Economy

It is the working class of the world who will really suffer from the present crisis. Globally, the UN estimates that unemployment will reach 220m this year. Out of a global workforce of about 3 billion, that’s "only" 7%. But this figure leaves out millions of hidden unemployed who just cannot even begin to look for work. And as a percentage of those working in sweat shop and factories around the globe, it is more like 20%.

The crisis in the auto industry has reached huge proportions and is now affecting nearly every country. Demand for vehicles has fallen sharply all over the globe, with sales reaching lows not seen for three decades. If the main auto manufacturing companies go under, there will be millions of jobs lost and a massive blow to the rest of the economy, which would have a disastrous effect on the living conditions of millions of workers around the globe. So what is the answer?

The crisis of world capitalism is unfolding relentlessly and with gathering speed. First came the financial crisis (the so-called credit crunch), but now the second phase has begun - the crisis of the real economy - and it is accelerating as each day goes by. This is leading to sharp changes in consciousness, rising working class militancy and the beginnings of polarisation within the labour movement itself.

Martin Wolf in the Financial Times today: “…this would be a recipe… for xenophobia, nationalism and revolution… Everything must be done to prevent the inescapable recession from turning into something worse… Deflation is a real danger… At stake could be the legitimacy of the open market economy itself… the danger remains huge and time is short.”

Over the past weeks, Britain, many other European countries and the US have announced plans to nationalise large chunks of the financial sector, thereby taking a good proportion of the commanding heights of the economy into public ownership. A step towards socialism one might wonder. Quite the opposite reassures us the Financial Times.

Panic has gripped the stock markets of the world. Things are completely out of control, and there is nothing that governments can say or do that can stop it. As in 1929, every time people thought that the worst had come, further falls were just round the corner. Nobody knows how far share prices have still to go. The world economy now finds itself in unsheltered waters.

In the words of Alan Greenspan, “The crisis will mean a return to the ideological struggle between socialism and capitalism. Many of us thought that struggle was over with the collapse of the command economies, but this is not the case.” Reality is indeed coming home with a bang!

What caused this financial crisis? Whilst the collapse of house prices was the straw that broke the camel’s back, this requires that it was already heavily laden with straw. Marxists understand that historical events don’t occur in a vacuum; rather, they are a result of the build up of contradictions within the system.

The Banks are going down like ninepins. The whole financial system has been based on an unstable house of cards of credit. The pyramid had been built up over years of mad speculation. Now it is all unravelling.

Such was the indignation of ordinary Americans that yesterday the much trumpeted $700billion bailout was voted down in Congress, sending shockwaves around the world's financial institutions. Whatever they do now, a new package or no package will mean serious economic downturn and reveal the real nature of capitalism to all.

Bradford & Bingley has finally been put out of its misery. After months of cliff-hanging the government has been forced to nationalise the bank. In many respects the ‘rescue’ plan is a clone of the $700bn Paulson plan being pushed through in the USA. The basic idea is that the good stuff is sold off to the private sector while the taxpayer is lumbered with the bad debts, the toxins. Socialism for the rich and the rigours of free enterprise for the rest of us!

Let us compare the perspectives of the Marxists with those of the bourgeois. In contrast to the bourgeois economists who committed the grave error of believing their own propaganda, the Marxist tendency explained the reality of the situation long ago. The Marxists were laughed at then... not anymore. What we have been saying for years is now becoming reality for all to see.

We live in exceptional times. The financial panic in the USA is creating waves that are threatening to engulf the whole world. This is rapidly transforming the consciousness of millions. Alan Woods, in a two-part article looks at how the world economy reached the stage it has, where it is on the brink of a serious downward, so serious that it could be as worse if not worse than 1929.

Last week US Treasury Secretary Henry Paulson unveiled a dramatic plan to arrest the present financial crisis and prevent future economic catastrophe. It is to cost $700bn. It sounds like a breathtaking break from neo-liberal philosophy. It’s not really. Neo-liberalism was always a giant lie. Homeless people don’t matter. People in danger of losing their jobs in a recession don’t matter. But, when it comes to banks and billionaires, self-reliance is for the birds. These people are hapless bums.

The capitalist system is in the throes of the worst financial crisis since the Great Depression. This is the view not only of the billionaire George Soros, but also of the International Monetary Fund, the custodian of the capitalist system, and all the serious capitalist commentators.

After a week of turmoil on financial markets, on Saturday 20 September President Bush said he was proposing to spend $700bn of taxpayers’ money to buy the rotten mortgage assets held by the banks on Wall Street. He said he was doing this to help the average American family with their homes and jobs.

Financial markets in Wall Street, New York, the City of London and all over are in turmoil. In just 24 hours, two out of the four largest investment banks in the US have disappeared. All this confirms what Marxists have always maintained: capitalism does not operate in a smooth and steadily increasing way to progress. It operates violently, lopsidedly, in cycles of boom and slump. Now more banks are set to fail and there will be more misery in the financial markets. Working people are also set to suffer as massive job losses are announced.

Written in August, one year after the beginning of the credit crunch, this article explains how that earthquake in the global financial system has left banks, insurers, pension and municipal funds, hedge funds and private equity companies tottering and falling. Collateral damage has been immense and the after-shocks are still to come.

The Financial Times has hailed the effective takeover of Fannie Mae and Freddie Mac by the US government as “what could become the world’s biggest ever financial bail-out.” Treasury secretary Henry Paulson has promised he will pump in ‘unlimited liquidity.’ Don’t you wish the government would grant you unlimited liquidity? When it comes to the food and fuel bills of the poor and the working class, the British and American governments find that the cupboard is bare. But now it’s not bare. Predictably markets all over the world have breathed a sigh of relief. Fannie and Freddie have effectively been nationalised – and big business...

Fannie Mae and Freddie Mac may sound like two characters out of the old West, but Fannie Mae is the Federal National Mortgage Association and Freddie Mac is the Federal Home Mortgage Corporation and they're both in big trouble. The big two have liabilities of $5.3trillion outstanding. This is as big as the entire US national debt, which has ballooned under Bush's stewardship.

Hedge funds are in the news again. They don't much like being in the public gaze. We wonder why. Does their speculation cause prices to go up? Do they drive firms into bankruptcy so workers lose their jobs? These are the questions being asked. Let's see what they get up to.

The immediate cause of the sliding dollar is not far to seek. It’s the US deficit with the rest of the world. Last year the USA imported nearly twice as much as it exported. Their current account deficit stands at 6% of national income. If a country is spending more than it’s earning, then it has to pay for the difference.

Under capitalism if there is no profit, there is no production even if people need things or services. Therefore, over the last 25 years there has been a massive expansion of the unproductive sectors of the capitalist economy, i.e. a massive increase in fictitious capital. This is now expressing itself in what may be the worst crisis for more than 30 years.

Last month 100,000 American private sector workers lost their jobs. This is the third monthly rise in the unemployment figures in a row. Everything indicates that the USA is now in recession. As it is the biggest single market in the world, this will inevitably have a big impact on the rest of the world.

Last Thursday it was Carlyle Capital Corporation. On Friday it was the turn of Bear Stearns, the fifth largest bank in the USA. The American Central Bank, the Fed, is due to meet this week to talk about interest rates. Most likely they will cut them again. The trouble is, the more they slash rates the more people can smell the fear.

Republication of the article is timely. In 2007 the sub-prime mortgage bubble finally burst. The financial crisis has already had a knock-on effect on the banks through the credit crunch. The capitalist world stands on the threshold of recession.

In 2006 the world's richest two percent of adults owned more than half the global wealth, while half the world's population own only one percent. In 2007 the World Wealth Report estimated the total wealth of rich individuals at $37.2 trillion! While this wealth accumulates for a small minority, the vast majority of humanity is seeing its living standards plummet. In these figures we see another picture: the growing tensions between the classes that will lead to social upheaval and revolution on an unprecedented scale.

Transcript of Alan Woods' speech on the world political and economic perspectives for year 2008 at a meeting of the leadership of the International Marxist Tendency on January 13, 2008. You can also listen to the speech here.

Everything now clearly indicates that the advanced capitalist world is headed for recession. The only question is when and how deep that recession will be. In fact Merrill Lynch says the US economy is already in recession. And that’s bad news for all of us. Here Mick Brooks at what is really going on in the world economy.

We have seen the sharpest falls in stock markets around the world for almost a decade. Billions have been wiped off share prices worldwide. As we have predicted, fear mounted among the financial authorities that the panic could lead to a full-blown recession.

Panic! The world's stock markets had their sharpest fall since 9/11 on Monday 21 January. It is supposed to be the most miserable day in the year in the Northern hemisphere, where the daylight is short, the weather is bad, people have colds and flu and they have run up debts from Christmas. But this year, it really was a Black Monday for capitalism.

As the New Year begins Alan Woods comments on the state of world affairs, highlighting the impasse facing humanity, a direct consequence of capitalism in its phase of senile decay. At the root of the present world turmoil is private property of the means of production, a system based on greed for profit. In the next period the workers of the world are faced with the task of removing the system.

Everywhere the cry is: credit crunch! You can smell the sweat on the brows of bankers as their necks are squeezed by the tightening credit noose. In all the offices of the great investment banks of Wall Street, the City of London and gnomes of Zurich, you can hear the hissing sound of the global financial bubble bursting and deflating.

According to a recent United Nations study, the richest 1% of adults in the world own 40% of the planet's wealth. Europe, the US and some Asia Pacific nations accounted for most of the extremely wealthy. More than one-third lives in the US, while Japan accounts for 27%, the UK for 6% and France for 5%. But bourgeois economists still insist Marx was wrong!

The bourgeois economists are incapable of understanding crises, which are an inescapable result of capitalism. They look for subjective factors such as “confidence”, even “human nature”. In reality what we are witnessing are the real workings of the capitalist system in a period of decline.

The recent chaos on world stock markets is a manifestation of the general turbulence that is the most prominent feature of the present epoch. The crisis that affected the Northern Rock bank in Britain is but an indication of dramatic events that are being prepared globally.

Over the past 15 years production has risen at about 3% a year in the OECD countries, while money supply, mortgage and company debt, personal borrowing and the massive so-called derivatives market based on this credit has increased at over 25% a year! Result? A huge bubble which is now bursting, starting with Northern Rock.

Recently, the Bank of England hiked its interest rates yet again to 5.75%,the fifth rise since August 2005, and "further action" on interest rates could be on its way. The interest rate may go to 6% or more by the end of this year. The credit-led boom is now in jeopardy as central banks raise interest rates everywhere.

The financial turbulence of recent days has wiped billions off the price of shares all around the world. On Friday August 10th London’s stock exchange, the FTSE 100, alone dropped £63 billion. What does this mean?

This speech was delivered at a meeting of the leadership of the International Marxist Tendency in Barcelona on 24 July 2007. The recent turbulence on world stock markets fully confirms the perspectives outlined in it.

The poorest 50% of the world's 6.6bn population own just 1% of the world's riches. The answer? "Although we Americans strive to provide equality of economic opportunity, we do not guarantee equality of economic outcomes, nor should we." (Ben Bernanke, the chair of the US Federal Reserve)

This is an important book, written by Andrew Kliman, and published by Lexington Books. In a nutshell, what Andrew Kliman shows is that Marx's laws of motion of capitalism (how capitalism works and does not work) are logically consistent and theoretically valid.

High levels of growth have been achieved in the world economy, but these have been based on huge levels of easy credit, on debt. This is not sustainable in the long run. Figures on the state of the US economy indicate that the system is reaching its limits and crisis is looming.

The nerves of stock market speculators can’t be in too good a shape these days. Wall Street has just suffered its second biggest point drop in four years. This immediately spread to Asian stocks markets that suffered serious falls.

China hints at a tax on capital gains and the Shanghai stock exchange falls by 10%, but then the fall affects all the other major stock exchanges. What does all this indicate? Michael Roberts gives his view on the question.

In his new book, Capitalism Unleashed, Andrew Glyn attempts to explain how capitalism moved from the crisis of the 1970s to recovery in the 1980s and 1990s. However, although full of interesting information, the book fails to provide an overall analysis and misses some essential aspects of Marxist theory.

Milton Friedman died on 16 November aged 94 years. He was one of the foremost bourgeois economists of the 20th century. His reputation as a monetarist theoretician and advisor to the likes of Thatcher, Reagan and Pinochet as these attacked all the gains of the working class was well earned.

The financial press and the investment houses of global finance capital are in euphoria. The world's stock markets are booming. But a closer look reveals that all this euphoria is misleading and the real situation is far less healthy than would appear on the surface.

The Financial Times recently claimed the British economy has been doing rather well out of globalisation. A closer look at the figures shows that what we have before us a growing polarisation, with the rich getting richer and the poor poorer. On a world scale the position is even worse, which may possibly explain the growing instability all across the globe.

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