It’s difficult to know which of two momentous pronouncements yesterday has the most profound significance for the future of the global capitalist economy.
Is it the Bank of England’s expected decision to reduce the base interest rate to 0.5%, and start to print money – an initial £75 billion – with which it will bypass the commercial banks and lend direct to businesses, if it can find any that want to borrow?
This means that “monetary policy in its conventional form has ceased to operate”, according to the Financial Times’ Martin Wolf. A better example of what is meant by “a tipping point” would be hard to find.
Or is it the also expected admission from global giant car-maker (and financial services company) General Motors that there are now serious doubts about its ability to continue as “a going concern”? Continued deterioration in the availability of credit together with slumping demand for vehicles of all kinds has driven it to the brink of collapse.
The fact is that the complete breakdown of the credit system and the implosion of production are tightly intertwined.
Interest rates were last reduced to historic lows to deal with the dot.com crash of 2001/2, ushering in a period of frenzied speculation, which intersected at its pinnacle with the beginning of the downturn in consumption in 2004.
The global credit system closed for business in mid-2007 when it became clear that the effects of the deepening recession were irreversible. Financial institutions and investors recognised, however dimly, that the possibility of tempting consumers back into the shops to restart growth was gone. It was called a “collapse of confidence”. Share prices continue to tumble.
Despite trillions of dollars, pounds, yen and roubles being poured into the banks and the auto giants, and virtually unlimited guarantees to underpin new lending these attempts at resuscitating the system have failed. There's just too much over-capacity already to tempt new production. Too many unsold cars.
Neither can the crash be reversed by “quantitative easing” - increasing the money supply to induce spending, touted as the last throw of the dice. Governments have embarked on this desperate measure because interest rates are close to zero, property and commodity prices are dropping as demand has evaporated, and nothing else is working.
There will be attempts to bypass the banks and shovel cash into consumers' pockets directly - the “helicopter drop” approach favoured by the current chairman of the Federal Reserve, Ben Bernanke.
This can only make an unprecedentedly bad situation a whole lot worse. There’s talk already in the US and the UK about “fiscal collapse” – tantamount to state bankruptcy.
Obama’s team is reported to be working around the clock, not on a solution, but “to form an approach” to the disintegration of the auto industry. They must be getting very tired.
Obama, Brown, Darling, Mandelson, Wolf, and Mervyn King, the Bank of England’s governor and every one of the fantasists of the capitalist world are pinning their hopes on a recovery, sometime, not this year, maybe later. Maybe never.
As the conference called by the Left Economics Advisory Panel for 25 April puts it, “Capitalism Isn’t Working”. The conference is scheduled to discuss policy solutions for the crisis. They will have to be founded upon collectively-owned, co-operatively managed, not-for-profit ecologically-sound production, distribution and exchange. And that includes the banks. Nothing less will do.