THE former chairman of the US Federal Reserve, Alan Greenspan, has warned that the US economy is heading towards a deepening of the slump that was ushered in by the 2008 housing market and banking crashes.
Greenspan used the word ‘pause’ to describe the state of the US ‘recovery’, while others said that they had a ‘1932 feeling’ – that was the year when economic catastrophe following the 1929 crash really took hold. Greenspan, in fact, admitted that ‘it is possible’ for the US economy to fall back into recession.
Greenspan added for good measure that ‘The financial system is broke. There’s nothing out there that I can see which will alter the level of unemployment.’ Seeing that the US economy is the engine of the world economy, his lack of confidence reverberated all round the planet.
Greenspan served as chief of the Fed until 2006, when the wolf was already at the door. He left his replacement Ben Bernanke with the task of dealing with the worldwide banking crash and slump.
Greenspan’s policy of long-term low interest rates has been blamed for fuelling the irresistible rise and then unstoppable collapse of the sub-prime mortgage market which triggered the worldwide crash.
The man who took his place, Bernanke, has been echoing his pessimism for some time.
Last week he said that ‘Financial conditions have become less supportive of growth in recent months,’ and that the US economic outlook was ‘unusually uncertain’ – the same words that the Bank of England Governor Mervyn King has begun using.
Bernanke told the Senate Banking Committee that record low interest rates would still be needed to support economic recovery, and that he was ready to step in with more quantitative easing (printing money) to try and boost the ‘unusually uncertain’ economy.
He added hopefully that ‘rising demand from households and businesses should help sustain growth’.
The US economy grew at an annualised rate of 3.7 per cent in the first quarter of the year, but has now fallen to 2.4 per cent.
High unemployment and a slowdown in manufacturing, and the shrinking of the total number of jobs have raised concerns that there is no ‘recovery’.
Earlier last week, the Congressional Budget Office issued a stark US debt warning, titled ‘Federal Debt and the Risk of a Fiscal Crisis’.
It said: ‘Over the past few years, US government debt held by the public has grown rapidly – to the point that, compared with the total output of the economy, it is now higher than it has ever been except during the period around World War II.’
This situation has led to a vast indebtedness in all the US states headed by the Golden State – California.
There Governor Schwarzenegger has sought to impose wage cuts for state workers to well below the UK minimum wage, and has also imposed a régime of unpaid leave, plus other budget cuts, including sacking many thousands of temporary and part-time workers.
The governor is also planning major cuts to state pensions.
California’s voters rejected higher taxes at the ballot box, so it is savage cuts instead, to begin resolving a $15.2bn deficit.
If you multiply the California crisis by the number of US states, 50, then you have some indication of the indebtedness of the US states, additional to the US administration’s massive deficit and the huge national debt.
This colossal indebtedness, and the savage state cuts that it is producing means that there will be no economic revival, just an ever-sharpening struggle as to which class is to pay for the crisis.
In other words, there is no way out for the working class except through breaking with both the Republicans and the Democrats, and going forward to a Labour Party and a socialist revolution that will replace bankrupt American capitalism with a much more advanced socialist order of society.
