Thursday, 27 January 2011

Soros Warns UK Cuts Will Cause Double Dip

Only days after outgoing CBI chief Richard Lambert said that Government policy represented a triumph of Politics over Economics, George Soros has now warned that the Liberal-Tory Cuts threaten to drive the UK economy into a double-dip recession.

“I do not think they can be implemented without pushing the economy into a recession. My expectation is that it will prove to be unsustainable.”


The dangers for Big Capital are becoming more apparent by the day. The large amount of debt can only be repaid by growth and inflation. The latter will almost certainly provoke workers into some kind of response as is being seen already in most parts of the world.
Chinese workers are creating a brand new Labour Movement including their own independent Trades Unions, and are fighting for and winning pay rises of up to 50% in response to rapidly rising inflation. Similar movements of workers are developing in other parts of Asia. In other parts of the world where the Long Wave boom has begun to stimulate growth, but where there exist large numbers of unemployed or casually employed workers, such as in North Africa, rapidly rising inflation is resulting in workers pursuing the only other course of action they have when their struggles cannot be undertaken through collective bargaining via Trades Unions, they take to the streets, and burn buildings, and overthrow governments.
That is not an attractive prospect for Big Capital, which relies on a high degree of stability, social peace, and regulated negotiations through the Trades Union bureaucracy.

Worryingly, for that Big Capital, in recent years those economies of North Africa have been increasingly drawn into a new Mediterranean Economic trading area. Their economies have become to some extent linked to those very peripheral economies of Southern Europe, which are themselves now also suffering similar problems as a result of the imposition of austerity measures.
As one TV commentator speculated today, so far the unrest in North Africa has been fairly muted, but in a long hot summer of street protests and conflict, Southern Europe may find that it has at least an influx of refugees to deal with, and more likely a spill over of those protests into the already developing struggles of workers in Greece, Spain, Portugal and elsewhere. Already, in the last couple of years, one of the other rapidly economies of the region, Turkey, seeing the problems of the Eurozone, and facing hostility to EU membership, has turned its own attention towards possibilities in the Middle East. But, Turkey itself could find that rising inflation, results in its own growing Labour Movement stirring.

This all comes at a time when the austerity measures are themselves providing problems for Big Capital as Soros points out in relation to the UK.
Ireland is already facing the prospect of being unable to pay its debts despite the bailout, simply because the Cuts it is introducing have made growth impossible, and its impossible to repay large debts with a shrinking economy. Spain is only now beginning to face up to the reality of its economic problems, and the need to bail out the Cajas. But, the current climate is likely to show up the reality of that situation more quickly than the Government would hope. In his interview, Soros says that fiscal stimulus is needed not to stimulate consumption, but to stimulate investment. He is absolutely right. If Europe is to get out of its current mess only a restructuring of capital, and investment in new globally competitive areas of production and service provision will work.
Either that will be done in a sensible manner through a withdrawal of the Cuts, and a strategy for growth, or else it will occur through a massive crisis.

If its the latter, then the events in North Africa demonstrate the risks for Capital in that option. Already, the economic consequences of the Cuts in Ireland and elsewhere are being made clear by Merkel and others who has said that those Finance Capitalists who lent to these economies, and own their Bonds will have to pay.

They will have to accept the idea of a partial default on those Bonds she says. Such a haircut is nothing compared to the one Capital could face if austerity measures mingle with the heady mix of social unrest being built upon on the Southern shores of the Mediterranean.

No comments: