In recent weeks there has been an aggravation of the economic crisis that has shaken the confidence of even the most unrepentant cheerleaders of American capitalism. The official line of the White House has gone from a self-assured defense of the "good fundamentals" of an economy that's just going through a momentary hiccup, to a hysterical call for "all hands on board" to shoulder the task of saving the sinking ship.
Without doubt the bourgeoisie is right to be concerned. What started as the infamous bursting of the housing bubble at the beginning of 2007, has become the greatest financial disaster in 70 years. The pile of failed institutions is growing by the day: the investment banks Bear Stearns, Merrill Lynch and Lehman Brothers; the mortgage behemoths Freddie Mac and Fannie Mae; the world's biggest insurance company, AIG; Washington Mutual, America's largest savings and loan; and the commercial bank Wachovia -- just to mention the more famous cases. The whole financial system is in shambles. The air is filled with the poisonous odor of capitalism's rotting body, and amidst this agony, we are being given a window into the rarified world of high-stakes gambling that characterized the multi-trillion casino-like-economy centered around Wall Street.
Yet even though the center of the storm is the US economy, its effects are rapidly extending throughout the world. In Central Europe, Russia, Japan, Asia.... everywhere, the financial system is going bust, forcing governments to scramble to the rescue, repeating the American experience, except for the specificities of the local details.
Faced with a dramatically worsening situation, the "collective capitalist", the State, has done its best to manage the economic crisis. But the balance-sheet so far is negative. The State has proved once again unable to stop the blood-letting. And the current so-called "comprehensive bail out" of the financial system at the staggering cost of 700 billion dollars could well go the same way as other measures put in place in the last year.
Behind the financial crisis, the economic crisis of capitalism
The whole bourgeois media is having a field day covering the financial crisis. Newspaper reporters, economic columnists, TV commentators and all kinds of economic "experts" are outdoing each other in their colorful description of the storm blasting the high temples of the American financial system. The message is one of high alarm. The predominant view is that the financial system is on the brink of collapse, and credit - the lifeblood of the system - is drying up, endangering the well-being of everybody. In short, the turmoil on Wall Street, the financial system, is now menacing Main Street, the real economy. There is a lot of moral outrage expressed against the "excesses" and "greed" of the Wall Street crowd that recklessly brought this calamity to themselves and the rest of society. It's almost comical, that this condemnation is coming from the same media that not long ago servilely celebrated the seemingly unstoppable record profit making of the high-flying Wall Street financial industry and the lavish life style of investment bankers, traders, hedge fund speculators, unscrupulous mortgage brokers and other parasitic so-called entrepreneurs.
What the media is not saying - and can't say because its main function is the mystification of reality through conscious choice or self-delusion - is that the current financial crisis is clear and simple an expression of the economic crisis of capitalism, a chronic crisis that is rooted in capitalism's own contradictions and for which the dominant class has no real solution to put forward. On the contrary each remedy put forward to manage the crisis in the end winds up aggravating the malady. This is expressed in the fact that what the economists called recessions are each worse that the preceding one, while the so-called recoveries are increasingly phony.
Four decades of economic crisis
The immediate chain of events behind the current financial crisis is very well known. The American bourgeoisie got out of the recession of 2001 just the same way that it had done before during previous recessions: through state capitalist policies of cheap credit and lax fiscal policies. And just as during other "recoveries," in time these policies feed the illusion of growth and finally end by creating the conditions for a new crash. Thus, the celebrated housing boom became the current housing bust, just as the Internet "revolution" ended in the dot.com bubble being popped in 2001.
This is the basic short story of how the American economy ended up where it is today: with a financial system in total disarray, weighed down by an unstoppable wave of mortgage defaults, housing foreclosures, downward-spiraling real estate prices and mind-blowing gambling bets going bad. The bourgeoisie has yet to recognize officially that its economy is in recession, but given the extent of the carnage, that hardly seems relevant.
The "basic short story," however, is a very poor reflection of reality. Actually, what gives the present financial crisis its historical proportions is the fact that it expresses the accumulation of decades of contradictions of a decadent economic system that has become in all senses a menace to the very survival of humanity. A permanent state of war and economic crisis, with a relentless worsening of standards of living, chronic unemployment, rampant inflation and growing insecurity for the working class and other non-exploiting sectors of the population - this has been the history of capitalism for most of the last century. This is a system that has put humanity through two devastating World Wars and the Great Depression, a dreadful worldwide crisis to which the present turmoil is often being compared.
After the brief respite during the post-World War II period of reconstruction, the economic crisis came once again to the forefront, shattering the vision of unlimited, crisis-free prosperity put forward by the system's acolytes based on the record setting economic growth of the post-war period in the central countries of capitalism.
The economic malaise that started at the end of the 1960's exploded in a full blown worldwide economic crisis at the beginning of the 70's and has since persisted like a slow growing terminal cancer at the center of the body of capitalism.
It is not an accident that the US economy is today, just as it was in the ‘70s at the center of the storm. In August 1971 Richard Nixon reneged on the U.S. commitments under the American-brokered 1943 Breton Woods System that had guaranteed the dollar convertibility to gold and that had given the post-war financial and commercial systems a semblance of stability. This turnaround of the American bourgeoisie left the use of the dollar as a world currency without an economic rationale and has contributed greatly to the fragility of the world financial system showcased in today's crisis. The world's banks are awash with paper dollars. The currency reserves of most countries are held mostly in dollars. In fact there are, by far, more dollars circulating around the world that in the US economy. This insane situation is based on a simple collective delusion: that behind the dollar stands the so-called "full faith and credit" of the US government, which amounts to an overt overestimation of the U.S. creditworthiness. If the present U.S. financial turmoil does not bring a reality check to the global financial system, then nothing will.
The lack of solvent demand relative to the needs of capitalistic accumulation -- the root of the current open crisis of capitalism dating back to the end of the sixties -- is illustrated by a twin feature of the life of capitalism in recent decades: the perversion of credit and the explosion of speculation.
Faced with a lack of solvent markets to absorb its production, capitalism has found the way to square the circle: give it away on credit. Not an economically rational credit based on a reasonable expectancy of repayment of a debt with a profit -- a normal capitalist practice and a powerful tool for the development of capitalism -- but instead, credit as a way to keep the system artificially going to prevent its collapse under the weight of its historical crisis. This is the reason behind the reckless explosion in recent decades of both individual debt (credit cards, auto loans, student loans, personal loans, mortgages) and corporate and public debt (which in many cases will never be repaid). After so many years of abuse of the credit-debt mechanism, it is not surprising that the financial system is now cracking up.
Furthermore, faced with a diminishing rate of profit in the process of production, capital has been turning the world over towards the sphere of speculation, creating a virtual casino economy where - on paper - fortunes are made and lost with the mere tapping of a computer keyboard in the comfortable rooms of traders, hedge fund managers and other investment specialists. All this without the bothersome creation and sale of commodities in the process of production and circulation that defines capitalism as a mode of production! Thanks to the collapse of the real estate bubble and the current financial turmoil, a rare window has been opened into the secret world of high stakes gambling on such immaterial things as the so-called "credit default swaps," and the now radioactive "mortgage securities." It is no wonder that the global financial system is falling apart. Sure, speculation has always been a component of capitalism, but the amount of capital involved in it today, its weight on the economy as a whole, the extent to which it has managed to permeate increasing layers of society -- even the working class's future livelihood is being made dependent on pension fund investments on speculative schemes - is unprecedented and is itself a condemnation of capitalism as a viable mode of production for society.
The show must go on
Mr. Paulson, the US treasury secretary, and Mr. Bernanke, the Federal Reserve chairman, are the men of the hour, the media reporting their every word, change of mood and actions 24/7. All this for free, while McCain and Obama have to pay millions to get their electoral message across - surely, the candidates can't be happy about it!
Evidently, the men in charge of managing the economic crisis are very busy these days. But the real question is what has the State accomplished and what can be expected from the policies so far being put forward?
The first thing to note about the bourgeoisie's response to the early signs that the housing boom was over in 2007, was, judging by its actions, that it was a total underestimation of the gravity of situation that was going to unfold. Following the beginning of the housing bust and the financial system turmoil during 2007, the Federal Reserve responded with its conventional policies of monetary manipulation, sharply reducing in record time the Fed interest fund rate to lower the cost of credit and pumping in tons of money directly into the financial system, trying to shore up the deteriorating finances of banks and other financial institutions. For their part the White House and Congress also made use of their traditional fiscal tools in the management of the crisis. At the beginning of 2008, they passed a so-called "stimulus package" composed of tax rebates for consumers, tax breaks for businesses and other measures directed at reviving the slumping housing market. These measures were supposed to avert a recession. As the somewhat upbeat economic forecast of Bernanke in mid-February put it, "My baseline outlook involves a period of sluggish growth, followed by somewhat stronger pace of growth starting later this year as the effects of (Fed) and fiscal stimulus begin to be felt" (USA Today, February 15, 2008).
A few days later, the collapse of Bear Stearns, the fifth biggest investment bank in the country, would raise the stakes and foretell the current financial tsunami blasting the American and global financial system, which has already totally changed Wall Street financial landscape.
According to public declarations emanating from all corners of the State, the bourgeoisie is now truly worried about the dangers posed to its system by the present situation and has decided to bring in the big State guns to fix the situation. This is the sense of the so-called 700 billion dollar, "comprehensive" bailout program that the dominant class has finally agreed upon.
It remains to be seen what effects this new program will have in the bourgeoisie's attempts to manage the crisis of its system. Nonetheless, clearly, this program is an attempt to make the working class - both current and future generations - pay for the financial debacle.
On the other hand, this bailout, which in essence will be financed in the short term by public debt, could easily backfire, fueling inflation and further economic turmoil.
Finally, there is one more important thing to underline in relation to the bourgeoisie's policies of the last year: on the one hand they make clear the purely ideological character of the so-called American "free market" economy, and on the other, they overtly demonstrate the dominant role of the State in the economy - what revolutionaries have long characterized as state capitalism.
And the working class?!
Faced with the deepening economic crisis, the bourgeois media's message to society is that "we are all in this together". Yes, it argues, some CEO's are guilty of excess and greed, but we ALL are more or less responsible for the financial mess. "Everyone" took advantage of the good old days of easy and cheap credit of the debt functioning economy and we all have to line up in a common effort behind the State efforts to save the economy. This is nonsense. The working class has no say on how the bourgeoisie runs its decaying system. The fact is that the condition of the working class has known no improvements over the last four decades of bourgeois gimmicks aimed at keeping its economic system afloat. Unless they want to consider all matter of suffocating debts -credit cards, auto loans, student loans, sky-high mortgages, etc. - a change for the better that workers are obliged to incur in order to partake of the increasingly elusive "American dream".
Politicians, in particular those belonging to left wing, want workers to believe that they are concerned about the suffering of the working class. Both the bourgeois left and right want us to believe that the answer to rising unemployment, eroding salaries, the sorry state of the health care system and deteriorating pensions lie in the ballot box, that all is needed is the right president or congressman. However the reality is that the bourgeoisie has no solution to the crisis of its system and no future to offer society other than an increasingly devastating crisis and murderous imperialist wars.
The hard reality is that workers have been paying for years for the crisis of capitalism. And today face with a barrage of attacks from all directions they have no choice but to oppose capitalism's assault on their working and living conditions on their own terrain, the terrain of the class struggle - fighting against the logic of capitalist exploitation. Against capitalism's future of crisis and war, the working class must put forward its own perspective of a society based on human needs.
Eduardo Smith, Oct. 3, 2008.