This morning, President Zuma was reported to have said that government, business and labour must get together to save South Africa from the effects of the coming economic crisis. This is rather like saying that we must hand over rabies control to Feral Dogs and Coyotes Amalgamated, but let it pass, since we already know that everything that Zuma does and says is essentially intended to benefit the rich and their hired hacks. Let us instead note that Zuma has actually observed that there is an economic crisis coming.
Only a week or so back, various economists were telling us that everything was going to be all right because the green shoots were showing and the American economy was coming roaring back to full throttle, based on the alleged information that some Americans were buying stuff. Now they tell us otherwise. Corporate economists have a horizon of memory and anticipation of about twenty minutes forward and back. Zuma, on the other hand, has to think at least a day in each direction (longer than that and he can be sure that newspaper editors will forget, or be paid to do so). Also, he never says anything unless he has to. We can thus be sure that a crisis is coming, or at least that one will be manufactured.
Manufactured? How can we use such a term? Why, everybody knows the term “Eurozone debt crisis” by now! There is a crisis! In the Eurozone! It has something to do with debt! We know this! Nothing is being manufactured —
No, and that’s the problem. Actually, things are being manufactured, but the people who are creating the crisis are not manufacturing anything except illusions. That is why the planet is in a much more desperate crisis now than it was in a few years ago.
There is more money to be made out of financial speculation than out of any other activity that one can do with money. This is the crux of the global financial crisis. As a result, provided that capitalists are permitted to do so, they will plough everything they have into financial speculation, which in itself is very nearly enough to make the money markets go apeshit. Of course, if they are prevented from indulging in such speculation, they will put the money into less profitable but more humanly valuable activities — with very bad grace and much grumbling. Then, when they lose everything they have, because speculation entails risk and is more profitable the more risk you face, they come screaming back demanding bailouts and asking why they were permitted to play with matches, candles and petrol-bombs in the dynamite magazine.
That’s what happened in 2007-8, of course. But the point is that no Western government dared to interfere with financial speculation, largely because doing so would reduce the profits of corporations and would lead to those corporations not contributing to political parties. In other words, Western political parties preferred the interests of their parties in the forthcoming elections, to the interests of their countries and the global economy. They did not want to lose the next election. On the other hand, they did lose the next election, because as a result of their cowardice and corruption the depression has dragged on four years, and one by one the parties have been voted out and supplanted by their competitors.
All of whom did the same thing before and are doing the same thing now; democracy in action.
Therefore, financial speculation continues. Financial speculation, however, is impossible unless financial instruments — stocks, bonds and various more complex instruments derived from these symbolic instruments of liquidisable capital — change their value. They must go up and down. And, as the companies involved in financialisation become more desperate, become more aware that they need money now, there is an increasing trend towards ever greater, ever more rapid swings in order to foster the profitable buying and selling of those instruments. This is what is called, by those economists with their twenty-minute memories, volatility.
To be volatile means that you are liable to turn into gas and blow away in the wind. Indeed. This is always the danger; that as you push the merry-go-round faster and faster, eventually the main axle-bearing will seize solid and all the little ones will be flung off and break their fragile little necks, but worse still, perhaps someone important and significant, someone in a position of authority at an authorised financial services provider, will get hurt. But that doesn’t matter, since it’s more than fifteen minutes in the future. Push! Push!
As the system is growing more unstable and sucking more capital into it (and much of that capital is imaginary, effectively embezzled from stockholders or simply created out of kited cheques) the money has to come from somewhere, and the logical place for it to come from — because there is so much of it — is from the state. But the state has already bankrupted itself bailing out the banks, which were trading in capital transactions totaling to many times the size of the global economy (which is ridiculous, of course, but by pretending that those transactions were real in the boom years, the banks could declare that nobody could compel them to do what they didn’t want to do — even though the banks did not have any bombers or tanks, and a banker’s brains burst out of his forehead just as effectively as anyone else’s when a 9mm bullet is applied to his occiput as he kneels by the gutter against the tiled wall of a cellar).
Sorry. Normal service will be resumed as soon as possible. Ahem.
Anyway, the need for state money required that states be bullied into coughing up. The Third World was either too immiserated to be worth plundering (Africa), or wasn’t prepared to fall for that bullshit any more (Asia and Latin America, both of whom have been there, done that and got the anti-globalisation t-shirts). Luckily, the European Community provided the necessary opportunity. Various countries within the EU were small, weak and heavily indebted. Their populace had been tricked into electing neoliberal governments which pursued policies to serve the financial community so thoroughly that they had run up almost unpayable bills to banks which were now insolvent. And a supranational force with political clout behind it — the European Central Bank and the Euro itself — existed to enforce the loan-sharks decree and smash kneecaps where necessary.
So it was perfectly logical that Portugal, Ireland, Greece and Spain should be singled out to provide the cash transfusions to the global casino of Western financialisation. Above all, these were peripheral countries — all except Spain were weak, small and largely under the thumb of bigger neighbours, and the Spanish government was weak and out to prove that socialists in Spain could be as right-wing as socialists in Italy, France and Britain, even if they were less enthusiastic about murdering Iraqis than some. So all these countries knuckled under.
And all of these countries suffered in consequence. All suffered much more drastic economic declines than their larger neighbours did, because they were all compelled to impose savage austerity policies so that they could set money aside to give to multinational banks. Wooot! What’s to lose? But one of the four played less well than the other three, and this was Greece, where the corrupt ruling class had been refusing to pay taxes for decades and the budget was thus even less balanced there than elsewhere, and where the ruling class continued to refuse even after the austerity was imposed, so that the deficit rapidly spiraled upwards. Ireland, Portugal and Spain were in crisis, but the crisis was less savage because, at least for a year or so, they could manage their burdens. Greece, from the beginning, couldn’t.
The global banks couldn’t permit Greece to pull an Iceland and simply default, because then the other PIGS might refuse to play along and then the money would run out. So at first they decided to punish the Greeks. That pushed the deficit higher and made the government less stable. Then they decided to reward the Greeks a little, on condition of a more savage austerity policy, but that pushed the deficit higher and made the government less stable. Suddenly the banks discovered something: a lot of European banks had lent the Greeks money, and now stood to lose their shirts. But those banks didn’t have shirts to lose. If Greece went down, Europe’s banks would go down. Suddenly it became necessary to cover up the crisis, but it was impossible to do this because the damage to Greece’s economic and political system was irreversible. There was definitely not enough money to bail out the whole country.
But Greece has neighbours. Italy, a heavy lender, suddenly discovered that it didn’t have money either. Spain rediscovered its economic crisis. Under conditions of panic, everybody wonders whether they are safe in themselves, and of course nobody was. Hungary unexpectedly came to the party, announcing that it didn’t have money. (The IMF has promised to bail it out, although it does not have the money to do so.) The European Central Bank, which had been ordering everyone around like an SS officer identifying who goes to the gas chambers and who goes to the whipping-blocks, suddenly revealed that it didn’t have money either, and undertook to borrow money on the strength of the money which had been promised it, and then leverage that borrowed money by means of credit default swaps into more money, which is exactly the procedure which brought down Lehmann Brothers. So that was all right.
It seems that our beloved President is right. Of course, the fact that he isn’t going to do anything about it might seem to ameliorate his notorious rectitude. However, another issue is, what does this mean? What does this Eurozone debt crisis entail?
Well, consider a country which has a budget deficit of 8% and a debt ratio of 120% of GDP, more or less commonplace for the PIGS. That suggests that in five years the debt ratio could be 160%. But no, surely, that can’t be right; the economy is growing at — is it growing? 1%? (In five years, then, the debt ratio would be 155%, which isn’t exactly satisfactory.) Or is it shrinking, in which case in five years the debt ratio could be 200% or more? No, that can’t be tolerated, can it?
But wait — does a high debt ratio matter? Surely, with interest rates low, it isn’t a problem. But governments don’t just go down to the local bank and borrow their cash, they mostly raise money by floating bonds, and those bonds can only be sold at interest rates which are relatively realistic. While the European Central Bank’s interest rates are damned near zero, bond rates vary according to how willing pundits are to buy bonds — if they think the bonds are risky, they insist on higher rates of return. Places like Spain, Italy and Greece have bond rates of 7% and up. Which means that 120% debt requires a return of 8,4% of GDP. 200% would require 14% of GDP. And bond rates are rising. (South Africa’s rose above 7% yesterday.)
So what this means is that high debt ratios, plus high bond yields, plus high deficit rates, equals vast amounts of state revenue being given to banks, with the prospect of even bigger amounts going that way in future. Something has to be done. Unfortunately, the only things which can be done are raising taxes (the lack of which is usually the problem in the first place) or cutting spending (which will lead to massive misery and also, probably shrinking GDP — as has happened in Greece). And, unfortunately, those countries which aren’t in the PIGS are also facing high deficits and cutting spending and thus facing shrinking GDP.
So what is happening is simply that in order to make the financialisation system work better for a couple of years, and out of fear of making any changes which would stabilise the situation and thus reduce profits, Western Europe has been reduced to a state at which its only option is to further immiserate the poor and plunge itself into a depression even worse than the one it is in at the moment. This can’t be restricted to the Mediterranean countries, although the Northern countries fantasised that it could for a long time, demonising the olive-oil-eaters. But now that both Italy and Spain are in the Greek-style squeeze, France is caught between them, and Britain faces the same crisis. Even Germany is having trouble at bond auctions, meaning that it will probably have to raise its interest rates. Because the Euro system is one system, and it all ultimately goes down together.
And brings the rest of us down with it, which is why Zuma rounded off his little speech by saying that he wasn’t prepared to pay social grants indefinitely. Immiseration — coming to a theatre of the absurd near you, soon!