What a week it has been for the global financial and economic system. Capitalism’s latest crisis which has been running since August 2007 is rapidly tuning into a global whirlwind that is on the brink of becoming its’ second great depression.

Europe

At the end of last week several Russian banks indicated they would have difficulty in paying back some or all of 400 billion Euros of loans to European banks – mainly German, Swiss and Austrian. These were loans that had been made – wait for it – on property schemes. As the value of property collapses in Eastern Europe and Russia so these loans turn into bad debts. This crisis then spread to the Baltic states of Lithuania, Latvia and Estonia where these countries banks had taken out similar loans. It has already brought down the Latvian government and a European and International Monetary Fund (IMF) bailout of these countries is on the cards. This will be problematic for Lithuania in particular as the size of the bad debt and bail out needed is larger than what they can technically take out of the IMF rescue fund.
In addition the European Union may have to bail out the weak economies of Italy, Portugal, Spain and Greece as these economies slip towards bankruptcy. The likely increased levels of bail outs for European banks and the money needed to save the southern European countries has weakened the Euro. Stock markets across Europe have also fallen sharply particularly in Germany. The German government passed legislation on Wednesday of this week to allow them to nationalise the German banking industry in preparation for the banking crisis deepening in Europe.

On top of this is the likely collapse of General Motors subsidiaries in Europe – SAAB and Opal – which the parent company looks set to let to go to the wall as it grapples with its own fight against bankruptcy in the United States.

Japan

Japanese Gross Domestic Product (GDP) came in for the last quarter of 2008 showing the worst decline since the end of the Second World War.  GDP declined by over 12% on annualised basis. This reflects Japan’s dependence on exports which have fallen rapidly as its major customers’ economies slowed down. This was bad news for the rest of the Far East which is heavily dependent on exports – especially China. Far Eastern stock markets fell sharply all week as the outlook for this region looks very bleak.

UK

Lloyds TSB/HBOS rumbled into Monday with Darling not ruling out full nationalisation on Friday only to rule it out on Sunday. But the realty is it is here which was brought home when the office of national statistics added £1.5 trillion to the public debt to cover Lloyds/TSB/HBOS and RBS’s liabilities. We own the shares in these banks and are liable for their debt. The only thing we don’t do is control the banks themselves. It was laughable that Lloyds was trying to portray itself as the Captain Mainwaring of banks. This is the bank that owns Scottish Widows and tried to stuff Scottish Widow’s clients with all its toxic debt at the end of 2007.

The outlook continues to look bleak for the banks in the UK for as well as the continuing deteriorating corporate loans the housing market continues to decline. The year on year decline for February was 12%. Repossessions were up to 45,000 for England and Wales in 2008 and are forecast to at least double in 2009.

The final whammy came on Friday when UNITE claimed a UK factory was about to close with the loss of 6,000 jobs unless the government came up with a bail out. It not hard to guess it is the Vauxhall plant at Elsmere port. Vauxhall is owned by General Motors who are on the edge of bankruptcy in the US. They need another $14 billion from the US government and have already pulled the plug on their Saab in Sweden and look to do the same in Germany with Opal. In both cases asking for government help or face closure.

To underline the seriousness of the overall situation a director of the Bank of England stated at a talk at the London School of Economics on Thursday night that the bank and the government were fighting a furious battle to stop the UK going into a ten year depression

USA

Finally in the USA the Dow Jones at one point on Friday reached its lowest level since 1997. The markets did not like the Obama rescue plan thinking it was too vague. A lot of the money is going to help the pauperisation of millions of Americans – extra unemployment benefit and reduced medical insurance premiums. Some of the money is going to help fund projects in near bankrupt states where these projects have come to halt. So the amount of money that is going to create new jobs is smaller than the headline PR figure.

The spectre of bank nationalisation raised its head too. Citicorp and Bank of America, who have been hit by toxic decling assets from the takeover of Merrill Lynch, are rumoured to teetering on the edge with the government prepared to step in and nationalise to rescue them.

Finally Anglo American the transnational commodity miner reported huge declines in profits for 2008 reflecting the falling demand from manufacturing globally but mainly from the US. They are laying off 19,000 workers mainly in South Africa.

So there you have another week of turmoil in the global financial and economic system as veers towards a great depression.