This weeks editorial for People's Democracy, the newspaper of the Communist Party of India (Marxist), warns of the possibility of a further period of economic crisis as stock markets in Europe and Asia enter into sharp falls due to the defecit reduction measures being put forward across Europe.

 

The current panic in the global stock markets, leading to sharp falls on concerns centring around the announced measures by the of the European Union to reduce fiscal deficits, vindicates the analysis that Communists have been presenting, that a new global capitalist crisis is impending. After having announced a $1 trillion financial lifeline for the Euro region, the European finance ministers decided to collectively work to reduce deficits in individual countries. The bankruptcy crisis in Greece has already seen massive cuts in government expenditures. Spain and Portugal have also announced budgetary cuts. One global finance executive has said “corporate debt risk was the 2008 story, now it is sovereign debt risk.”

It is no longer a European story. The Asian stock markets have seen a steady decline which has impacted on the Indian stock market as well. China’s Shanghai, Japan’s Nikkei, Hong Kong’s Hang Seng, South Korea’s Kospi, Thailand’s SET have all reported significant decline. In an economic world dominated and led by finance capital the natural tendency is to follow deflationary policies domestically in order to satisfy investors. This is precisely what the European economies are trying to do to appease finance capital in the face of sovereign insolvencies. The net result is that the livelihood of the vast majority of ordinary working people in these countries and globally will deteriorate further, as governments drastically slash already inadequate spending in the social sector in an effort to contain deficits.

This is capitalism’s most familiar story. In order to retain, if not enhance, profits, the degree of exploitation of working people is intensified. All this is done in the name of generating an economic recovery. Working people are told to lose their jobs today so that the economy can grow and they might be employed tomorrow. There cannot possibly be a more gigantic deceit.

Sovereign insolvencies were bound to occur given the manner in which global capitalism chose to recover from the current recession. The bailout packages globally amounted to over $10 trillion. All this has come from tax-payers. While tax-payers suffered, governments were also reduced to bankruptcy. The consequence of such a global trend has increased the number of billionaires in the world by over 200 and their aggregate capital has expanded by over 50 per cent during this current period of crisis. Forbes Magazine has recently reported that by the end of 2009, the number of billionaires soared from 793 to 1011 and their total fortunes from $2.4 trillion to $3.6 trillion.

Given the global recession, such massive accumulation in the hands of the wealthy can only be put to use on stock and raw-material markets leading to the creation of new financial bubbles which neo-liberalism hopes will trigger growth based on speculation. The seeds of a fresh crisis are being sown by replicating the process which created the problems in the first place. It is not surprising therefore that oil prices which had hit an all time low of $47 a barrel in December 2008 has soared to over $80. A classic case is that of Russia, which saw a decline in GCP of 7.9% in 2009 but had double the number of billionaires. The result is that the very same financial giants which caused the present crisis are now announcing super profits. J P Morgan Chase announced a record $2.7 billion profit in the second quarter of 2009.

As the bankruptcy crisis in Greece shows, much of this largesse to make the wealthy wealthier is being done at the expense of massive cuts in expenditure on social security. The first four months of 2010 saw austerity packages being adopted by the Greek government of nearly $15 billion. This was painfully accompanied by six successful general strikes in the space of one month. A breather has now been provided to Greece with the $140 billion support package that it has received from the European Union and the IMF. It is still unclear whether or not this will prevent a complete sovereign insolvency in Greece. But the consequent pressure on all European countries to reduce their deficits has left global finance capital worried over yet another economic slowdown. This is the ‘catch 22’ of global capitalism today. In order to appease finance capital they are forced to reduce deficits. This in turn means lower governmental expenditures depressing domestic demand and consequently depressing growth. This also means lower revenues for governments to continue bailout and/or stimulus packages. This further adds to depressing economic growth. Such economic slowdown further discourages finance capital. This is the vicious cycle of capitalism and its crisis.

As the crisis of corporate insolvency appears to be overcome the shadows of sovereign insolvency lengthen.