Political spells behind financial folly: the deceptive "green shoots" of the world economy. Why the recovery will not be immediate

Political spells behind financial folly: the deceptive

By Laurent Cordonnier

Between big scares and small reliefs, the world economy rattles in the middle of the ford, unable to cross the choppy waters of the crisis to get into safe ground. As if nothing had happened, capitalism resumes its crazy race.

Although the economic and financial crisis, which has taken a spectacular turn since the autumn of 2008, does not finish spreading its damages, in the spring of 2009 all imaginable spells have been pronounced to achieve the rapid return of the loved one: the increase. No sign of destiny has been neglected: the (precarious) shaking of the stock indices; the (hesitant) rise in the price of raw materials and fossil fuels; the slowdown in the destruction of jobs in the United States and the encouraging growth forecasts of the Federal Reserve; the update (+0.1 point!) of the Bank of France's forecasts for the country's Gross Domestic Product (GDP) in 2009; the improved outlook for world growth in 2010 from the International Monetary Fund (IMF); the rebound in industrial production in Germany in May; the "slightly beneficial" result of the Société Générale in the second half of 2009 • and the good earnings of the Goldman Sachs Investment Bank in the second quarter; advance payment of federal aid by US banks, etc.

Without wanting to insist on the indecency of these predictions, it is worth asking if the light that they announce at the end of the tunnel is not, tragically, the light of a train coming in the opposite direction ... But, even when the most optimistic scenarios are realized ( 1), unemployment will continue to grow throughout 2009 and 2010, precisely because of the weakness of the reactivation that is expected. The euro zone could have an official unemployment rate of 11.5% during 2010 (against 7.5% at the beginning of 2008). In France alone, where nearly 180,000 jobs disappeared in the last quarter of 2008 (2), the Unedic (body that administers unemployment insurance paid to the unemployed) foresees 591,000 job cuts in 2009. In the United States, where Already 7 million people have lost their jobs, the terrifying rate of 600,000 monthly job losses during the first half of 2009 raises fears by the end of this year an unemployment rate of 10%, which would last throughout 2010.

In summary, according to the International Labor Organization (ILO), it could well happen that the economic and financial crisis leaves us with a figure that ranges between 39 and 59 million additional unemployed people in the world, and with an additional 200 million workers who will have to get used to living on less than two dollars a day. It will not be the prospects for soft growth, announced by all the social security institutes, which will make it possible to quickly erase this problem.

If these perspectives were to be realized (because one would have to be very reckless to affirm that any catastrophic rebound from the crisis can be excluded), there will undoubtedly be delayed effect bombs of which we do not know the length of the fuse, nor the explosive charge. The deterioration of the economic situation, by causing a significant increase in non-payment of credits (by households and companies) could well, for example, fuel a second round of financial setbacks for banks, which should expect in 2009, according to the European Central Bank, new losses of the order of 283,000 million euros. We won't wonder if they can bear it… since they know they can count on the generosity of the public sector.

At this stage of the crisis, the risk of a collapse in government securities cannot be excluded either (see glossary), which could come from a growing distrust of “investors” regarding these public debt securities (in reality, a mistrust of the "rentistas", who are the ones who place their savings by buying these securities, which is precisely the opposite of an investment expense). Fearing, with or without reason, that the astronomical amounts that States will have to borrow in 2009 and 2010 to finance their deficits could lead to an increase in interest rates, and with this expectation, at the same time fearing an increase in the non-payment by the States, rentiers could be increasingly reluctant to have public obligations.

The fall in the prices of the bonds that would follow (and that would be equivalent to a rise in interest rates) would strangle the States, by increasing the interest burden, precisely when their debt grows strongly. Unless politicians rediscover the virtues of the tax, or the monetary authorities agree to refinance public debts at almost zero rates, the exit will be made, as always, at the bottom: through net cuts in public services and programs social (3). Which, in turn, will not stimulate a hypothetical reactivation of demand ...

All this corresponds to the order of the predictable. But where are the other bombs? In the announced bankruptcy of the state of California, whose budget is constrained by the obligation to gather a parliamentary majority of two-thirds (something impossible) to approve any increase in rates or taxes, and which has begun to pay its suppliers with its own debt acknowledgments? In the impending debacle of the pension funds of New Jersey, California, Illinois officials, unduly underpriced and looted for two decades by political leaders unable to collect taxes, and then fired by the 2008 stock market crash, which made you lose 30% of the value of your assets (4)? Or in the house of cards of the almost 500 billion dollars of contracts established around derivative products (intended to cover, in principle, exchange risks, interest rates or non-payment) that are exchanged between the companies? financial institutions in unorganized over-the-counter markets? Its collapse, in the event of a new earthquake, could cause new losses close to 3.5 trillion dollars (5), almost the amount of financial losses due to the subprime crisis (without paying much attention to the figures after from the comma) (6).

We would like to reassure ourselves that the United States and Europe are in the process of trying to regulate the markets, creating or merging supervisory and regulatory authorities, and providing compensation mechanisms. But these are, in part, the institutions that failed to prevent the subprime crisis, and neither are scandals like Enron, WorldCom, or Madoff. The Securities and Exchange Commission (SEC), the "gendarme" of the US stock market, carried out three investigations, in 1992, 2005 and 2007, into the dubious practices of Bernard Madoff (7), all of them unsuccessful. This noble institution, which until now was said to have been a regulatory and supervisory model, had sometimes resorted to the services of the former Nasdaq president ... for his expertise in organizing the markets. And as always in the case of failures, the SEC's financial and personnel resources were increased (8), suggesting that Shadock's maxim applies here even better than in other areas: " The more you fail, the more likely you are to succeed in the future! "

This inconsistency is the by-product of another, which is the mainstay of the liberal doctrine: "Let us authorize barbecue in places full of vegetation, and also plan to increase the number of fire stations!" Because nothing has to be done to stop financial innovation, from which the planet still expects so many miracles. This is what Ben Bernanke, president of the US Federal Reserve, recalled, fearing that the US Congress would give free rein to its well-known regulatory inclination: "We must not try to impose restrictions on credit providers so heavy that they prevent the development of new products and services in the future. " With what advantages, one may ask? Because “financial innovation has improved access to credit, reduced costs and increased options” (9). This was just eight months after the outbreak of the crisis. How can you not fear time bombs, when the pyrotechnics are still in place?

Even without giving in to paranoia, serious doubts can be raised as to the ability of the "advanced" capitalist economies to recover in the near future. Indeed, there are still a certain number of macroeconomic restrictions that have not been overcome during the crisis, far from that; restrictions so solid that they should give up the term "conjunctural" with which they are so frequently disguised.

The levels of public debt, which are certainly still far from reaching the historical record registered after the Second World War, could, according to the IMF, approach or exceed 90% of GDP in 2014 in some countries, such as the United States, the United Kingdom , France, Belgium, –and even more than 200% in Japan–, under the combined effect of the reduction in tax collection, as a consequence of the recession, the repeated policies of reducing taxes, and the slowdown in inflation. Household indebtedness, which for twenty years functioned as a substitute for the (frozen) increase in wages in the formation of demand for consumer goods, also reaches very high levels.

Public spending and household consumption, these two essential pillars for building global demand in the economy, will therefore not be too strong in the coming years. As for external demand, regularly hampered by an overvalued currency (at least in the euro zone), it functions as a mechanical brake from the moment the slightest prospect of recovery is outlined, due to the increasing volatility of the prices of raw materials of energy.

Due to the decrease in easily accessible reserves, reinforced by almost rent-seeking investment policies in the exploration, extraction and refining of fossil fuels, and because in recent years speculation has been launched on these types of markets, the The energy bill will explode even before the hopes of recovery on which these speculations are based are realized.

However, the income spent abroad to import the precious liquid is not offset, in the short term, by a demand in the opposite direction from producing countries, directed at companies in consuming countries. The International Energy Agency (IEA) estimated in 2004 that a lasting increase in the price of a barrel of oil from 25 to 35 dollars could generate a decrease of 0.4 points of growth in member countries (and 0.45 in Europe) (10). What to say when the price of a barrel goes back from 60 to 150 dollars ... and when a 0.4 point of GDP represents more or less the expected effect of the French recovery plan?

The same question applies to the gigantic trade surpluses that China maintains with the United States and Europe. At this point, the problem is not that the United States sucks the savings of the rest of the world to finance its impressive deficits: the problem is that the Chinese over-save. This phenomenon stems, in part, from the structurally high household saving rate, but more surely, in the last six or seven years, during which the Chinese trade surplus has multiplied by three (from 3% to 10% of its GDP), of the gigantic super-profits used by industrial firms established in China and aimed at the export or substitution of past imports. The capture that these firms operated in world demand increased the profits of the industrial sector, which in turn raised the gross savings rate of the companies by 7 points, since the beginning of the 2000s.

These saved earnings, and this surplus saving of Chinese households, create, by their non-return to world demand, the trade deficits that they then are happy to finance. This game produces in world demand, in the face of each attempt at economic recovery, a hole of 168,000 million euros in Europe and 268,000 million in the United States (11).

We already have difficulties in ordering the macroeconomic restrictions that we have indicated in the category of "conjunctural" problems, given their structuring role in the malformations of effective demand worldwide. What can we say, then, of the factors that for more than a quarter of a century shaped a kind of depression economy - returning to the terms of the Nobel Prize in Economics Paul Krugman - stumbling and stumbling under the weight of liberal globalization and the dominance of finance over business and labor? The term "structural" seems very weak to designate the very nature of the capital accumulation regime that was implemented with the turn of the Reagan and Thatcher years, and whose strong point, at least in the large countries, was not dynamism in terms of capital accumulation ... not to mention its true "strengths" (social inequalities, mistreatment of employees, irreversible damage to the environment). But everything leads us to believe, until now, that the pillars of this accumulation regime are still standing, and that they will continue to drag growth (and the rest) down.

The key to the financial accumulation regime was, and continues to be, the restoration of shareholder power over large publicly traded firms. This return of the shareholders, which was operated in favor of the rehabilitation of financial markets in the 1980s, was not made in the face of the kind face of Carpentras's widow (in the language of the stockbrokers, the mythical character of the "Widow of Carpentras" is the incarnation of the small holders of shares. This lady, at the beginning of the century, attended the general meetings of shareholders for the masitas they offered), but through an increase in power of the large funds of collective savings, which came to own, since the turn of the century, more than 50% of the shares of listed companies. These collective placement agencies (mutual funds, pension funds, insurance companies) compete to drain savings from the better-off categories of the population. Their decisions to place them on the stock market and their participation in the "governing" bodies of the companies made them a true police of the stock markets, thus sanctioning companies that had not put shareholders at the center of their policy , and rewarding those who managed to achieve the famous 15% or 20% profit on their own funds (12).

It goes without saying that these exorbitant demands were not favorable for either investment or consumption. On the one hand, they led companies to drastically reduce their investments, undertaking only those projects capable of corresponding to this new financial standard; and on the other, they exerted considerable pressure on the evolution of wages and employment, blocking the consumption of wage earners.

As a result, the pillars of domestic demand were stunted in most developed countries, and "Western" firms went elsewhere to look for new Eldorados. It is clear that we do not maintain that this unfortunate dynamics of global demand is in the process of being reversed thanks to the self-redemptive virtues of a crisis that, suddenly, would see an economy subjected to shareholder income transform into a capitalism of committed actors, who re-socialize the company for the happiness of its workers, its consumers, the territories that host it and nature.

The same should be said with regard to the systematic liberalization of international exchanges of goods and capital, which has been carried out for twenty years under the aegis of the General Agreement on Customs Tariffs and Trade (GATT), and later, of the World Organization. of Commerce (WTO). The putting into competition of all the productions, investment projects and workers of the planet has turned the labor force of developing countries into a formidable reserve army that permanently pushes wages down (13) .

It is not seen, neither there, what would be able to change the trend in the short term. For the moment, with the recession, the risk would rather be that this constant pressure on wages precipitates a wage deflation, which is no longer a distant hypothesis, especially in the United States, where weekly wages have begun to fall due to the erosion of the bargaining power of workers and by the sudden reduction of their working time. In Europe, with the construction of a "unified economic space" which lacks so much "a space" (a policy that establishes rules for foreign exchanges and an exchange policy), "an economy" (a minimum tax pressure rate for societies and a basic salary adapted to each country) and "a unit" (by means of transfers that compensate for development inequalities), wage dumping policies still have many days to go.

Finally, we should not hesitate to place, among the structural factors that contributed to shaping this economy of depression, the dominant thought in economics for a good quarter of a century, a thought that has constantly neglected the demand to focus on the problems that It would cause a supply brake: too high wage costs, rigidities in the labor market, confiscatory tax pressure on capital, bureaucracy, indolence of workers to look for work, etc. By only betting on the development of ‘long-term potential growth, these experts did not stop imposing so-called structural policies, aimed at encouraging the availability of labor, human capital, technical progress ...

It does not mean giving too much importance to academic ideas to say that they have their share of responsibility in the current crisis, even if it is a responsibility they always wanted to share with others. As Krugman recalls: "The corpus of hollow ideas that pretended to be called 'supply-side economics' is an eccentric doctrine that would have had little influence had it not resorted to the biases of newsrooms and rich men ( 14) ". Once the Keynesian exuberances of this carnival period are over, we can fear that the eccentric will become a "trend." As testimony, the unwavering president of the European Central Bank, Jean-Claude Trichet, when he returns to the sources of his inspiration to find there the great orientations of macroeconomic policy once the carnival is over: "Regarding structural policies Efforts to sustain potential growth in the euro zone should be intensified more and more. (…) In particular, product market reforms are necessary to encourage competition and accelerate restructuring and productivity growth. , the reform of the labor markets should facilitate an appropriate process of wage setting and the mobility of labor between sectors and regions. At the same time, numerous measures adopted in recent months to support some compartments of the The economy should be phased out progressively and at the right times It is essential that the accent is now put on the effort of the adjustment capacity and flexibility of the euro zone economy, in accordance with the principle of an open economy, in a regime of free competition (15).

The light at the end of the tunnel…

Laurent Cordonnier, economist, professor at the University of Lille I. Author of the book “Pas de pitié pour les gueux”, Raisons d'agir, Paris, 2000. Article published in Le Monde Diplomatique - Southern Cone Edition, Buenos Aires, September 2009 - Translation by Lucía Vera. / Press Correspondence - Solidarity Information Bulletin.


Collapse of public titles. A brutal fall in public debt securities (the bonds issued by the Treasury to finance public debt) in the secondary market for these securities.

Increase in interest rates. The fall in the price of bonds is equivalent to an increase in public debt interest rates. It may happen, for example, that an obligation offering 30 euros to savers who have loaned 1,000 euros to the State may fall into the secondary market (the resale market) during a collapse in government securities. If the price of these obligations falls to 500 euros, that ipso tactically means that the relationship between the interest received by the lenders (interest paid by the State to the holders of the title) and the price of the obligations improves ... from the point of view of the new carriers. The interest rate would then go from 3% to 6%. But the state can only find a borrower for its new bond issues if it offers new lenders that higher rate of interest.

Refinancing of public debt. Unless they are prohibited by the regulations (as in the case of the European Central Bank), central banks can be directly acquirers of public debt securities, paying them with issuance of their own currency (in which case there is monetary creation ). These purchases are normally made on the secondary bond market. The central bank, by behaving as a demander in that market, supports (in principle) the price of the bonds ... and with that same relaxes the interest rate.

Derivative products. These are all types of contracts that can be imagined, carried out between economic agents, based on existing securities or securities (shares, bonds, currencies, including indices ...). In principle they can be used to hedge some types of risks (price fluctuations, interest rates, exchange rates), but in practice they are the financial field that speculation chooses.

Overvalued currency. When one currency appreciates relative to another, it becomes more difficult for exporters in the area involved (in this case, the members of the euro area) to sell their products to other countries (in this case the United States or China) because those products are ipso more expensive in the target countries. From a macroeconomic point of view, it can almost be said that when the balance of foreign trade continually degrades, it is because the currency is overvalued.


1) Scenarios such as the return of world growth in the second half of 2010, according to the IMF and the US Federal Reserve; and since the beginning of 2010 According to the Organization for Economic Cooperation and Development (OECD).

2) Informations Rapides, National Institute of Statistics and Economic Studies (INSEE), France, 15–5–09.

3) As the OECD already advises, without fear of contradicting itself, in its note on the United States: "When the recovery has been confirmed, it will be advisable to restore the viability of public finances, reducing budget deficits and attacking (the word seems convenient, N . de la R.) the problem of the growth of social spending ". Perspectives Economiques de L’OECD, No. 85, June 2009.

4) See "The public pension bomb," Fortune Magazine, 12–5–09.

5) According to Darrel Duffie, Stanford professor, quoted by Le Monde, 16–5–09.

6) The IMF estimates at 4,000 million dollars the losses that economic agents had to record in their accounts since the beginning of the crisis, of which two thirds correspond to the banks; "Perspectives de L’économie mondiale", IMF, April 2009.

7) See Ibrahim Warde, "The talent of Mister Madoff", Le Monde Diplomatique, Southern Cone edition, August 2009

8) The Securities and Exchange Commission has more than 3,500 employees and a budget of close to $ 1 billion. See Les échos, May 16 and 17, 2009

9) Le Figaro, 18 / 19–4–09

10) "Analysis of the Impact of High Oil Prices on the Global Economy". International Energy Agency, May 2004

11) Figures for the year 2008 from the Census Bureau for the United States and Eurostat for the 27 countries that make up the European Union

12) See Isabelle Pivert, "The dictatorship of the shareholders", Le Monde diplomatique, ed. Southern Cone, Buenos Aires, March 2009

13) See Jacques Sapir, "Totems and taboos", Le Monde Diplomatique, ed. Southern Cone, Buenos Aires, March 2009

14) Paul Krugman, Pourquoi les crises reviennent toujours, Seuil, Paris, 2000

15) 2–7–09 press conference, ECB