Beginning of a world economic crisis?
After some yellow lights going on and off during June and July (several Asiatic stocks plunging, a very unstable situation of the important French bank BNP Paribas) in August a strong international financial shock had its epicentre on Wall Street and from there it spread to the rest of the world.
To cushion its effects and try to stop it, European Central Bank and the Federal Reserve of the USA (the Fed) as well as those of Canada and Japan spilt out over 300 000 million dollars in the financial markets in only three days and another similar amount after that to stop the stock crash and prevent a chain of bankruptcies of banks and other financial entities.
A week later, the situation calmed down but it is still not clear if this is a lasting lull or not. This current lull, however, cannot conceal the deep causes that brought it about and that far from having been solved, may surface again.
Every crisis of capitalist economy, or its possibility, may be analysed at different levels. The first level is that of the most structural factors that are behind the cyclical crises of capitalism, analysed by Marc in the Capital. The second one is that of the particular features that determine the more specific configuration of each crisis and ultimately, the last one, the perspectives of the situation.
Let us start with Marx
In the Capital, his most important piece of work, dedicated to the study of capitalist economy, Marx analysed its fundamental features:
1) The most prominent feature of capitalism is an economy producing merchandise; that is to say, values meant to be sold at the market.
2) In the production of merchandise, only labour creates new value. Machines and prime materials merely bring back the initial value.
3) That is why Marx classifies the investment carried out by the bourgeoisie into variable capital or “v” (salaries to buy labour) and constant capital or “c” (purchasing other factors).
4) Capitalist hold back a part of the value produced by labour because with the salary they only pay a fraction of this value. This part of the appropriated value is what Marx calls surplus value.
5) Surplus value is generated in the production and is realised at the market, when merchandise is sold, and so it is the base of the profit of the capitalists (increase of the initially invested capital).
6) Capitalist measure the results of their investments through the rate of profit. That means, the percentage of the growth of the capital after a complete circuit of production-sales.
7) Competition leads capitalist to invest increasingly in machinery and technology to produce more at a lower cost. That means, they tend to increase the proportional part of constant capital and diminish that of the variable. These different relations between c and v determine what Marx calls organic composition of the capital.
8) The proportional growth of constant capital in investments allows, at first, to increase the rate of profit. These elements (growth of investments and of the rate of profit) are the central features of the rising phase of cycles of capitalist economy.
9) Later on, however, the rate of profit begins to decline in a process that Marx called Law of decreasing tendency of profit instalment.
10) When the rate of profit falls, capitalists start cutting down on their investments. That is how a point of inflexion in produced triggering off a the sliding phase of the economic cycles (or cyclical crises). Economic crises are therefore inherent to the capitalist system and to its very structure of functioning.
11) Simultaneously, they spawn mechanism to avoid or alleviate for a time the causes that give rise to them: burning of capital (closures of factories) and pressure to lower the salaries by means of unemployment and so increase the rate of surplus value extracted from the workers.
12) Apart from that, capitalism has generated another series of mechanisms to avoid or mitigate the fall of the rate of profit: centralisation of capital in increasingly great enterprises, exploitation of other countries, state intervention, etc. And yet, the only thing that can really uphold the rate of profit over longer periods of time is the increase of absolute surplus value, that is to say the acceleration of the pace production and the exploitation of workers greater than the investment of capital.
An increasingly speculative character
These analyses of Marx’s are still fully valid and are absolutely necessary to understand the structural causes of any capitalist crisis. Marx, however, analysed capitalism of his times, centred on industrial capital, around which other sectors (farming and cattle rearing, banks, commerce, etc) hinge and to which they are subjected.
Later on, as part of an attempt to overcome the fall of the rate of profit a determining process took place: the emergence of financial capital resulting from the merger of the banking and the industrial one. This is the process that Lenin studied in his famous piece of work on the beginning of the imperialist (or “superior”) phase of capitalism.
According to Lenin, this stage spelt the end of progressive economic features and strengthened all the decadent and negative characteristics. In other words, all new economic growth or expansion would inevitably produce greater suffering for the workers and the masses and would stem out of that. Among these negative processes, the decadent imperialist capitalism presents a growing speculative tendency. That means, there is an increasing amount of parasite capitals (those that do not produce value) poured into the speculation and search of fast gains. But these profits also come ultimately from the surplus value extracted from production.
At the same time, as the total amount of circulating capital constantly accrues, an increasingly great mass of surplus value is required to sustain the average rate of profit. On the one hand, this compels imperialist capitalism to build up increasingly the mechanisms of direct and indirect extraction of surplus value (exploitation of workers, looting on natural resources of weaker countries, income from the collected of foreign debts, and so on). On the other hand, there is an even more ferocious dispute between the different bourgeois sectors for the final destination of this surplus value.
“Bubbles”
When those capitals concentrate on a determined market (stock exchange, estate, commodities, etc) these capitals spawn a “bubble” that pushes prices artificially beyond any real base, the same as obtained profit. Even though the “bubble” may make other branches more dynamic, economy as such becomes much more fragile and volatile because it is up to a great extent based on that “bubble”.
At a certain point, the bubble begins to deflate. The “prick” looks as if it were the result of specific factors, as objective limits of the growth of “inflated” sectors. But ultimately, the immediate factors reflect more structural causes of the periodic capitalist crises studied by Marx (sliding down of the rate of profit). On the other hand, the wearing away of the bubble in this sector will have a negative impact on the remaining branches of economy, opening the possibility of a generalised economic crisis.
Media declare that what triggered off the recent financial earthquake was the fall of the estate market in the
USA
It is important to highlight that the epicentre of the current problems is in the
That is why, in order to function normally, American economy needs to receive and average of 3 000 million dollars a year in loans, direct investments, purchase of treasury bonuses, profits and royalties of branches overseas, etc) If this income were to stop, economy would begin to crumble down. That is why, through different mechanism,
The USA-China couple
From this point of view, it is very interesting to analyse the way the USA-China couple have been functioning in these last years causing the world economy to grow.
American companies have made gigantic investments in China
China exports these products all over the world, especially to the USA USA China appears as the main owner of these bonuses (with the incredible of $900 000 million) having comfortably displaced Japan USA
But we must not be misled: USA and China USA is the greatest imperialist country on the planet and China
On the other hand, Chinese economic growth (as well as that of India Argentina , Venezuela and Brazil
The genesis of the current situation
It is within this framework that we can say that the recent financial earthquake represents a “second episode” of the crisis that imperialism managed to stop in 200-2001. Simultaneously, it expresses the consequences of the policies that the American government implemented to stop that crisis
In March 200, a speculating bubble at the speculating values market of the USA
At that moment, the Bush administration adopted two main measures. The first one was to increase the military budget and investments in technology and production for war. Even if this policy, one of the reasons for launching the “war on terror” increased the deficit even further, it also gave new dynamics to economy by the impulse of the powerful American military-industrial complex.
Together with this, between 2001 and 2003, the Federal Reserve, reduced the inter-bank rate of interest (base reference for all the credit operations) from 6.25 to 1% a year. This spawned a shower of extremely cheap credit on the market, encouraging consumption.
These measures, together with the functioning with China
The estate bubble.
The train was driven at a terrific speed on very floppy rails and at a great risk of being derailed for one of its bases was the bubble existing on the market of land estates and building in the USA USA
Banks encouraged families and companies to get cheap mortgage credit to buy houses of to mortgage houses and use this money to buy other commodities. Building leapt sky-high and the prices of estate properties rocketed. At first, this facilitated the renewal of credits and, at the same time, attracted new capitals to the sector.
.is punctured
But the speculation bubble has its own limitations: the new houses bought had no more buyers. It has been estimated that in 2006, the sales of landed properties in USA Miami
In order to feed the markets, banks started to grant family credits knowing they would not be able to pay or would have great difficulties paying. This is how the sub prime credits were born (actually meaning “second category”) that were commercialised as bonuses by banks or such intermediaries as the estate company Countrywide. These banks and companies were the first ones to be affected by the crisis.
At the same time, since 2005, the Fed has been pushing the inter bank reference rates up, increasing in this way the mortgage interests to be paid for “variable rate” credits and so further increasing the difficulties some families were facing to pay. Lastly, also the tax on land and houses is increasing and that drives families and companies to try and sell. With the market increasingly saturated, this spawns further lowering of prices. In other words: a vicious circle.
The deflation of the bubble has been with us for at least a year. And yet, as the economist Paul Krugman as exposed, the companies and the banks involved in the sector have been “making up” their registers of the sate of the credit payments and of the valuation of the properties in the best “creative accounting” style invented years ago by Enron and WorldCom to delay their unavoidable fall. But all the creativity cannot conceal reality: a major investment bank Bear Sterns has just suspended mortgage loans due to heavy loss suffered.
This impossibility of paying mortgage will have directly social consequences. In a recent letter addresses to the Federal Reserve, the conference of Mayors of the
In another expression of the world financial earthquake, the French BNP Paribas copied for a certain time the Argentine “corralito” implemented by the former Argentine minister of Economy, Domingo Cavallo in 2001 (limitation to a small amount the money you could draw from your bank saving account, a virtual expropriation) even if now things have “come back to normal” thanks to funds received from the French government.
Prospective Outlook
It is mot difficult to draw a sure assessment of what lies ahead from now on. Is the “calm” of financial markets achieved by imperialist governments at the cost of gigantic amounts of dollars sustainable in the future even if it may be necessary to inject more money? Or is it rather that it is just a momentary lull and new world financial crack is looming announcing a new descending cycle of economy?
The first viewpoint was posed by the secretary of Treasury of the George W. Bush administration, Henry M. Apulson: Markets are resilient. They can absorb such losses. We have been through hard times in the past and we can face the challenge”. Evidently he is talking from the position of someone who is in a position to dedicate thousand of millions of dollars coming from the American taxpayers and the looting of many countries of the world, and is willing to do so. This “we” deserves an explanation: in his recent past, Paulson was the main executive of the financial investment colossus, Goldman-Sachs. In other words: “we do what we can to get away with it”.
The second perspective, a new financial world crack and the beginning of a deep recessive cycle, is posed not only due to the structural contradictions of capitalism but also due to the aggravation of these contradictions and the deep deformations that the world economic system increasingly develops. What is impossible to foretell seriously is whether we are witnessing its first manifestations or if imperialism will manage to postpone it a little more by heaping much more money.
That is how we reach the third hypothesis: by means of these “injections” imperialism will manage to delay the crisis but will not manage to keep up with the dynamic of wholesome world growth of the latest months. In this case, the ascending phase would be halted, but instead of a plunge there would be a gentle plateau or a rather low level. This was what happened, for example, in
Finally, there could be a combination of the second and the third hypothesis: the “low tableau” would last for a relatively short time (a year or a little more) only to plunge into crisis.
Whatever the case may be, one thing is totally clear: imperialism and the governments of the central countries as well as their lackeys from the weaker countries will try to unload the weight of the crisis or the cost necessary to delay it (so far about $600 000 million and certainly more in the future) on to the backs of workers and the toiling masses of the entire world.
An here comes the central factor to define any economic prospective and the chance imperialism may have to postpone the crisis: class struggle. It is here that situation does not seem very auspicious for imperialism. The
All this has happened without there being any economic crisis, even at a time of strong growth of world economy. It is very likely, therefore, that that blows imperialism will deliver on the toiling masses of the world will stir up more fire just when imperialism offers several weak aspects.
To come back to good old Marx, capitalists are trying to get out of the crisis by increasing the exploitation of the workers, that is to say, extracting absolute surplus value. As we see it, this means they do so with our blood and sweat. Let us get ready for very hard battles.
