Sean Figg
The government is desperate. Its economic policies have failed, and worse than that, it is clear they are compounding the economic malaise. Austerity is destroying demand in the economy and can be squarely blamed for the ‘double-dip’ recession the economy entered at the end of last year.
In May, David Blanchflower, former Bank of England official, pointed out that the ‘recovery’ from the 2008-2009 recession is the slowest in over a century, even slower than the Great Depression. In the 1930s, it took 48 months for the output lost in the crash to be recovered. Today, in the same space of time, only half of lost output has been restored.
With the now regular downward revision of growth figures, the economy grew just 0.7% throughout the whole of 2011. A study by the European Commission suggests that economic output could still be below the 2008 level 70 months on from the 2008 crash!
According to new study by the Institute for Fiscal Studies, in 2010-11 median income fell by 3.1%, from £432 per week to £419 per week and mean household income fell by 5.7%, from £542 to £511. They say this is the largest one-year fall in median income since 1981 and the largest one-year fall in mean income since records began in 1962.
These comparisons reveal the deep crisis faced by British capitalism. Mervyn King, governor of the Bank of England, has become the British ‘Dr Doom’. In the annual Mansion House gathering of the City elite, he spoke of the “large black cloud of uncertainty” hanging over Europe and Britain.
Continuing with the imagery, King described the “long shadow” cast over Britain’s economy, the “black cloud overhead”, the “ugly picture” and the impending “turbulence ahead”.
It is true that the eurozone is “casting a long shadow” over Britain. Leaving aside the devastating effect a eurozone break-up or recession would have on UK exports, it is the exposure of UK banks that is exercising the minds of the ‘strategists’ of UK capitalism. According to Nomura, a Japanese finance multinational, the exposure of British banks in a “severe-recession scenario” to losses on bad loans is second only to Spanish banks!
An index published by the Economist shows that the eurozone is in the grip of a credit crunch more severe than 2008 which poses major liquidity issues for UK banks reliant on the European inter-bank markets. The possibility of a Greek exit is now regularly referred to by commentators as a “Lehman style event”.
Cameron and Osborne have responded to this with a plan to throw more money at the banks. The intention is to encourage bank lending, kick-starting the economy and easing the credit crunch spilling over from the continent. For starters, an emergency facility was activated last week that will offer at least £5 billion per month in six month loans to banks to ease liquidity problems.
The main course, however, is the announcement of a “funding for lending” programme, killing two birds with one stone, whereby a further £80 billion of long-term ‘loans’ would be made available to banks at below market rates of interest in return for demonstrating increased lending to the private sector.
Private sector
Tory ministers still cling to the idea that the private sector will save the day. They cannot understand why it doesn’t. The £750 billion sitting in the accounts of big business dwarfs the proposed new lending. It is not for want of cash that private sector activity has not increased.
More fundamental is the profit-driven nature of investment for big business, currently a risky venture in the economic turmoil engulfing the world.
But for the capitalist politicians Cameron and Osborne, something else must be to blame – the banks, the eurozone – for the failure of their shibboleth to materialise.
They have been forced to concede some ground to the reality of the contradictions of capitalism, now, instead of the private sector “rushing in” as the public sector is cut back, it has to be coaxed, coddled and bribed.
