As suggested in this blog in early 2013 – see Last Days in the Bunker? – the position of Western leaders then, faced with the utter failure of their “extraordinary” economic policies to overcome the Global Financial Crisis (GFC) which started in 2008, was analogous to that of the Nazi leadership trying to confront unavoidable military defeat in 1945.
More than a year on it would seem they have now in fact adopted as their role model one of the last die-hards holed up in the Berlin bunker, Joseph Goebbels, Hitler’s notorious propaganda chief. It was he who famously boasted that “if you tell a lie big enough and keep repeating it, people will eventually come to believe it” – a principle he can be said to have applied effectively throughout his career. Perhaps Goebbels’ last big lie was that Germany was going to win the war even as its defences collapsed before the Red Army invasion of 1945. But inevitably, as more and more territory was overrun by the enemy and life became increasingly intolerable for ordinary Germans this bravado progressively lost all credibility.
This delusional claim is today being paralleled by that of the Western establishment – governments, business leaders and mainstream media – that the world economy is at last broadly on the road to recovery from the deep recession in which it has been mired for at least 5 years. The hard evidence for this proposition is, however, extremely thin. For while it purports to be based on official statistics on estimates of economic growth (GDP) and other indicators – particularly price inflation and employment – virtually no government spokespeople nor commentators in the mainstream media point out that such data are increasingly suspect and generally subject to revision.
Fantasy vs. Reality
Thus, for example, data from the US Bureau of Labour Statistics show that the national rate of unemployment fell from 6.3 per cent to 6.1 per cent of the labour force in June. However, while this looks like positive news – and is being spun as such by the media – it fails to allow for the fact that the nominal labour force has continued to shrink as unemployed workers, increasingly unable to claim unemployment benefit and discouraged by the poor prospects of getting a job, drop off the register, so that the true unemployment ratio is really significantly higher. Likewise the US Consumer Price Index (CPI) – the main indicator of price inflation – has for decades excluded both energy and foodstuffs from the basket of goods and services used to calculate it, supposedly on the grounds that the prices of these two key components of household budgets are so volatile that their inclusion would unduly distort the index. As a result the CPI is consistently registering an annual rate of increase of around 2 per cent at a time when recorded retail prices of many individual food items, notably including meat and potatoes, have risen by well over 10 per cent in the last 12 months. As economists know well, the impact of an artificially depressed CPI goes much wider than deluding the public about the level of their real incomes and net worth – thus enabling the authorities to uprate benefits and pensions by less than would be required to match the true rate of price inflation. It also allows them to record an artificially high rate of real (inflation-adjusted) growth in GDP (national income) – by applying an unrealistically low price deflator to the unadjusted figure (in current prices) – thereby flattering their own apparent economic performance.
Thanks to such massaging of official data in the US it is possible to show (according to official data) that its economy has been growing at around 2 per cent in real terms, at least up to end-2013 – much the same as it was before the GFC broke out in 2008. Such figures provide a basis for claiming that the US is now in recovery mode and on course for returning to “business as usual”. In contrast growth figures for most of the rest of the OECD (industrialised countries) – where statistical measurement is probably less distorted than in the US – are still averaging closer to 1 per cent, and in the Euro zone are even negative (according to the most recent data from the IMF World Economic Outlook).
The UK, having remained in or close to recession (negative growth) for the last four years, has since the start of 2014 managed to engineer an apparent revival of activity, enabling the Coalition government to claim that it is currently the fastest growing major economy in the world, projecting GDP growth as high as 3 per cent for 2014. This narrative – orchestrated by the “officially independent” Office of Budget Responsibility – has been uncritically taken up by most mainstream financial journalists, business representatives and others (not all necessarily with a vested interest in enhancing the prospects of the Conservative party in the election due in 2015). But what is conspicuously missing from this chorus of euphoria is any analysis of what lies behind the apparent surge in growth, such as might indicate how real or sustainable it is. In truth such a sudden change of fortune seems hard to credit in an economic climate where under the government’s policy of budgetary austerity the real incomes of most Britons are contracting, most export markets are stagnating, international competitiveness is being squeezed by a strengthening pound and there is correspondingly little appetite for fixed investment. Hence any improvement in the GDP numbers since the start of the year must be mainly attributed to a) the huge volume of monetary growth resulting from so-called Quantitative Easing (allowing the Bank of England to buy up the still rapidly expanding government debt while holding down interest rates), which has facilitated rapid growth in speculative investment, particularly on the stock market, and b) subsidised lending for house purchase, which has also helped to boost belief in a further rise in house prices and thereby stimulate speculation in real estate generally. Such artificially induced optimism, particularly among home owners, has also helped to encourage more borrowing for purchase of significant items such as cars.
Hence it is clear that, to the extent there has been any recovery at all in the UK, a) it is based on the artificial stimulus of extra debt in an economy that is already the most heavily indebted among the major industrialised countries (taking public and private sectors together) and b) for that very reason it cannot possibly be sustained. If anyone were to doubt this there is one indicator of economic performance that should put the matter beyond doubt: the Bank of England base rate, which has now been stuck at 0.5 per cent since March 2009 – a phenomenon without precedent in the 320 year history of the Bank, during which the rate had never been set at less than 2.0 per cent at any time. Indeed it is striking that, whenever it is hinted by the governor of the Bank that the base rate might soon need to be raised as the economy approaches a more normal level of activity representatives of the business community such as the director of the Confederation of British Industry, for all their claims that the economy is indeed recovering, are quick to insist that any rate increase in the near future would be premature.
Taken together with the fact that the government still struggles to hold its annual deficit / borrowing requirement below £100 billion – double the highest level ever recorded before the start of the GFC in 2008 – and that it can only promise still further public spending cuts till 2020, it is clear that instead of sustained recovery the prospect can only be one of perpetual recession and declining living standards . Moreover, the truth that dare not speak its name – but well understood by all the leading actors – is that even a small rise in interest rates would push monumentally indebted institutions (public and private) into open insolvency, leading to a systemic collapse far more catastrophic than that of 2008.
The above description of the evolving position of the UK is broadly applicable, it can be said, to all the world’s major economies. This includes the US, which even with the benefit of its distorted inflation measure recorded negative growth in the first quarter of 2014, and the Eurozone, which has pursued austerity even more zealously than the UK and is now so desperate to revive sliding growth rates that the European Central Bank has begun to impose negative interest rates on some deposit accounts (effectively a tax on savers) in order to try and induce people to spend. At the same time China, whose reportedly high growth rates have been seen by many as the potential “locomotive” of a global recovery, is now not only seeing its growth slow but is facing its own looming debt crisis as its astonishing construction boom turns to bust.
Amid the welter of seemingly authoritative claims – whether based on half-truths or outright lies – that a global economic recovery is gathering strength it is easy to be confused. To cut through the confusion the average person perhaps needs only to keep their attention focused on just two indicators of economic health which even Dr Goebbels might have found it hard to distort:
Interest rates. As in the UK, central bank base rates in all major industrialised economies (G7) have remained at or below 1 per cent – negative in real terms – since 2009, a situation without any precedent in the history of global capitalism.
Baltic Dry Index. This measure of average global shipping costs – which fluctuate in line with the volume of merchandise trade – is widely accepted as the most objective single indicator of the level of world economic activity. Despite recovering in 2009-10 to over 40 per cent of its all-time high of 11800 points attained in 2008 (before the market crash) it has been stuck at 20 per cent or less of this level since early 2011 and since May 2014 it has moved below 1000.
It should be obvious that the only logical conclusion to be drawn from these indicators is that, so far from there being any prospect of sustainable recovery, there can be no escape from deepening economic paralysis unless and until the vast bulk of the unserviceable private and public debt is effectively written off – something which the present writer and a very few other analysts have consistently pointed out right from the start of the GFC. In short there not only is no recovery, there cannot be one without first allowing a destruction of capital so drastic as to entail the wiping out of most of the world’s paper wealth – to be followed, it may be hoped, by the emergence over time of a very different and more humane economic order.
This reality is by now more or less understood by at least a minority of members of the global ruling élite, although such is the power of their own propaganda that they may well be in the grip of Orwellian “double-think” – i.e. having mutually conflicting perceptions of reality. Whether or not that is the case they naturally feel they cannot afford to admit the truth of impending, and possibly final, systemic failure. That is not because of any deep ideological commitment to the capitalist profits system – which has in any case long ago seen its own fundamental “free market” principles terminally corrupted and betrayed. Rather it is born of a desperate commitment to self-preservation for themselves and their class – which may perhaps be identified as “the 0.01 per cent” of the world’s population.
The survival of our civilisation – indeed of our species – arguably now depends on whether this global ruling clique can even at this late stage discover a capacity for enlightened self-interest such as will lead them to accept a more equitable distribution of wealth and power in a world where equity and social justice have seldom been more absent – or the danger of global conflict more menacing in consequence. An essential pre-requisite for such a change of heart must be to allow more open recognition of the realities of our situation in place of the incessant propaganda designed to convince the public that the naked emperor is wearing clothes. Failing this we can only expect a continuing slide to global disintegration, such as we can already see unfolding – as will be described in our next instalment.