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Vol. 80/No. 23      June 13, 2016

 
(front page)

Fear of world recession overshadows meeting of G-7 imperialist leaders

 
BY MARK THOMPSON
Fears of a new world recession overshadowed the annual meeting of Group of Seven leaders in Japan May 26-27. “The most worrisome risk is a contraction” with “the risk of the global economy falling into crisis,” Japanese Prime Minister Shinzo Abe told a news conference after chairing the summit. But the heads of state couldn’t agree on the extent of the risk or how to respond.

The G-7 is comprised of the world’s foremost imperialist powers — Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. Together they account for around half of the world’s economic output.

Declining industrial production and falling commodity prices are creating depression conditions worldwide that wreak havoc on the lives of workers and farmers. This is despite an official recovery since the 2008 financial crash in the U.S. that triggered the last global recession, the worst downturn since the 1930s Great Depression. The length of the economic slowdown since then is unprecedented.

In the U.S., where participation in the labor force has declined by 4 percent since 2008, layoffs are at their highest levels in seven years. Real median household income has fallen by 4 percent since 2007, while the number dependent on food stamps is the highest ever. For the first time since the mid-1980s, life expectancy has stalled for three consecutive years, while the gap in life expectancy between those on the highest incomes and those on the lowest has more than doubled to a difference of 14 years for men and 13 for women. Suicides have reached their highest peak in 30 years.

The G-7 leaders agreed that each would pursue existing policies to promote “global growth.” Abe had urged the adoption of stronger “fiscal stimulus” measures. But such policies, pursued by governments over recent years, have failed to spur economic revival. Japan itself has experienced stagnation for more than two decades.

Central banks, such as the U.S. Federal Reserve, the European Central Bank (ECB), and the Bank of Japan have kept interest rates at historically low levels, near zero. This has been accompanied by “quantitative easing” programs to purchase bonds and securities in order to pump money into the economy. The aim was to encourage spending and investment in production and hiring.

Negative interest rates depress economy

As growth failed to materialize, in 2014 the ECB and several central banks in Europe set negative interest rates. They were joined by the Bank of Japan in January. Under this policy, instead of paying interest on commercial bank reserves, the central bank charges for deposits. Because this is a tax, not easy credit, negative interest rates not only fail to stimulate production but have a depressive impact on the economy.

Taxing bank deposits could also lead to the hoarding of cash, one reason officials in the U.S. and Europe are moving to limit its use. The European Central Bank announced May 4 it will no longer print 500-euro notes, though the existing ones remain legal tender. In February former U.S. Treasury Secretary Lawrence Summers floated the idea of eliminating the $100 bill.

The bosses don’t invest in expanding productive capacity and hire workers unless it is profitable to do so. But average industrial profit rates have been declining worldwide for decades.

Without a profitable expansion to invest in, the big capitalists sit on cash or speculate on stocks, bonds and derivatives where the rate of return is higher. This leads to mushrooming paper values that eventually burst — like that in the U.S. housing market, whose collapse helped trigger the 2008 crash.

For example, U.S. companies are taking on debt at record levels today, not to fund expansion, but to bolster shareholder returns and to fund takeover activity and speculation. According to Bank of America Merrill Lynch, companies have added nearly $4 trillion of debt to their balance sheets since the start of 2008.

Total global debt — including governments, businesses and households — is rising and has already topped 2008 levels. U.S. credit card debt is on track to hit $1 trillion, close to the all-time peak in 2008.

A deep-going recession could trim fictitious paper values, reduce inventories and remove unprofitable businesses — opening the way to a new cycle of growth. But the capitalists fear the consequences, which would be devastating for working people worldwide and risk unpredictable instability.

As the rulers seek to stave off a recession, and paper values and debt balloon with no corresponding growth in industrial capacity, the conditions are being prepared for a more catastrophic crisis. At the same time, the bosses continue their grinding offensive against workers’ jobs, wages, social benefits and rights.  
 
 
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