Financial Collapse Spreads Worldwide

Protests are mounting across Europe as record fuel prices hit the livelihoods of fishermen, farmers and truckers. Some 7,000 striking fishermen lit flares at a demonstration in Madrid on Friday.
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Financial collapse spreads worldwide

Fight for food, fuel, housing challenges capitalism

By Jaimeson Champion
Published Oct 8, 2008 8:46 PM

In recent years, many bourgeois economists have advanced the theory that capitalist economies around the globe have largely “decoupled” from the world’s largest economy in the U.S. The theory goes that the advent of the European Union and the growth of powerful economies in Asia have limited the risk that an economic crisis in the world’s largest economy could spread globally.

So much for wishful thinking. The global capitalist system is now deep in the throes of the largest economic catastrophe since the Great Depression. The systemic crisis that first emerged in the U.S. housing sector has now spread to nearly every market in nearly every corner of the globe.

As Venezuela President Hugo Chávez said at a recent summit in Brazil, the economic crisis emanating from the U.S. has “the power of one hundred hurricanes.”

Following the dissolution of the Soviet Union, which had provided a counterweight to U.S. imperialism, the U.S. has brutally extended its economic hegemony around the world. The tentacles of U.S. finance capital have been sunk into nearly every market, in every corner of the globe, greatly increasing the risk of contagion. The growing cross-border interconnectedness of production networks and streams of finance capital has made the global capitalist system more unstable.

The increasingly global character of this crisis was evident on Oct. 6 when European and Asian stock markets began the week with steep plunges.

The FTSE in Britain, the DAX in Germany and the CAC 40 in France all fell more than 5 percent on Oct. 6. In Asia, the Shanghai Composite and the Nikkei also fell more than 5 percent on Oct. 6.

The Oct. 3 announcement that the U.S. Congress had passed an unprecedented and criminal $700 billion giveaway to the banks has apparently done little in the way of calming U.S. or international markets. The major U.S. indexes also went into free fall at the opening bell with the Dow down nearly 600 points by midday on Oct. 6.

Treasury Secretary Paulson attempted to sell the U.S. public on the bailout by saying that without passage of the bailout bill, the economy would self-destruct. Despite the passage of the bailout bill, the economic storm is clearly continuing with gale force.

European leaders announced their own round of bailouts of financial institutions over the weekend of Oct. 4-5. On Oct. 5, bailouts were announced for Hypo Real Estate, a large German mortgage lender, and for Fortis, a Belgium-based banking and insurance company.

Apparently fearing the kind of bank runs that have obliterated financial institutions in the U.S., multiple European countries have hurriedly announced plans to guarantee bank deposits. Sweden, Germany, Denmark, Ireland and Spain all announced new deposit insurance plans.

Capitalism: a crisis-prone system that must go

Capitalist politicians and pundits have recently been advancing the claim that this crisis was avoidable, and that it was a matter of a “lack of regulation” in the financial markets that led to the current meltdown

But the reality is that economic crises such as the one the world is currently suffering through are inherent to the capitalist mode of production. These crises result from capitalist overproduction.

As Karl Marx wrote in “Theories of Surplus Value,”
“Overproduction is specifically conditioned by the general law of the production of capital: to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labor with the given amount of capital, without any consideration for the actual limits of the market or the needs backed by the ability to pay.”

Crises of overproduction erupt when workers can no longer afford to buy all the multitude of goods which the capitalist has directed them to produce. Overproduction leads to glutted markets, which in turn lead to a falling rate of profit for the capitalists. Faced with a falling rate of profit, the capitalist class responds with wage cuts and mass layoffs in an effort to cut costs.

These factors are evident today with housing markets around the globe glutted with millions of unsold homes, profits continuing to hemorrhage out of the banks and corporations, and layoffs and wage cuts continuing unabated.

But an alternative to this rotten crisis-prone system exists, and that alternative is socialism. Under socialism, production is not directed by the capitalist class, and it is not undertaken with the objective of obtaining profits. Rather, under socialism production is organized to meet specific human needs. Under socialism, the absurd calamity of millions of foreclosed homes sitting vacant while homelessness rises would not occur.

The elimination of production for profit eliminates the root cause of crises of overproduction. Faced with a global economic crisis of historical proportions, the need to eliminate capitalism and replace it with socialism has never been greater

Fortunately, the seeds of a worldwide socialist revolution are daily being sown. The seeds are sprouting in the worker-led movements that are fighting against foreclosures and challenging capitalist property relations in the process. They are sprouting in the resurgence of the Latin American left, which is providing a direct challenge to U.S. imperialism in the hemisphere. The seeds of a socialist revolution are sprouting in the militant demonstrations against rising food and fuel costs that have taken place across Africa, Asia, Europe and the U.S. And they are sprouting in the spontaneous demonstrations against the bank bailouts that have been taking place across the U.S.

In his forward to Karl Marx’s “A Critique of Political Economy,” Frederick Engels, referring to crises of overproduction, wrote, “Each successive crisis is bound to become more universal and therefore worse than the preceding one.” He predicted that the end result would be “a social revolution such as has never been dreamt of in the philosophy of the economists.”

With the growth of working-class solidarity, the 21st century working class is capable of proving Marx and Engels were right.
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Economic crisis: It isn’t just greed

By Stephen Millies
Published Oct 8, 2008 8:24 PM

Everybody is blaming greed for the economic crisis. Even John McCain, who doesn’t know how many houses he owns.

With their yachts, private jets and multiple mansions, the billionaire parasites deserve to be hated. Greed, however, has been around for thousands of years, ever since most human societies were divided into rich and poor.

Greed alone doesn’t explain where all the cash came from to fuel the housing boom and overall expansion of credit. Millions became ensnared by predatory lending, while billions of credit cards were mailed out.

Crunch time came during a period of capitalist overproduction, when cars, houses and other commodities couldn’t be sold at a profit.

Credit is capital. Whether it takes the form of money or commodities like goods and services, capital is a social relation between paid and unpaid labor.

The origin of capital is the new value—called surplus value—produced by workers which is stolen by their exploiters and called profits.

The continuous reinvestment of these unpaid wages to get more surplus value is called capitalist accumulation.

But first the capitalists have to sell their stuff in the capitalist market. The annual $15-trillion United States market remains the biggest of them all.

It was U.S. imperialism’s foreign trade deficits, reaching $800 billion annually, which helped create this credit expansion. Capitalists in other countries had to do something with the mountains of dollars they accumulated through trade surpluses.

They bought trillions of dollars worth of Treasury bills and bonds which helped finance the Pentagon. Corporations like Bell Labs were bought up.

This wasn’t enough to consume the torrent of dollars. So they poured capital into mortgages and other financial instruments.

The United States was consistently running a foreign trade deficit of 5 to 6 percent of its economy. Part of it came from U.S. corporations importing goods from their plants abroad.

How did the U.S. get away with it for so long? Any other country would have been brought to its knees, like when the British pound collapsed in the 1960s.

Ultimately the law of value asserted itself.

Origin of the crisis

Capitalism starts with the exchange of commodities. Despite monopoly prices, colonial robbery and other boons, these exchanges demand that equal amounts of socially necessary labor change hands.

Exchanging trillions of IOUs, that is, tokens of value for the real values represented in imported goods, couldn’t last forever. The dollar fell dramatically, particularly against the euro, the currency used in most of Western Europe.

The origin of the present crisis began with the monopoly position of the United States at the end of World War II. Virtually every capitalist rival of Wall Street was in ruins. At least 25 million people in the Soviet Union died saving the world from Hitler.

The United States then accounted for half of world capitalist production. Ten years later in 1955, 40 percent of the world’s steel was produced in the United States.

U.S. imperialism had nuclear weapons and an economy that dwarfed all others. But the Soviet Union survived and was growing dramatically.

Millions of French and Italian workers voted for communist parties. The Chinese Revolution shook the world. People in Asia and Africa were revolting and demanding independence. Yankee imperialism was hated throughout Latin America.

A global class war compelled Wall Street to open its market—previously surrounded by tariff walls—to other countries, despite the opposition of industrial capital centered in the Midwest. “Politics was in command,” as Mao Zedong would have said.

Germany and Japan were turned into military vassals in exchange for the chance to sell their commodities in the United States.

The U.S. could afford to do this because of its monopoly position at the time. But monopoly breeds lethargy. Foreign capitalist rivals had to be more nimble.

Big U.S. corporations depended on cost-plus Pentagon contracts for much of their profits. Half of U.S. research and development was done for the military.

By the late 1960s the U.S. still had a trade surplus with the rest of the world. But it was running a financial deficit because of the vast cost of occupying other countries. President Lyndon B. Johnson fueled inflation by printing dead presidents to help pay for the Vietnam War.

Other countries demanded gold for their dollars. Suddenly in 1971, Nixon stopped this exchange of gold—that is, real value—for dollars and devalued the dollar itself by 10 percent.

A surcharge was placed on imports. These acts destroyed the exchange rate system the United States engineered at Bretton Woods in 1944.

Nixon also imposed phony price controls and a real freeze on workers’ wages.

U.S. imperialism enjoyed for decades a reactionary holiday away from the law of value. This vacation was extended by the collapse of the Soviet Union.

Countries continued to ship vast quantities of commodities to the United States and hoped to get rid of their dollars. What else could they do?

But all holidays must end. Today the United States is in a weaker position vis-à-vis its capitalist rivals than in Nixon’s era.

Trillions of dollars on bank ledgers represent nothing. That’s what’s “clogging the arteries” of world finance, resulting in the credit freeze.
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Articles copyright 1995-2008 Workers World. Verbatim copying and distribution of this entire article is permitted in any medium without royalty provided this notice is preserved.

Workers World, 55 W. 17 St., NY, NY 10011
Email: ww@workers.org
Page printed from:
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