Signs of potential turmoil in global financial system

Nick Beams

Financial markets appear to have been enjoying a period of relative calm in the past year since they were shaken by the failure of three significant US banks in March 2023, requiring rescue operations by financial authorities.

But there are signs of turmoil building up beneath the surface. They centre on continuing possible liquidity problems in the $26 trillion US Treasury market, the basis of the global financial system, signs of currency divergences and concerns over the growing role of private credit in the financial system.

Last week a tremor went through the Treasury market when there was what was characterised as a “shaky auction” for $44 billion worth of seven-year US Treasury notes. The shortage of buyers mean that the big banks, which are crucial to the operation of their market as primary dealers, had to make up for the shortfall and purchase 17 percent of the debt, somewhat higher than the norm.

This followed an auction the previous day when there was subdued demand in an auction of two- and five-year debt.

The lack of demand, sending the price of debt lower, meant that the interest rate on the 10-year bond (the two move in the opposite direction), went to 4.63 percent, higher than it has been in some weeks.

The immediate cause is the realisation that the Federal Reserve is not going to make significant cuts in interest rates in the near future. At the start of this year, markets were pricing in as many as six rate cuts by the Fed in 2024. Now there are predictions there may not even be one.

The longer-term issue is the amount of debt which must be issued to finance the ever-growing US government deficits.

Back in March, in an interview with the Financial Times (FT), the director of the Congressional Budget Office, Phillip Swagel, sounded the alarm on US debt saying it was on an “unprecedented” trajectory. He pointed to the Liz Truss experience of September 2022 when a proposal for unfunded major tax cuts by her government sent UK bond markets into a crisis requiring intervention by the Bank of England.

US government debt is now almost the equivalent of 100 percent of GDP, coming in at more than $33 trillion, and is set to accelerate in coming years. Payments of interest have reached 3.3 percent of GDP, the highest level since 1940 following the Great Depression.

Speaking to the FT, Ronald Temple, a market strategist at the financial firm Lazard, said the fiscal situation was his “single biggest concern for the US economy” and that it would continue.

“I don’t see it as a Liz Truss moment,” he said, but warned that a gradual build-up of problems can lead to a crisis.

“It’s more of a frog in a boiling pot. That to me is why the market should be cringing every time we see these auctions. Auctions should be on everyone’s calendar as a risk factor.”

Treasury officials and leading financiers are still haunted by the experience of March 2020 when the US Treasury market froze for several days at the start of the pandemic when no buyers were to be found for US debt and the Fed had to step in to support virtually all financial markets to the tune of $4 trillion.

The US debt market is highly dependent on foreign capital inflows, with Japan, China and the UK the main foreign holders of debt. The most significant move in this area has been the decline in Chinese holdings. From more than $1 trillion, they have declined to just under $800 billion, after a 40 percent reduction in the past year, and are now sitting at a 14-year low.

Currency markets are also giving cause for concern. The rise of the US dollar relative to other currencies, due to the higher interest rates in the US, is putting downward pressure on other currencies, in particular the Japanese yen and the Chinese renminbi, also known as the yuan.

It is estimated that last month Japan spent $62 billion to support the yen, which has fallen to a 34-year low against the US dollar.

The Bank of Japan has ended its policy of so-called yield curve control, under which it suppressed the interest rate on bonds, and has signaled that it wants to start to lift rates and return to a more normal policy.

The intervention in May arrested the slide of the yen but it is not a long-term solution because, as UBS economist Masamichi Adachi noted, the yen will not move higher “unless investors think that interest rates will seriously begin to rise.”

But Japanese financial authorities are in a dilemma because a rise in rates will further slow the economy, already described as “sluggish” because of low consumption spending.

The position of the renminbi is also coming in for attention. Last week it fell to a six-month low against the US dollar with indications that state-owned Chinese banks were intervening to prevent a further slide. At this stage it appears that Chinese authorities want to prevent a devaluation.

But the divergence between interest rates in the US and China is continuing to exert downward pressure.

An article in the South China Morning Post last month was headlined, “Is another Asian currency crisis coming? Keep an eye on China’s yuan.”

It said a bigger danger than a “collapsing yen” was “the possibility that an economically beleaguered China could be pushed into a devaluation of the yuan.”

In an article last week, the FT reported that market pressure was increasing on the People’s Bank of China (PBoC) to allow the renminbi to weaken because of the divergence of interest rates, with the yield on US 10-year bonds at 4.57 percent compared with 2.3 percent on their Chinese equivalent.

At present the PBoC is holding the line on the currency, no doubt recalling the turmoil that followed a devaluation in 2015.

A fall in the value of the renminbi would impact on other countries, especially in Asia, which depend on the Chinese market, and could lead to stepped up action from the US, which has already accused China of dumping cheap products on the US and world markets. A devaluation would further lower the price of Chinese goods in the US and other markets.

But a one-off devaluation is a possibility because, as one Shanghai-based currency trader told the FT, there was “enormous downward pressure that has built up over the past few months.”

Another potential source of instability, already pointed out by the International Monetary Fund and other financial institutions, is the growth of private credit funding.

Last week Jamie Dimon, the head of JPMorgan Chase, warned “there could be hell to pay” because of problems in this area.

He said some of the fund providers were “brilliant” but others were not and problems were often caused by the “not good” ones.

In a reference to the situation which developed in the lead-up to the global financial crisis of 2008, when highly risky products in the sub-prime mortgage markets were given top marks by credit rating agencies, he pointed to the emergence of similar issues today.

“I’ve seen a couple of these deals that were rated by a ratings agency, and I have to confess it shocked me what they got rated. It reminds me a little bit of mortgages.”

Germany’s housing market crisis intensifies: Exploding rents, evictions, homelessness

Tino Jacobson

The state of Germany’s housing market is becoming increasingly catastrophic. Millions of households are struggling with exploding rents, while property sharks skim off record returns. Evictions and homelessness are on the rise due to the deliberate lack of affordable housing and social housing.

Protest against Deutsche Wohnen [Photo by Uwe Hicksch / CC BY-NC-SA 2.0]

This trend is particularly glaring in the German capital. The Housing Market Report 2024 published by Berlin Hyp AG and estate agent CBRE shows that rents have recently risen sharply throughout Berlin. The average basic rent was €13.60 per square metre in 2023, an increase of 19 percent on the previous year. A year earlier, the average basic rent was still €11.43 per square metre. The most expensive flats are in the Friedrichshain-Kreuzberg district at €17.86, while even the cheapest in Marzahn-Hellersdorf now average €10.81 per square metre. There were particularly drastic increases during this period in the districts of Neukölln and Friedrichshain-Kreuzberg, at €23.5 and €23.2 percent respectively.

An analysis by property provider ImmoScout24 confirms this explosion in rents. At the end of 2022, the average price per square metre in Berlin was €12.05, rising by 18.7 percent to €14.30 one year later. Lukas Siebenkotten, president of the German Tenants’ Association, aptly summarises the current housing situation: “Too few flats are being built, and the ones that are being built are not aimed at those who need them most urgently.” He goes on to explain that “everything legal is being utilised in terms of rent increases.” As a result, households are forced to spend an ever larger proportion of their income on rental costs.

Students in particular are severely affected by the lack of affordable housing. “This also has an impact on the choice of where to study. The decision is reduced to where you can afford to study,” emphasised Beate Schücking, president of the German Student Union.

The poorest layers are affected by a blatant lack of social housing. Over the last 35 years, the number of social housing units has fallen from 1.8 million in 1989 to 1.08 million today. The study by the Arbeitsgemeinschaft für zeitgemäßes Bauen (ARGE) shows that around 800,000 flats costing up to €10 per square metre rent are needed in Germany. The PESTEL study commissioned by the “Social Housing” alliance assumes a deficit of 912,000 social housing units.

When the coalition government of the Social Democratic Party (SPD), the Greens and the Free Democratic Party (FDP) took office, it announced that it would build 400,000 flats per year, at least 100,000 of which would be social housing. Last year, just 300,000 flats were built, 25,000 of which were social housing. The federal government officially spends just €2.5 billion on the construction of social housing, a sum which is downright ridiculous in view of the massive funds spent on internal and external rearmament.

The lack of affordable housing and exploding rents are resulting in an increasing number of evictions. Last year, evictions in Berlin rose by 22.7 percent compared to 2022. There were 1,931 evictions in 2022 and 2,369 a year later. The main cause of evictions is rent debt, which results in the landlord cancelling the tenancy agreement.

As a result, the number of homeless people is rising continuously. According to the Bundesarbeitsgemeinschaft Wohnungslosenhilfe (BAGW), around 607,000 people were homeless in Germany in 2022. A further sharp increase is expected this year.

Rbb24 news recently reported on a dramatic case that is by no means an isolated incident. Manfred Moslehner, 84 years old, is currently facing eviction in the Berlin district of Reinickendorf. For the time being, he is allowed to stay in the house where he was born. The owner of his house, Am Steinberg Entwicklungsgesellschaft (development company), wants to modernise the building, which Manfred Moslehner has been trying to prevent for years. As a result, the owner has cancelled the tenancy. The district court in Wedding recently confirmed the cancellation—all because the tenant is standing in the way of the profit line of the owner, who is being allowed to drastically increase the rent with a modernisation.

In order for Moslehner to be allowed to continue living in his flat for the time being, he had to deposit €4,300 as security with the district court, which could only be achieved through donations. The current tenancy agreement from 1978 stipulates a basic rent of €400. His monthly pension is just €1,000, but the modernisation would allow the owner to demand a monthly rent of €1,300. Manfred Moslehner explains his current situation: “I’m in a bad way, I feel at the end of my tether. I can hardly sleep at night and when I do, I have nightmares. As you get older, you don’t have the energy for all this anymore, it’s just missing.”

At the end of April, the coalition government adopted a national action plan against homelessness. According to this plan, there should be no more homelessness by 2030. For the most part, the action plan consists of hot air. At a federal and state level, the governments that have caused the problems with their policies have repeatedly made grandiose promises and launched projects which barely scratch the surface.

One example is the so-called Housing First project in several federal states such as Berlin. In 2021, the then state government of the SPD, Left Party and Greens adopted the “Berlin Masterplan to Overcome Housing and Homelessness by 2030.” The aim was to find housing for homeless people. During the project phase from 2018 to 2021, just 79 homeless people were placed in a flat.

This year, the Housing First project, involving six social organisations, will receive funding of €4.4 million. A total of just 250 homeless people are to be given a flat each year, out of the total of 35,000 homeless in Berlin.

At this snail’s pace, it would take 140 years to find accommodation for all the homeless, assuming no more people become homeless during this period. If the Senate were to tackle the problem seriously, around 5,000 homeless people would have to be placed in flats every year in order to eliminate homelessness in Berlin by 2030.

The capital city is a perfect example of how all established parties have deliberately brought about the catastrophic housing situation. Under the current Berlin Senate of the Christian Democratic Union (CDU) and SPD, led by Mayor Eberhard Diepgen (CDU), the subsidising of new social housing was discontinued in 1997 and several estates were exempted from the occupancy obligation in 1998. The Berlin Senate of the SPD and the Democratic Socialist Party (PDS), led by Klaus Wowereit (SPD), pulled the plug on funding for some of Berlin’s social housing in 2003, and in 2011 the Senate of the SPD and the Left Party enabled the early release of social housing ties.

In 2021, a majority of the Berlin population decided in the referendum “Expropriate Deutsche Wohnen & Co.” to expropriate the property sharks, but the SPD, Greens and Left Party Senate has since then done everything in its power to prevent this. At the beginning of the year, the current CDU and SPD Senate ended a moratorium on terminations by state-owned housing associations, allowing rent increases of 2.9 percent per year.

All the establishment parties are solely committed to the interests of the property companies. At the same time, the social attacks resulting from the escalating demands for rearmament and war are making the situation much worse for more and more people.

End of African National Congress hegemony: ANC vote slumps to 40 percent in South African election

Jean Shaoul

The African National Congress (ANC) lost its overall majority in last Wednesday’s national (parliamentary) and provincial elections in South Africa. The ANC has long dominated South Africa’s political scene, both in opposition to the hated apartheid regime and while in office following the first post-apartheid election in 1994.

The ANC leader, President Cyril Ramaphosa, saw his party’s share of the vote fall from 57 percent in the 2019 elections, itself a record low, to just 40 percent, much lower than the most pessimistic forecasts. He and his faction-ridden party will now be forced to seek coalition partners to remain in office, if, indeed, he is not pushed out as the price for reaching a deal with some of the other parties.

The collapse in the ANC’s vote expresses the protracted political and economic crisis gripping the South African bourgeoisie. The political uncertainty rattled the financial markets, with the rand, South Africa’s currency, falling by 2 percent against the dollar; the main share index dropping by 2.3 percent; and interest rates charged by the financial predators to hold local-currency South African bonds jumping by eight basis points, to 12.13 percent.

So disenchanted with 30 years of ANC rule is South Africa’s predominantly young population that just 40 percent of young people registered to vote in the election. Preliminary indications from the electoral commission late on Thursday are that voter turnout was about 59 percent of the 27 million people (out of a population of 61 million) registered to vote, down from 66 percent in 2019.

Ramaphosa, the former head of the National Union of Mineworkers and ANC general secretary, who since has become a multi-millionaire, won the 2019 elections with a pledge to root out the ANC’s endemic corruption, epitomised by former president Jacob Zuma’s naked corruption. The scale of the corruption has made foreign capital and international financial institutions reluctant to deal with the country.

Driving the disaffection with the ANC has been the party’s failure to improve living conditions for all but the country’s new black corporate elite under its Black Economic Empowerment policy. Key infrastructure and industries such as electricity and transport were broken up and sold to leading members and supporters of the ANC at rock bottom prices, leading to massive inefficiencies, grotesque levels of corruption and soaring inequality, making South Africa the most unequal country on the planet, according to the World Bank.

While the economy grew at around 3.5 percent a year after the end of apartheid, following the 2008 world financial crisis socio-economic conditions plummeted. The COVID-19 pandemic further weakened the already fragile economy, with GDP per capita already lower in 2019 than in 2008, before falling to $6,190 in 2023. This was about the same level as in 2005.

Meanwhile, billions of rand in emergency funding allocated in response to the financial crisis only fueled the corruption. Unemployment is at record levels. Officially running at 32 percent, it is far higher among young people, more than half of whom have no regular jobs.

The World Bank estimated the poverty rate at 62 percent in 2023, with some 47 percent of South Africans relying on state welfare to survive. High fuel and food prices hit the poor the hardest.

While inflation averaged 6.0 percent in 2023, it was 9.3 percent for those at the bottom 20 percent of the income distribution. People are now forced to endure extended power outages and water shortages on a daily basis. Forty percent of piped water is lost before it reaches customers.

Along with falling living standards, public services, where they exist at all, have deteriorated. Crime has surged. The World Bank estimates that crime—much of it organized—costs the country at least 10 percent of GDP annually. Few murders are solved.

Such is the competition for party jobs, particularly in the municipalities, which play a significant role in the delivery of public services and in socio-economic development, that assassination attempts on politicians and officials have claimed the lives of 37 people, according to the conflict-monitoring group ACLED.

While there were 70 parties on the national and provincial ballots, and 52 on just the national ballot, the ANC and four other parties received 90 percent of the votes.

It was UMkhonto weSizwe (MK), named after “Spear of the Nation,” the ANC’s armed wing during the struggle against apartheid, that benefited from the ANC’s collapse, winning 14.6 percent of the national vote, to come in third, with the other three parties largely maintaining their 2019 vote.

MK was launched last December by former ANC President Zuma and his ANC supporters. The 82-year-old Zuma, who was forced to resign the presidency in 2018 amid a series of corruption scandals going back years, was himself disqualified from standing in the elections, having served a prison term for contempt of court in 2021 and soon to face a trial for corruption. Winning 45 percent of the vote in KwaZulu Natal, South Africa’s second most populous province and Zuma’s home province, MK is expected to form the provincial government there.

However, MK has refused to join an ANC government under Ramaphosa, whom it holds responsible for Zuma’s ouster. In July 2021, days of angry riots broke out, triggered by Zuma’s jailing, which soon morphed into wider protests against poverty and the ANC government. More than 100 people were killed in fights between the rival factions and at the hands of the police.

Another ANC splinter group, the radical-posturing Economic Freedom Fighters (EFF), came in fourth, with 9.5 percent of the vote. The EFF is led by Julius Malema. He was expelled, along with other leaders of the ANC’s Youth League who wanted to use the Youth League to gain entry into the ranks of the more established black bourgeoisie, which had garnered its wealth and position through the ANC’s Black Economic Empowerment policy. Malema has called for social housing in white-owned areas, the nationalization of almost all institutions, and the redistribution of land without compensation for white South Africans.

The largest opposition party, the Democratic Alliance (DA), is widely seen as representing the interests of South Africa’s white minority and of business. It came in second with 21.79 percent of the vote. It has close relations with Washington and has supported Israel’s war against the Palestinians in Gaza, in contrast to the ANC, which has refused to support the US/NATO war against Russia in Ukraine, and which filed the genocide case against Israel at the International Court of Justice. The Inkatha Freedom Party (IFP), which, like Zuma’s MK party, gets most of its support from Zulu people, took 3.85 percent of the vote, much the same as in 2019.

In the provincial elections, the ANC gained a majority in five of South Africa’s nine provinces: Limpopo (74 percent), the Eastern Cape (63 percent), North West (58 percent), Free State (53 percent) and Mpumalanga (52 percent). It leads in the Northern Cape (49 percent) and Gauteng (36 percent), home to Johannesburg, the country’s commercial capital and largest city, and the capital Pretoria, but will need coalition partners to form governments.

The Democratic Alliance (DA) looks set to continue to govern the Western Cape (53 percent), as it has done since 2009, while Zuma’s MK party has trounced the ANC’s 18 percent of the vote, with 46 percent in KwaZulu-Natal.

With almost all votes counted under a new three-ballot proportional representation system, the final result is expected Monday evening, after which the new 400-member National Assembly must sit within 14 days and elect a new president by a simple majority vote, who then forms a government.

The ANC’s electoral collapse and the political crisis it has exacerbated express the inability of the national bourgeoisie to improve the social conditions of the working class and rural poor. The ANC came to power in 1994 pledged to rescue South African capitalism, as the globalisation of production rendered the country’s nationalist and autarkic apartheid regime unviable, amid fears that the rising militancy of the South African working class could spell the end of capitalist rule in the country.

Based on the trade unions organized under the Congress of South African Trade Unions (COSATU) and the South African Communist Party (SACP), the ANC’s role was to suppress the revolutionary strivings of the black working class while creating a black capitalist class to take its place alongside the white capitalists. This was sanctified politically on the basis of the SACP’s Stalinist two-stage theory, which proclaimed the formal end of apartheid as a democratic revolution and a necessary stage before any struggle for socialism could commence.

The ANC’s path from opposition to co-option has been replicated across Africa and the Middle East. The national bourgeoisie, dependent upon imperialism and fearful of revolution from below, cannot resolve the fundamental democratic, economic and social problems confronting the masses.

New Zealand government presents austerity budget amid nationwide protests

John Braddock

Nicola Willis, Finance Minister in New Zealand’s National Party-led coalition government—which includes the far-right ACT Party and NZ First—presented her first budget last Thursday. The coalition took office following October’s election in which the incumbent Labour-Green government was ousted after six years amid mass desertion by working class voters.

New Zealand Finance Minister Nicola Willis delivers 2024 budget, May 30, 2024 [Photo: Facebook/Nicola Willis MP]

After months of sweeping attacks on the social position of working people, the budget was anticipated with some foreboding. The government is carrying out a scorched earth policy targeting funding cuts of 7.5 percent across the public sector with over 5,000 jobs slashed and more to go.

When Willis rose to deliver her speech in parliament, a sea of opposition had erupted with nationwide protests. The mobilisation was called by the Māori nationalist Te Pāti Māori (Māori Party, TPM) over the government’s broad anti-Māori agenda but included thousands of people deeply hostile to all the government’s austerity measures. The protests coincided with a two-day strike over pay by 2,500 junior doctors, followed by one on Friday by hundreds of NZ Blood Service workers.

Thousands gathered in Auckland, Tauranga, Christchurch and Dunedin and many regional locations. In the capital, Wellington, a crowd estimated by police at 5,000–7,000 descended onto parliament grounds.

Tensions emerged days earlier when Prime Minister Christopher Luxon and Labour leader Chris Hipkins warned workers against going on strike. On Instagram, organisers had called for all Māori and supporters to strike. “That would be illegal,” Luxon declared, adding it was “pretty clear what the rules are around strike action.”

The anti-working class “rules,” which place severe limits on strike action, are contained in the Employment Relations Act passed in 2000 by a Labour government, with the full support of the trade union bureaucracy.

TPM was never seriously advocating strike action but even the mention of a strike over political issues was enough to cause Luxon and Hipkins to sharply remind everyone that it was illegal. Both parties are undoubtedly concerned about anger among workers who want to strike against austerity, but are being blocked by the unions from taking any effective action.

The budget slashes spending on social programs to fund tax cuts for the rich and free up money for war preparations, as the imperialist powers led by the US are engaged in wars in the Ukraine and the Middle East and are preparing for war against China.

More than half a billion dollars is going to the military. Defence Minister Judith Collins said $163 million is for pay increases to address personnel attrition “with urgency.” Replacement vehicles will have “integrated communications that will enhance interoperability with regional and global partners, such as Australia, Canada, the United Kingdom and the United States.”

Citing events in the Ukraine and Middle East, Collins declared ominously: “This Budget announcement is a signal that New Zealand is ready to step up and play its part to protect the freedoms that so many of us take for granted.”

New Zealand already has troops in Britain training Ukrainian conscripts to fight in the US-NATO proxy war against Russia, which is escalating by the day and threatens to widen into a nuclear war. New Zealand personnel are also participating in the criminal US-led bombing of Yemen, aimed at defending supply lines for Israel as it carries out its genocide in Gaza.

The Ministry of Foreign Affairs and Trade has escaped sweeping spending cuts with additional $60 million earmarked for diplomatic posts in the Pacific, designed to boost NZ’s role in the US-led confrontation with China.

The budget was sold as delivering on National’s election promises of substantial tax cuts to address the cost-of-living crisis. In her speech, Willis ludicrously claimed that “the parties in this coalition Government are the parties of the worker. We want working people to keep more of the money they earn.”

In fact, the wealthy emerge better off while for working people paltry increases will be far outstripped by rapidly rising costs. Election promises that an “average” family would get $250 per fortnight in tax relief were a fraud: this applies to fewer than 3,000 households.

Radio NZ calculated that a couple earning $94,000 a year, with two children, has had a 23.31 percent increase in expenses since 2020, but their tax cut will only increase their after-tax pay by 2.35 percent.

Families with children will benefit by $39 a week on average. A minimum wage worker can expect about $12.50 a week and superannuants just $4.50 a week. While a couple earning $300,000 will get $40 per week extra, a group of 9,000 are worse off.

With Treasury and the Reserve Bank forecasting a significant lift in unemployment, increases to welfare benefits will reduce due to changes in the way they are indexed. Challenged on TVNZ’s ‘Q+A’ that “the poorest are going to be even poorer,” Willis coldly responded: “Do you know how they’ll receive more? By getting a job.”

The government has meanwhile reinstated the ability for residential property investors to deduct interest costs from their tax bills, cutting their tax by a total of $2.1 billion. Landlords will get a 60 percent deduction in 2023/24, 80 percent in 2024/25 and 100 percent in 2025/26. Willis admits this will not stop ongoing rent rises.

Ordinary people face growing financial difficulties: the NZ Reserve Bank resolved to keep the Official Cash Rate at 5.5 percent until further notice, ensuring unrelieved pressure on mortgage payments. Unemployment is projected to rise from 4.1 to over 5 percent.

With inflation at 4 percent, down from 7.2 percent in 2022, the trade unions have played a key role imposing below-inflation pay rises. Cost increases of up to 15 percent are imminent for necessities such as council rates, domestic power and house insurance.

The tax cuts, costing $14.7 billion over four years, are funded by a mixture of spending cuts and borrowing. Net debt will rise by $68.3 billion to more than $220.7 billion over that period, which is $12 billion more than Treasury forecast in December due to the weakening economy.

The government is spending an additional $2.01 billion a year on the health budget and $1.01 billion on education. In real terms this barely matches inflation and is not nearly enough to address the existing crisis of unmet need. As a share of GDP, the health budget will drop from 7.8 percent in 2023 to 6.8 percent 2026. Over the same period, education’s share of GDP drops from 4.8 to 4.1 percent, its lowest level since 1984.

The cuts include the cancellation of $70 million for 13 new cancer drugs which were promised before the election, alongside the reinstatement of $5 payments for prescription medicines. In education, $107 million is being cut from the school lunch program, which will mean less nutritious meals for hundreds of thousands of the poorest children, and $153 million is earmarked to establish as many as 50 semi-privatised charter schools at the expense of the public system.

A representative of the Post-Primary Teachers’ Association told teachers at a recent union meeting in Wellington that it was illegal to strike in opposition to these attacks.

Other cuts include $5.5 million over four years in the arts, hitting the cash-strapped NZ Film Commission, NZ Symphony Orchestra and the film and television archive Nga Taonga. The Wellington Science City Project—which would have supported research into climate change, pandemic readiness and technology in the city—is being scrapped to the tune of $462 million.

A further $220 million is being saved by reinstating student fees for the first year of university study and deducting fees from the third year instead, making it even harder for working class students to enter higher education.

With no support for scientific research mentioned anywhere in Willis’s speech, a raft of programs related to climate policies worth $102 million, along with $33 million in conservation, have been axed. The only new funding in the environmental section of the budget is $23 million annually for resource management changes, including a fast-track bill that could see projects once rejected for environmental reasons given the green light.

While it pushes tens of thousands more people into unemployment and poverty, the government is funding 500 extra police officers and preparing for a significant expansion of the prison population. Waikeria Prison will be expanded by 810 beds, at a cost of almost $2 billion, making it the largest prison in Australasia with a capacity of 1,865 beds.

The opposition parties and trade unions, led by Labour, have no real differences with the government’s program of war and austerity. Labour entered the election campaign assuring the financial elite that it would not impose any capital gains taxes. In response to the current austerity measures, it has posted on social media: “The National government’s job cuts are going too far.” In other words, Labour accepts in principle that the assaults must proceed.

Former Thai prime minister Thaksin faces new criminal charges

Ben McGrath

Thailand’s Office of the Attorney-General (OAG) announced on May 29 that former prime minister Thaksin Shinawatra will be charged under the country’s draconian lèse-majesté law for statements made nearly 10 years ago. The decision is another indication of the breakdown of the unstable alliance between the current ruling party, Pheu Thai, and the traditional elites including the military, which continues to exercise considerable political power.

Former Thai Prime Minister Thaksin Shinawatra arrives at Don Muang airport in Bangkok, Thailand, Tuesday, Aug. 22, 2023 [AP Photo/Sakchai Lalit, File]

The OAG has accused Thaksin of lèse-majesté based on a 2015 interview conducted with South Korea’s Chosun Ilbo newspaper during which he stated that members of the king’s privy council were involved in the 2014 military coup that overthrew the government of Thaksin’s sister, Yingluck. Thaksin is scheduled to be formally indicted on June 18. He reportedly has contracted COVID and is being given time to recover.

Thaksin served as prime minister from 2001 to 2006 before the military ousted him in a coup, accusing him of corruption as a means of justifying his removal. Facing significant jail time, Thaksin spent 15 years in self-imposed exile before returning to Thailand last August as part of a deal worked out between Pheu Thai and the military. That agreement allowed Pheu Thai to form a government in a coalition with military-backed parties, in which the latter would exercise control through the appointment of its officials in the cabinet of Prime Minister Srettha Thavisin.

Thaksin, the de facto leader of Pheu Thai, had an eight-year prison sentence reduced to one year by King Vajiralongkorn. Claiming illness, he then spent six months in the Police General Hospital in Bangkok before being granted parole.

Despite claims to the contrary, Thaksin has engaged in political activity since leaving the hospital in February. That month, he met with Hun Sen, Cambodia’s former long-time prime minister and current president of the country’s Senate. Thaksin also met with Malaysia’s Prime Minister Anwar Ibrahim early last month during which the two reportedly discussed conflict involving Thai Muslims near the Thailand-Malaysia border and fighting in Myanmar between the government and rebel groups. Thaksin held talks with these groups in March and April, reportedly to play a mediating role.

The military and other layers of the traditional elites, including the courts, the bureaucracy and the monarchy, are now moving against Thaksin and Pheu Thai. Prime Minister Srettha faces accusations of ethics violations from military-aligned senators that could result in being removed from office. Furthermore, the largest party in the National Assembly, the Move Forward Party (MFP), faces dissolution by the Constitutional Court for advocating reforms of Thailand’s lèse-majesté law.

Academics and political commentators have stated that the charges against Thaksin and Srettha are “warnings.” Stithorn Thananithichot, director of the Office of Innovation for Democracy at King Prajadhipok’s Institute told the Bangkok Post, “The lèse-majesté case is meant to be a warning to Thaksin not to step out of line. The (Pheu Thai-military) deal must be honored.”

However, Pheu Thai’s opportunist deal with the military last year to form a government created a highly unstable alliance between the two. In a country that has experienced two coups, mass protests and political violence over the last twenty years and the breakdown of the power-sharing deal nine months after it was reached, cannot be dismissed as simply “warnings.”

The military and other sections of the traditional elite are making clear that they, not Pheu Thai or any civilian government, are the real power in Thailand. The military allowed Pheu Thai to take office last year believing it would be preferable to rigging the results of the May general election, as it did in 2019, and risk the renewal of mass, student-led protests that broke out as a result. The MFP took the most seats in last year’s election but was sidelined by legal moves against it.

These right-wing layers are unsatisfied with Srettha’s government and Thaksin’s influence. Srettha is now highly unpopular as a result of declining economic conditions, with Pita Limjaroenrat, the de facto leader of the MFP, the most popular candidate for prime minister with 46.9 percent support according to a poll released in May. Srettha garnered only 8.7 percent of support.

The military fears that social discontent could bring the working class into open struggle. Economic growth is slowing. The World Bank estimates that Thailand’s GDP will grow at only 2.8 percent this year, a trend which is predicted to continue over the next 20 years and give Thailand one of the slowest growth rates in ASEAN.

Part of the economic difficulties Thailand faces is a result of the United States’ trade war measures aimed at China, Bangkok’s largest trading partner. The military cultivated closer relations with Beijing while in power. Srettha has attempted to look for other economic opportunities for attracting investment while still maintaining a balancing act between Beijing and Washington.

As the prices of goods grow, wages remain low, with the average daily minimum wage at just 350 baht ($US9.52). Pheu Thai has pledged to raise the minimum wage to 400 baht ($US10.88) in October, but this has been criticized by big business, which capitalizes on low labor costs. Household debt is also high, predicted to reach 91.4 percent of GDP this year.

Thailand is also experiencing a surge in COVID-19 cases, driven by the new KP variants of the virus. Between May 12 to 18, for example, there were 1,882 cases requiring hospitalization and 16 deaths. These figures are a serious under reporting of the true state of the pandemic as the government does not track the total number of cases.

However, the dispute now unfolding is not limited to the poor economy and social conditions. General Jaroenchai Hintao, the commander-in-chief of the Army, is set to retire from his post, the most powerful in the military, on September 30. Srettha has supported Assistant Army Commander General Ukrit Buntanon to take over from Jaroenchai, while Assistant Army Commander General Tharapong Malakam and Army Chief of Staff General Pana Klauplaudtu are also vying for the promotion.

The latter two generals belong to the Red Rim faction, a group of officers noted for their loyalty to King Vajiralongkorn, who created the faction in 2018. Given its close relationship to the king, it is currently the most powerful faction in the military and far less inclined to accept civilian rule or its influence in the armed forces.

The Srettha government has also proposed a number of military reforms: reducing the number of active-duty generals from 1,700 to approximately 300; reducing military spending and establishing government limits on spending; and allowing conscripted soldiers time away to pursue education. These reforms have faced opposition from the military, which no doubt wants to make clear that even minor or symbolic attempts to limit its influence will not be tolerated.

The military also wants to guarantee that its economic interests are not threatened. The proposed reforms would also prevent the appointments of active-duty generals who previously engaged in criminal activity or who are under investigation for crimes, as well as a ban on doing business with the Defense Ministry.

The military has wide-ranging business interests throughout the country through which it enriches itself. In January, the lower house of the National Assembly created a committee to explore these business connections, which are shrouded in secrecy. These enterprises include golf courses, boxing stadiums, construction, hotels, and television and radio stations.

Whatever the exact reasons for the moves against Thaksin and Srettha, the court cases against them will only compound the bitter rivalry within Thai ruling circles that has wracked the country for more than two decades.

Western powers threaten Georgia over passage of foreign agents law

Andrea Peters

The political crisis engulfing the country of Georgia continues to deepen. The US and its European allies are condemning and threatening the ruling party of the small nation for recently overriding a presidential veto in order to pass a “foreign agents’ law.”

The measure, which requires organizations receiving 20 percent or more of their resources from abroad to declare their funders, is opposed in Washington and Brussels. It has provoked weeks of Western-backed protests in Tbilisi, in which demonstrators have denounced the government for being “Russian slaves” and celebrated the European Union (EU), Ukraine and the US as the embodiment of democracy and liberation.

Map of the region

The south Caucasus country (population 3.7 million), which sits at the crossroads of the Black and Caspian Seas, is being drawn into the maelstrom of the opening stages of World War III. The West deems the ruling Georgian Dream (GD) party, in power since 2012, to be excessively close to Moscow. While Tbilisi has had extensive ties with NATO for years, GD represents a faction of the Georgian oligarchy which still seeks to balance between Washington and Moscow.

Having emerged out of the Stalinist restoration of capitalism in the Soviet Union, the Georgian oligarchy, like its counterparts in the region, is being torn by factional infighting over the future course of its foreign policy, which is only deepened by the profound social crisis in the country.

While the immediate targets are opponents of GD within the ruling oligarchy and pro-NATO sections of the middle class, this does not not lessen the reactionary character of the “foreign agents” law, which can also be applied to any genuine left-wing opposition to the government.

With the war in Ukraine going badly and NATO moving toward open military conflict with Russia, the passage of the bill has created the opportunity for Washington to bring Georgia into line.

The US Congress is preparing sanctions against Georgia, and the State Department, with extraordinary hypocrisy, just announced visa bans for “individuals who are responsible for or complicit in undermining democracy in Georgia, as well as their family members.” Making clear that the Biden administration is prepared to place Georgia on its enemies list, Secretary of State Antony Blinken has ordered a “comprehensive review of bilateral cooperation between the United States and Georgia” and warned that Washington “will take into account Georgia’s actions in deciding our own.”

The EU, in which Georgia is seeking membership, announced May 28 that the adoption of the foreign agents’ law would “negatively impact Georgia’s EU path.” Brussels went further. “The EU and its Member States are considering all options to react to these developments,” it threatened. 

Five days earlier, Georgian prime minister Irakli Kobakhidze reported that EU Enlargement Commissioner Olivér Várhelyi had told him, “Look what happened to Fico, you should be very careful.” The reference was to Slovak prime minister Robert Fico, nearly assassinated recently by a right-wing gunman, possibly assisted by foreign intelligence agencies.

Várhelyi subsequently claimed the Georgian leader had taken his remarks “out of context.” However, his “sincere regret” about any misunderstanding was hardly comforting. The EU official acknowledged having referred to “the latest tragic event in Slovakia [i.e., the Fico assassination attempt],” but that he had merely been trying to warn Kobakhidze “not to enflame further the already fragile situation by adopting this law which could lead to further polarization and to possible uncontrolled situations on the streets of Tbilisi.” In other words, do what we want or be prepared, against the backdrop of civil unrest, to get yourself killed!

A demonstrator draped in an American flag stands in front of police during an opposition protest against the foreign influence bill at the Parliamentary building in Tbilisi, Georgia, Tuesday, May 28, 2024. [AP Photo/Shakh Aivazov]

Along the same generally threatening lines, NATO’s Parliamentary Assembly (PA) asserted May 26 that it remained “firmly committed to Georgia’s sovereignty, territorial integrity, democracy and aspiration to join NATO.” The implication being that only in so far as Georgia joined NATO could its “sovereignty” and “territorial integrity” be assured.

“Georgia stands at a crossroads,” the military alliance arrogantly went on to claim. The foreign agents’ law “must now be withdrawn,” and should it not be, the EU and NATO would “continue to support [the protesters].”

While Washington and Brussels condemn the foreign agents’ law as anti-democratic and the handiwork of the Kremlin, their central concern is that it would expose and undermine the vast network of Western-financed “civil society” organizations in Georgia through which imperialism exercises influence in the country and the region.

As of 2019, there were 26,000 NGOs registered in Georgia, according to a European Parliamentary Research Service report. This is evidence, the document argued, of a “vibrant and active” civil society. It pointed out that the EU, working with its “2018-2020 Roadmap for engagement with civil society” in Georgia, “liaises with Georgian society on a regular basis” and has “organized extensive consultations.” The authors lamented the fact that only 23 percent of Georgians “fully trust/rather trust” these organizations.

These “soft power” outfits, operating in the fields of education, media, labor relations, human rights advocacy and the like, promote the political agenda and ideology of the US and Europe. Through exchange programs, grants and scholarships and other “joint partnerships” funded by institutions like USAID, the World Bank and the European Commission, they dole out cash and career opportunities, cultivating a pro-Western social base.

In an unexpectedly, perhaps unintentionally frank May 5 comment in the Moscow Times, two civil society activists from the south Caucasus noted, “Foreign aid agencies and their local NGO contractors have long colonized most areas of public policy and services” in Georgia. “To give it the appearance of community participation, the aid agency contracts Georgian NGOs to do the everyday footwork.” “Georgian NGOs that receive grants to implement this work may be local, but they hold considerable power over the Georgian population. This power comes from their access to Western embassies and resources,” they further explain.

When necessary, such forces can be called upon to become the “hard power” of imperialist intervention.

Street art in the center of Tbilisi promising the incineration of Russia's capital, July 2023.

A May 29 New York Times article, intended to glorify Georgia’s “democratic” protest movement, describes the months of demonstrations in Tbilisi as having “been mainly organized by civil society groups, many of which receive funding from overseas groups promoting things like democracy and a free media, who fear the country is sliding into authoritarianism.” “Many have coordinated their activities in messaging apps with opposition lawmakers,” it adds. The article’s author obviously did not see the irony of protests against Georgia’s foreign agents’ law organized by said foreign agents.

Among the privileged sections of the middle class currently wrapping themselves in European, Georgian and Ukrainian flags on the streets of Tbilisi, one will find no signs of opposition to the genocide in Gaza. The objections of these layers to “oppression” do not extend to the 21st century’s first genocide. Inasmuch as they know that opposition to Israel’s mass murder in Gaza will bring them into conflict with their foreign supporters, they keep their mouths shut. Furthermore, capitalism is not a swear word for such people, but a system that evokes feelings of eager anticipation.

In a May 16 article reporting on the situation, the Guardian describes some of the organizations playing a central role in the Georgian protests. The Georgian Students for a European Future, it explains, is a “centrist” group. Another, Students for Liberty, “has some libertarian tendencies.” “A group called Wave, it reports, “includes environmentalists but vehemently describes itself as ‘not leftist.’” The Franklin Group, named after Benjamin Franklin, it notes, “promotes free markets, private property, and individual liberties.” Meanwhile, the Shame group just “focuses on free and fair elections.” Another outfit, Sunset, “describes itself as liberal nationalist” and has its “members swear an oath of allegiance.”

The gap between this outlook and the concerns of the vast majority of Georgians is undeniable. In October 2023, the Eurasia Foundation, National Democratic Institute and UKAID— agencies allied with the US and British governments—published the results of a nationwide survey titled, “Taking Georgia’s Pulse.”

The authors write:

“The survey shows that poverty and economic problems are identified as main contributors to a sense of insecurity–a finding that transcends party line.” “Every second Georgian says the situation regarding poverty and crime has worsened.” “One in ten Georgians can’t afford food, while one in four can only afford food, but nothing else.” “The majority consider poor quality of education as the leading problem facing the education system, while high cost of drugs and medical services are considered as leading problems in the healthcare system.” “The majority,” 83 percent, “says that depression and anxiety is problematic for Georgian society, with almost every second Georgian (41 percent) saying they don’t know who to address for help.”

In response to a question about the most important national issues facing the respondent and his or her family, topics that are absent from the banners at Tbilisi’s demonstrations come in first. Rising prices and inflation, jobs, poverty, pensions, wages, education and healthcare are among the top eight. “Human rights,” NATO and EU membership, relations with Russia and freedom of speech–all headliners of the anti-government protests—came in ninth place or below. Just 10 percent of Georgians indicated that “Actions by Russia towards Georgia” were among the most important reasons they feel insecure living in the country.

Anti-Russian graffiti on Davit Aghmashenebeli Avenue in Tbilisi, July 2023.

Contrary to Western claims, a majority support the current ruling party. However, fully “62 percent of Georgians say none of the parties represent their interests.” A breakdown by party support “shows that every fifth GD supporter, almost every second opposition supporter, and the majority of undecided say none of the parties represent their interests.”

The political situation in Georgia is explosive, sharply exacerbated by the endless US and NATO provocations and threats against Russia. Sections of the elite allied to Washington and Brussels are working to undermine the ruling party’s grip on power.

Two hundred NGOs issued a joint statement May 29 insisting they would defy the foreign agents’ law. “The Russian law will not work in our country! It will remain a piece of paper, which nobody will obey,” they declared. The organizations promised to pay the fines, which can run into the tens of thousands of dollars, of anyone found guilty of violating the law. Clearly, they have a great deal of money at their disposal.

President Salome Zourabichvili, who occupies a largely figurehead position but is the commander-in-chief of Georgia’s armed forces, warned at a May 26 Independence Day rally that “the specter of Russia looms over us.”

At the event, she announced the issuing of the “Georgian Charter,” a declaration intended to unify the country’s opposition in the run-up to October’s elections. The plan calls for the repeal of the foreign agents’ law; the withdrawal of all anti-European measures; the structural reform and political purge of all major state agencies; the cancelation of decisions that undermine Georgia’s ability to pay off foreign creditors; and the overhaul of the electoral system. In other words, it is a call for a pro-imperialist house cleaning, with the prospect of many new positions and opportunities for those who sign up.

Whether or not the opposition, made up of dozens of competing, right-wing groups, can or will coalesce around this program remains unclear. Voicing Western concerns that Georgia’s anti-government groups are not up to the task and tacitly admitting that their base of support is narrow, a May 28 comment on Eurasianet noted, “The biggest risk for [the opposition] is losing momentum and seeing a poor turnout on election day.”

Oil and gas giants ConocoPhillips and Chevron announce major acquisitions as industry consolidation continues

Alex Findijs

ConocoPhillips, one of the leading oil and gas companies in the United States, announced Wednesday that it would be purchasing Marathon Oil for $22.5 billion. The agreement contains an all-stock offer of $30.33 per share, a 15 percent premium on the company’s stock price at the time of the deal, and will include $5.4 billion in Marathon’s debt. The acquisition is expected to close towards the end of 2024.

This is a Marathon gas station in Bradenton, Florida, Feb. 7, 2024. ConocoPhillips is buying Marathon Oil in an all-stock deal valued at approximately $17.1 billion. [AP Photo/Gene J. Puska]

As part of the deal, ConocoPhillips announced it would sell $2 billion in assets as well as increase stock buybacks from $5 billion this year to $7 billion next year. It has also committed to buying a total of $20 billion in shares back from investors over three years following the close of the deal.

The deal could attract scrutiny from the Federal Trade Commission (FTC) but federal regulators believe the merger constitutes a small portion of the global market and is smaller than other mergers already approved in recent years.

Marathon Oil has large holdings in the Bakken basin in North Dakota and the Permian basin in Texas and New Mexico. ConocoPhillips is currently the third largest oil and gas producer in the Permian, which is the largest shale oil field in the US. By purchasing Marathon, ConocoPhillips will expand its production in the Permian by 48,000 barrels a day to a combined 701,000 barrels per day, and in the Bakken basin by 105,000 barrels a day to a total of 200,000 barrels.

The past few years have seen an upsurge in the number of mergers and acquisitions in the oil and gas industry. In 2023 alone there were $234 billion in mergers and acquisitions, the largest amount since 2012, according to the US Energy Information Administration (EIA).

Other notable mergers include the planned purchase of Hess by Chevron for $53 billion also announced this week, and the purchase of Pioneer Natural Resources by ExxonMobil for $60 billion, approved earlier this month.

Hess owns a 30 percent stake in the Stabroek Block that has rights to the oil and gas reserves in Guyana. By acquiring Hess, Chevron will gain a significant stake in these energy reserves. Even with stiff resistance from Exxon (45 percent in Stabroek Block) and China National Offshore Oil Corporation (25 percent), approval by the FTC could come as early as next month.

Exxon’s purchase of Pioneer will add 700,000 barrels a day to the company’s current production by 2027 and create a combined land ownership of 1.4 million acres. Both companies have large stakes in the Permian basin and the merger would combine their adjacent fields, creating a combined reserve of 16 billion barrels in the Permian alone. According to the EIA, the Permian is the primary source of increased production in the US.

The acquisitions could increase the share of US production for Chevron from 5 to 6 percent of the US market and increase Exxon’s share to 7 percent to surpass Chevron as the largest oil and gas producer in the country.

Other notable acquisitions include Diamondback Energy purchasing Endeavor Energy for $26 billion, potentially making it the third largest producer in the Permian. Chesapeake Energy plans to merge with Southwestern Energy for $11.5 billion and could become the largest natural gas producer in the US. Chevron and Exxon made additional purchases of PDC Energy for $7.6 billion and Denbury Inc for $4.9 billion in 2023 respectively.

The surge in consolidations has been fed by two major factors. One is that the outbreak of war in Ukraine in 2022 caused a massive spike in energy prices around the world. This resulted in windfall profits for oil and gas companies and sparked a race to boost production and fill the gap caused by disruptions to global oil and gas markets by the war.

The other is that newer drilling technologies are opening up large oil and gas fields, such as the Permian, to cheaper production. Many of the smaller companies that have been acquired owned land on large reserves where the cost of production has fallen. Giants like Chevron and ExxonMobil are seeing an opportunity to capitalize on the 2022 oil price spike and acquire new reserves to consolidate their position in the market.

A survey by the US Geologic Survey in 2018 estimated that there were 46.4 billion barrels of undiscovered and recoverable oil in the Permian’s Delaware basin, double the previous estimate. As one of the oldest oil fields in the US, the Permian has been drilled for oil for over a century. But production began to decline in the later decades of the 20th century.

With new hydraulic fracturing technologies the Permian has seen a resurgence in production and a drop in cost. Prior to purchase, Pioneer had developed drilling technologies that allowed it to reduce the cost of production to as low as $19 per barrel in some areas, according to Pheasant Energy. Exxon expects the average cost per barrel to be less than $35 from Pioneer’s assets, far less than the national average for shale basins in the US of $54 per barrel.

A similar situation exists for the reserves in Guyana, with Americas Market Intelligence estimating the cost of production to be as low as $25 a barrel in some areas.

The consolidation of the oil and gas industry is also playing out amid the escalating NATO war against Russia in Ukraine. As NATO prepares to send combat troops to Ukraine and the Biden administration lifts restrictions on the use of US weapons on targets inside Russia, disruptions to global energy supplies may be around the corner.

Russia is the third largest oil producer in the world, with 12 percent of global production. Since the beginning of the Ukraine war the share of Europe’s natural gas imports from Russia have dropped from over 40 percent in 2021 to just 8 percent in 2023, with the US replacing much of that supply.

Regardless of whether US energy companies are factoring the war into their acquisitions they will certainly benefit from a greater market share in a war-time economy. Since the start of the war, five of the world’s largest energy companies—Shell, BP, Chevron, ExxonMobil, and TotalEnergies—made $281 billion in profit and paid out $200 billion to investors according to a recent report by Global Witness. Further reducing costs for the oil companies, the United Steelworkers imposed a below-inflation sellout agreement covering 30,000 US oil refinery workers concurrent with the launching of the US-NATO proxy war in 2022.

These companies stand to profit even more from an expanding global imperialist war.