, this could be the last of cheap food.
Britain’s second-largest bank, the Royal Bank of
Scotland, which owns NatWest and has recently bought Holland’s largest bank
ABN-Amro, has announced that it lost £4bn in the last three months as a result
of the world’s great credit crunch. RBS says that it must write off £5bn in
loans and debt securities that it had on its books as worthless. And it now must ask existing shareholders to
stump up more money – as much as £10bn – to buy new shares in the bank so it
does not go bust.
“While many are worrying about filling their gas tanks, many
others around the world are struggling to fill their stomachs,” says Robert Zoellick, head of the World Bank. We are
confronted with actual starvation. He warns that the present food crisis will
give us “seven lost years.” It means “lost learning potential for
children...stunted intellectual and physical growth.” His colleague at the IMF,
Dominique Strauss Kahn, concurs. He foresees that “hundreds of thousands of
people will be starving.”
Milions of workers came out on strike in defence of their pensions. This was the biggest such action for decades. The fight goes on!
