July and August were marked by some stunning economic developments. We saw a general panic involving governments, politicians, central banks and other international financial bodies. The masters of this world seem to have totally lost it. Every day, there were new meetings between heads of state: G8, G20, the European Central Bank the US Federal Bank....there were all kinds of ad hoc, improvised declarations and decisions, but none of them stopped the world economic crisis continuing its catastrophic progress. Generalised bankruptcy is advancing. The depression has become irreversible. In a few weeks, the plan to bail out the Greek economy has become out of date and the debt crisis has had a spectacular impact on countries as significant as Italy and Spain. The world’s number one economic power, the USA, is itself going through a major political crisis faced with the necessity to deal with a debt of between 14,500 and 16,600 billion dollars. All of this in the context of a battle against a public deficit which has directly resulted in the fall in the credit rating of this giant with feet of clay. This is a first in its history. The train is going off the rails and the drivers are losing control of the engine. But where is the world economy as a whole going? Why does it seem to be tumbling into a bottomless pit? Above all: where is this leading humanity?
From lies to reality
We need to go back a bit. At the end of 2007 and the beginning of 2008, the collapse of the US bank Lehman Brothers pulled the economy to the edge of the abyss. The whole financial system was threatened to fall like a house of cards. The state had to take on a large part of the debts of the banks, which had already reached incalculable proportions. As a result the central banks themselves were put into a very dangerous situation. And throughout this whole time, the bourgeoisie showed its profound cynicism. We were treated to a series of arguments, each more dishonest than the one before. Of course, to some extent the bourgeoisie is duped by its own discourse. The exploiters can never have a truly lucid view of the collapse of their own system. However, lying, cheating, hiding the facts is a necessity for the exploiters if they are to keep the exploited under their yoke.
They began by saying that all this wasn’t as serious as all that, that they were in complete control of the situation. Already this looked a bit ridiculous. However, the best was yet to come. At the beginning of 2008, after a near 20% fall in world growth, they promised us, with straight faces, a rapid exit from the crisis. It was all a passing storm; but the facts proved to be stubborn. The situation continued to deteriorate. Our famous leaders then moved on to the crudest nationalist arguments. We were told that it was all the fault of the American population who had taken out credit without any thought and bought houses without having the means to pay back the loans. It was all about the ‘sub-primes’. Of course this explanation wasn’t much use when the crisis hit the Euro zone, when it became obvious that the Greek state would not be able to avoid defaulting. The arguments then became even more shameful: the exploited in this country were described as cheats and profiteers. The crisis in Greece was specific to this country, just as it had been in Iceland and as it would be a few months later in Ireland. On the TV and the radio all the world leaders added their murderous little phrases. According to them, the Greeks were spending too much. The lower orders were living above their means, living like lords! But faced with the legitimate anger growing within these countries, the lies once again went up a notch. In Italy, good old Berlusconi was identified as bearing the sole responsibility for a totally irresponsible policy. But it was a bit harder to do the same with the very serious president of Spain, Zapatero.
Now, the bourgeoisie was pointing fingers at a part of itself. The crisis was in part at least the fault of the world of finance, those sharks greedy for growing profits. In the USA, in December 2008, Bernie Madoff, a former leader of Nasdaq and one of the best known and most respected investment advisers in New York, overnight became one of the worst crooks on the planet. And the credit ratings agencies were also used as scapegoats. At the end of 2007, they were accused of incompetence for neglecting the weight of sovereign debt in their calculations. Now they are accused of making too much of sovereign debt in their assessment of the Euro zone (for Moody’s) and of the USA (for Standard and Poor’s).
The crisis was by now openly, visibly worldwide, so a more credible lie was needed, something closer to reality. Thus for a few months there have been growing rumours that the crisis is due to an insupportable and generalised debt organised in the interest of the big speculators. In the summer of 2011, with the new explosion of the financial crisis, this line of argument has begun invading our screens.
Even if all these examples show that the bourgeoisie is finding it harder and harder to find credible lies, we can trust it to come up with new ones all the time. This is proved by the din coming from the parties of the left, the extreme left, and a number of economists, for whom the current aggravation of the crisis is down to the finance sector, and not to capitalism as such. Of course, the economy is buckling under the weight of debts which it can neither pay back nor even service. This is undermining the value of currencies, raising the prices of goods and opening the door to a series of failures in the banks, the insurance companies, and states. It is threatening to lead to the paralysis of the central banks. But the fundamental cause of all this debt is not the insatiable greed of the financiers and speculators, and even less the consumption of the exploited. On the contrary, this generalised debt has been a vital necessity for the survival of the system for half a century, enabling the system to avoid massive overproduction. The progressive development of financial speculation is not the cause of the crisis, but a consequence of the means used by states to try to deal with the crisis for the last 50 years. Without the policy of easy credit, of debt growing to the point of becoming uncontrollable, capitalism would not have been able to sell its commodities in increasing amounts. It has been the accentuation of debt which has enabled the system to maintain growth throughout this period. The monstrous development of financial speculation, which has indeed become a real cancer for capitalism, is in reality only the product of capitalism’s mounting difficulty in investing and selling at a profit. The historic exhaustion of this capacity, at the end of 2007 and beginning of 2008, has opened the door wide to today’s depression
A time of depression and bankruptcy
The events that unfolded in August are a clear expression of this. The president of the European Central Bank, JC Trichet, has recently declared that “the present crisis is as serious as the one in 1930”. As proof, since the opening of the present phase of the crisis at the end of 2007, the survival of the world economy can be summed up in a few words: accelerated, titanic printing of bank notes by the central banks, and above all by the USA. What they called “Quantitative Easing” One and Two were just the tip of the iceberg. In reality the Fed has literally inundated the economy, the banks and the American state with new dollars; and by extension it has done the same for the world economy as a whole. The banking system and world growth has been sustained thanks to this blood transfusion. The depression that began four years ago has been attenuated. But it’s now coming back to haunt them in the summer of 2011.
One of the things that most scares the bourgeoisie is the current brutal slowdown in economic activity. The growth at the end of 2009 and 2010 has collapsed. In the USA, GNP in the third quarter of2010 reached a value of 14,730 billion dollars. It had gone up to 3.5% since the low point of mid-2009, which was still 0.8% lower than where it had been prior to late 2007. Now, whereas an annual growth rate of 1.5% was predicted at the beginning of 2011, the real figure for the first quarter fell to about 0.4%. For the second quarter growth had been estimated at 1.3% but it’s really closer to zero. We are seeing the same thing in the UK and the Euro zone. The world economy is seeing falling growth rates, and in certain major countries, like the USA, it’s even heading to what the bourgeoisie calls negative growth. And yet in this recessionary context, inflation is on the rise. It is officially at 2.985% in the US but at 10% according to the calculations of the former director of the Fed, Paul Volcker. For China, which gives us the keynote for all the ‘emerging’ countries, it stands at over 9% annually.
This August, the general panic on the financial markets led, among other things, to an understanding that the money injected since the end of 2007 was not going to get the economy moving and coming out of the depression. At the same time it had in four years exacerbated the development of the world debt to the point where the collapse of the financial system is once again on the cards, but in an altogether worse economic situation than in 2007. Today the economic situation is so bad that the injection of new liquidities, even on a more reduced scale, is as vital as ever. The European Central Bank is daily forced to buy up the Italian and Spanish debt for a sum of around 2 billion Euros or see these countries go under. So while this new money is indispensable for the day to day survival of the system, this cannot have even the limited impact that increasing the money supply has had since the end of 2007. It would require a whole lot more to soak up the debts which for Spain and Italy (and they are not the only ones) stand at hundreds of billions of Euros. The possibility of France losing its AAA credit rating would be a step too far for the Euro zone. Only countries rated in this category can finance the European reserve fund. If France can no longer do this, the whole zone will fall apart. The panic we have seen in the first half of August is not yet over. We are seeing the bourgeoisie being brutally forced to recognise that maintaining continuous support for economic growth has become impossible, even on a limited scale. This is what is provoking the current lamentable spectacle. These are the underlying reasons for the splits in the American bourgeoisie on the question of raising the debt ceiling. The same goes for the much fan fared accords drawn up the leaders of the Euro zone to bail out Greece, which had to be put into question a few days later by certain European governments. The conflict between the Democrats and the Republicans in the USA are not simple disagreements between responsible people and irresponsible people on the right as the bourgeois press presents it – even if the dogmatic, absurd demands of the right, and the Tea Party in particular, are certainly aggravating the problems facing the American ruling class. The inability of the leaders of the Euro zone to come to an ordered, consensual agreement towards European countries unable to repay their debts, are not only the product of the sordid interests of each national capital. They express a deeper reality, one which is dramatic for capitalism. The bourgeoisie is quite simply becoming aware that a new massive boost for the economy like the one carried out between 2008 and 2010 is particularly dangerous. It risks resulting in the collapse in value of the treasury bonds and the currency of these countries, including the euro; a collapse which announces, as we have seen over the last few months, a surge in inflation.
What perspectives for the world economy?
The depression is there and the bourgeoisie can’t stop it. This is what the summer of 2011 has brought us. The storm has broken. The world’s leading power, around which the economy of the entire planet has been organised since 1945, is going towards defaulting on its debts. It would have been impossible to imagine this a while ago, but this historic reality is a sign of the bankruptcy of the whole world economy. The role the USA has played as an economic locomotive for more than 60 years is now finished. The USA has demonstrated this in public: it can no longer go on as before, however much part of their debt is taken over by countries like China or Saudi Arabia. The latter’s own finances have become a major problem and they are not in a position to finance global demand. Who will take up the reins? The answer is simple: no one! The Euro zone is going from one crisis to another, at the level of both public and private debt, and is heading towards a break-up. The famous ‘emerging countries’, like China, are, in turn, completely dependent on American, European and Japanese markets. Despite their very low production costs, the last few years have shown that these economies have developed as what the media call ‘bubble economies’. i.e. on the basis of colossal investments than can never be returned. It’s the same phenomenon we saw with what the specialists call the ‘housing crisis ‘ in the US and the ‘new economy’ a few years before. In both cases, the result is well known: a crash. China can raise the cost of its credit but crashes lie in store for the Middle Kingdom as they have done in the west. China, India, Brazil, far from being future poles of economic growth, can only take their place in the slide towards global depression. All these cracks in the economy will further destabilise and disorganise the system. What’s happening now in the USA and the Euro zone is propelling the world into depression, with each bankruptcy feeding the next at an increasing pace. The relative respite we have been through since mid-2009 is now over. The mounting bankruptcy of the capitalist world economy poses to the exploited of the world not only the need to refuse to pay for the effects of this crisis. It’s no longer just a question of massive redundancies or the reduction in real wages. It’s a question of a drive towards the generalisation of poverty, a growing inability for proletarians to meet their most basic needs. This dramatic perspective obliges us to understand that it’s not a particular form of capitalism which is collapsing, such as finance capital, but capitalism as such. The whole of capitalist society is rushing towards the abyss, and us with it of we allow it. There is no alternative but its complete overthrow, prepared by the development of massive struggle against this futureless, moribund system. Faced with the failure of capitalism we have to fight for a new society in which human beings will no longer produce for the profits of a few but to satisfy their own needs: a truly human, collective society, based on solidarity – communism (which has nothing to do with the political regimes and models of economic exploitation supplied by the former USSR or China). This society is both necessary and possible.