It would be difficult to overestimate the significance of even one of the economic events of the last 24 hours. Fears of a severe recession sent financial markets into freefall once more while retailers launched their January sales two months early in an attempt to tempt now wary consumers into deeper debt.
The price of oil slipped below $50 to a third of the $147 reached earlier this year, a measure of the speed and depth of the slump. Only hours earlier, Robert Shapiro, an advisor to Barack Obama, gave a chilling warning of more financial shocks to come that would shake the system to its roots. Perhaps he had the impending crash of Citigroup in mind, whose planned sacking of 75,000 staff has done nothing to stop its share price from imploding.
Even before Democrats in the US House of Representatives failed to come up with a bail-out plan for the near-bankrupt car producers GM, Ford and Chrysler, another 542,000 workers filed new claims for jobless benefits last week alone, the highest number since the early 1990s recession. More than 10 million American workers are now unemployed.
The big three car makers employ 240,000 in the United States directly and indirectly support more than 4.5 million other workers, including thousands of dealerships and parts suppliers. Up to 3 million jobs could be at stake in a bankruptcy as well as retirement benefits for millions more. The impact of their collapse would be felt everywhere as these are among the giants of the global corporations with manufacturing, distributing and selling operations throughout the world. The crisis has spread to Honda too, which has just announced the closure of its Swindon plant for two months next year.
In Britain, as the Royal Bank of Scotland’s shareholders voted to accept a state hand-out, chairman, Sir Tom McKillop, said he was "profoundly sorry" for the bank's financial difficulties and "sorry" about the human cost that RBS’s troubles have caused. Its demise is a significant point in the history of British capitalism. RBS’s 300 years of operation closely follows the history of capitalist production. The bank’s forerunner, the Equivalent Society, was set up following the 1707 Acts of Union that created the United Kingdom of Great Britain. Now, the once great banking empire is reduced to receiving a £20bn hand-out from New Labour, and, as a consequence it seems, its shareholders will receive no dividends.
Gordon Brown’s dream of getting New Labour to act as a private equity fund by asset-stripping Northern Rock and returning it to private hands has turned into a nightmare as defaults on mortgages held by its previously highly profitable subsidiary Granite have soared, forcing it to stop making payments to the parent company. Repayments of mortgage debt which have fallen 90 days or more behind have risen four-fold since mid-2007. Figures out today have revealed a massive increase in repossessions by the major lenders. They were up by 12% in the third quarter, as another 11,300 were made homeless by the same banks who are guaranteed by the government.
In the midst of all this, the British state’s finances are themselves in dire straits. Borrowing is at unprecedented levels, while tax revenue is plummeting. Tax rises are on the way and the room for manoeuvre is extremely limited. Whichever way you look, the crisis can neither be contained nor solved within the existing political and economic frameworks. This raises the possibility and necessity of a reconstructed system based on not-for-profit finance, servicing sustainable production for need, carried into practice by a new democratic politics as outlined in our book, Unmasking the State.