Saturday, April 25, 2009

The International Monetary Fund returns

By Andrew Walker
Economics correspondent, BBC World Service, Washington
"The IMF is back".

Those were the words of the International Monetary Fund's managing director, Dominique Strauss-Kahn, after the G20 summit in London.

That summit saw a proposal for a trebling of its resources for lending to countries hit by the financial crisis.

The G20 proposal was for the IMF to have access to $750bn (£513bn) - to spell it out; three quarters of a trillion dollars.

That massively increased supply of funds is a response to a hefty increase in demand for the IMF's help, which comes in the shape of loans.

Since the crisis entered a new phase last year, the Fund has made loan commitments approaching $150bn, including its largest yet - a line of credit to Mexico of $47bn.

That is not all money that has been handed over. If things do not go too badly, some of it never will be.

Mexico, for example, is not planning to draw on that large line of credit, but can if needs to.


And there are more in the pipeline. Mr Strauss-Kahn says discussions are in hand with other countries too.

It is an extraordinary transformation of the IMF's position.

Professor Adam Lerrick of Carnegie Mellon University in Pittsburgh, an expert on the IMF, says "it is truly a miracle".

"They have been resurrected from the dead".

Two years ago, he says, the IMF's outstanding loans were worth $10bn - down from £100bn in 2003.

But in the last six months they have put out more money than in any other comparable period in their history.

Moral hazard

So the IMF is back in business. But the controversy that has long followed the agency has not gone away.

Professor Lerrick has a concern about what economists call "moral hazard" - a term, incidentally, that I knew from the text books, but never expected to use in polite company.

In this context it is the idea that the behaviour of governments and international lenders is influenced by the very knowledge that the IMF is there, ready to come to the rescue.

It makes crises more likely to happen than if there were no financial fire brigade.

Governments are more likely to follow risky but popular policies, such as big spending programmes. Foreign banks are more willing to make risky loans because an IMF bailout would mean they would still be repaid.

Professor Lerrick thinks that most of the loans the IMF has made so far in response to the crisis do create that danger.

He argues that the newest type of IMF credit line - Mexico was the first example - is different.

It is only available to countries with a record of what the IMF considers strong policies.

That, Professor Lerrick says, reduces the moral hazard problem, though it does not eliminate it.

Friends and foes

The other principal criticism, and one with a long history, is the economic policy conditions that come with most IMF loans -though not with the new type of arrangement that Mexico has made.

The allegation, a familiar one, is that the IMF requires governments to pursue policies that make recessions worse, notably tightening their budgets by curbing public spending.

Mark Weisbrot of the Center for Economic and Policy Research in Washington says that is the opposite of what the IMF is encouraging most developed countries to do.

He says IMF financial support should be used to allow countries to stimulate their economies.

"It defeats the purpose to require them to do the opposite," he says.

He argues that the IMF should not be given this central role in responding to the crisis unless it reforms in a way that prevents it repeating what he calls "the serious errors it made in the last major crises of the 1990s" - a reference to the wave of problems in East Asia, Russia, Turkey and Latin America.

But the IMF has its friends too.

John Williamson of the Peterson Institute of International Economics in Washington says there is no other source countries can turn to for the additional currency reserves they need.

He also defends the IMF's policies - though he does not want to go out on a limb and say the IMF always gets it right.

Countries going to the IMF have a problem with their international balance of payments, he says, and fixing that inevitably means spending less.

So, as Mr Strauss-Kahn says, the IMF is back. And so are the arguments about whether it helps or not.

Story from BBC NEWS:

Published: 2009/04/24 08:12:33 GMT

'Deeper' recession ahead says IMF

By Steve Schifferes
Economics reporter, BBC News
The global economy is set to decline by 1.3% in 2009, in the first global recession since World War II, the International Monetary Fund (IMF) says.

In January, the IMF had predicted world output would increase by 0.5% in 2009.

It now projects that the UK will see its economy shrink by 4.1% in 2009, and by a further 0.4% in 2010.

But other major economies are predicted to shrink even more, with Germany declining by 5.6%, Japan by 6.2%, and Italy by 4.4% in 2009.

The prospects for the advanced economies are not much brighter in 2010, with an overall forecast of zero growth.

The IMF says this represents "by far the deepest post-World War II recession" with an actual decline in output in countries making up 75% of the world economy.

Currently, output is falling by an "unprecedented" 7.5% annual rate in the rich countries in the last quarter of 2008, and the IMF expects the same rate of decline in the first quarter of this year.

Only a recovery in developing and emerging market countries will propel the world economy back into positive growth in 2010, albeit at a relatively weak level of 1.9%.

The prospects for world trade are even gloomier, with the IMF now forecasting world trade volumes to decline by 11% in 2009, and barely grow at all in 2010.

After 60 years as the engine of world growth, the sharp fall in trade is now hitting many of the leading exporting nations, particularly in Asia.

Gloomy UK

The IMF says that "the recession is expected to be... quite severe in the United Kingdom, which is being hit by the end of the boom in real estate and financial services".

UK: -4.1%
US: -2.8%
Germany: -5.6%
France: -3.0%
Japan: -6.2% source: IMF
It is predicting that UK unemployment will rise to 9.2% by the end of 2010, compared to 6.7% at the moment.

And it is warning that the UK budget deficit will rise to 11% of GDP, "reflecting mainly automatic stabilisers and asset-price related revenue shortfalls rather than discretionary stimulus".

The UK is also facing the cost of paying for the banking bail-outs, which the IMF estimated in an earlier report at 9.4% of GDP, or £130bn, after correcting an earlier figure of £200bn.

Financial problems

At the heart of the crisis is the continuing overhang of losses in the financial sector, which the IMF now estimates at $4tn, four times higher than it projected just one year ago.

And it warns that the current outlook is "exceptionally uncertain, with risks still weighting on the downside."

It says the main risk is that "policies may be insufficient to arrest the negative feedback between deteriorating financial conditions and weakening economies in the face of limited public support for policy actions."

Among the risks are that rising household and corporate debt cause further falls in asset prices and losses by financial institutions.

And it says that any recovery will be slower than in the past.

There will be a smaller financial sector, with financing harder to come by than in the past, especially for developing countries, which will cramp their growth.

And rich countries will face the burden of reducing their budget deficits which have soared during the crisis, at a time when their ageing populations means they will have lower tax revenues.

In addition, households may be reluctant to resume their previous spending habits, as saving rates have risen sharply in the US and the UK.

The IMF says it is important to take urgent action to shore up the banks, and to continue with short-term fiscal stimulus plans, in order to shorten the length of the recession.

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Story from BBC NEWS:

Published: 2009/04/22 16:35:14 GMT

Friday, April 24, 2009

Spain's jobless rate soars to 17%

Spain's unemployment rate hit 17.4% at the end of March, figures have shown, with the jobless total now having doubled over the past 12 months.

In the past year, two million people have lost their jobs taking the total out of work to just over four million.

The Bank of Spain recently predicted the jobless rate would reach 19.4% in 2010, as the recession took hold.

"It is a terrible figure," Octavio Granado, secretary of state for social security told state television.

He said the first quarter of any year was traditionally bad for employment in Spain.

Mr Granado also said that 2009 was expected to be the worst part of the economic downturn.

"So we are in the epicentre of the crisis. We are in the eye of the perfect storm," he said.

The National Statistics Institute said Spain's jobless rate at the end of the first quarter was up 3.45 percentage points from the end of 2008.

The BBC's Steve Kingstone in Madrid says the country has become used to grim unemployment data, but Friday's figures are especially shocking.

Prime Minister Jose Luis Rodriguez Zapatero will hope that the government's 70bn-euro ($92bn; £63bn) stimulus package will now create new jobs - above all in public works projects due to begin this month, our correspondent says.

But critics say deeper reforms of the labour market are needed - to eliminate red tape, and reduce the costs of hiring and firing permanent staff, he adds.

Under the current rules, many employers prefer to offer temporary contracts to staff who are then let go at the first sign of trouble.

Story from BBC NEWS:

Published: 2009/04/24 10:41:36 GMT

Saturday, April 18, 2009

Green Shoots and Glimmers

Ben Bernanke, the Federal Reserve chairman, sees “green shoots.” President Obama sees “glimmers of hope.” And the stock market has been on a tear.

So is it time to sound the all clear? Here are four reasons to be cautious about the economic outlook.

1. Things are still getting worse. Industrial production just hit a 10-year low. Housing starts remain incredibly weak. Foreclosures, which dipped as mortgage companies waited for details of the Obama administration’s housing plans, are surging again.

The most you can say is that there are scattered signs that things are getting worse more slowly — that the economy isn’t plunging quite as fast as it was. And I do mean scattered: the latest edition of the Beige Book, the Fed’s periodic survey of business conditions, reports that “five of the twelve Districts noted a moderation in the pace of decline.” Whoopee.

2. Some of the good news isn’t convincing. The biggest positive news in recent days has come from banks, which have been announcing surprisingly good earnings. But some of those earnings reports look a little ... funny.

Wells Fargo, for example, announced its best quarterly earnings ever. But a bank’s reported earnings aren’t a hard number, like sales; for example, they depend a lot on the amount the bank sets aside to cover expected future losses on its loans. And some analysts expressed considerable doubt about Wells Fargo’s assumptions, as well as other accounting issues.

Meanwhile, Goldman Sachs announced a huge jump in profits from fourth-quarter 2008 to first-quarter 2009. But as analysts quickly noticed, Goldman changed its definition of “quarter” (in response to a change in its legal status), so that — I kid you not — the month of December, which happened to be a bad one for the bank, disappeared from this comparison.

I don’t want to go overboard here. Maybe the banks really have swung from deep losses to hefty profits in record time. But skepticism comes naturally in this age of Madoff.

Oh, and for those expecting the Treasury Department’s “stress tests” to make everything clear: the White House spokesman, Robert Gibbs, says that “you will see in a systematic and coordinated way the transparency of determining and showing to all involved some of the results of these stress tests.” No, I don’t know what that means, either.

3. There may be other shoes yet to drop. Even in the Great Depression, things didn’t head straight down. There was, in particular, a pause in the plunge about a year and a half in — roughly where we are now. But then came a series of bank failures on both sides of the Atlantic, combined with some disastrous policy moves as countries tried to defend the dying gold standard, and the world economy fell off another cliff.

Can this happen again? Well, commercial real estate is coming apart at the seams, credit card losses are surging and nobody knows yet just how bad things will get in Japan or Eastern Europe. We probably won’t repeat the disaster of 1931, but it’s far from certain that the worst is over.

4. Even when it’s over, it won’t be over. The 2001 recession officially lasted only eight months, ending in November of that year. But unemployment kept rising for another year and a half. The same thing happened after the 1990-91 recession. And there’s every reason to believe that it will happen this time too. Don’t be surprised if unemployment keeps rising right through 2010.

Why? “V-shaped” recoveries, in which employment comes roaring back, take place only when there’s a lot of pent-up demand. In 1982, for example, housing was crushed by high interest rates, so when the Fed eased up, home sales surged. That’s not what’s going on this time: today, the economy is depressed, loosely speaking, because we ran up too much debt and built too many shopping malls, and nobody is in the mood for a new burst of spending.

Employment will eventually recover — it always does. But it probably won’t happen fast.

So now that I’ve got everyone depressed, what’s the answer? Persistence.

History shows that one of the great policy dangers, in the face of a severe economic slump, is premature optimism. F.D.R. responded to signs of recovery by cutting the Works Progress Administration in half and raising taxes; the Great Depression promptly returned in full force. Japan slackened its efforts halfway through its lost decade, ensuring another five years of stagnation.

The Obama administration’s economists understand this. They say all the right things about staying the course. But there’s a real risk that all the talk of green shoots and glimmers will breed a dangerous complacency.

So here’s my advice, to the public and policy makers alike: Don’t count your recoveries before they’re hatched.

Key role of forests 'may be lost'

By Mark Kinver
Science and environment reporter, BBC News
Forests' role as massive carbon sinks is "at risk of being lost entirely", top forestry scientists have warned.

The International Union of Forest Research Organizations (IUFRO) says forests are under increasing degrees of stress as a result of climate change.

Forests could release vast amounts of carbon if temperatures rise 2.5C (4.5F) above pre-industrial levels, it adds.

The findings will be presented at the UN Forum on Forests, which begins on Monday in New York.

Compiled by 35 leading forestry scientists, the report provides what is described as the first global assessment of the ability of forests to adapt to climate change.

“ The fact remains that the only way to ensure that forests do not suffer unprecedented harm is to achieve large reductions in greenhouse gas emissions ”
Professor Andreas Fischlin, Assessment co-author
"We normally think of forests as putting the brakes on global warming," observed Professor Risto Seppala from the Finnish Forest Research Institute, who chaired the report's expert panel.

"But over the next few decades, damage induced by climate change could cause forests to release huge quantities of carbon and create a situation in which they do more to accelerate warming than to slow it down."

Debate defining

The scientists hope that the report, called Adaption of Forests and People to Climate Change - A Global Assessment, will help inform climate negotiators.

The international climate debate has focused primarily on emissions from deforestation, but the researchers say their analysis shows that attention must also be paid to the impacts of climate change on forests.

While deforestation is responsible for about 20% of greenhouse gas emissions from human activities, forests currently absorb more carbon than they emit.

But the problem is that the balance could shift as the planet warms, the report concludes, and the sequestration service provided by the forest biomes "could be lost entirely if the Earth heats up by 2.5C or more".

The assessment says higher temperatures - along with prolonged droughts, more pest invasions, and other environmental stresses - would trigger considerable forest destruction and degradation.

This could create a dangerous feedback loop, it adds, in which damage to forests from climate change would increase global carbon emissions that then exacerbate global warming.

The report's key findings include:

• Droughts are projected to become more intense and frequent in subtropical and southern temperate forests

• Commercial timber plantations are set to become unviable in some areas, but more productive in others

• Climate change could result in "deepening poverty, deteriorating public health, and social conflict" among African forest-dependent communities

The IUFRO assessment will be considered by delegates at the eighth session of the UN Forum on Forests, which has the objective of promoting the "management, conservation and sustainable development of all types of forest".

Co-author Professor Andreas Fischlin from the Swiss Federal Institute of Technology commented: "Even if adaption measures are fully implemented, unmitigated climate change would - during the course of the current century - exceed the adaptive capacity of many forests.

"The fact remains that the only way to ensure that forests do not suffer unprecedented harm is to achieve large reductions in greenhouse gas emissions."

Story from BBC NEWS:

Published: 2009/04/18 09:52:13 GMT

Thursday, April 16, 2009

IMF sees long and severe slowdown

The current global recession is likely to be "unusually long and severe, and the recovery sluggish," the International Monetary Fund has warned.

Slowdowns linked with financial crises tend to be severe, while synchronised slowdowns last longer, it said.

The current global crisis has also been strongly felt in emerging economies, it said in its World Economic Outlook.

The global links between financial sectors have intensified the speed the downturn has spread across the world.

The recession will be less severe if government spending increases, the IMF says, with fiscal policies seen as more effective than monetary policy

Detailed forecasts for individual countries are set to be released next week, ahead of the IMF's spring meeting in Washington.

In March, the organisation predicted that the world economy would suffer its first global recession in 60 years, declining by between 0.5% and 1.0% in 2009.


Since World War II, the typical recession lasts for a year, with a recovery lasting five years.

But, the report says, recessions linked to financial crises, such as the current one, tend to last much longer.

The recoveries following these slowdowns are then often held back by weak private demand, as households try to save more.

A synchronised slowdown - where many of the world's economies are in recession at the same time - lasts one and a half times longer than a typical recession.

“ The current recession is likely to be unusually long and severe, and the recovery sluggish ”

"This combination is historically rare," the report said, but these two factors do suggest that this current downturn will be "persistent" with a "weaker-than-average recovery".

Aggressive monetary and fiscal policy measures are needed to support demand in the short term, adding that restoring confidence in the financial sector is critically important if policies are to be effective.

The problems in the financial sector have quickly spread from the US and the UK to other countries.

The IMF has expressed scepticism that enough is being done to restore the financial system to health in the advanced economies.

Emerging blow

The IMF also warned that the financial crisis is having far-reaching effect on emerging economies, particularly in Eastern Europe.

It says that globalisation has strengthened the transmission mechanisms which will deepen the crisis.

The strong presence of Western European banks in emerging Europe has meant that banks' liquidity problems are being felt in these countries.

"Given their large exposure, emerging European economies might be heavily affected," it said.

This may mean there will be a protracted decline in capital flows to these countries, it added.

And the IMF says it could be a long time before such flows return to developing and emerging market countries.

With the financial crisis intensifying, more countries are coming to the IMF for help and its supply of funds to loan may run out.

Poland has recently asked for a $20bn loan, joining a number of other Eastern European countries, including Ukraine, Hungary and Lithuania.

At the recent London summit, the G20 agreed that the IMF should triple its available resources to $750bn, to ensure that it had enough money to offer loans.

Other IMF countries are pledging this money. Japan, for example, has already offered to loan the IMF $100bn and the EU says it will put in $100bn.

Story from BBC NEWS:

Published: 2009/04/16 16:11:49 GMT

Weak exports hit China's growth

Annual growth in China's gross domestic product (GDP) slowed in the first quarter of 2009 to 6.1%, the National Bureau of Statistics has announced.

This is the weakest growth since quarterly records began in 1992, but some analysts see signs of a recovery.

Growth was 6.8% in the last quarter of 2008, but the first quarter GDP figure dropped as exports fell 17% in March.

China's government has said it is determined to achieve annual growth of 8%, and to expand its domestic demand.

"There's little the Chinese government can do to help key markets for Chinese products in the US and Europe recover," said the BBC's Chris Hogg in Shanghai.

"That's why it's focussing on trying to stimulate domestic demand."

There has been a recognition among Chinese state officials that too sharp an economic slowdown could lead to growing unemployment and may fuel social unrest.


Announcing the GDP figure, the National Bureau of Statistics (NBS) said that export demand had dropped sharply, cutting into company profits, reducing government revenues and raising unemployment.

"The national economy is confronted with the pressure of a slowdown," an NBS statement said.

“ The Chinese government, like the rest of the world, has been trying to avoid the worst affects of the global recession ”
Michael Bristow, BBC Beijing correspondent

China experienced double-digit growth from 2003 to 2007, and recorded 9% growth in 2008.

Analysts said the first-quarter drop in growth was in line with expectations.

But other data offered by the government suggested a tentative recovery may already be under way.

"Government figures suggest China's economic performance will continue to improve during the remaining months of this year," said the BBC's Michael Bristow in Beijing.

Industrial output expanded 5.1% in the first quarter. It was up 8.3% year-on-year in March, against 3.8% in January and February.

Fixed asset investment on items such as new factories and equipment was up 28.6% in March from 26.5% in February.

Spending on property development grew by 4.1% in the first quarter, and retail sales remained strong with a 14.7% growth during March.

'Surge in investment'

"Most of the indicators are better than earlier market expectations, although the annual GDP growth in the first quarter is a historical low," said Xing Zhqiang, analyst at China International Capital Corporation in Beijing.
“ There are risks to calling China's economic recovery too soon ”
Juliana Liu, BBC Asia business reporter, Hainan

"We expect that the most difficult time for China's economy has passed, as the surge in investment has partly offset the negative impact from declining exports."

China has started to implement a 4 trillion yuan ($585bn, £390bn) stimulus package to counter the impact of the global slowdown, and this package has been seen as helping to spur lending in the first three months of the year.

"The overall national economy showed positive changes, with better performance than expected," the NBS said.

It said that urban per-capita incomes were up 11.2% from a year earlier in real terms and that rural per-capita incomes were up 8.6%.

The consumer price index (CPI), China's main gauge of inflation, fell 0.6% in the first quarter of 2009 from a year earlier, according to the bureau.

The data comes as Asian business leaders and officials are gathering on the Chinese island of Hainan for the annual Boao business forum.

Tourism on the island has been hit hard by the economic downturn and there are risks to calling China's economic recovery too soon, said the BBC's Juliana Liu in Hainan.

"After all, an estimated 40 million people have lost their jobs, mostly from factories in the deep south," she said. "But most economists believe China's growth has stabilised."

Story from BBC NEWS:

Published: 2009/04/16 09:39:12 GMT

US economy continues to contract

US economic activity weakened in March, but there were some signs of stabilisation, the Federal Reserve has said in its influential Beige Book.

The report, used to set US interest rates, said "overall economic activity contracted further or remained weak".

But a number of districts had noted a "moderation in the pace of decline", while others were "stabilising".

The report comes a day after President Barack Obama and Fed chairman Ben Bernanke said the recession was easing.

The Beige Book is compiled eight times a year and is based on reports and comments from businesses across the US.

The last report was released at the beginning of March.

'Slight improvement'

Despite some signs of improvement, this report painted a bleak picture of current US economic activity.
“ Several reports noted that the pace of decline had slowed or that factory activity had stabilised ”
The Federal Reserve's Beige Book

"Manufacturing activity weakened across a broad range of industries in most districts, with only a few exceptions," it said.

"Non financial service activity continue to contract across districts," it added.

The report also said that retail spending remained slow, but did comment that "some districts noted a slight improvement in sales compared with the previous reporting period".

The property market also continued to suffer, but there were signs that interest from buyers was returning.

"Home prices and construction were still falling in most areas, but better-than-expected buyer traffic led to scattered pick-up in sales in a number of districts," the report said.

Downward pressure on prices was also reported.

Indeed, official figures from the US Labor Department on Wednesday confirmed that US consumer prices fell by 0.1% in March.

The fall meant consumer prices were down 0.4% from a year ago, the first annual decline since 1955.

'Economic progress'

The book also noted that "manufacturing activity continued to decline in most districts and across a wide range of industries".
“ We're clearly still in a deep recession but there are signs that things are looking a little bit brighter ”
Michelle Meyer, Barclays Capital

The Federal Reserve confirmed earlier on Wednesday that industrial production fell by 1.5% in March.

However, "several reports noted that the pace of decline had slowed or that factory activity had stabilised", the book said.

US factories have been running down inventories and cutting back on production as demand for manufactured goods has slumped during the recession.

The book is published at a time when some commentators believe the recession may be easing.

"Although conditions are still weak right now, there are signs that there is stabilisation in certain sectors," said Michelle Meyer at Barclays Capital.

"We're clearly still in a deep recession, but there are signs that things are looking a little bit brighter," she added.

On Tuesday, Mr Obama said that there were "signs of economic progress" in a speech at Georgetown University.

He did, however, say that 2009 would be a hard year for the US economy, when there would be more job losses, more repossessions and "more pain".

Mr Bernanke, talking to students at Moorehouse University in Atlanta, also on Tuesday, spoke of "tentative signs" that the rate of contraction of the US economy was slowing down.

Story from BBC NEWS:

Published: 2009/04/15 21:20:30 GMT

New US house building has stalled

Housing construction in the US fell to its second lowest level on record in March, official figures have shown.

Construction of new houses and apartments fell 10.8% last month to an annual rate of 510,000 units, the US Commerce Department said.

Applications for building permits, which signal future activity, dropped 9% from February.

Separate government data showed that claims for unemployment benefits fell by 53,000 in the week ended 11 April.

The Labor Department said the number of claims declined from 663,000 the week before to 610,000.

'Mixed news'

The construction data is a stark reminder that the housing slump is far from over.
“ The decline of 10.8% is much weaker than expected and is obviously a disappointment ”
Hugh Johnson, Johnson Illington Advisors

The decline in new starts in March was worse than economists had expected, and followed a 17.2% rise in February.

February's gain had been driven by an increase in apartment activity, which can be a volatile sector.

The March rate was the second lowest since the Commerce Department started keeping records in 1959.

The lowest came in January when the annual rate dropped to 488,000.

Starts were down 54.1% from March 2008 while permits were down 49.5% year-on-year.

"The news is very mixed," said Hugh Johnson, chief investment officer at Johnson Illington Advisors in New York.

"Both the housing numbers and the jobless claims numbers are very volatile.

"The bad news obviously is that housing remains extremely weak. The decline of 10.8% is much weaker than expected and is obviously a disappointment.

"If there is a bright light in the news, it's the decline in jobless claims. Jobless claims are important because they are a leading indicator of employment."

Story from BBC NEWS:

Published: 2009/04/16 15:35:53 GMT

What is going on in the oil market?

By Anthony Reuben
Business reporter, BBC News

Does anybody believe that they can predict what is going to happen to oil prices any more?

In July, light sweet crude was trading above $147 a barrel and respected analysts were predicting that it was on the way to $200 a barrel.

Three months later, it is approaching $60 a barrel and a 1.5 million barrel per day cut in output by the oil producers' cartel Opec last week did nothing to stop the fall.

"All Opec confirmed for the market is how weak demand is," says the oil trader and analyst Stephen Schork.

"We're still in a hangover from the $150 party."

Global downturn

In the summer, it did seem that whatever news came out the oil price would continue to rise.

Now, everybody is saying that the falling price is a result of the global downturn, which will reduce demand for oil.

“ If it carries on falling at this rate the price will be zero by Christmas ”
Sandrine Torstad, StatoilHydro

In July, although we did not know about the full extent of the slowdown, we certainly knew that all was not well in many of the world's biggest economies, so what has changed?

Until three months ago, some people in the market expected oil to hit $200 a barrel on the basis that oil was close to running out, says John Hall from the energy consultants John Hall Associates.

"Now, just three months later, it is the opposite and producers cannot cut output back fast enough to keep up with falling demand," he says.


Before July there appeared to be a belief that prices could rise and rise and people would still buy just as much oil.

"The market was testing how high prices could go before demand was hit," says Sandrine Torstad, head of market analysis at the Norwegian oil company StatoilHydro.

"The market was overshooting and now we are seeing undershooting as the market moves from ultra-bullish to ultra-bearish."

So what happened in the middle of July to make that sudden change of sentiment in the market?

It was largely in the data coming from the US, which is both the world's biggest energy consumer and one of the few places that releases reliable figures on energy use and reserves.

By July, there had already been signs that US consumption was falling, but the market had been so bullish that they had been ignored, until finally traders had to take notice.

Zero by Christmas

So the market was driven up by a combination of fears about where the supply was going to come from to meet growing demand from India and China, and is now being driven down by the perception that there may be over-supply because so many big economies are going to reduce their demand as they go into recession.

Is anybody prepared to stick their neck out and make predictions, even after the extraordinary year we have seen on the oil market?

"There has to be a balance somewhere," says Mr Hall.

"I think we're quite close to it now."

And it can be said with confidence that the rate of falls will at least slow.

"If it carries on falling at this rate the price will be zero by Christmas," Ms Torstad points out.

Story from BBC NEWS:

Published: 2008/10/27 15:12:20 GMT

Oil weak as demand fears remain

The price of oil remains weak, at just under $49 a barrel, amid Opec warnings of falling demand and reports of high inventories.

US light crude was down 42 cents at $48.99 a barrel, after three days of falls. Brent oil fell 54 cents to $51.42 a barrel.

The oil producers' cartel said demand was shrinking faster than expected.

Oil prices have slumped since hitting a record high of more than $147 a barrel in July last year.

Prices dropped below $40 a barrel late last year.

Demand drag

Crude stocks reached 366.7 million barrels in the US, according to government data, the highest total since September 1990.

At the same time, Opec forecast that demand would drop by 1.37 million barrels per day this year - greater than the 1.01 million barrels per day originally forecast - to average 84.2 million.

"In the coming months, the market is expected to remain under pressure from uncertainties in the economic outlook, demand deterioration and the substantial overhang in supply," Opec said.

Retail sales dropped 1.1% in March in the US, according to a government report released on Tuesday, renewing fears of a slowdown in demand.

"Crude fell on the back of weaker-than-expected March retail sales, which also dragged on equities, and the main worry is still the large weekly increase in crude inventories," said Peter McGuire, managing director of Commodity Warrants Australia.

There is as yet little sign that demand is picking up, said Ben Westmore, energy analyst with National Australia Bank. "Demand will have to come back before you see the oil price move up from $50 in a sustained way," he added.

Last week, the International Energy Agency predicted that the global recession would cut demand for crude this year, with world oil demand falling by 2.4 million barrels a day to 83.4 million barrels.

Separately, Mexico's state-owned oil company Pemex has unveiled plans to built its first new refinery in 30 years. The $9.1bn (£6.1bn) refinery is expected to come online in 2015.

Even though Mexico is the world's sixth-biggest oil producer, it relies on US refineries to process a lot of its crude.

Story from BBC NEWS:

Published: 2009/04/15 15:44:57 GMT

Fiat warning to Chrysler unions

The boss of Italian carmaker Fiat has threatened to walk away from an alliance with US carmaker Chrysler if unions do not make concessions.

"Absolutely we are prepared to walk. There is no doubt in my mind," warned Sergio Marchionne.

Chrysler needs to find a partner in order to secure more government funds to help it survive. It reached an agreement with Fiat in January.

The US carmaker has until 30 April to finalise a partnership deal.

Otherwise, the carmaker may not receive any further assistance from the US administration. Without the funds, the carmaker could go under.

Separately, a group of investors has approached troubled carmaker General Motors (GM) about buying its Saturn brand and distribution network.

Saturn is just one of 13 brands owned by GM both in the US and abroad. The carmaker has also been bailed out by the US government is in desperate need to cut costs and raise funds.

'Unique opportunities'

Chrysler does not have such a large range of interests to sell off to raise cash and is looking to Fiat to secure its future.

But Mr Marchionne's comments reveal that a partnership between the two firms is still some way off.

"We cannot commit to this organisation unless we see light at the end of the tunnel," he said.

He wants labour unions in the US and Canada to agree to cost-cutting measures.

"I think they need to see what state the industry is in. Canada and the US are coming in as lenders of last resort. No-one else would put a dollar in. This is the worst condemnation of the viability of this business," said the Fiat boss.

"The UAW [United Auto Workers union] and the CAW [Canadian Auto Workers union] have a unique opportunity here to change the framework of the discussion," he added.

CAW boss Ken Lewenza said he was "surprised" and "disappointed" by the comments.

"I want to give [Mr Marchionne] a great deal of credit for turning around Fiat Corporation, but he didn't turn around Fiat by attacking workers in Italy," he said.

Chrysler received $4bn (£2.67bn) in state aid in January this year but the US authorities have said any further assistance depends on the carmaker finding a partner.

Rival General Motors has also received massive loans from the US government and faces bankruptcy if more aid is not forthcoming.

The carmakers are suffering from a massive slump in sales during the US recession.

Story from BBC NEWS:

Published: 2009/04/15 22:34:09 GMT

Eurozone industrial output dives

Eurozone industrial output plunged by a record 18.4% year-on-year in February, the biggest fall since records began in 1990, according to Eurostat.

Compared with the previous month, output across the 16 nations that share the euro fell 2.3%.

The drop came as factories in the eurozone cut output in light of a drop in global demand for their goods.

Across the 27-nation European Union, industrial production fell 1.9% in February, and 18.4% across 12 months.

'Frightening pace'

Analysts said the gloomy figures were actually better than had been predicted.

"While the fall on the month was slightly better than - or more accurately not quite as bad as - expected, the shocking fact is that almost a fifth of euro area production has now been wiped out in the past year," said Colin Ellis, European economist at Daiwa Securities.

"This frightening pace of contraction is yet to have fed through fully to the labour market, raising the prospect of sizeable job losses that will also weigh on spending and activity."

Mr Ellis said the margin of spare capacity in the eurozone economy could soon "look out of control", and could provide a significant challenge for the European Central Bank (ECB) to overcome if it wanted to get inflation back near 2% next year.

The ECB wants inflation to be below, but close to, 2%.

Big drops

The biggest monthly drops came in Lithuania (4.1%), Estonia (3.6%), Italy (3.5%) and Germany (3.2%).

The only countries to officially record a rise were Portugal, where output rose by 2.4%, Greece, up 1.7%, and Poland, up 0.4%.

Industrial output in the UK fell by 1.2%.

For the year as a whole, Estonia (30.2%), Latvia (24.2%) and Spain (22%) saw the biggest falls.

Story from BBC NEWS:

Published: 2009/04/16 10:49:10 GMT

Namibia 'hit by global slowdown'

Namibia's economy has been hit by the global economic slowdown, the International Monetary Fund has said.

The IMF said that GDP growth in the south-west African state dropped to about 3% last year from 4.1% in 2007.

It also called on the country to expand growth in non-mineral sectors, to help ease poverty.

And it said sustained further efforts were needed to address the high unemployment and HIV/AIDS challenges in the country.

However, the IMF said that pegging its exchange rate to the South African rand had served Namibia well, but added that such a move had left it constrained when it came to potential interest rate cuts.

"While the Bank of Namibia has found some room to deviate from the interest rate policy of the South African Reserve Bank, (IMF) directors considered that the peg and close financial links with South Africa are likely to constrain the scope for effective independent monetary policy," it said.

The IMF also said Namibian government spending should be of a high quality while budget management ought to be strengthened.

Story from BBC NEWS:

Published: 2009/04/16 08:55:02 GMT

JP Morgan profits beat forecasts

First-quarter profits at US bank group JP Morgan Chase have come in ahead of expectations, despite falling 12.5% from a year ago to $2.1bn (£1.41bn).

The downturn and rising unemployment forced the bank to set aside more money against losses in consumer banking.

But the group's investment bank reported a profit of $1.6bn, and the forecast-beating results sent its shares up 2.6% on Wall Street.

The bank also said it could repay government aid it received in October.

JP Morgan is one of several banks to have received money from the US Treasury Department under the Troubled Asset Relief Program (Tarp).

“ We are confident that even a highly adverse economic scenario would not compromise our overall strength and stability ”
Jamie Dimon, JP Morgan Chase chief executive

It received $25bn in taxpayer funds from the US government in October last year, but JP Morgan chief executive Jamie Dimon said the bank had the money to repay.

"We could pay it back tomorrow," said Mr Dimon, who added that the bank was waiting for guidance from the government on when it could do so.

Earlier this week, Goldman Sachs raised $5bn in a stock sale to help pay back the $10bn it received from the government.

'Record revenue'

JP Morgan - which last year bought Bear Sterns and acquired most of the assets of failed lender Washington Mutual - is the latest US bank to report better-than-expected figures.

In the past week, Goldman Sachs has reported profits ahead of forecasts and Wells Fargo has said it expects record net profits for the first-quarter.

Mr Dimon said: "We generated record firm-wide revenue; record revenue and net income in the investment bank; and benefited from underlying growth in retail banking."

Group-wide revenue rose to $26.9bn in the first three months of the year, up from $17.9bn in the same period a year earlier.

Net profit at its investment banking division came in at $1.6bn, compared with a loss of $87m in the first quarter of 2008.

Its retail financial services unit also recorded a profit of $474m, compared with a loss of $311m for the same period a year ago. The bank said this was largely as a result of the "positive impact" of the Washington Mutual acquisition.

However, it reported a loss of $547m in card services, driven by a "higher provision for credit losses". The division made a $609m profit for the same quarter a year ago.

"We are maintaining our efforts to help the economy recover. We continue to lend and have extended approximately $150bn in new credit to consumer and corporate customers during the first quarter," Mr Dimon said.

Looking ahead to the rest of 2009, Mr Dimon said: "We are confident that even a highly adverse economic scenario would not compromise our overall strength and stability."

Story from BBC NEWS:

Published: 2009/04/16 16:06:57 GMT

Tuesday, April 14, 2009

Sales down as Obama speaks of hope

The 1.1 per cent drop in March retail sales surprised investors and sent stocks falling [AFP]

Poorer retail sales figures than expected have sparked a fall in US share prices, putting a dent in recent market optimism.

The news that retail sales for March had dropped 1.1 per cent came just before Barack Obama, the US president, said on Tuesday that he saw a glimmer of hope for the economy but warned that the recession was not yet over.

The poor sales data, combined with a sharp drop in wholesale prices, overshadowed better-than-expected earnings reports from investment bank Goldman Sachs and led the Dow Jones industrial average to fall by 1.7 per cent to 7,920.18.

Other indexes also lost ground after three days of gains, with the Standard & Poor's 500 index falling two per cent, to 841.50, and the Nasdaq composite dropping 1.7 per cent, to 1,625.72.

Goldman's $1.8bn profit for the first quarter of the year was also overshadowed by its announcement that it planned to issue new stocks to raise $5bn to repay some of the government bailout money it took last year.

In a speech at Georgetown University, Obama gave a cautiously optimistic assessment of the economy ahead, saying that "times are still tough" but that there were "glimmers of hope".

"There is no doubt that times are still tough," Obama said.

"But from where we stand, for the very first time, we are beginning to see glimmers of hope. And beyond that, way off in the distance, we can see a vision of an America's future that is far different than our troubled economic past."

The president warned, however, that things may get worse in the months ahead before they get better.

'More pain'

"The severity of this recession will cause more job loss, more foreclosures, and more pain before it ends."

The US president warned the US economy may worsen before it improves [AFP]
The speech, in which Obama summarised his administration's economic efforts so far, comes as he nears the symbolic 100-day mark of his presidency, the traditional marker by which new administrations are judged.

Obama also said the country needed to seize the opportunity to rebuild its economy on a stronger foundation, less dependent on a risk-obsessed financial sector and more on clean energy, good education and healthcare costs brought under control.

"We cannot rebuild this economy on the same pile of sand," he said, invoking a biblical reference.

"We must build our house upon a rock. We must lay a new foundation for growth and prosperity, a foundation that will move us from an era of borrow-and-spend to one where we save and invest, where we consume less at home and send more exports abroad."

Obama's message came as his central bank chief, Ben Bernanke, suggested that the recession in the US may at last be bottoming out.

In a speech in Atlanta, the Federal Reserve chairman cited recent data on home and car sales, home building and consumer spending to echo Obama's "glimmer of hope" message that the situation was getting better.
Source: Al Jazeera and agencies

The Crisis of Finance Capitalism, Challenges For The Left

Rosa Luxemburg Foundation

The brave new world of neoliberalism lies in ruins. Its wealth turned out to be based on robbery, sham and deceit. The Left is in a new situation. Without its self-transformation and development of a capacity to act that is adequate for these times, it will squander for a long time any possibility of becoming a force of social, ecological, democratic and peace-promoting social transformation beyond capitalism. This paper, presented here in a shortened form, aims to contribute to the discussion about the strategies of a Left that is renewing itself in the crisis of neoliberalism.

Neoliberalism in Crisis

The hard-pressed, insecure, plundered community is supposed to pay the bill of a more than thirty-year long orgy of redistribution from below to above, from the public to the private. Millions of workers have lost not only their jobs, but also their homes and pensions. The financial crisis is intertwined with a cyclical economic crisis and the exhaustion of previous fields of growth of a self-centred society and the information technology revolution. At the same time, the costs of global warming explode and take away from hundreds of millions of people the foundation of their life. The economic crises interwoven with each other threaten to flow into strengthened constraints of repression and competition and to become the lever of a perfected system of neo-colonial exploitation.

Neoliberal Responses to the Over-Accumulation Crisis

The crisis of neoliberal financial capitalism broke out in its core and has a systemic cause: it was triggered by a previously unrecognised self-governance of the financial sphere with respect to other economic fields and the inclusion of all social fields into speculative financial businesses beyond any possibilities of social or state organisation.

Fundamentally, in the face of the real relations of forces, different ways of overcoming the current economic crisis are thinkable and are to be viewed from an historical perspective as possible. Each of these ways is of a political nature and does not emerge spontaneously from the economy. They all presuppose active dimensions of the state. It would be a catastrophe if the economic crisis were to be coupled with a collapse of such dimensions of the state.

One can attempt to direct the surplus capital into new areas of investment. A current possibility, in no way to be discounted, is also an inflation policy, linked with extreme social and international tensions. Both – the opening up of new fields of accumulation or the inflationary devalorisation of capital – can also go together hand in hand. If the current tendency of over-accumulation of capital is not stopped, the explosive material of an even greater financial, economic and social crisis will build up.

The Social Crisis of Financial Capitalism and
the Necessity of Alternatives

Whether or not the current crisis will become a systemic crisis is an open question. As a structural crisis of capitalism, however, it is in many respects a social crisis of capitalism.

First: with the crisis of the market radical mode of regulation whose exposed expression is the financial crisis, the ideology of neoliberalism has been shaken.

Second: neoliberalism has brought forth structures that are not viable. Important goods for a life with human dignity were only completely unsatisfactorily produced. The current crisis pushes large parts of the global society into growing insecurities and leads increasingly to revolts among those who are hit most hard in the foreign and domestic peripheries. Protest and resistance are forming on all levels, still fragmented and many without clear direction, but growing.

Third: democratic governmental forms have been implemented in many countries in the last twenty years. At the same time, the social, economic and cultural basis of democracy is undermined.

Fourth: neoliberal capitalism has also squandered its legitimation on the terrain of domestic and foreign security. In the Iraq war, the imperial claim to structure order in every region of the world according to the paradigm of the West with military violence when other methods were not possible has failed. Expenditure for armaments and war are lacking for the financing of development in the South and the public services even in the rich countries.

A New Orientation of Social Forces

Very different forces are working on projects, tendencies and scenarios for the re-establishment and/or development of bourgeois capitalist domination. Just like in the crisis of Fordism from 1968 onwards, different crisis moments come together, which are met by an intensification of the old mechanisms of regulation, while already something new is coming into existence. The following tendencies within neoliberalism, which at the same time point beyond it, are developing at the moment in parallel.

(A) New State Interventionism

The rulers are reacting to the crisis by changing rapidly and suddenly the open, decades-long contempt for the state – in reality, regularly active even in neoliberal capitalism – into massive state interventions.

The state rescue actions also include elements – even if very limited – of a consensus securing support for social groups with low incomes, the limitation of manager incomes and even consideration of state participation in industry enterprises. The bank rescue packages were followed by state anti-cyclical conjuncture programmes. Within the EU the Lisbon strategy, with all its problems, is maintained.

(B) The Regulation of the Financial Markets and
the Fight over a New Bretton Woods

Now the future of the global financial system becomes the centre of the debates: restorative forces that want to use the state and its finances for the re-establishment of the old order and “crisis gamblers” who try to become winners out of the crisis are pitted against reformist initiatives that clearly want to go beyond the previous status quo. A real break with neoliberalism, however, cannot yet be discerned.

(C) Public New Deal

With the renewal and the building up of the public sphere above all through new investment programmes in public infrastructures, education and health systems and the creation of new jobs in those branches, particular groups around President Obama attempt both to make up for the crash of the U.S. economy and to deal with the crisis of reproduction and jobs and to submit new offers of consensus to the lower social groups. A Public New Deal is supposed to deliver the reconditioning of the general conditions for the reproduction of capital.

(D) Green New Deal

A green New Deal contains a state initiated and massively subsidised transition (transformation) to an “ecological” mode of production that opens up new fields of accumulation for capital seeking investment possibilities (the further commodification of natural resources in the field of bio-diversity or gene technology; technologies for ecological increase in efficiency in production and energy conservation); new investment and speculation possibilities open both new markets in certificate or emissions trading and in ecological consumption. Nature and environmental protection becomes a commodity, which limits the possibilities of solving the ecological crisis. The green New Deal is thus not the solution of the ecological crisis; rather, it is the attempt of its elaboration in the sense of a re-establishment of expanded capitalist accumulation and hegemony over the inclusion of progressive oppositional groups and interests of the subalterns.

(E) Millennium Goals and Struggle for a more Just World Order

Global catastrophe or global cooperation – tendencies toward a global cooperative capitalism are intensified under the pressure of this alternative.

A great signal for the cooperative reduction of poverty in wide regions of the globe was the decision on 8 Millennium Goals at the Millennium Summit of the United Nations in September 2000. Supplementary steps were agreed upon at previous and following conferences. However, the reality in the developing countries admonishes the weakness of cooperation against poverty.

Tendencies toward international cooperation exert an effect on global environmental politics. In the last minute of the negotiations, the USA, still under Bush’s presidency, saw itself forced at the environment conference in Bali in December 2007 to vote for a compromise suggestion, which opened the way for Kyoto follow up controls. The ecological components in Obama’s conjuncture programme confirmed that.

(F) The emergence of an entire range of variations and
the competition of post-neoliberal development

The Washington consensus was already delegitimated before the crisis; after the crisis it will be completely gone. Neither can the USA and Europe determine alone the rules of the game, nor is a transnational consensus recognisable.

In South America, strong social movements have upset governments, centre-left governments have been brought to power, approaches of participative politics and economies based on solidarity have been established, and indigenous movements have forced another way of dealing with representation, public life and property.

Also in India strong movements have been formed, of peasants, the landless, “untouchables” and networks critical of globalisation.

Even more clearly, China’s state capitalism or the investment policies of the Gulf States seek – from above, that is – to bring capitalist dynamics and state controlled development with selective opening into another relation, and thus to determine (more) independently the future of their countries.

In Scandinavia, despite neoliberal hegemony, different elements of another type of capitalism as well have been maintained.

Internationally, there was formed inside the WTO another G20+, as a loose union of countries of the ‘global South,’ in order to put something against the negotiation power of Europe, the USA and Japan and to strengthen the position of the ‘global South.’ Whether or not these developments will lead to the formation of a new capitalist bloc with its own hegemonic political or imperial ambitions, is still not clear.

As counterweight to the transnational institutions like the IMF, the World Bank or the WTO, regional integration projects that go beyond them like Mercosur or ALBA in Latin America are promoted, cooperation between China, Japan and South Korea or the ASEAN states is slowly deepened, and regional development banks like the Banco del Sur have been founded.

Nevertheless, this should not be overlooked by any means: people in Africa are further taken down and are nonetheless confronted massively with free trade demands. The Millennium Development Goals were not reached.

(G) A New Authoritarianism

For years, the movement of particular social groups toward the right has been observable. The precaritisation of modes of labour and life and the thinning out of the so-called middle classes is linked to the return of strong boundaries of exclusion and respectability, authoritarian educational and service notions as well as an intensification of migration politics and exclusion. With the assumption of governmental power by clearly right wing governments, there is the attempt to forge a social consensus, under the cover of nationalistic invocations, between the upper and lower layers of society.

In terms of foreign politics, imperial policies, the war against terror is emphasised as a war of cultures and linked to the intensification of security and control politics. The asylum and migration politics of the EU aims overridingly at economic gain and treats people as “security risks.” Repressive measures are implemented in an intensified form against oppositional positions, and also in social policy: the strengthening and broadening of the police and “punishment of the poor” are supposed to guarantee their assimilation and prevent their unrest.

For their own hegemonic project, authoritarianism is certainly not sufficient, since attractiveness and economic potential remain limited. Just as bio-dictatorial measures are only imaginable as a tendency within other hegemonic projects or for limited and defined spaces, so authoritarianism and even elements of fascist-like politics can only have an effect in a way complementary to other projects, thus supporting them.

What is to be done? Left Politics in Times of Crisis

The depths of the current crisis will lead to no enduring solution being implemented in the short term. The still unbroken predominance of neoliberal forces of financial market capitalism blocks fundamental alternatives. There is a constellation of openness and of transition that can perhaps last for a decade. Since many fundamental problems will not be substantially dealt with, the danger of even worse financial, economic, ecological and social crises grows.

The rulers are divided. The interest conflicts that are linked to this and debates, the unavoidable search for compromises and the consequence of ever new partial steps, offer the chance of actualising and making efficacious some positions.

In large parts of German society, however, neither the Left Party nor unions and many social movements are granted a capacity for building the future. In Europe, it is not the Left that determines the agenda. Globally as well, the positions developed above all in the context of the World Social Forum process are certainly strong enough to place in question the legitimacy of neoliberalism and the current search for solutions from above, but still too weak to intervene directly in setting the course.

The chief tasks of a renewed Left will be:

to link up the resistance against the shifting of the consequences of the crisis onto the backs of workers, socially weaker and the global South with the development of a perspective oriented to the values of global solidarity, to organise social struggles and to network,
to create room for collaborative work and self-organisation of actors who are ready to develop and to live alternatives,
to meet reactionary answers of continued expropriation, de-democratisation and new wars with all decisiveness,
to prevent the conservative continuation of neoliberalism by other means,
to support progressive forms of state intervention, of renewal of the public sphere, of socio-ecological transformation and global development in solidarity,
and in this, to develop approaches of transformation beyond capitalism, as well as to introduce and to realise steps toward socio-ecological transformation and to implement elements of a society based upon solidarity.
That requires transformative processes in the left movements themselves, transformation of the relation between them and the ways of life represented by them.

The Strategic Triangle of Left Politics

The Left can intervene simultaneously on three levels: by protest, critique and education, struggle over the meanings of the crisis and the development of forms of elaboration based on solidarity as well as by intervening in decisive processes and practical organisation. It must prove itself in the strategic triangle of left politics of social learning, the broadest coalition politics and the transformation of social property and power relations.

Education and Effective Development of
Common Alternative Positions in the Public Sphere

Emancipatory educational work in unions, social movements, citizen initiatives, in firms, schools, universities, in parties and churches as well as in the media and in the parliaments is the condition for overcoming the cultural hegemony of neoliberalism and its guiding principles of a market society, of the authoritarian state and people as entrepreneurs of their own labour power and social services. Education means, against this background, creating the foundations for common action in solidarity and encouragement for the self-organisation of all actors interested in alternatives from the local to the global level.

The Left should submit in parliamentary and also in extra-parliamentary contexts proposals that pick up on and push further determinate aspects of this agenda (reconstruction of the social security system, tax reform, state intervention in private property rights, capital regulation, ecological transformation, conjunctural programmes, security policy etc.).

In conditions of economic crisis this struggle must be bound together with a new internationalism.

Mass propaganda of concrete examples that show that things can be different, the promotion of forms of exchange of experience, in which the experiences of the individual can become a common good, are in this situation important forms of learning and education. Forms like social accounting from below or the monitoring of budget policies also belong to this, forms that aim at education through transparency.

The confrontation with the causes and the global consequences of economic crisis must flow into its own culture of resistance in the face of the insecurities and threats. Precisely in crisis periods, left wing movements need to understand themselves as networks where solidarity can be lived and security can thus be found.

Putting Alternative Concrete Projects on the Agenda

Left wing movements must in particular work where they are strong – and that is above all on the local and municipal level and in their workplaces. Political actions should be put in the foreground that similarly aim at the implementation of democratic forms of social regulation and against the pushing of the consequences of the crisis onto society.

The Struggle against Poverty: 2010 in the EU is supposed to be the year against poverty. Its effective preparation and realisation shouldn’t be subordinated to “the crises.”

Redistribution from above to below and from private to public: the accumulation of wealth in the hands of ever fewer people and social groups imposes a monstrous nightmare on society. Belonging to this dimension, above all, is subtracting the field of social security from the grip of the financial markets and renewing the social security systems on foundations of democracy and solidarity.

The Socialisation of the Finance Sector: the finance system in its totality must be brought under public control. It is to be directed to the needs of municipal and regional development, to the support of projects of supranational integration and cooperation in solidarity.

First, it must be assured that the cooperative banks and municipal savings banks are maintained and democratised. Second, there must be a fundamental new organisation of the business model of public banks. The European Central Bank (ECB) must be drawn into the dialogue on European economic strategy alongside the Council and the European Parliament. There should be a further pillar: a council or a board of civil society actors.

Economic democracy: all enterprises and workplaces are to be compellingly enjoined to take up co-determination. The economy should no longer remain a democracy-free space. Here it is a case of the development of alternative economic models in the context of enterprise and job co-determination and beyond. Central here in the current crisis context is the question about the future of the auto industry and armament production, but also those sectors that are now promoted in the context of ecological modernisation. Public support should follow in the form of direct enterprise participation by the public hand, and be linked to an extension of co-determination rights, including a new type of co-determination also of the regions as well as ecological and consumer organisations, and the obligation of orienting themselves to socio-ecological transformation. This is at the same time the foundation of a broad support of small and middle-sized enterprises.

Democratising democracy: democratic cooperation and radicalisation of democracy are important forms of learning about politics, about power relations, about room for manoeuvre and limits of society. They legitimate alternatives and resistance, they can be used in order to give acting in solidarity a space. This calls for democratisation of budgetary policy through public budget analysis and participatory budgets as well as support of initiatives for remunicipalisation, in order to take away legitimacy from the integration of municipal finances and public property in speculative businesses as well as in questionable concepts of budget consolidation.

Politics of New Full Employment and Decent Work: it is time to take the idea of publicly supported employment sectors out of its current direction oriented to a cure and to gear it toward an actively and democratically new economic politics supporting social structures. Publicly supported employment sectors should be understood as a process of the creation of new spaces of cultural and social service delivery, self-organisation and initiative from below, integration of solidarity and thus as a basis of new paths of an economy of solidarity as well as of the development of economically and socially sustainable business.

An Education System of Solidarity and the Renewal of Public Spaces of Democracy and Culture: social transformation is only possible if access to education, democratic cooperation, art and culture are decisively transformed and the social selection in the education system is overcome. Here we need fundamental reorganisations of the education system, beginning with the extension of an integrative early childhood support, the introduction of community schools as “schools for all” and places of being together in solidarity, of a meaningful life in childhood and youth, of the interrelation of learning, playing, mutual help, democratic co-determination, of self development and practical social projects.

Renewal and Democratisation of the Municipal Economy as central axis of economic-political initiatives with the focus of energy provision, health care, transport. Going along with that is a corresponding qualification of the labour of municipal representatives in observing bodies in the sense of a real participative communalisation of public serves beyond old patronage economies and paternalistic welfare. The municipal economy must be the point of departure of a socially and ecologically oriented regionalisation of economic cycles.

For a Free Public Transport System: an essential step of social and ecological transformation would be to implement a transition to a public transport system that would make it free for the users and ensure high levels of individual mobility also for socially weak groups.

Peace Politics and Commitment to Global Development in Solidarity: We need a gain in capacity to build the future in the greater part of the world as a precondition for sustainable development in the world in general: the security and defence politics strategies and guiding principles of the EU and its member countries should be subjected to moratoria. Wide ranging debates at all political levels should clarify what “security in a globalised world” means.

For a Society of Solidarity

The time of a lack of alternatives is over. If the rulers are compelled to address systemic causes, then possibilities of intervention from the Left and below open up. But how can they be unlocked and used?

It is time to put the perspective of a transformation that points beyond capitalism on the agenda, the goal of a society of solidarity.

The socialisation of losses can and must be opposed by the demand for socialisation of the control over property. Help for the industry of the fossil epoch has to be replaced by a conversion to solar energy sources. The Left should respond to the proclaimed return to a failed “social” market economy with the demand for going forwards toward a society of solidarity with a socially and ecologically regulated mixed economy with strong public, common economic sectors as a step in the direction of a socio-ecological transformation. The continuation of a politics of world trade and development in the interests of the North can be opposed by the concept of common work together in solidarity.

If the belief is diffused that it would only be a matter of informing better the selfish private individual, the Homo Oeconomicus, and more explicitly taking responsibility, so the Left should stand for another image of the human – that of self-determined acting people who take matters into their own hands in solidarity and strive after the whole wealth of life.

The concept of a society of solidarity is a concept of the re-appropriation of these productive forces with the goal of overcoming the destructive tendencies of the last decades and the self-awareness of the masses of their own power to solve together the problems of the world. This regards all levels – the local, the regional and the global. Another world, a world of solidarity, is not only necessary – more than ever, it is also possible. •

Monday, April 13, 2009

Appomattox Again

This article is weak on the point of equating the Democrats with the "left", but it does highlight the resurgence racist, fascistic tendencies amongst the right.


By William Rivers Pitt, t r u t h o u t | Columnist
April 10, 2009

"Out of the night that covers me,
Black as the Pit from pole to pole,
I thank whatever gods may be
For my unconquerable soul."

- Timothy McVeigh quoting from "Invictus" by William Ernest Henley

April 9 was a Sunday in 1865, and in the town of Appomattox, Virginia, the sun was shining down on the end of a war. Confederate forces, led by Gen. Robert E. Lee, had finally been brought to bay by Gen. Ulysses Grant after four grueling, blood-sodden years. Lee's surrender at Appomattox was the conclusion of the largest and deadliest armed insurrection in American history.

April 9 was a Thursday in 2009, and there are some lo these 144 years later who would very much like to see another armed insurrection erupt within these United States. The casus belli for today's would-be revolutionaries is not states' rights, slavery or economic independence, but is instead a toxic mix of fundamentalist Christianity, ultra-conservative orthodoxy and, more than anything else, guns.

The existence of armed and angry insurrectionists in America is nothing new. As Robert Kennedy once observed, "One-fifth of the people are against everything all the time." The militia movement, in one form or another, has been a part of our history literally since the founding of the nation itself, and memories of Waco, Ruby Ridge and the bombing of the Murrah Federal Building in Oklahoma City remain acutely fresh in mind even years later.

Lately, the news has been flooded with reports of citizens arming themselves to the teeth, egged on by right-wing media personalities prophesying doom, the rise of socialism, and that a Marxist dictator now sits in the Oval Office. This frenzy has been spilling from talk radio and television out into the streets for weeks now, and has recently metastasized into acts of outrageous violence. It smells like a new beginning of something this nation has not been forced to endure for nearly a decade.

Last Monday, a man named Richard Poplawski ambushed and murdered three Pittsburgh police officers and tried to kill nine others. Poplawski's motivations, according to friends and family, centered around his belief in the existence of a vast government conspiracy to destroy American freedoms while establishing a left-wing dictatorship under President Obama. Poplawski came to believe all this after listening to and reading the paranoid rantings of right-wing luminaries like Alex Jones, Glenn Beck, Rush Limbaugh and Sean Hannity.

Last July, a man named Jim Adkisson walked into a Universalist church in Knoxville and began blazing away with a 12-gauge shotgun, killing two people and wounding several others. He had 70 shotgun shells with him, and fully intended to massacre as many people in the church as possible before police killed him, but he was tackled and disarmed by members of the congregation before he could complete his task.

Eric Boehlert, writing for Media Matters on April 7, said, "When investigators went to Adkisson's home in search of a motive, as well as evidence for the pending trial, they found copies of Savage's 'Liberalism Is a Mental Disorder,' 'Let Freedom Ring' by Sean Hannity, and 'The O'Reilly Factor,' by Fox News's Bill O'Reilly. They also came across what was supposed to have been Adkisson's suicide note: a handwritten, four-page manifesto explaining his murderous actions. The one-word answer for his deed? Hate. The three-word answer? He hated liberals."

"The only way we can rid ourselves of this evil," wrote Adkisson, "is kill them in the streets. Kill them where they gather. I'd like to encourage other like minded people to do what I've done. If life aint worth living anymore don't just Kill yourself. Do something for your Country before you go. Go Kill Liberals!"

Describing the Pittsburgh incident, Boehlert wrote, "In the wake of the bloodbath, we learned that Poplawski was something of a conspiracy nut who embraced dark, radical rhetoric about America. He was convinced the government wanted to take away his guns, the Pittsburgh Post-Gazette reported. Specifically, Poplawski, as one friend described it, feared 'the Obama gun ban that's on the way' and 'didn't like our rights being infringed upon.' (FYI, there is no Obama gun ban in the works.) The same friend said the shooter feared America was 'going to see the end of our times.'"

"Hysterical warnings of government gun grabs and a socialist takeover of the US are no longer the sole proprietary interest of fringe players like Jones," wrote Max Blumenthal on Wednesday. "In the Obama era, Jones's conspiracy theories have graduated to primetime on Fox News. And radicals like Poplawski are tuning in. Indeed, according to the Anti-Defamation League, the alleged killer posted a YouTube clip to (neo-Nazi web site) Stormfront of top-rated Fox News host Glenn Beck contemplating the existence of FEMA-managed concentration camps. ('He backed out,' Poplawski wrote cryptically beside the video.) Three weeks later, Poplawski posted another YouTube clip to Stormfront, this time of a video blogger advocating 'Tea Parties,' or grassroots conservative protests organized by Beck and Fox News contributor Newt Gingrich against President Barack Obama's bailout plan."

There have been more stories like this in recent months, and if history is any guide, there will be more to come. The timing of all this is deeply troubling, and the media players involved are all too familiar. There is something sinister at work here, something malevolent, something sly.

Consider the curious historical synchronicity of all this: after the inauguration of a new Democratic president, there has been a sudden upsurge of right-wing polemicists agitating right-wing citizens into right-wing-motivated acts of violence. The last time things came together like this was back in 1993, after the Waco and Ruby Ridge debacles, combined with the passage of NAFTA and the Brady Bill, detonated into a militia movement that was wildly active, and exceedingly violent, throughout the entirety of President Bill Clinton's two terms.

Dozens of militia-related incidents, including the Oklahoma City bombing, took place during those years. In 2001, however, these incidents stopped almost completely, and for the entirety of George W. Bush's two terms as president, hardly a peep was heard from the militia movement that had been so robustly vigorous during the administration of Bush's predecessor.

A Democratic president takes office in 1993 and the militia movement explodes, egged on by a whole host of right-wing media voices.

A Republican president takes office in 2001 and the militia movement, along with those media voices who sponsored it, all but disappear from the American political landscape.

A Democratic president takes office in 2009, and once again, right-wing media voices begin their clarion call for armed revolution, and once again, a portion of their listeners erupt into violence.

"In Politics," President Franklin Roosevelt once said, "nothing happens by accident. If it happens, you can bet it was planned that way."


There is no global economy

The concept of the 'global economy' is largely exaggerated. The US can – and should – still set its own economic policies

Mark Weisbrot, Wednesday 8 April 2009 14.00 BST

"This is the day that the world came together, to fight back against the global recession. Not with words but a plan for global recovery and for reform and with a clear timetable," said Gordon Brown at the end of the G20 summit last week.

This was somewhat exaggerated. There was no plan for global recovery or even a commitment to increased fiscal stimulus. It remains to be seen what kinds of reforms will actually materialise.

But recovery and reform will not necessarily hinge on what the G20 agrees to do. Roll back to the last major economic crisis – that which began in Asia in 1997 and spread to Russia, Brazil, Argentina and other countries. In September 1998 Federal Reserve chair Alan Greenspan warned: "It is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress." But the US economy kept booming right through the crisis, as a result of consumption driven by the stock market bubble. This continued until the bubble burst, pushing the US economy into recession in 2001.

It should not be surprising that the US economy has the potential to grow even while many other economies are contracting. Eighty-seven percent of what is produced in the US is consumed here. To be sure, the other 13% percent can make a difference – but US recessions are not brought on by falling exports. It is not comparable to the 47% of GDP that Germany exported last year, or even the 28% for Mexico.

Of course the current world recession is much worse and more widespread than the crisis of the late 1990s. The high-income countries that comprise the majority of the world economy, including the US, EU and Japan are mostly in recession. There are some big imbalances, built up over many years, that are adjusting at a pace that is not easy to predict – including the US savings rate, which had fallen to zero by 2007. And there are major weaknesses in much of the world's financial system.

Nonetheless the US is capable of recovering on its own, with a sufficient domestic economic stimulus and a sensible resolution of the major insolvencies in the financial system – regardless of what other governments do. The US recovery will in turn help the rest of the world.

The fact that the dollar is the key reserve currency of the world gives the US even more leeway. There are loud complaints from conservatives about our recession-induced free-spending ways, but investors world-wide are willing to lend the US government money at the historically low (both real and nominal) rate of 2.9% on 10-year Treasury bonds. This is not the sign of an impending fiscal crisis.

It is good that the G20 leaders are at least talking about increased international co-operation in order to deal with the world recession, and there are some areas – eg regulation of the financial sector or preventing illegal international capital flows and international tax avoidance – where increased international co-operation can be especially helpful. But even in these areas, many of the most important reforms can be implemented by individual governments.

The global nature of the "global economy" has been grossly exaggerated, as have been its implications. The world today is still much more a collection of national economies, and national governments – especially in the larger economies – have the potential to choose most of their economic policies much as they did 30 or 40 years ago.

The government of China, for example, has for decades controlled capital flows into and out of the country, regulated foreign investment in accordance with national development needs and plans, fixed its exchange rate and owned most of the banking system. In this way it was able to take advantage of "globalisation" – both international trade and foreign direct investment – to achieve the fastest economic growth in world history.

The contemporary idea of the "global economy" is based on a misapplied analogy to the historical development of national economies. For example, the US economy was much less stable, with more frequent and much longer recessions, before the creation of regulatory institutions, including most importantly the Federal Reserve in 1913 and the New Deal reforms of the 1930s. (The current crisis, which has occurred after decades of deregulatory reforms, appears to be the exception that proves the rule).

Thus, it is reasoned, we now live in a "global economy", and this too must be regulated to iron out some of the irrationalities and instabilities inherent in a market economy.

Of course there is some truth to this argument. The idea of a world reserve currency to replace the dollar, for example, most recently floated by China, is a potential reform that could improve world macroeconomic stability.

But the concept of the "global economy" is very often an exaggerated one, generating confusion and negative political consequences. Reforms that are both necessary and feasible at the national level, such as appropriate exchange rate, fiscal and monetary policies (especially in normal times) or capital controls, are rejected as incompatible with the "global economy".

At the same time, reformers often mistakenly look to supra-national institutions that are mainly deregulatory, unaccountable and regressive – the International Monetary Fund, World Bank and World Trade Organisation are prime examples – to resolve the problems that these institutions have themselves helped to create.

Finance ministers (or Treasury secretaries) that are beholden to powerful interests at home are even less accountable to the public when making decisions in these bodies that are another step removed from the electorate of member countries. If they won't do the right thing at home, they are far less likely to do it at the IMF or the World Bank. For the present, at least, reform at the national or perhaps regional level is a much better bet.

Indeed, "globalisation" under inappropriate rules and policies has contributed significantly to the current crisis. Even the EU, a project that compares favourably to the "race-to-the-bottom" economic integration of the Nafta variety, is currently hampering the Eurozone's recovery. The restrictions on budget deficits and the ultra-conservative central bank set up by the Maastricht treaty are making it more difficult for Europe to counteract this recession.

Efforts to redraw the rules for global commerce in a more equitable and rational manner – such as those of the UN commission headed by Joseph Stiglitz – are a vital part of creating a better future for the generations to come. But the world cannot wait for the time when the governments of the rich countries are willing to cede decision-making power to institutions – such as the United Nations – that they cannot completely dominate. Nor does it have to wait. © Guardian News and Media Limited 2009

Thursday, April 9, 2009

Water cut off in Mexican capital

Mexico City officials have shut down a main pipeline providing fresh water to millions of residents because reserves have fallen to record low levels.

The closure, due to last 36 hours, will affect five million people, or a quarter of the city's population.

Unusually low rainfall last year and major leakage are blamed for leaving reservoirs less than half full.

Hundreds of water trucks have been deployed in the areas worst affected by the cuts.

The local government says it will carry out emergency repairs to the water supply network.

More than 50% of the water carried by the pipeline leaks out before it reaches its destination.

This is the third time the capital has faced such a drastic form of water rationing this year, the BBC's Stephen Gibbs in Mexico City reports.

It has been deliberately timed to coincide with Easter weekend, when many residents, or at least those who can afford to, leave the city, our correspondent says.

Mexico City was once a floating city, built on a spectacular chain of volcanic lakes, and flooding used to be its main environmental threat.

But since the lakes were finally drained in the 1960s, the city has been struggling with its water supply, our correspondent says.

Are you in Mexico City? Have you been affected by the pipeline shut down? Send us your comments.

Story from BBC NEWS:

Published: 2009/04/10 02:27:23 GMT

Wednesday, April 8, 2009

The G20, Empire, and Anti-Capitalist Demands

April 07, 2009 By Sasha Lilley
Source: Pacifica Radio

Sasha Lilley's ZSpace Page

Sasha Lilley: This past Wednesday, before the start of the G20 Summit in London, France and Germany asked for more regulation as a response to the unraveling of the financial system, while the US has stated it would like to a see a coordinated global stimulus plan without such regulation. How do you see these divisions within the most powerful nations of the Group of 20?

Leo Panitch: I think they're enormously overplayed. I really don't think they amount to a row of beans. The American administration is entirely interested in changing regulatory forms. Not that it has really been an unregulated system that has led to this crisis. I think that's an illusion. The American financial system is probably the most regulated in history. The regulatory agencies were promoting these kinds of innovations and speculations in finance.

Sasha Lilley: Can you elaborate - as most people on the Left think regulation got stripped away and hence finance ran amok?

Leo Panitch: There was a change in the mode of regulation, but there wasn't less regulation. And in a lot of ways, when you have freer markets you need more rules, if nothing else to protect the more property owners who are in the market, to lay the rules under which they can sue each other and go to court when they are not able to make their obligations. Now, that's finally blown up in their faces and obligations cannot be met, and it's certainly possible to say that the agencies should have developed forms of controlling some of the stuff that was developed. But they weren't interested in that. They saw their role as developing the kinds of regulations that would promote this financial speculation. And this financial speculation was absolutely necessary to the kind of dynamic globalization that capitalism produced - to the cost of a great many people around the world all the way through it, especially in the Global South. But nevertheless everyone was going on about how dynamic capitalism was and it couldn't have been that dynamic without finance.

Now the point is that this was also true in Europe. The European Union, for all of the talk of the Left that it was going to be the union of the social charter, which would protect social rights, was primarily over the last two decades a union which sponsored the freedom of financial capital and promoted the financialization of European banks and insurance systems. That's why it's the Deutsche Bank that's holding most of the subprime mortgages in the black communities in Cleveland. This was facilitated by the European regulators.

Now that's not to say that there isn't going to be - now that if you like the barn has burnt down - that there isn't going to be some new regulations introduced with regard to the type of fire prevention, now that they see what has happened. But the United States is as interested in this as the Europeans are. The only difference is that the Europeans need to find a way to do this amongst themselves, given the integration of the European Union and capital markets. They can't do it with thirty different states - that's their main concern. The United States will want multilateral regulation, but will of course - as it's always wanted, as every empire wants - it wants to be able to exert its imperial rights over that regulation as the leading state in the capitalist world. And it will do that. It will get it.

But these disagreements are really minor. Maybe a slightly bigger one is whether Germany wants to stimulate as much as other countries might. They've always been particularly neurotic about inflationary tendencies. And to some extent it was the German Bundesbank, their central bank, which really controls the European central bank now, which was always more Hayekian, if I can use that term, or Friedmanite or Monetarist, as I guess is the term that most people know, long before the US Fed was. The Germans ran their economy through the Second World War period right through the 50s and 60s, as if though they'd never heard of Keynes. And they still are the least Keynesian.

Sasha Lilley: And you mean by that, not interested in public spending to stimulate the economy.

Leo Panitch: Yes, not interested in fiscal deficits in stimulation of the economy. And they're afraid of inflation by virtue of the theory of the money that their bank operates with - you don't create money in order to promote the economy. But these differences are not serious; they are entirely minor and far too much is being made of them.

Sasha Lilley: You just mentioned empire with respect to the US. How should we understand the role of the US within the Group of 20?

Leo Panitch: It is the imperial state. It penetrates economically and certainly did financially, not least through the investment banks that were the source of so much of the problem, all the other states. You can see the extent to which the imperial relationship continues, by virtue of the fact that the American dollar has gone up in the course of this crisis and that capital everywhere around the world has been running to the safe haven of the US Treasury bond. That is seen and it has been seen by international capital since the 1930s as the safest investment in the world because the United States is seen as the safest capitalist state, the least likely to default on its debts. This is as true of China as it is of Europe; it's as true of Japan as it is of China. And as the Chinese have said, they of course desperately want guarantees from the United States that it won't default on its debt. They would very much like an IMF-sponsored international reserve currency that wasn't the dollar. But they're saying all these things because they are so utterly dependent on holding US Treasury bills for their own monetary stability. And they can't find a way of getting out of it. And this shows you the extent to which the imperial relationships that built this global capitalism we've been living through continues.

Now perversely, what we're seeing is the continuation of that through the creation of a worldwide, very severe economic crisis, probably depression. That's perverse, but it shows how central the American state and the American economy is to the whole of global capitalism. What begins as a very minor section of its financial markets - subprime mortgages - and the effect of that is that the whole world goes into a tailspin. That's a perverse example of the imperial relationship, but a real one. The Onion had a great headline in November 2007, just after the crisis began, and the headline was: "Bush Proud the US Can Cause Markets around the World to Collapse".

Sasha Lilley: What you're arguing is quite different from what a lot of analysts on the Left have been saying recently, which is that US empire is on the decline, that there's pressure on the dollar, and that while it may have gone up right now, the expectation is that it will go down, and that, as you say, there is a search for other currencies. I wonder if you could talk a more about why you don't think that US power is waning.

Leo Panitch: Well, it's perhaps a matter of wishful thinking on the part of the rest of the Left. US power is confronted by a series of very, very difficult problems. And indeed trying to integrate the states of the Global South into this informal empire may prove to be even more difficult a challenge than the old empires faced with their colonies. But the notion which is most common, that either Europe with its presumably - and it's really ludicrous - more "civilized" capitalism or China - it used to be Japan that was the favorite example but nobody points to that any more - are inter-imperial rivals to the United States, are challenging the American state's imperial role in the making of global capitalism, that is what I don't agree with.

I think that the crisis of the empire is a crisis of all the capitalist states in the empire, so there isn't a relative loss of American power. There are enormous problems that the contradictions of a financialized globalization got them all into. And they're all scrambling to find a way, under the aegis of the American state's umbrella, to manage this crisis. So for me it's not that it isn't a problem, it's that people tend to look, I think naively, at there being somewhere else that's better, somewhere else that's stronger, somewhere else that's autonomous of the American empire, and I don't think that's true.

The other side of this I guess is the Left's tendency to think that there was this great form of regulation back before Ronald Reagan or back before Jimmy Carter and that suddenly what happened was that all these state agencies decided to get into bed with capital and stop controlling capital, as though the American state was this independent, social democratic, neutral guarantor of the public's interest against business before 1975 or 1980. That's nuts.

Sasha Lilley: So you're talking about the legacy of the New Deal.

Leo Panitch: Yes. What happened was that the New Deal, which brought in real reforms, saved Wall Street from its demise in 1932. That did mean that the JP Morgan empire was displaced with Goldman Sachs, but the effect of the New Deal banking legislation was to create the conditions under which the Fed, and the other agencies created at that time, nurtured finance back to health. And it was so healthy by the end of the World War Two that it was able to write Bretton Woods in a way that suited New York bankers.

Sasha Lilley: And Bretton Woods was, of course, the conference that took place in 1944 which established international regulation and also gave rise to the International Monetary Fund

Leo Panitch: Right. And the International Monetary Fund has been, with the US Treasury, the agent if you like of American capital. Everyone blames the IMF for imposing conditions on countries that need loans from it, but it's really the bankers who want to ensure that those countries open up to the free movement of capital and maintain fiscal responsibility so they don't default on any of their debts that the private bankers lend to them. That's the interest the IMF serves and it's been Wall Street primarily that it has served.

So what happened was that, sure, there has been a very active state that has set up price controls - that is, banks couldn't compete with one another through higher interest rates to get your deposit or my deposit, so in that sense, there was a bit of price control that was introduced during the New Deal. But that was precisely the same type of price control that you had in private utilities like electricity or telephones and so on, which limited competition but brought giant monopolies into the economy. And what happened was these banks grew back to health and outgrew the New Deal regulations. They grew so big they out-spilled them and they started investing all around the world and indeed in markets, especially in London where there was no regulation in the Euro-dollar market or the Euro-bond market, all of which was conducted in dollars. And insofar as that was going on they then were able to turn around and say, we need to get rid of these price controls in the United States because we can do business elsewhere. And one needs to remember that workers and their pension funds were demanding that these price controls be removed because they weren't getting the benefits of competition when they tried to invest pensions in the stock market through investment banks and so on. They wanted discounts below what the New Deal prices allowed for, given how large their investments were.

So by the 1960s, this all exploded the New Deal regulations; it was well beyond what they could control or even wanted to control. What happened was that you got this explosion of financial innovation and the creation of new agencies or the active role of old ones in promoting them. And they promoted them because it made a lot of money on Wall Street. New York's revival from the 1970s was all bound up with the enormous innovation and dynamism and speculation of Wall Street. But it isn't just speculation. If you're going to trade around the world and you have fluctuating currencies and fluctuating interests rates and different rules and regulations and different court systems, you need to be able to speculate over what the currencies will be six months from now when you need to be able to deliver whatever you promised to sell on the other side of the world. So that speculation has been absolutely functional to the credit that is needed in global trade. We couldn't have had the explosion in global trade without the hedging of risks that this financial innovation involved.

It's all mixed up with the dynamism - and tremendous inequality and unevenness - of a capitalist world system. And people who don't want to confront that, and that's most of the Left, and are looking for an easier way out than trying to get beyond capitalism will try naively to say, back in the 1950s we controlled all this. Well, back in the 50s you didn't yet have this dynamic capitalism, which recovered so tremendously through the postwar era and exploded in the way it did into globalization in the sixties, seventies, eighties and nineties.

Sasha Lilley: For the Left to come up with solutions which don't hark back to a golden age that may not have existed, what solutions do you think we should be looking at? One of the focuses of the demonstrations in the streets of London have been around the banking system and in its most spectacular form, protestors stormed the Royal Bank of Scotland. There's been calls on the streets to make banks a public utility. What do you think of that demand by the Left?

Leo Panitch: I am very much in favor of that. And the main reason that I'm in favor of it is that taking the banking sector, the whole of the financial sector, into the democratic public domain - however limited our democracies are - would remove the economic power of that fraction of the capitalist class that are the bankers. Who have enormous power. They're not the only ones who are powerful, but it would remove their power. And that's the most important reason to take capital away from them.

Now that could also be said of the importance of nationalizing other sectors. But let's just address this. That's the main reason, that you shift the balance of class forces in this society by doing that. And the failure to do that means that Obama needs to say, while at the same time as saying that there is a scandal in giving AIG executives their million dollars in bonuses, he needs to say, we need to find a way of preventing that, while not preventing getting the cooperation of the private bankers in getting the banking system back on track again, that's the way he put it last week. That's exactly what Paulson said. Paulson was the Treasury Secretary before Geithner, under Bush. And he had the gall, having been the highest paid CEO on Wall Street with the largest bonuses before he became Treasury Secretary, back when he was head of Goldman Sachs, he had the gall when he was trying to get his TARP plan through Congress to say that he thought salaries on Wall Street were unconscionable and we needed to do something about it. But in the same breath he said we need to find a way of doing that that doesn't get in the way of the TARP program working.

Now, what all that means about not getting in the way is simply a reflection of the inherent class power on Wall Street that is linked to the American state. So the most important reason for making banking a public utility is to shift the balance of power in society.

Now on top of that, banking ought to be a public utility insofar as banks can't exist without state deposit insurance; that's been proven since the 1930s and every government in the world has them and follows the American state in having them. Insofar as we can see that a volatile global financial system constantly produces financial crises in which central banks immediately act as lenders of last resort, using public funds to do so, you can see why this shouldn't be something private.

What we've arrived at is a world in which a great deal of finance and production is completely social, is totally socialized, but is privately owned. And that's increasingly irrational. And the reason for turning banking right now - given how much the bankers are demoralized, confused, don't know what to do, are on their heels, feel illegitimate in society, etc - it's an enormous opportunity to turn the credit system, which is necessary, into a public utility, but to do that in a way that changes the criteria upon which lending is done. Just to have the banks nationalized and then for them to act as though they were identical to the previous private banks would make no sense. And the kinds of thing that Stiglitz and Krugman are calling for, which is nationalize them, take the bad debt off the books and then give them back to the private sector, would be fundamentally undemocratic. So Stiglitz and Krugman only look radical because of how little radical the Democratic Party is, not because what they're proposing is radical at all.

Sasha Lilley: So the bad debt would be socialized, but the public would not be left with any control over the banks.

Leo Panitch: Exactly. The proposal is to give the banks back to the private sector on the thesis that we can't have a properly democratized state. I agree the existing state is very problematic, once we start thinking about how we would want to have banking as a public utility, we immediate need then to start thinking about how we would change the Fed, how we would democratize it so it wasn't run by regional bankers. What we're talking about is a massive, hopefully peaceful, change. But that's what needs to be on the agenda is light of the tremendous crisis that we're facing.

Sasha Lilley: What would the mechanics of bank nationalization, the process of nationalizing a bank, look like?

Leo Panitch: Well, the Federal Deposit Insurance Corporation does it all the time. During the early 1980s, when thousands of banks went out of business - there was a tremendous concentration of banking during Reagan's early years when there were very high interest rates - the FDIC was constantly doing it. It's even done it with very big banks like Continental Illinois. In the last year, it's been done it with some two or three dozen banks. What it does is that it simply goes in, declares that the bank is not functioning and has the total right to do it, and takes it over. Then inevitably having sold off the bad debt at a discount, and it's able to do this because it's been using taxpayers' money or collecting insurance fees from the banks in order to exist, it then sells of some of that debt, recoups in other words some of its costs, and then sells or tries to sell that bank back to the private sector. And it usually finds a bank that will take on this bank now that it's been cleaned of its old assets.

So it's not a big deal in terms of the legal means of doing this - it's been done with big banks, it's been done with small banks, they know how to do it legally. The problem is that this nationalizing of the banking system as a whole, the whole financial sector - which would also mean near-banks, the insurance companies that played this kind of role, the hedge funds, the investment banks and so on, not just the Bank of America - they'd all have to be brought into a public banking system. That's a very big deal. It's not a matter of just getting lawyers to sign a few documents or bringing all the stakeholders together in a room. For this you need to build the kind of movement in society that doesn't exist, that puts this on the agenda, that explains to people why it's worth running the risks to do this. Because of course, bankers would scream and yell and say what little you still have in the banking system you're going to lose.

You need, in other words, a very different set of political forces in the United States before you can even have this. The reason for raising it, and it's why the people were on the street in London, is that they're on the street in order to build the kind of movement that will change the political conditions in the society. And this is not only true in the United States. This is going to involved a lot of international solidarity where movements support each other as they learn about how to do this kind of thing, how to put these kinds of things on the agenda, and they're all about changing the balance of power in our societies.

Sasha Lilley: What about a broader call for nationalization of industry going beyond the banks? Because of course these protests are going on in the UK where in enormously dramatic ways in the 1980s and 90s, under Thatcher and then continued under Blair, the nationalized industries of that country were privatized.

Leo Panitch: I'm really glad you raised that, Sasha. Back in the 1970s, a lot of the left of the socialist and social democratic labor parties had on their agenda the nationalization of the banking system. In 1976, Tony Benn and Ken Livingston, who was just mayor of London, and the left in the Labour Party passed a resolution at the Labour Party conference calling for the nationalization of the five largest banks and the seven largest insurance companies in Britain. And they were arguing that unless this was done, that the reforms that had been won during the period of the Keynesian welfare state in the 50s and 60s was going to be lost, that you had to build on those and go beyond them if you weren't going to lose them. And they were ignored, defeated, called Neanderthals by all of the leaders of the social democratic parties and that kind of thinking was marginalized in the 1980s and 90s. And we see the consequences of that today. The privatizations that occurred were very much in the wake of the failure to go on and control, take over, the power of the City of London, which was always the most powerful element of British capitalism in the twentieth century. The City of London was the backbone of Thatcherism. Thatcher got her start and her ideas got their start in bulletins that were circulated in the City of London in 1972-73 during the miners strike and so on. The failure to do that led to the loss of so many of the reforms that had been won on the basis of a different balance of class forces that came out of World War Two.

We need to remember, however, that those weren't what we want them to be today either. Those nationalized industries were, in the main, industries that were nationalized because they had been bankrupted by the capitalists who ran them, whether they had been railways or the mines. Despite of an enormous battle in the labor movement to have workers elected to their boards, their boards were appointed and it was mostly businessman and technocrats and the odd university professor who were put onto those boards. They were not democratically-run enterprises.

And even the government agencies that people most needed, welfare bodies, etc, people who were dependent on them were afraid of them. Single mothers on welfare, desperately needing the welfare state were afraid of the welfare state. They were afraid a social worker will show up one morning and find that there's an extra toothbrush on the sink and therefore they're going to be cut off by virtue of somebody having a boyfriend. So people were afraid of this bureaucratic welfare state. And it's one of the reasons why politicians like Thatcher were able to get traction amongst working people when they pronounce themselves as anti-state - which they weren't of course, they were moving people out of welfare offices and into prisons, and you can't find anything more statist than prisons. But there was a certain appeal that people who were dependent on these institutions nevertheless were attracted to, because they were uncomfortable with a state that was never democratic, didn't serve them very well.

So as we put these ideas newly on the agenda, they have to be not only about taking capital away from capitalists, but about democratizing. We desperately need to do this for the auto sector. The scandal of saying that you can't reopen the contracts of bankers, whereas you insist that the autoworkers constantly reopen their contracts, is an example of the class nature of all of these capitalist states. You know, during the Second World War, the auto industry wasn't producing cars, it had been converted into producing plane fuselages. We need to take the whole of that industry, including the parts sector, into the public domain and convert it into ecologically sustained production. Some of that can be vehicles that are run on hydrogen or electricity, but a lot of it should be public transit. And there's no reason why the enormous skills and tremendous machinery that is a legacy now of generations shouldn't be turned over and converted to the making of solar panels. Tool and die makers in the auto industry and the machines that they work with have the capacity to do this. If these companies are simply sold off to the highest bidder in little bits and pieces, we're going to lose a tremendous social legacy. It's a scandal.

Sasha Lilley is the author of 'Capital and Its Discontents', forthcoming from Monthly Review Press.
Leo Panitch teaches political science at York University in Toronto and is the editor of The Socialist Register.