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The trillion dollar question with no answers

If nothing changes, the US government will run out of money, somewhere between October 22 and November 1 and plunge a fragile global economy into another meltdown. With the two parties in Congress locked in deadlock, time is running out.

Already, two million federal government workers are having their pay cheques delayed, and 800,000 of them might never be paid at all. The days are running into hours as the deadline approaches for Congress to award itself a further extension of its towering $16.7 trillion debt (a trillion has 12 zeros, by the way).

But with no sign of a solution to the week-old US government shutdown forced by the Tea Party wing of the Republicans, a political deal looks less – and an historic, unprecedented default by the world’s biggest national economy – more likely.  

Updated forecasts from the International Monetary Fund can only intensify the deepening political crisis. In its World Economic Outlook, the monetary hit squad now expects the global economy to grow only 2.9% this year, down from the 3.2% it estimated just six months ago, in July.

And, as everyone with half an eye to political economy knows, capitalist economies become unsustainable with anything less than 3% growth.

The figure for the US, still the world’s largest economy, sees a sharp drop from 2.8% in 2012 to 1.6% in 2013, nowhere near enough to see unemployment fall to 7%. This is the level the Federal Reserve, the US central bank, says will trigger a reduction in quantitative easing, the massive inflationary programme of money printing supposed to bring about the mythical recovery.

The interventionist wing of US capitalist interests argue that the faltering signs of recovery call for more credit to be pumped up. But the Tea Party and its friends will intensify their hijack of the government – insisting on sharper, more brutal spending cuts as the price of an agreement.

The 0.5% increase in the forecast for the UK, which triggered press demands for an apology by IMF chief Olivier Blanchard to chancellor Osborne over the former’s criticism of the latter’s austerity drive, is nothing to celebrate. Despite being the biggest increase among the developed countries, it only raises the expectation of UK growth to a dismal 1.9%.

Sainsburys operates at the sharp end of capitalist interests. Its sales are a key measure of the impact of economic conditions on people’s ability to buy food.  Its boss Justin King expects frozen wages and inflation to bring about a further 2% drop in real incomes over the next 12 months. No recovery there.

The IMF sees conditions in the euro area continuing to worsen for this year, with an overall shrinkage of 0.4%. Germany will at best make a 0.5% rate of growth. Italy will shrink by 1.8%, and Spain by 1.3%. Next week, the IMF together with its European Central Bank and European Commission partners in the “troika” will be back in Greece. The ongoing global crisis has forced its economy to contract by one quarter since the 2007 crash, and a further 4% shrinkage is expected this year.

If global capitalism was on a supermarket shelf, its "best before" label would be a long time in the past

The IMF has also been busy in nearby Serbia. Lazar Krstic, the 29-year-old finance minister, pledging to stabilise government debt by 2017, yesterday launched the country’s own savage austerity and privatisation programme. This is part of the price of hoped for EU membership, and he is also seeking billions of euros in loans from the United Arab Emirates to avoid imminent bankruptcy.  

Look further afield to the “emerging and developing countries’” and the story becomes even more gloomy, with negatives across the board. China’s three-year deceleration is continuing, its growth rate shrinking towards 7%.

Xi Jinping, president of the second largest national economy, said he expected a "long and tortuous process" of world economic recovery. That’s a euphemism for further brutal assaults on living standards just about everywhere for the foreseeable future. If global capitalism was on a supermarket shelf, its “use by” label would be a long time in the past.

Gerry Gold
Economics editor
9 October 2013

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