FTSE 100 falls 7% despite banks’ intervention

The coronavirus pandemic has triggered a contagious crash in the world’s stock and money markets already inflated and distorted by cheap credit intended for but not directed into new investment. In other words, they were ready to blow.

A global recession now appears inevitable as production dependent on global supply lines comes to a grinding halt in sector after sector while much of the workforce is in enforced self-isolation or off sick with the virus.

Transport and hospitality are foremost among the many industries whose workers are being let go, to join the multiple millions in precarious non-jobs suddenly without any form of income as economic activity shudders to a halt.

With profitability slowing and falling over the long term, investment in new capital becomes unattractive which is why productivity declines. Short term employment of workers on low wages without contracts or any kind of benefits offers the best option for profits and dividends.

The UK government tries to buck the trend, citing “credible scientists” who oppose cancellation of mass gatherings in favour of “herd immunity”. But who can trust the word of a chief scientific adviser who worked for corporate drug giant GSK from 2006 to 2017, its president of R&D from 2012?

The coronavirus shock coincides with a high point in the global debt crisis which has simply changed form since the 2008 crash. According to the Institute of International Finance, the ratio of global debt to gross domestic product (the value of annual output) reached a record high of 322% in the third quarter of 2019. Total debt? $253 trillion.

Much of the growth is in the “old economy” corporate rather than in the financial sector, as John Plender explained in the Financial Times.

“Much of this debt has financed mergers and acquisitions and stock buybacks. Executives have a powerful incentive to engage in buybacks despite very full valuations in the equity market because they boost earnings per share by shrinking the company’s equity capital and thus inflate performance related pay. Yet this financial engineering is a recipe for systematically weakening corporate balance sheets.”

Plender concluded: “Against such a background, the conclusion has to be that of the late Herb Stein, the American economist who remarked that if something can’t go on for ever, then it will stop. When coronavirus is long gone, that will be when systemic trouble starts.”

Meanwhile, governments around the world are frantically trying to minimise the impact of life-saving measures on the prospects of an early return to profit-making. But trillions more being dumped into the credit markets in the midst of the pandemic can’t be expected to offer any new incentives for investment. Capitalist production, its markets and its financial networks are in crisis for the long-term.

At best, the current pandemic is a dress rehearsal for the novel viruses sure to follow. And the threat they pose is small in relation to the universal, irreversible impact of climate change on the global ecology already compromised by a century and a half of exploitation of people and planet.

People may be physically isolated, but we can use the time and connected technology creatively to reinvent networks of social support and forge new, democratic global alliances. Their purpose? To work together on proposals and strategies to replace our old, decrepit, non-functioning, incompetent, anti-democratic political and economic system as soon as possible.