Friday, October 10, 2008

From fantasy finance to economic crash

When corporations at the heart of American capitalism, Ford and General Motors, find themselves close to bankruptcy, there is no surer sign that financial mayhem is turning into economic disaster for the masses who actually work for a living rather than speculate with other people’s money and lives.

As Wall Street crashed (again) yesterday, the car giants found themselves in the eye of the storm, their shares valued at next to nothing. Sales have slumped as lending to consumers dries up. Both Detroit corporations had their credit ratings reduced to “junk”, making it impossible for them to borrow. Bankruptcy looms as the unthinkable becomes reality.
In Britain, the trade deficit between imports and exports is the biggest since the end of the 17th century. Paul Dales, UK economist at Capital Economics, said the data supported other evidence suggesting that Britain entered a recession in the past three months. Exports orders have fallen rapidly as the global economy goes into reverse.

So as finance ministers from the major economies began to gather for an emergency session in Washington, we had this admission from Alistair Darling yesterday: “The world economy is changing. Sticking with the solutions of the past is not an option. Now, more than ever, we need new ideas.” But this is the man who has been a willing, even fervent promoter of the no-alternative school which holds that global capitalism is the only game in town.

So all of their energy, as well as our savings, taxes, pensions, livelihoods, and council services, are devoted to the task of ensuring that the system survives. The “new idea” is that politicians pledge to work together to do “whatever it takes” to restore “stability”. The plan is that the bankers cash in and the rest of us take the pain. In that, all the major bourgeois parties are agreed in an outbreak of “bipartisanship”, which meant the House of Commons devoted an entire 19 minutes to the crisis yesterday. Democracy? It's a luxury at a time of national crisis.

Certainly there can be no effective action to prevent the descent into an unprecedented slump. And the market speculators know it, selling shares not just in banks but in retailers and manufacturers. The souring of relations between Britain and Iceland, with the government using anti-terror laws to freeze accounts, shows how the breakdown of the global financial system turns friends into enemies overnight.

We’re not alone in pointing out that following the 1929 Crash, it took a decade and a half of the Great Depression and the destruction of surplus productive capacity and tens of millions of human beings in a world war. Only then, could the 1944 Bretton Woods agreement establish the basis for restarting the process of profit making and capital accumulation.

The post-war period of growth induced by a controlled expansion of the money supply began to suffer a series of worsening setbacks and shocks from the end of the 1960s. Control had given way to uncontrolled inflation and the Bretton Woods arrangements broke down in 1971. This left the world prey to three and a half decades of naked credit-led growth. This produced global corporations and subservient governments which encouraged gross over-consumption.

It had to end. More and worse financial shocks reverberated around the world throughout the 1990s. The bursting of dot com bubble in 2000 was the writing on the wall. When the outpouring of commodities bought on credit overwhelmed the consumers’ ability to service their debts by 2004, the game was already up. (NB Chancellor Darling).

Darling says that “All forecasters, including the International Monetary Fund, have been surprised by the profound impact of this shock.” Not us, chum. We wrote about it in 2004 in our book A World to Win. And we continued to study it until, at the end of 2007, we published A House of Cards, with its prophetic sub-title, from fantasy finance to global crash.

But Darling is right about one thing, sticking to “solutions of the past” won’t do the trick. A revolutionary break with the past is needed in opposition to international plans for bailing out bankers while ordinary people suffer. We’ll be discussing our solutions on Saturday week, October 18, at the Stand Up for Your Rights festival. And, we can promise you, we won’t be talking about how to save the present financial and economic system.

Gerry Gold
Economics editor

1 comment:

Robert said...

The Tories to day we should have put money away for a rainy day, we had the good times now we have the bad time, then why the hell did the Tories not put money away for a rainy day when Thatcher was around, well because we did not have a rainy day, oh yes so we did not have any recessions under Thatcher.

Tell you what if you took Labour and the Tories joined them into one unit you have three moneys sitting on a stick. The whole world is struggling Labour tell us we are getting it right and poverty is down crime is down unemployment is down, is it, is it really or have you fixed the figures, because in my area Labour says we have 2% unemployment the council says it's 18% and the job center says it's more like 38% who do you believe.

To day the Police say they do not respond to 45% of reports of an incident guess what the government says crime is down 45% well it's not surprising then is it, when I had a break in I reported it they gave me a crime number to claim the insurance, and that was it.

The whole country seems to be in a mess much worse then at anytime before, and it's not nice to see a Labour government defend bloody Thatcher either.