Clearly, the global capitalist crisis that started in 2007 will be neither short nor shallow. The government rescue of the US financial industry pumped enough extra money into the economy and sufficiently reduced interest rates to give banks and the stock market the heavily hyped "recovery" that started March 2009 and is now over. What is worse, their recovery never reached much of the rest of the economy. Efforts to broaden the recovery or extend it beyond one limp year have failed. That failure cost Washington trillions in borrowed funds from lenders who now demand guarantees that those loans will be repaid to them with interest. Similar demands now confront many other governments who likewise borrowed heavily to cope with the crisis in their countries.
The guarantee demanded by lenders is "austerity." Lenders want governments to raise taxes or cut government spending or both. Governments will then have more money available to pay interest on loans and to repay those loans. Governments that fail to impose austerity will face higher interest on new and renewed loans or will be denied loans which would cripple those governments' usual operations. Austerity is yet another extreme burden imposed on the global economy by the capitalist crisis (in addition to the millions suffering unemployment, reduced global trade, etc.).
Who are these lenders demanding austerity? The globally active financial enterprises -- mostly banks that collapsed in the crisis and were rescued by their home governments -- are, together, also major lenders to those governments. Banks own their own governments' debts but also other governments' debts. For example, major banks in France and Germany are among the Greek government's chief creditors. US banks and related financial enterprises hold significant amounts of other governments' debts and other nations' banks own much US government debt.
Global capitalism's 2007 crisis froze the credit system that sustains capitalist production. Private borrowers -- enterprises and individuals - could no longer repay loans because their investments had generated too little and their incomes had failed to grow enough. Banks had failed to properly assess risks in deciding how much to lend to whom. They therefore stopped lending to private borrowers because that had become too risky. As private borrowers defaulted and new lending atrophied, banks' capital and their profits collapsed. The whole capitalist system ground toward a halt because credit became unavailable. The only solution most leaders in capitalist countries could conceive was to unfreeze credit by having the government guarantee bank solvency, guarantee many private debts, invest massively in and lend to private banks, and become the ultimate borrower of a huge portion of loanable funds. Banks everywhere lent to governments because it had become unsafe to lend to almost anyone else. Governments everywhere used the borrowed money to rescue banks and other financial enterprises.
http://www.commondreams.org/view/2010/07/15More at link
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
