We are facing the worst economic crisis
since the 1930s. Despite all the efforts to bail out the banking system, the
economic crisis has only just started to bite. How deep or long the crisis will
last is difficult to estimate, but given the financial house of cards built up
in the last world boom, the capitalist system has entered unprecedented times,
in which a depression cannot be ruled out.
Even the strategists of capital are
terrified of this scenario, with all the mass unemployment and misery that goes
with it.
“Many reach for parallels with the ‘gilded
age’ of the 1920s, that gave rise to unprecedented Great Gatsby-style incomes at the top and was brought to a close by
the 1929 stock market crash and the ensuing Great Depression”, comments the Financial Times (29/10/09).
Interestingly enough, the distribution of US income today almost exactly
matches that of 1928 on the eve of the Wall Street crash. In 1928, the top 1
per cent of Americans took in 24 per cent of national income, compared with 23
per cent today.
The artificial boom is giving way to a
great downturn. The gloom surrounding the capitalist class is mirrored by their
spokespeople. Martin Wolf, the key economic writer for the FT ably expresses
the panic and dread of the capitalists. On 20 February, he wrote in his column:
“America’s economy risks the mother of all meltdowns”.
In today’s FT, Martin Wolf points to the
global outlook from JP Morgan Chase, which was forced to revise down its
previous bullish predictions. In their assessment entitled “A bad week in
hell”, the bank expects a shrinkage this quarter at an annualised rate of 4 per
cent in the US, 3 per cent in the UK and 2 per cent in the euro-zone. However,
Wolf qualifies this assessment:
“Given the near-disintegration of the
western world’s banking system, the flight to safe assets, the tightening of
credit to the real economy, collapsing equity prices, turmoil on currency
markets, continued steep declines in house prices, rapid withdrawal of funds
from hedge funds and ongoing collapses of the so-called ‘shadow banking
system’, these forecasts even look quite optimistic. The outcome next year
could be far worse.”
Despite the guarantees to recapitalise the
banking system, the evidence is this has not halted the turmoil. While the
capitalisation of world stock markets have halved, the losses on worthless debts
have grown to a massive $2,800bn.
He points to those who believe a short,
sharp recession would fix things saying, “The idea that a quick recession would
purge the world of past excesses is ludicrous.” He goes on, “The danger is,
instead, of a slump, as a mountain of private debt – in the US, equal to three
times GDP – topples over into mass bankruptcy. The downward spiral would begin
with further decay of financial systems and proceed via pervasive mistrust, the
vanishing of credit, closure of vast numbers of businesses, soaring
unemployment, tumbling commodity prices, cascading declines in asset prices and
soaring repossessions. Globalisation would spread the catastrophe everywhere.”
He concludes that, “this would be a recipe…
for xenophobia, nationalism and revolution.” Alarmed he says “Everything must
be done to prevent the inescapable recession from turning into something worse…
Deflation is a real danger.” With a further note of desperation, he states, “At
stake could be the legitimacy of the open market economy itself… the danger
remains huge and time is short.”
Wolf is no alarmist. He is a serious
strategist of capital. Yet he can see the real catastrophe that faces the
capitalist system and the dangers of revolution. However, he and his class are
powerless to act. All he can suggest is tax cuts and the need to “sustain
credit lines to those likely to remain solvent.” They are like their
counter-parts in the 1930s, tobogganing to disaster with their eyes closed.
The working class must understand what is
coming. They should take heed from the warnings of the serious strategists of
capital. On the basis of capitalism there is a nightmare coming for working
people. The working class must set itself the task of resolving the crisis in
the interests of the majority, that is through the socialist revolution and the
reorganisation of society on socialist lines.
29.10.08
