The current financial crisis is ultimately the result of a crisis of overproduction, like the one of 1929. The growth over the last few decades has only been possible thanks to the accumulation of vast debts, which have destabilised the entire banking system.
On 24 September 2008, US President Bush gave what journalists and commentators around the world agreed was an "unusual" speech. His televised address focused on the harsh trials facing the "American people":
"This is an extraordinary period for America's economy. Over the past few weeks, many Americans have felt anxiety about their finances and their future. I understand their worry and their frustration. We've seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending. Credit markets have frozen. And families and businesses have found it harder to borrow money.
We're in the midst of a serious financial crisis
The government's top economic experts warn that without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold: more banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically. And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs. Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And ultimately, our country could experience a long and painful recession".
The world economy is being shaken by a financial earthquake
In reality, it's not just the American economy which is facing "a long and painful recession", but the entire world economy. The USA, locomotive of growth for 60 years, is now dragging the world economy towards the abyss.
The list of financial institutions in difficulty is getting longer every day:
- in February, the 8th largest bank in Britain, Northern Rock, had to be nationalised under threat of going under
- In March, Bear Stearns, Wall Street's fifth largest bank, had to be ‘saved' by being annexed by JP Morgan, the third biggest US bank, with the help of funds from the Federal Bank
- In July, Indymac, one of the USA's biggest loan companies, had to be taken in hand by the Federal authorities
- Beginning of September, Freddie Mac and Fannie Mae, two key finance organisations with a joint weight of 850 billion dollars, were again only kept afloat thanks to a new influx of funds from the Fed
- A few days later, Lehman Brothers. America's fourth largest bank, declared itself bust and this time the Fed couldn't save it. Its total debts on 31 May stood at 613 billion dollars. This was the biggest collapse of an American bank ever
- Then came Merrill Lynch (taken over by the Bank of America); American International Group, propped up by emergency funds from the US central bank; Washington Mutual, America's biggest building society, closed down. In Britain, first HBOS had to be taken over by Lloyds, then Bradford and Bingley had to be nationalised.
Naturally, world stock markets have also been in turmoil. Regularly there have been falls of 3,4,5% in the wake of new bankruptcies. In Moscow the stock exchange had to close its doors in mid-September after successive falls of over 10%. And all records were broken when Congress first turned down Bush's 700 billion dollar bail out package: Wall Street dropped 800 points, the biggest ever in a single day.
Towards a new 1929?
Faced with this cascade of bad news, the world's biggest economic experts have been thrown into a bit of a panic. Alan Greenspan, the former and much revered president of the Fed, declared on ABC television on 14 September: "this is a once in a half century, probably once in a century type of event....There's no question that this is in the process of outstripping anything I've seen and it still is not resolved and still has a way to go". Even more significant was the statement by the Nobel prize winning economist Joseph Stiglitz who, with the aim of "calming minds" rather maladroitly asserted that the present financial crisis had to be less serious than the one in 1929, even if we need to avoid "overconfidence": "we could be mistaken but the general point of view is that today we have the tools to avoid another Great Depression". Far from reassuring anyone, this eminent specialist in economics, but not a very good psychologist, seems to have provoked considerable disquiet. After all, he had brought up the question that everything is thinking about but few dare speak about: are we heading towards a new 1929, a new "Depression"?
Since then, the economists have queued up on TV to reassure us that, while things today are indeed serious, they have nothing in common with 1929 and the economy is going to pick up again soon. This is all half-truths. At the time of the Great Depression, in the USA, thousands of banks went bust, millions of people lost their jobs and businesses, the rate of unemployment reached 25% and industrial production fell by nearly 60%. In short, the economy more or less ground to a halt. At that time, the world's leaders only responded after a long delay. For months, they left the markets to themselves. Even worse, the only measure they took at first was to close the borders to foreign exports through protectionist barriers, which further paralysed world trade. Today, the context is very different. The bourgeoisie has learned a lot from this economic disaster, has equipped itself with international organisms and keeps a very close eye on the unfolding of the crisis. Since 2007, the various central banks (mainly the Fed and the Central European Bank) have injected nearly 2000 billion dollars to save companies in trouble. They have thus managed to stave off the complete and brutal collapse of the financial system. The economy is slowing down at a considerable rate but it is not completely blocked. For example in Germany, growth for 2009 will only be around 0.5% (according to the German weekly Der Spiegel on 20 September).
But contrary to what all the economic experts are saying, the present crisis is really far more serious than in 1929. The world market is totally saturated. The growth over the last few decades has only been possible thanks to vast debts. Capitalism is now sinking under this mountain of debt
Certain politicians or economists are now telling us that the world of finance needs to be made more ‘moral' in order to avoid the excesses which have led to the present crisis, that we need to go back to a more ‘healthy' capitalism. But what they avoid saying is that the ‘growth' of these past decades has been the precise result of these ‘excesses', ie of capitalism's headlong flight into generalised debt. It's not the excesses of the financial fat cats who have brought about the present crisis: these excesses and the financial crisis are only symptoms of the irresolvable crisis, the historic dead-end that the capitalist system as a whole has reached. This is why there can be no real ‘light at the end of the tunnel'. Capitalism is going to carry on sinking down. The 700 billion dollar Bush bail-out may stabilise the stock-market for a while, if it is accepted, but it can bring no lasting solution to the problem. The underlying problems will still be there: the market will still be glutted with commodities that can't be sold and the financial establishments, the companies, and the states themselves will still be staggering under the weight of debt.
The billions of dollars thrown into the financial markets by the various central banks of the planet won't change anything. Worse, these massive injections of liquidity will mean a new spiral of public and banking debts. The bourgeoisie is at an impasse and it only has bad solutions to offer. This is why the American bourgeoisie is hesitating about launching the ‘Bush plan': it knows that while it might avoid panic in the immediate, it will only pave the way for new and even more violent convulsions tomorrow. For George Soros, one of the world's most celebrated financiers, "there is a real possibility that the financial system will break down".
A wave of impoverishment not seen since the 1930s
The living conditions of the working class and the majority of the world's population are going to decline brutally. A wave of lay-offs will hit all corners of the planet at the same time. Thousands of factories and offices will close. Between now and the end of 2008, in the finance sector alone, 260,000 jobs are going to go in the USA and Britain (according to the French paper les Échos of 26 September). And a job in finance on average generates four directly linked jobs! The collapse of the financial organisations will thus mean unemployment for hundreds of thousands of working class families. House repossessions are going to rise sharply: 2.2 million Americans have already been evicted from their homes since the summer of 2007 and a million more are expected to follow suite between now and Christmas. This phenomenon is now hitting Europe, in particular Spain and Britain.
In Britain, the number of house repossessions rose by 48% in the first quarter of 2008. In the past year or so, inflation has also made a big comeback. The prices of raw materials and foodstuffs have exploded, resulting in famines and hunger riots in many countries. The hundreds of billions of dollars the Fed and the Central European Bank have injected into the economy will make this situation worse. This adds up to the impoverishment of the whole working class: housing yourself, feeding yourself and travel will become increasingly difficult for millions of workers.
The bourgeoisie will not shrink from presenting the bill for the crisis to the working class, through wage reductions, cuts in benefits (unemployment, health, etc), postponing retirement age, tax increases and increases in the number of taxes. George Bush has already announced this: his 700 billion dollar bail-out plan will be financed by "contributions". Working class families will each have to give several thousand dollars to propping up the banks at a time when many of them can't even afford a roof over their heads!
The crisis today may not have the same sudden aspect as the crash of 1929, but it will subject the exploited of the world to the same torment. The real difference between now and 1929 is not to be found at the level of the capitalist economy but at the level of the consciousness of the working class and its willingness to fight back. At that time, having just been through the defeat of the Russian revolution of 1917, the crushing of the German revolution between 1918 and 1923, and the rise of the Stalinist and fascist counter-revolution, the world proletariat was beaten, resigned to its fate. The ravages of the crisis did provoke class movements such as the struggles of the unemployed and the auto-workers in the USA or the massive strikes in France in 1936, but these movements were unable to prevent capitalism dragging humanity into the Second World War. Today it's totally different. Since 1968 the working class has thrown off the dead weight of the counter-revolution and although the campaigns about the ‘death of communism' after 1989 were a real blow, since 2003 the working class has been developing its struggles and its consciousness. The economic crisis today can be a fertile soil for the further growth of workers' solidarity and class consciousness.