As share values tumbled in the most dramatic falls since 9/11, the talk was not so much of whether there will be a recession, but of how deep and long it will be. There is panic at the top of the world’s largest banks and most have had to beg for funds to cover losses on their subprime-related speculations.
The US economy continues to head into recession and some sections of it are already there. US house prices are falling, spending is slowing and unemployment is rising. The White House is planning an emergency $140 billion fiscal stimulus, mainly in the form of tax rebates for people and companies, to try to stem the tide of job losses and boost people’s spending power.
It is said that US workers might each receive a tax rebate of $800, but it will probably end up being less than this, and in any case debt-ridden households are likely to use such limited rebates to help service their debts rather than to increase their spending. And companies receiving tax relief are not going to use it as a reason to invest if they do not think they can sell more goods or services.
Interest rates have already been cut three times in the US by the Federal Reserve, another cut is expected soon, and more are likely to follow. But cuts in central bank interest rates do not mean that the financial markets respond similarly – long term interest rates in particular could remain at a higher level. And where they do filter down to ordinary people, they can serve to maintain or increase debt levels and will not necessarily reduce them.
All the factors point, not to a repeat of the short 2001 US recession, but to a more profound, longer lasting one. And there is increasing realisation that China, India and other ’emerging markets’ will not be able to bail out the rest of world, but instead will themselves be brought down by the US’s problems, as the Socialist Party has consistently said.
The overall crisis is not just in the banking sector, but is rooted in all parts of the economy. It is not a simple problem of liquidity; credit would be easily available if fund holders thought it would be profitable to give it. The main drivers of recent growth – house prices and credit-fuelled spending – are starting to fall, making recession virtually inevitable.
A severe recession would have brutal effects in the language of job losses, home evictions and increased poverty. Recession could even be combined with a continuation of rising prices. Those at the top of society have insulated themselves to a large extent by taking obscene salaries and bonuses, even while their stewardship of production and the economy has proven to be so rotten.
Many working-class and middle class people on the other hand are already regarding the financial outlook for themselves this year as grim. But rather than drawing back and taking what is dished out, any fear and insecurity needs to be turned to anger, positive action and determination to fight back.
By SP reporters