UK: Can We Expect An Economic Crisis?

by John Ellison

Morning Star | 09 March, 2017

OFF the front pages in the more serious newspapers, and off and on since the beginning of the year, we have been given a series of signals that another financial catastrophe may be not far away.

An expected downturn in Britain’s economy — and for Britain’s people — according to the Observer’s business editorial on January 1, was staved off last year.

Though 2016 began with a rout on world markets, it closed with US and British stock markets touching record highs.

The same analyst expressed no optimism for 2017. Higher import costs arising from a fall in the pound’s value (17 per cent down since the EU referendum), it was suggested, could see the inflation rate soar to 3 per cent by the end of this year, while wages and therefore household spending were unlikely to keep pace.

Retailers large and small would therefore struggle, and some would fail, not helped by planned business rates rises from April.

Elsewhere on that first January day, the Observer reported predictions of a slowing of house price rises, with prices growing on average between 2 and 3 per cent, and falling in northern England, Wales and Scotland.

House prices, of course, have risen far more quickly than wages over the past five years.

On January 3 the Guardian reported the harsh assessment of the British Retail Consortium that 900,000 retail jobs (from a total of 3 million) were at risk.

Two days later came publicity that unsecured consumer credit debt (from credit cards, car loans and second mortgages) was approaching its level of September 2008 — when worldwide recession was triggered by the banking crash.

Well before that crash, in 2005, the Marxist economist Walden Bello published his Dilemmas of Domination: The Unmaking of the American Empire.

Here he defined the core of this empire as “an expansive capitalist mode of production, one that is based on the extraction of profit from the accumulation and investment of capital.”

“A major underlying cause of crisis stemmed from “the widening gap between the growing productive potential of the system and the capacity of consumers to purchase its output.”

He went on to point to stark consequences: “Termed variously as overproduction, overcapacity or overaccumulation, this dynamic has resulted in the declining growth rates in the centre economies and disappearing profits in the industrial sector. It has also resulted in global financial speculation becoming the central source of profit and capital accumulation.”

Bello’s analysis linked the global military domination and adventurism of the US with its role in international markets, and he concluded in a final chapter: “Financial crises will increase in number and intensity. These will eat away at the leading role of the US economy.” The collapse of big banks in 2008 would not have astonished him.

On January 6 this year, Guardian economist Larry Elliott noted that whereas last June the Treasury and the Bank of England expected a prompt recession following the Leave vote, the economic sectors of manufacturing, construction and services had all been performing — if business surveys were accurate — strongly.

And he suggested too that President Donald Trump’s tax-cutting plans would mean rapid growth for the US economy this year, and therefore good news for British exporters.

But in Britain falls in average wages were conspicuous enough confirmations of the widening gulf between consumption and production capacity.

The TUC in January last year published research showing that, on average nationally, workers were, allowing for inflation, more than £2,000 a year worse off than in 2008, and in London more than £4,000 a year worse off. So much for “recovery” since the financial crisis of 2008-9.

Aditya Chakrabortty summed things up neatly in the Guardian on January 10, stating that “the recovery constantly boasted about by the Tories was so partial, so patchy and so dedicated to putting money in the pockets of the already wealthy that it makes a mockery of Theresa May’s speechifying this week about a ‘shared society’.”

Before the end of January, Wall Street’s Dow Jones industrial average had passed the 20,000 ceiling, moving at speed in response to Trump’s election and “pro-growth agenda” — despite current US public debt estimated at $599 billion and rising.

Assessing the likelihood of another stock market crash on February 17, Larry Elliott wrote soberly in the Guardian: “For the time being, Wall Street is being supported by negative real interest rates and the prospect of tax cuts to come … Until the moment comes when traders get spooked by rising interest rates, burgeoning budget deficits, protectionism or a combination of all three, Wall Street is getting intoxicated on irrational exuberance. But remember: the wilder the party, the bigger the hangover.”

He could have mentioned what finally pulls the panic trigger: the realisation that stock market prices are out of kilter with their real values, ie with expected returns.

The next day an average house price fall of 0.9 per cent across Britain in January, but particularly in the south, was reported, based on an estimate from the Halifax.

If a slowdown in house prices is on the march, it is proceeding together with various other economy risk signals: a slowing labour market, a slump in retail sales, a soaring level of private debt and escalating loans for car leasing.

The car loans-to-lease industry has been booming here and across the Atlantic, but on February 26 an Observer economist commented that “if the US market pops,” the same lenders, operating in Britain, could run into “big trouble.”

On the same day an analyst in the Sunday Times described the US economy as like an iceberg: “Beneath the surface lurks a structure that may not long be capable of supporting the tip.”

He pointed to recent US investor optimism: “Investors who believed that Trump’s election would usher in an era of lighter regulation and lower taxes, and backed that belief by buying shares, have been rewarded with gains of about 10 per cent in less than four months.”

He then pointed to grounds for investor pessimism, suggesting that “newly minted Treasury Secretary Steve Mnuchin” may be indulging in fantasy by promising an annual US growth rate of 3 per cent or more, when the Congressional Budget Office expects no better than 1.7 per cent, after last year’s score of slightly less.

And what is the immediate future of house prices — and poverty-guaranteeing rents — in Britain? Will price falls gather pace?

The Observer’s analyst observed laconically on February 26: “Like any pyramid selling scheme, all is fine until the next wave of buyers refuses to participate. Then the whole edifice comes crashing down.”

We are not insulated, of course, from the world outside Britain and the US.

Will the unreal arrangements for the Greek government, now owing in all more than €225bn, to repay it in bits to the European Central Bank and the IMF finally be confirmed unreal, and with what consequences?

What will happen to Italy’s banks, themselves bowed down by debt? Then there is the world beyond Europe…

It should not be overlooked that Theresa May’s “badly managing” government, committed to continue its anti-people austerity drive, is adding its own solid contribution to further economic crisis.

The teachings of Karl Marx and Friedrich Engels come to mind. Engels wrote in a letter of January 1893, caustically describing the stock exchange as “the finest fruit of bourgeois society,” and as “the hearth of extreme corruption.”

It was, he said, “an institution where the bourgeoisie exploit not the workers but one another.”

True, though we should remember too that many modest retirement annuities have been made still more modest in recent times by reduced stock market performance.

In Capital, Marx wrote, in different words echoed more recently by Walden Bello earlier in this article: “The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way that only the absolute power of consumption of the entire society would be their limit.”

We cannot allow this bedrock fact to be waved away as irrelevant as we raise voices against this government’s detested policies, and call for radical change.


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