The financial crisis and credit squeeze is beginning to have deeper economic and social consequences for working people worldwide despite the injection of hundreds of billions of dollars into the banking system by Washington and imperialist governments in Europe.
“U.S. industrial activity is falling at the fastest pace in decades,” noted Investor’s Business Daily October 16, “adding to evidence that the credit crunch is causing the economy to reverse faster than expected.”
Nationwide production at factories, mines, and utilities declined 2.8 percent in September, the largest monthly drop since December 1974, according to the Federal Reserve.
These figures reflect rising layoffs and plant closures as workers face what could become the deepest recession in decades. General Motors is closing its SUV plant in Janesville, Wisconsin, on December 23, laying off 1,200 members of the United Auto Workers. The company also announced that a stamping plant near Grand Rapids, Michigan, employing some 1,500 workers, will shut its doors at the end of 2009. Daimler AG, the world’s largest maker of heavy vehicles, said October 14 it is closing plants in Oregon and in Ontario, Canada, eliminating 3,500 jobs. Alcoa, the largest U.S. aluminum company, is shutting its smelter in Rockdale, Texas, cutting 660 jobs by early December.
Retail sales decline
U.S. retail sales have declined for three months in a row, the first time this has happened since 1992, when records began being kept. In September sales were down 1.2 percent, which included a decline of nearly 4 percent in sales of cars and auto parts and 2.3 percent in clothing and furniture purchases. Linen ‘n Things, once the second largest U.S. home furnishings chain and now in bankruptcy, is conducting liquidation sales at its 371 stores. Circuit City, the nation’s second largest electronics retailer, said as an alternative to bankruptcy it may close at least 150 stores, cutting thousands of jobs.
Construction of new homes and apartments dropped to an annual rate of 817,000 in September, the Commerce Department reported October 17. Excluding January 1991, housing starts have never been lower since records began in 1959.
Officials of the Los Angeles County Metropolitan Transportation Agency have said that the transit system there faces major cutbacks because funds it borrowed from American International Group to lease trains and buses are no longer available. The giant insurance company nearly collapsed in September and Washington bailed it out with nearly $123 billion. Transit agencies in San Francisco, Chicago, and Washington, D.C., face similar problems, reported USA Today.
Meanwhile, the U.S. budget deficit for the just-ended 2008 fiscal year rose to $455 billion. The Congressional Budget Office estimates that for the current fiscal year this will rise more than 50 percent to about $700 billion.
Banks may sit on bailout funds
Sinking hundreds of billions of dollars by the capitalist rulers into the banking system with the aim of unlocking the credit freeze has had little effect. Banks receiving this money are under no obligation to lend it. “It’s clear that the government would like us to use the capital,” said Jamie Dimon, chief executive of JPMorgan Chase, according to the New York Times. “If you are a bank that is filling a hole, you obviously can’t do that.”
Since mid-2007 the nine largest U.S. commercial banks have written off $323 billion in “troubled assets.” This wipes out their combined reported profit of $305 billion since 2004. “Banks may sit on the capital,” noted the October 17 International Herald-Tribune. “Some analysts say the banks may use it to acquire weaker competitors.”
The most devastating impact of the financial crisis is on the semicolonial countries, where toilers have faced depression conditions for years. With weakening currencies, the massive debts owed to banks in imperialist centers become all the more unpayable. Declining prices of exported commodities and raw materials compound the problem. Since August 4 the Mexican peso has sunk 20 percent to an all-time low against the dollar. The Brazilian real has dropped 26 percent over this time period. South Korea’s currency, the won, is down 30 percent against the dollar this year.
Banks that have invested in stocks, bonds, and other paper products on the so-called emerging markets for much higher return rates have massively withdrawn these funds. “More than $1.3 trillion in value has been wiped off emerging market stocks this year in cities such as Moscow, Sao Paulo, Jakarta and Osaka,” stated the Washington Post. The global credit crisis has also led the governments of Hungary and Ukraine to seek outside help to bail out their banks. The European Central Bank is providing Budapest with $6.4 billion. Kiev is requesting $14 billion from the International Monetary Fund.
http://www.themilitant.com/2008/7243/724303.html
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