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ORIGINAL FRENCH ARTICLE: Analyse : vers une nouvelle phase de la crise ?

by Pierre Ivorra

Analysis: Towards a New Phase in the Economic Crisis?

Translated Tuesday 16 August 2011, by Gene Zbikowski and reviewed by Bill Scoble

The combination of a fall in world economic growth and exacerbated indebtedness explains the current instability of the financial markets, and increases the risk of U.S. and European government bonds crashing.

Worry with regard to world economic growth was seriously aroused this week, following the publication of several indicators that show a world economic slump. France has not been spared.

On Friday, August 12, the French statistical bureau (IBSEE) announced that French gross domestic product (GDP) had stagnated in the second quarter of 2011. This zero growth is due mainly to a fall in domestic demand, meaning household and government consumption. This confirms that the policies of downward pressure on wages and employment and of falling government spending, far from permitting a return to a balanced national economy, on the contrary are stifling economic activity at the same time that they are plunging the people into difficulties.

Several other European countries are also on a downward slope. Economic growth in Spain remains close to zero (up 0.2% in the second quarter) and in Italy (up 0.3%). Industrial production is falling just about everywhere in the European Union, even in Germany. One senses that the dangers borne by the Euro Pact are more than those acknowledged by Angela Merckel and Nicolas Sarkozy, who favor a drastic reduction in government spending, thereby jeopardizing social rights.

Already on Monday August 8, a study by the Organization for Economic Cooperation and Development (OECD), the organization that includes the main developed capitalist countries, showed that the economic climate is worsening generally. The study notably indicated that the indicators “for Canada, France, Germany, Italy, the United Kingdom, Brazil, China and India continue to point to slowing economic activity,” while “stronger signals of a reversal of the growth cycle have appeared in the United States, Japan, and Russia.”

How is this beginning of a reversal, less than two years after the 2009-2010 recession, to be explained? What we have here is the result of measures taken by the governments of the big capitalist countries to meet the economic crisis. The necessity of unprecedented government intervention is not the issue. The problem lies in its nature. Government intervention has essentially aimed at hurrying to prop up the financial system and the big corporations without imposing conditions that would allow their management and their practices to be reformed. Trillions of dollars, euros and yen have been injected without any safeguards. The re-establishment of profitability that they have favored was obtained at the cost of employment, wages, investment and public services, which explains the present difficulties of economic growth. This has also led to an unprecedented ballooning of government and social debt.

This three-fold combination – weak economic growth, high government debt and private corporations with enormous amounts of ready cash – explains both the stock market crash of the past few days and the speculation which is attacking, in particular, government debt in the euro zone. Thus the corporations that figure in the Paris CAC40 stock market index have 170 billion euros in cash at their disposal. What are they using it for, if not to speculate? Simultaneously, the American funds, which benefit from ideal financial conditions on the part of the U.S. central bank, are playing their own game and are at the center of speculative movements. They would not be displeased at al if the result were the fragmenting of the euro zone.

And yet, the United States itself is not safe, even if it has the ultimate weapon: the U.S. dollar, the keystone of the international monetary system. They can print dollars at will to pay their debts, and they can depreciate the dollar to “steal” economic growth from other countries. At the same time, this is a very dangerous game, including for the United States. The ballooning of debt in a clearly declining economic context increases the risk of an unprecedented stock market crash of government bonds.

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