Tuesday, October 21, 2014

Crisis and fear plague Australian and World economy

by Max O


Local and international financial bodies recently reported that economic catastrophe awaits many major firms in Australia and that financial markets around the world are set to plummet. The intensifying capitalist world economic crisis is also pushing the major imperialist powers towards war.

The Certified Public Accountant-Australia (CPA-Australia) reported in September that, "Nearly a third of ASX-listed companies are fragile, and at risk of financial catastrophe..." More alarm bells were clanging away now than during the depths of the global financial crisis of 2008/9, the CPA Australia concluded from the analysis of almost 16,000 annual company reports.

Future financial shocks

Their research stated that these vulnerable companies, "...were exposed to the dual risks of the end of the mining investment boom and an unexpected slowdown in China. "It really begs the question how our economy would be placed were we to face another shock like the GFC."

China's economy is slowing down and will more than likely not reach the official growth target of 7.5 per cent in 2014. The consequence of this can be seen in the fall of the price of iron ore to the five year low of $US 79 per tonne, drastically reducing the profitability of the mining corporations.

The economic anxiety doesn't just stop at mining and allied industries, the CPA-Australia report stated that non-mining sectors like consumer staples, industrials, health care and utilities were also worried about their financial strength and how they would survive another GFC.

The share markets have acted accordingly, with the Australian share market going on a month-long slide downwards that cost investors more than a $140 billion. This crisis of confidence is related to the fear coming out of the International Monetary Fund (IMF) and Germany. As Germany suffered its biggest fall in industrial production since 2009, the IMF lowered its forecast for world growth. This immediately wiped off $13 billion off the Australian share market.

The economic stagnation throughout Europe has hit Germany, which relies heavily on its exports to not only this region but also to Brazil which is also suffering a recession, and to China whose growth has slowed. The combined issues of the world slump, central bank polices and the military-political pressures in the Middle East and Ukraine have produced volatility in the financial markets across the globe.

Wall Street saw its worst three-day trade loss since 2011. The catalyst for this was the fall in airline shares, resulting from the Ebola  disaster and the fall off in energy stocks as the price of oil slumped to an all-time low in four years. These losses saw $1.5 trillion wiped off the value of global equities.

Presently central bankers and the IMF are in a quandary of what to do, because pumping money into the financial system has not expanded the productive economy through increased investment and production. It has only resulted in financial risk-taking! To arrest this financial speculation by increasing interest rates contains the fear of pushing economies into recession. The credit debt policies that were concocted to overcome capitalism's stagnation crisis are now a shambles and demonstrate that the IMF is powerless to do anything about solving it.

The US, IMF at odds with the ECB

Differences in policies of the major economies have emerged recently at the IMF, which aggravate the troubles of the financial markets. The European Central Bank (ECB) is at odds with the United States and the IMF who demand that they expand their purchase of government bonds so as to increase financial stimulus to their economy.

The ECB declared they have virtually reached the limit of what it can do. Forestalling the financial crisis of Greece, Spain and other extremely indebted euro countries exhausted the ECB's financial capacity.

Anyway the only benefactors of such stimulus have been financial houses, banks and filthy-rich speculators. Presently corporations are looking around how to save their own skin at someone else's expense.

Marx in Volume lll of Capital, sums it up as thus:  “So long as things go well, competition effects an operating fraternity of the capitalist class … so that each shares in the common loot in proportion to the size of his respective investment. But as soon as it no longer is a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another. The class, as such, must inevitably lose. How much the individual capitalist must bear of the loss, i.e., to what extent he must share in it at all, is decided by strength and cunning, and competition then becomes a fight among hostile brothers. The antagonism between each individual capitalist’s interests and those of the capitalist class as a whole, then comes to the surface …”

Battle lines being drawn

Close attention should be paid to the outcome of this failure of global capitalism and the machinations that are being hatched in the centres of economic power. The enormous accumulation of capital that occurred in Australia through mining has come to an end. The export of minerals to China by largely foreign mining corporations on the one hand is offset by Australia's client status entanglement, in particular the 'Asia Pivot', with US economic, political and military control on the other.

As ruptures between the major powers occur resulting from the crisis of global capitalism, battles are surely to arise with severe consequences for the world's peoples including Australians.

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