It is becoming clearer every day that the capitalist class has no solution to the present crisis, either short term or long term. The short-term stimulus will not work and the long-term forces that have in the past pushed capitalism forward are exhausted.
It is clear from this that the multinational working class, through independent mass action, is the only force that can intervene to stop the layoffs, foreclosures and evictions and that the workers must do so in order to save themselves from being driven deeper into poverty.
Right now the mood of the capitalist class and its advisers and commentators has gone from panic and shock to gloom and despair.
Just as in the Great Depression, the financial system—the heart of capitalism, which pumps money through its arteries—has seized up in bankruptcy. When it is working normally, this heart pumps money into the system of industry, services and commerce to finance the exploitation of the workers and the sale of the products of their labor. From this exploitation profits flow back in the form of money into the treasuries of finance capital, and from there the money recirculates in order to finance more exploitation and bring in more profits.
The crisis of overproduction has slowed the normal circulation of profits back to the financial heart, leaving the system in desperate need of sustenance to keep functioning. To make matters worse, not only has this normal flow of the profits from exploitation back into the coffers of the banks dwindled, but their arteries are clogged with undetermined trillions of dollars of bad debts acquired in wildly excessive lending and secured by fictitious paper assets—fictitious because they have no underlying real value.
The financial authorities have tried with all their might to get this heart running again through bailouts—injections of money, loan guarantees, forced mergers—but the vital organ of banking still shows only a faint sign of life.
Why ‘nationalization’ is on the table
Both major schools of capitalist economic practitioners and advisers, including liberal neo-Keynesians like Paul Krugman and reactionary, supply-side Milton Friedmanites like Alan Greenspan, are now converging, under the pressure of the crisis, toward concluding that there is a need to “nationalize” the biggest banks, which everyone knows are insolvent. Nationalization, in the version being proposed, amounts to the seizure of the banks by the government, the nationalization of their bad debts, and then the return of the debt-free banks back to the hands of the parasitic financial swindlers.
But even if this could be agreed upon and carried out, the ruling class fears, correctly, that lending during a capitalist depression is like “pushing on a string.” Lending to companies that have no markets for their products brings no profit. Lending to workers who have lost their jobs or are surviving on low pay brings no profit. Lending to students who won’t have a job when they graduate will bring no profit. So the “nationalization” of the banks is an attempt to treat a financial symptom when the disease itself is overproduction as a result of the system of production for profit.
It is beginning to dawn on the bankers, brokers and bosses that they are staring into the void of an economic crisis in which, more and more each day, the protracted forces of economic downturn seem to completely overwhelm the prospects for recovery. Each economic stimulus or bailout measure announced by the Obama administration seems to be immediately dwarfed by announcements on the growing magnitude of the crisis.
Can’t find an engine for recovery
Pessimism is mounting because none of the experts can discern an engine for a recovery, even three or four years in the future. By April, this will be the longest continuous downturn since the Great Depression, surpassing the recessions of 1973 to 1975 and 1980 to 1982, and there is no real end in sight.
Those who predict that growth will return at a given time—say the end of 2010 or the end of 2011—are whistling in the dark and they know it. They have had to change their predictions downward over and over again since the crisis started in December 2007. They cannot see into the next quarter, let alone two years hence.
This is because the system of private property is anarchic and unplanned, based on corporate secrecy and the unbridled rivalry for profits.
The ruling class, government officials and bourgeois economic “experts” have endured so many sudden catastrophic drops in the stock market, so many mortgage company failures, so many reports of the biggest banks asking for and getting untold sums of money, so many profit declines, so many grave unemployment reports, so many foreclosure reports, etc., that they seem to alternate between panic over what’s happening at the moment and a state of long-term gloom and despair over the future.
Take this article in the Washington Post datelined Feb. 18:
“Markets around the world plunged Tuesday as evidence mounted that the global economic crisis is worsening.
“Japan is suffering its worst downturn in 35 years. The British economy is facing its sharpest decline in almost 30 years. Germany is slumping at its worst pace in nearly 20 years. Meanwhile the job market in the United States, at the epicenter of the global downturn, is the worst in decades. And emerging economies are contracting at a pace few had predicted just months ago. ...
“The sharpness of the global slowdown has alarmed economists, who see no obvious engine for recovery.” Absolutely nothing to drive a recovery!
Paul Krugman’s column published Feb. 19 in the New York Times was tellingly entitled “Who’ll Stop the Pain?” Referring to the minutes of a recent meeting of the Federal Reserve Board, he wrote that his eye was caught “by the following chilling passage. ... ‘All participants anticipated that unemployment would remain substantially above its longer-run sustainable rate at the end of 2011, even absent further economic shocks; a few indicated that more than five to six years would be needed for the economy to converge to a longer-run path characterized by sustainable rates of output growth and unemployment.’”
Krugman is a Nobel Prize winner in economics and a neo-Keynesian advocate of even greater government stimulus spending and nationalization of the banks. He said he has been obsessing lately over “What’s supposed to end this slump? No doubt this too will pass—but how, when?”
To find a model that he hoped would eventually work to get U.S. capitalism out of the crisis, Krugman had to go back to the recovery from the crash of 1873. That was in the era of competitive capitalism, before the dominance of monopoly and finance capital.
Another comment in the Federal Reserve minutes that bears noting is that once the economy starts expanding again, it will be an “unusually gradual and prolonged” recovery.
This gloom is based upon the mounting figures surrounding the crisis. The International Labor Organization based in Geneva said that if unemployment continues at its present rate of growth, 18 million to 30 million workers worldwide could lose their jobs in 2009. But if the situation deteriorates, the number could rise to 50 million. The IMF has predicted that world output will fall in 2009 for the first time since World War II.
The ruling class concern over the economic crisis has nothing to do with sympathy for the workers and oppressed who suffer the pain. A protracted depression means a decline in production, which means a decline in profits, a rise in unemployment and the prospect of eventual working-class rebellion. This is the double nightmare that haunts them about the future.
Comparisons to Great Depression
Many comparisons are made with the Great Depression. The pundits console themselves with the drastic number of 25 percent unemployed at the depths of the depression in 1933 and an average of 17 percent for the decade. Compared to those numbers, they say, we are a long way from the Great Depression.
But a numerical comparison cannot be made at this point. The major financial authorities, including the Federal Reserve Board, the IMF and, recently, the attendees at the elite World Economic Forum in Davos, are coming to agree that this is still the early stage of the crisis.
Another comparison can be made that comes closer to the essence of the present crisis and the prospects for recovery.
The Great Depression came three decades after U.S. capitalism had first entered a period of crisis, inaugurated by the depression of 1893 to 1897. Long-term growth factors consisting of the building of the railroads, the brutal removal of the Native people in order to expropriate the land, the annexation of half of Mexico and the conquest of the so-called “frontier,” among other things, had exhausted themselves. Capitalism was unable to regenerate through the normal cycle of boom-bust-recovery. It took the rise of U.S. imperialism, signified by the Spanish-American War, to rescue the system.
The war brought a surge in the export of capital and in imperialist superprofits extracted from the superexploited people in the colonies: Cuba, Puerto Rico, Central and Latin America, the Philippines, Guam, Samoa, Hawaii, China and elsewhere. Imperialist expansion was the underlying factor that gave U.S. capitalism restored profitability and the material basis for recovery. This is what allowed a new surge in the development of technology and the productive forces.
The development of the assembly line, standardization and interchangeability of parts, and further electrification of the country gave rise to mass production industries. Automobiles, radios, refrigerators and other appliances were produced in the U.S. alongside a growing export of capital.
World War I and U.S. loans to Europe after the war brought in profits. A postwar slowdown was overcome by the brief but wild prosperity of 1923 to 1929, fostered by credit and speculation in land and stocks. But the long-term factors of development were exhausted when the worldwide crisis of overproduction finally brought the system down in 1929. The ruling class was never able to mount a sustainable capitalist recovery.
The bourgeoisie now senses, although they cannot precisely articulate it, that the present crisis resembles the Great Depression not just in the growing unemployment, the financial crisis of the banks and the bursting of the speculative bubbles, but in the fact that both crises came as all the driving forces of capitalist recovery had exhausted themselves. Therein lies the fundamental similarity.
Next: The Great Depression and World War II.
Labels: economic crisis, Federal Reserve System, Great Depression, imf, nationalization
Fight for a workers’ program to save jobs, homes!
By Fred Goldstein
Published Oct 1, 2008 4:50 PM
Sept. 30—The political and financial establishment of U.S. capitalism has been stunned by the failure of its initial attempt to get Congress to pass a $700-billion handout to the banks.
Against a background of bank failures in the U.S. and Europe and appeals from the White House and the Treasury secretary, the House of Representatives on Sept. 29 defeated the bailout bill, 228 to 205. Following the vote, all three U.S. stock markets had historic drops, global stock markets initially plunged, and credit markets tightened up as fear struck Wall Street.
The vote was a defeat for a triple alliance: the bankers, represented by Secretary of the Treasury Henry Paulson and Federal Reserve Chair Ben Bernanke; the Bush administration; and the Democratic Party leadership. They all had labored mightily to sell the bailout.
It is highly likely that another round of political pressure from above will lead to the banks getting their way in the long run. Already the new line coming from the corporate media is to threaten workers that there will be no paychecks unless some version of the bill is passed. But with e-mails and phone calls to politicians running against the bill by 100 and 200 to 1 before the vote, the political pressure from below has for the moment overcome Paulson, Bernanke and company.
Capitalism’s faithful parties gripped by fear The growing economic crisis produced a political crisis in the two faithful parties of capitalism. On the one hand, the Democratic Party leadership was unable to force some 40 percent of its members to sign on to this gigantic giveaway to billionaires this time around, especially in the face of mounting foreclosures and layoffs. It was particularly noticeable that a majority of the Congressional Black Caucus and Congressional Hispanic Caucus refused to sign on.
On the other hand, the Republican right wing tried to pose as advocates for the people, spouting hypocritical demagogy against “big government” and greedy bankers. But in actuality, their proposals were to further deregulate the banking industry to allow hedge fund gamblers and private equity billionaires to enter the bailout racket.
Of course, the right-wing opposition to “big government” does not extend to the growth of the Pentagon and its trillion-dollar war in Iraq, the growth of the repressive apparatus of Homeland Security to persecute immigrants and undocumented workers, the growth of the FBI, the CIA and so on. These ideologues are only against government intervention that might put restraints on the unbridled profit-seeking activity of big business.
It is hard to tell whether these right-wingers voted “no” out of concerns of ideology or pragmatic protection of their seats in the House or both. Whatever their motives, their political rhetoric against “big government,” which used to be applauded on Wall Street, has suddenly been made obsolete by the present crisis.
The once high-and-mighty tycoons of Wall Street used to get their assistance quietly, behind the scenes, from the Federal Reserve. In the present crisis they suddenly find themselves in desperate need of openly and directly getting their hands on the entire U.S. Treasury. The bankers behind the present crisis now need to rid themselves of trillions of dollars in toxic debts that they acquired by swindling the workers and then swindling the rest of the world into buying these bad mortgages. The “no big government” right-wingers, once praised by Wall Street, are completely out of sync with the needs of their masters in the present crisis.
Whatever the ultimate fate of the bailout bill, two important things stand out. First, the working class, the oppressed, everyone who is suffering foreclosure, job layoffs, lack of health care and other hardships, must formulate their own program of demands to solve their problems. And second, the people must wage an independent struggle to fight for these demands.
What the bailout bill says One look at the wording of the bailout bill tells why. The Democratic Party leadership tried to wrap the bill in appealing language about aid to homeowners, accountability, oversight, etc. But this is mainly deception to provide a political cover to shield the politicians in the event of an outright rebellion.
In the matter of stopping foreclosures, the bill calls on the secretary of the Treasury “to encourage the servicers of the underlying mortgages ... to take advantage” of various programs to “minimize foreclosures.” In other words, foreclosure protection is completely voluntary and depends entirely on the will of the mortgage holder.
As for the authority of Paulson to run the show, the bill states that “The Secretary is authorized to ... purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are deemed necessary by the Secretary, and in accordance with ... the policies and procedures developed and published by the Secretary.”
Paulson was the former CEO at Goldman Sachs investment bank. He is the point man for the biggest bankers. This bill would give him the sole authority to deal not only with mortgage debt, but also with “any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability.” In other words, Paulson can buy worthless credit card debt, student loan debt, auto loan debt, or any other type of debt from any financial institution that he pleases.
But the Treasury will be under no obligation whatsoever to give debt assistance to anyone but the banks.
As for oversight, not one elected official would be involved. The oversight board would consist of the chair of the Board of Governors; Paulson himself as secretary of the Treasury; the director of the Federal Home Finance Agency, created last July by Paulson; the chair of the Securities and Exchange Commission; and the secretary of Housing and Urban Development.
This is equivalent to asking the robbers to guard the vault.
The important point about this is that the Democratic Party leadership was touting this as the new, improved version of the bailout bill. But homeowners, indebted workers, students overburdened by loans, families laboring under debt incurred because of illness, job loss, or any of a hundred reasons for workers to go into debt under low-wage capitalism, wind up with nothing.
The bill was originally three pages long and gave total authority to Paulson. After days of negotiation it grew to 100 pages long and still gave authority to Paulson and his oversight committee of powerful financial officials.
Workers need their own demands Thus it is vital for the workers to have a clear and unambiguous program of demands that meet their own needs and put the burden on the bankers and the rich to pay. There is a growing movement across the country to demand a moratorium on home foreclosures and evictions. Foreclosures are at present paramount. However, even with 10,000 people a day facing the loss of their homes, the crisis of the people goes much wider.
As the unemployment rate rises, it is urgent to demand a freeze on all workplace closings and job layoffs and an extension of unemployment benefits. There must be a freeze on utility cutoffs and a rollback in gas, food and utility prices. Workers’ pensions and savings must be protected. Working and poor people need a general cancellation of their debts and an end to repossessions and wage garnisheeing.
As the crisis of the states and cities grows, there must be a moratorium to stop cuts in the budgets of social programs. Affordable, quality health care, housing and education should be a right.
It is the workers and oppressed, the youth and the elderly who need the trillion dollars that the government wants to hand over to the bankers. The Federal Deposit Insurance Corp., which is supposed to insure individual deposits up to $100,000, just took on $40 billion in debt from Wachovia Bank. This $40 billion was the price the government paid to have Citigroup take over Wachovia and keep it from falling into bankruptcy.
That $40 billion, plus a good part of the $700 billion that the government wants to dole out to the banks, could be used to help homeowners facing foreclosure.
From a strictly capitalist point of view, aid to homeowners would transform bad debts into debts that are payable. It would actually ease the financial crisis of the system. Furthermore, by keeping people in their homes, it would keep their homes off the market and ease the glut of unsold properties.
But the bankers would rather get handouts from the government and proceed with foreclosures. They don’t want to set a precedent of granting relief to homeowners, because that could lead to an avalanche of popular demands for all kinds of relief.
It is futile to rely upon the capitalist government or the big business parties to voluntarily give assistance to the multinational working class on a scale that would make a genuine difference in the lives of the millions suffering foreclosures, layoffs and other hardships. The only way that real, profound change takes place is as a result of struggle.
No bailout is going to stop the crisis of overproduction that is overtaking capitalism today. It underlies the financial panic that is roiling not only the U.S. but Europe, Asia and the rest of the world. What Paulson and Bernanke have in mind is to slow down and manage the crisis. They want to avoid a sudden collapse, a social shock that would not only cause a sharp drop in the profits of the corporations and banks but could set off an upsurge of the mass struggle. The goal of Washington and Wall Street is to engineer a so-called “soft landing.”
But whether the economic crisis develops gradually or suddenly accelerates, the ruling class will try to shift all the suffering onto the workers. The greater the crisis of the ruling class and the rich, the more they will try to push it onto the people. The series of government bailouts is a prime example.
They began with $29 billion for JPMorgan Chase to acquire the bankrupt Bear Stearns investment bank.
Then came $200 billion more for the Freddie Mac and Fannie Mae mortgage banks.
Then came $85 billion for AIG, the insurance giant.
With the crisis spreading, the bosses now want a giveaway of $700 billion to all the banks. And that may not be enough.
They admit to at least $4 trillion in bad mortgage debts—and there’s probably more, because the bankers hide everything from each other and from the government. With each escalation of their crisis, they pile more debt upon the working class and the middle class.
Bailout of capitalism In truth, the bailout of the banks is really a bailout of capitalism. The banks are the heart and soul of capitalism. They have engaged in an orgy of speculation for a decade. They inflated values in the stock market and flooded the world markets with worthless mortgage-backed securities. They created a mountain of fictitious capital that far outstripped the underlying real value, all of which must be created by workers working. Now that false value is beginning to collapse.
This is not capitalism “gone wrong.”
It is the fullest expression of what capitalism really is. Panics and crashes have happened throughout the history of capitalism, but now, in the age of globalization and high technology, they have reached new heights.
This system is based on profit. Profit is the be-all and end-all of capitalism. The engine of the entire system is production for profit. Getting the most profits is the aim of every capitalist, from the sweatshop owner to the largest transnational corporation.
Speculation and gambling for instant profits grows naturally out of the system. It is not an aberration or an abnormality.
The bankers who swindled the workers with subprime, deceptive, lying mortgages and then sold these mortgages off to other capitalists, gaining fees and high profits along the way, were doing what the ruling class does all the time, at every opportunity.
The starting point of capitalist exploitation and profit is money. Without money, no capitalist can hire workers or buy raw materials or inventory to set the process of exploitation and profit making into motion.
The bankers are in control of all the money in society. They sit on the boards of the corporations. They advise them and finance their loans. They sell corporate stocks and bonds on the market. The owners of productive capital and the parasitic financiers are completely intertwined with one another.
Human need is not part of their calculation. The fact that people need housing, food, jobs, education and health care means nothing to them if they cannot profit from it.
The bankers who are throwing people out of their homes are interlinked with the corporations that are laying workers off. They are tied to the utilities that are shutting people’s heat off in the winter, to the supermarket chains and agribusiness corporations that are raising food prices, and to the oil companies behind the invasion of Iraq and the high cost of gasoline.
Behind the problem of bankers’ bailouts, foreclosures and layoffs is the capitalist profit system itself.
Labels: bernanke, bush, capitalism, democrats, Federal Reserve System, foreclosures, Goldman Sachs, jobs, layoffs, Paulson, socialism, stimulus program
