As the summer season reached its zenith in the northern hemisphere the global economic crisis that began in 2007 reached its seventh anniversary. Three announcements were made alongside this that show the crisis has not ended and the global economy has not recovered from the economic crisis. The three announcements were:
1. The European Central Bank (ECB) announced on 5 June 2014 that it was cutting its headline interest rate to 0.15%, and that it will impose negative interest rates of -0.1% on eurozone banks who place reserves in their accounts held by the ECB.
2. On June 16 2014 various US banks announced that America’s total debt has reached $60 trillion! America’s total debt includes government debt, business debt, mortgage debt and consumer debt. The US economy is worth only $16.7 trillion.
3. The US Commerce Department reported on 25 June 2014, that the US economy shrank 2.9 % in the first 3 months of 2014.
As the US has the world’s largest economy, the growing or shrinking of the US economy will have an impact on the global economy.
When the global economic crisis began in 2008 initially the US government proposed legislation for the government to purchase up to $700 billion of “troubled mortgage-related assets” from banks in the hope of improving confidence. This package was in reality a bailout and saved many banks from collapsing but had little impact on the wider economy.
When Obama came to power in January 2009 one of the first policies of his administration was the ‘stimulus plan’ to revive the economy. The cost of this initial recovery plan was $825 billion, the plan included expenditure on the health system, tax rebates and investment in renewable energy.
The US government then added Quantitative Easing (QE), to its strategy – this is printing more money. To date the $4 trillion has been printed.
After 7 years the US economy has still not recovered from the global economic crisis, despite some growth during this period, none of this has been sustained as every time the US economy grows it has failed to sustain this.
America’s economy is dominated by consumer spending and is heavily dependent on the American population’s spending. The collapse of the sub-prime market and then the whole real estate market in the US led to consumer spending to drop as many lost their homes, this drop in spending led to a fall in spending in America’s key sectors – wholesale trade and retail. As these are key engines for the US economy, the whole economy would have collapsed if the US government did not intervene.
In order for the American public to spend, they need earn wealth, the US like all capitalist nations suffers from a big wealth distribution problem. Statistics from US agencies show that just 5% of the US population owns 58% of the nation’s wealth, whilst 20% of the US population owns 80% of the nation’s wealth. This means the vast majority of America’s population does not share in America’s $16.7 trillion economy. This is why it is not surprising that there were 46.5 million people living in poverty or 15% of the US population in 2012.
The majority of America’s population borrows in order to spend and this explains why America’s total debt is $60 trillion. This debt includes mortgage debt – $13.2 trillion, consumer debt – $16.4 trillion, government debt – $17.5 trillion, as well as corporate debt – $13.1 trillion.
This shows that despite the US having the world’s largest economy, debt is what drives the US economy and most of the US population borrows to spend rather then spend what they earn as most of the country’s wealth is in the hands of the rich, who make up just a small proportion of the US population.
The growth the US has seen has been a result of stimulus and the US government printing money, these have had the temporary effect of making the economy grow but once this money works through the system the economy ends up in the same place it started. The US government has not addressed the issue that American’s are not spending. It bailed out the banks, it continues to print more money, but none of this has addressed the issue that American’s are not spending. As a Capitalist state the US focuses on production rather than distribution of wealth, as a result the wealth is in the hands of few rich and now the majority, who for years borrowed to spend have cut back on spending and this is why the US cannot get out of the economic crisis.
As for the European Union having negative interest rates this also shows the economic crisis in Europe has not finished. The reserves banks hold with the European central bank receive interest when they are placed there, with a negative interest rate the ECB will charge banks for keeping its reserves in their accounts. European governments pursued a policy of austerity, which is reducing the government’s debt through reducing government expenditure. By bailing out its banks it is relying upon them to stimulate the economy through lending. However due to the negative outlook in the economy banks are not lending and maintaining their reserves. Now the European central bank will charge them to maintain their reserves, this leaves banks with the option of either lending or investing their reserves.
All of this shows on the seventh anniversary of the global economic crisis, western governments have failed to resolve the crisis. The solutions they have applied only had the temporary effect of stopping the crisis temporarily, but not ending the crisis. That’s why every time the US economy and every other western economy grows, very quickly this stops and their economies begin to shrink again. The only way to stop this is through wealth being distributed across the populations, in the west but this will require Capitalist states to focus on wealth distribution and not just production.