Market chaos spells danger for us

August 19, 2011

As far as I can figure out, watching the recent reports of stock markets making their bid for this year’s World Yo-Yo Championships, it works like this: if a bunch of rich bastards with too much money think shares will go up, they will go up; if the rich bastards think they will go down, they will go down.

And, among other things, this is how they determine whether we can afford to retire.

The Sydney Morning Herald said on August 7 that stock market plunges had wiped $30 billion from Australian superannuation funds over the past six weeks.

The wealth, which represents our retirement funds, was lost because the rich bastards stopped believing in the value of these investments and so their value dropped.

But the message coming from the superannuation industry and the federal government is “don’t panic”.

An August 9 Australian article titled “Keep calm, super investors told” said: “The superannuation industry has joined Treasurer Wayne Swan in urging retirees to hold their nerve.”

Superannuation industry chief Pauline Vamos said “all superannuation investors” should see themselves as “long term investors”.

The message is simple: what goes down must go up. In boom times, they never point out the opposite — what goes up must come down.

In the place of panicking, we can … what? There is nothing we can do, because, as long as our retirement funds are used in this way, the matter is out of our hands.

Our lot is to watch from the sidelines and hope and pray that, when the time comes, the rich bastards believe the value of the investments made with our super payments are high enough for us to live off.

How do they know we shouldn’t panic? They don’t.

No one can confidently predict the consequences of the latest phase of the global financial crisis.

Governments in the United States and Europe saved the financial system in 2008-09 by taking on its debt. This merely shifted the problem — it became a sovereign (or government) debt crisis.

The current phase is a scramble to determine who will pay for this debt. The struggle is to push the debt on working people through savage austerity.

Italy is the latest country to impose brutal spending cuts. On August 13, Italian President Giorgio Napolitano signed into law an emergency decree for Italy’s second austerity package in a month — spending cuts worth €45.5 billion.

The cuts planned in the US are even bigger. The US Congress’ “debt ceiling” deal will bring US$2.1 trillion dollars in spending cuts over the next decade.

Such spending cuts run a very real risk of driving economies into recession. The SMH said on August 19: “The United States and euro zone are ‘dangerously close to recession’, Morgan Stanley said overnight.”

The capitalists are aware such policies risk recession. Their hope is that if ordinary people pay most of the debt the financial system might stabilise enough to create the conditions for fresh economic growth in the future.

I say “might”, because no one really knows exactly how much debt there still is in the financial sector or who holds what.

This uncertainty means markets are unlikely to stop yo-yoing any time soon.

Most economists present the turmoil as though it is a natural disaster, like a hurricane or flood. But these are the consequences of political decisions.

There was nothing inevitable about governments taking this response to the crisis. They chose to.

But Iceland shows they didn’t have to. In an April referendum, Iceland’s people voted for a second time — against government wishes — to refuse to pay debts worth $5.6 billion to Britain and the Netherlands caused by the collapse of the Icelandic bank Icesave.

The refusal of other governments to do the same as Iceland are political decisions to put the interests of the big banks ahead of their own people.

The argument goes that the markets are too powerful to resist — but the financial system is so weak it can survive only by having billions of dollars of public money pumped into it.

The markets dictate to governments because most governments are willing to let them.

The government and many economists insist Australia can stay out of the mess. But no one can say for sure.

A lot will depend on the continued strength of the Chinese economy, whose growth has helped fuel Australia’s mining boom.

But this is not guaranteed. It remains to be seen to what degree China can avoid being dragged into the economic problems in the West — especially if double-dip recessions occur.

The signs in other sectors of Australia’s economy are not great. Retail growth is slowing, housing prices are starting to fall and manufacturing is weak — the August 18 SMH pointed to slowing demand and growing job losses in the industry.

What we can say for sure is that if the Australian economy hits the rocks, our governments — Liberal or Labor — will seek to make us pay.

Already this month, the Liberal Party has backed retail industry demands for greater “flexibility” with its workforce — meaning worse wages and conditions.

Now might be a good time to take our future out of the hands of an out-of-control system.

You need Green Left, and we need you!

Green Left is funded by contributions from readers and supporters. Help us reach our funding target.

Make a One-off Donation or choose from one of our Monthly Donation options.

Become a supporter to get the digital edition for $5 per month or the print edition for $10 per month. One-time payment options are available.

You can also call 1800 634 206 to make a donation or to become a supporter. Thank you.