The attack on the World Trade Centre and the effects on the world economy
Two great messages have come from the horrific and tragic events of Tuesday 11 September and the subsequent days. The first is the wonderful solidarity of working people in New York, America, Europe and around the world, their courage and fortitude in the crisis and their skill, ability and endurance in trying to save people in the dark smoke-filled debris of Lower Manhattan.
The other message is the ineptitude and crassness of America's leaders and callous actions of big business. While ordinary people lost their lives when they barehandedly fought armed and fanatical terrorists on one of the planes so that it would not be used to destroy more thousands, President Bush scurried off in Air Force One to a bunker in Omaha, Nebraska thousands of miles away. While emergency staff worked night and day to save lives and help the injured in New York, Bush stayed in Washington and incoherently talked of 'whipping terrorism'.
And immediately after the disaster, big business acted. Even though thousands of financial workers had died in New York, they wasted no time is selling off the dollar and selling their investments through European markets. Undoubtedly, they would have sold shares in the US market if it had been open. So much for patriotism.
Working people were the victims of this vicious terrorist attack by religious fanatics. But these reactionary religious bigots gained sufficient support to do this terrible thing precisely because of US and NATO policy in the Middle East, Asia and Africa. America has backed Israeli militarists in its suppression of Palestinians and the Bush administration has felt arrogantly confident that it could do so with impunity. After all, isn't it the most militarily powerful nation in the world with massive financial and armed might?
Well, in just an hour of nightmarish mayhem, a gang of men armed only with knives and carton cutters inflicted more casualties than Japan's entire Pacific Fleet at Pearl Harbor. Lacking long-range bombers, they improvised. They made bombers out of commercial airliners and drove them straight into the world's financial centre and then the nerve centre of US military might, the Pentagon.
And, suddenly, it seems a different world. And yet it is also unchanged. That's because, even as the hijacked airlines flew mercilessly toward their targets, a flood of red ink had already wiped out over six years of total accumulated profits of all companies listed on the NASDAQ exchange. Even as the upper floors of the World Trade Centre burst into flames, America's largest money center banks had already the greatest exposure ever to derivatives (high-risk bets) that are notoriously vulnerable to unexpected events (according to the latest reports by U.S. General Accounting Office).
Even as the 110-story twin towers imploded into a great cloud of dust and debris, the world's stock markets had already been tumbling for 18 months or more. The NASDAQ had lost about two-thirds of its peak value, with over $5 trillion in wealth destroyed. The German Neuer Markt, the equivalent of the NASDAQ, had lost roughly 90%of its value. The German DAX, the counterpart of the US stock market index, the Dow, was down about 45%, the Japanese Nikkei down close to 75%.
But now, for the first time, the fragility and vulnerability of US capitalism has been exposed to the entire world. People will now say all sorts of mad things: that stock prices will go up because Americans will see it as their patriotic duty, or that they'll go up because wars always make stocks go up, or that the economy was ready to turnaround anyway. But these are words of faith, not reason.
The great new capitalist myth of the 'New Economy', supposedly freeing capitalism from eternal boom and slump by the new technology, has been exposed. At the Pentagon, the promises of new technology have turned out to be gruesomely hollow. Despite billions spent on information technology, and a team of thousands of highly paid specialists on the job - no one seemed to know anything. At least, they did not know what they needed to know.
What was built up in the US during the past few years was a grossly unreasonable confidence in non-existing 'new paradigm' miracles. It was upon this pad of "new paradigm" mush that American capitalists and their investors constructed their hopes for the future. The US was the only world superpower - and thus faced no serious threat. Stock markets would rise, over the long term, because that's what stocks always seem to do, they reasoned. Property prices, too, were destined to keep on going up - for who, except in isolated instances, had ever seen it go down? Incomes would rise year after year in an economy that - thanks to leadership from the Federal Reserve Bank - never suffered a serious setback.
As confidence grew, dangers grew too. The Pentagon came to rely more and more on high-tech gadgetry - like spy satellites. Financial institutions placed more and more faith in sophisticated derivative contracts, which they used to replace actual cash reserves as a source of security. And consumers turned away from savings, putting more and more trust in credit, which was eagerly supplied by credit card mongers and mortgage lenders.
American capitalism was already tottering before this carnage. The American media and its politicians will pour out the propaganda of their faith in the system. They will stand with moist eyes, waving the flag and reciting their newfound sense of national unity. They will affirm their belief in American capitalism and their commitment to invest.
But confidence has been irrevocably dented by this disaster. Americans will stop buying new cars and stop taking holidays. Amid the images of the dead and dying and mass destruction at the very heart of American capitalism, getting and spending, at the margin, suddenly seems less important. Spending money has suddenly gone out of fashion.
Fed Chairman, Alan Greenspan has already blamed the economic downturn on what he called a "breach of confidence." For him, the challenge in America was merely to maintain consumer spending. As long as consumers continued to spend, they reasoned, the economy would continue to grow.
But the reality is that the more the economy boomed, the more confident consumers and investors became, and the more money they borrowed and spent. Even as they felt more and more confident, debt loads piled up like skyscrapers, leaving them more and more vulnerable to shocks. Now that they've felt the earth shake, can there be any doubt that they will turn more cautious?
Even before Tuesday's attacks, corporate profits and corporate spending were down. Layoffs were up, as new jobless claims hit their highest level since July. Unemployment is now at 4.9%. You can't spend if you don't have a job. This, combined with lower business spending, was leading to a full-blown recession.
The Fed has vowed to open the money spigots to help banks and financial institutions. But in the long run, this won't work. Fed governor Robert McTeer is now telling consumers that it would be unpatriotic to cut spending now. The health of the entire economy, he points out, depends on the willingness of consumers to continue doing the "irrational" - spending money they don't have.
But if the capitalists put the US on a war footing, will that enable the economy to recover through huge 'defence' spending boosting incomes and jobs? That very question is a matter of great debate among capitalist economists now.
There are those that argue that, after the initial shock and uncertainty of the beginnings of both World Wars, Korea, the Cuban missile crisis, the US economy surged back. But this time around, that's unlikely. The difference between now and other crisis events is not just the severity of the event itself. This time there is an underlying weakness in the capitalist economy. Long before the planes cracked the glass and steel of the Trade Centre towers, the US economy was headed for trouble. Long before Tuesday, the largest credit-financed bubble in the history was about to pop.
Economic growth in the US was about to collapse. And America's economic dominance of the globalised world was already in question. Tuesday's tragedy only compounds the effect. Debt burdens are at record highs. Jobs are disappearing. The American consumer has a very slender reed to lean on.
And this "war" that George W Bush and his Cabinet want to fight is unlike any other the US has fought. Apparently, this is a war against terrorism everywhere: the first war of the 21st century. But terrorism has been around throughout the 20th century and the US capitalists did not always oppose terrorism if it was in their interests. Were the Mujahaddin in Afghanistan terrorists when they indiscriminately killed thousands in Kabul with their missiles and bombs, or were they 'liberation fighters' against Russian imperialism? The CIA financed Abu Bin Laden and other terrorists in that war. Are the IRA terrorists and should those who finance and support them be arrested and killed; or should they continue be invited to the White House for talks? After all, NORAID, the Sinn Fein organisation in the US, operates with impunity. Clearly, the definition of terrorism is really just any action against US capitalist interests.
In this war, the Bush administration is fighting an enemy without borders, an enemy that cannot be invaded, an enemy who does not distinguish between combatants and civilians. The US is essentially declaring war on thousands of private citizens of dozens of different nations. This will prove a difficult war to fight and to win.
Public sentiment is strong for 'war' right now. Americans are understandably in favour of a decisive military response. But commanding this war, winning it, or even fighting in it will be more difficult than many people around the world expect. This prolonged uncertainty will prove a drag on confidence. And a war without clear results will only heighten investor anxiety, reveal America's increasing vulnerability and frustrate the recovery of the stock market.
What's more, war or no war, America's economy will still be left to work out the imbalances built up during the economic boom of the 1990s. In short, no amount of military action can repair the decade-long damage done to America's balance sheets. During the 1960s and 1970s, the industrial economies experienced rising inflation - widespread increases in prices. During the 1980s and 1990s, disinflation - declining levels of inflation - was the trend. In the 2000s, it will be deflation - widespread decreases in prices.
As a leading capitalist economist, Stephen Roach of Morgan Stanley, put it: "the negative shock to consumer confidence could well be the transforming event of this economic cycle. It takes the fundamentals of an already weakened US economy from bad to worse. Before the shock of 11 September, America had moved to the very brink of [recession]. This tragedy could well be the tipping point. This shock seals the fate of the American consumer, who was already beginning to labour under the pressures of depleted saving, record debt burdens, negative wealth effects and rising unemployment. And now a devastating shock produces a lethal combination for the American consumer. The US and global economy is likely to be the victims of the staggering events of 11 September."