Current crisis of overproduction – worse than the 1929 crash
A presentation to the International Communist Seminar delivered by Harpal Brar, on behalf of the CPGB-ML, Brussels, 15 May 2009.
The world capitalist system is in the midst of a deep recession, threatening to turn into an unprecedented slump, compared with which the 1929 depression, which lasted more than 10 years, would look almost mild.
All around us is the spectacle of saturated markets, rising unemployment, plunging stock markets, collapsing giants of finance capital, real-estate prices in free fall, cascading corporate bankruptcies, freezing credit, a shrinking world economy, contracting world trade, and ever-increasing misery and destitution heaped upon scores of millions of workers across the globe.
Whatever its appearance, this is, at bottom, a veritable crisis of overproduction. At times like this, one is forcefully reminded of the following never-to-be-forgotten words of Engels:
” Commerce is at a standstill, the markets are glutted, products accumulate, as multitudinous as they are unsaleable, hard cash disappears, credit vanishes, factories are closed, the mass of workers are in want of the means of subsistence because they have produced too much of the means of subsistence, bankruptcy follows upon bankruptcy, execution upon execution. “ (Anti-Dühring, 1877, Foreign Languages Publishing House, Moscow, 1962, p377)
Written 133 years ago, the above observation of Engels’ has a remarkably topical ring to it; it is as though he were writing about the present crisis. The Marxian analysis, encapsulated in succinct form in the preceding words of Engels, alone presents us with the key to an understanding of this crisis, as well as the way out.
Bourgeois economic science has little to offer in the way of an explanation of, let alone a solution to, this crisis - not because bourgeois economists are unintelligent, but because of their narrow outlook, hemmed in as it is by their faith in the eternity of the capitalist system of production, supplemented by the imperialist loot, a portion of which stuffs their wallets by way of bribery, a continuing incentive against recognition of the obvious reality. Even when brutal reality brings them close to grasping the underlying cause of the crisis, they shy away from it, often ending up by confusing symptoms and their causes, appearances and reality. One has to indulge in archaeological exercises, as it were, to dig and drag the truth out into the light of day.
As in 1877, so today, Engels’ concise and clear words contain the secret to an understanding of this, as indeed of every past and future, capitalist crisis: “The workers are in want of the means of subsistence because they have produced too much of the means of subsistence” (our emphasis), ie, these devastating crises are caused by overproduction.
The crisis that presently confronts us is of truly gargantuan proportions; prominent monopoly capitalists, as well as the ideologues of finance capital, openly admit to its ferocity, depth and scale. The economy has “fallen off a cliff“, says Warren Buffet, the multibillionaire investor. Bourgeois analysts and commentators routinely and variously characterise this crisis as the world’s deepest economic downturn since the Great Depression, a once-in-a-century tsunami, and a natural disaster. There is no doubting that the world capitalist economy has
stumbled, as it was bound to, over the edge of the ravine with great speed and alarming global synchronicity. 
Faith in market shaken
The unfolding crisis has turned all the bourgeois economic dogmas upside down and shaken the faith of even a section of the capitalists and their ideologues in the ability of the market to work miracles. When, over a year ago, Joseph Ackerman, the Chief Executive Officer of Deutsche Bank, said that he no longer believed in “the market’s self-regulating power”, everyone in the world of high finance and industry was startled. Now such assertions are commonplace.
The former chief of the Federal Reserve, Alan Greenspan, a proponent of financial innovation and deregulation, and who played such a crucial role in the creation of the most recent bubble, has confessed that the financial system was flawed. Jack Welch, the former CEO of General Electric, has described the shareholder value movement, which especially characterised Anglo-American finance capital, as “the dumbest idea in the world”. Lawrence Summers, former US Treasury Secretary, and now heading the Obama economic team, says: “The view that the market economy is inherently self-stabilising, always, has been dealt a fatal blow.”
No-one batted an eyelid when, at the recently-held G20 Summit, Gordon Brown, Britain’s prime minister, declared the gathering a requiem for laisser-faire capitalism. The destructive force of this crisis has well and truly rubbished the market fundamentalism of the Davos man, which only recently bestrode the world like a colossus.
State intervention, only yesterday scoffed at, has been restored to respectability. “Paulson [Bush's Treasury Secretary] is the champion nationaliser of all times. He managed more nationalisation than any man on the planet.” So said Fred Bergsten, director of the Peterson Institute for International Economics. Mr Bergsten ‘forgot’ to add that Paulson’s nationalisation was merely the nationalisation of the debt and losses of finance capital for the sole purpose of saving this historically outmoded system at the cost of billions of US taxpayer dollars.
Wouter Bos, Dutch finance minister and leader of the Labour Party, says that the present crisis has killed the myth of “happy globalisation” and called for the “visible fist” of the government to supplement the “invisible hand” of the market in order to maintain support for the open markets and free trade.
Continuation of earlier crises
The present industrial, commercial and banking crisis is actually a continuation, only much more virulent in its intensity, of the crisis of overproduction that appeared in the middle of 1997 in the form of a currency collapse in the Far East, beginning with Thailand and spreading like wildfire to Indonesia, Malaysia, the Philippines and South Korea, before jumping continents a year later to overwhelm Russia, and through it the US and Europe, in the process wreaking havoc, causing big business failures, throwing millions of workers out of work, and helping to sharpen inter-imperialist contradictions.
For a while, as the economies in the Far East suffered under the devastating blows of a thorough and deep recession, and Russian capitalism came close to collapse, strangely the US and European imperialist countries managed to stay out of harm’s way. As a matter of fact, despite an unprecedentedly high US trade deficit, the stock markets of the US and Europe soared ahead. This, however, was only an apparent paradox - not a real one. At the time, we wrote this by way of an explanation of this apparent paradox:
” As Marx explained long ago, the fever of speculation is only a measure of the shortage of outlets for productive investment: the depressed state of industry is reflected by an expansion of speculative loans and speculative driving up of share prices. The crisis of overproduction is a reflection of the over-accumulation of capital which, unable to find profitable opportunities for productive investment, seeks a way out in stock market and other speculative activity in an endeavour to make a profit. The tendency for the mass of surplus value to increase at a slower rate, as Marx showed, than the total capital employed is expressed in the tendency of the rate of profit to fall, which only goes to show that production for profit is an inadequate basis for the constant development of society’s material conditions of existence.
“ (’Indonesia - a harbinger of revolutionary upheavals’, Lalkar, July 1998, reproduced in Harpal Brar, Imperialism - The Eve of the Social Revolution of the Proletariat, London, 2007)
The demand for the products of industry fell in one sector after another owing to overproduction (’too much capacity’, as the bourgeois commentators express it, fearing like the plague the correct Marxist terminology). This shrinkage of demand, combined with the crisis in the Far East, which had temporarily ceased to be a profitable avenue of investment, resulted in the flight of $109bn of capital from the five affected far eastern countries to the centres of imperialism.
All these massive sums and more were pumped into the US and European stock markets, which rose 52 percent between the start of 1997 and the middle of 1998. Since the buoyancy of the stock market bore little relation to the productive base, which continued to limp far behind, it was only a question of time before this speculative bubble burst, with all the inevitable horrendous effects on the economy - from manufacturing to financial institutions.
By the end of August 1998, following the Russian default, and in response to it, events moved with bewildering speed, with the world stock markets taking a pasting. Shares in London experienced their biggest fall since the crash of 1987. On Friday 28 August 1998, the FTSE 100 stood 1,000 points below its all-time high of 6,179, reached only a few weeks earlier. On 2 October, it closed at 4,750 - 23 percent below its peak of 17 July 1998.
The Dow fell dramatically from its peak of 9,337 on 17 July to 7,286 by the end of August - approximately 20 percent below its mid-July peak, losing all the gains it had made since the beginning of 1998.
The Nikkei average fell to a 12-year low. Some European equity markets suffered falls of 20 percent from their July peaks.
On 23 September 1998, Long-Term Capital Management (LTCM), one of the largest hedge funds in the US, with a total market exposure of $200bn, went bust, forcing the Federal Reserve to arrange its rescue, for its failure would have meant a meltdown of the financial system in the US and beyond.
The plunging stock markets, in the wake of the Russian default, and the near-collapse of LTCM, obliged Philip Coggan of the Financial Times to describe their fallout in these colourful military terms:
” The market is feeling as battered as wartime Berlin at the hands of the Red Army. At times this week, it has seemed as if the entire Red Army had been marching on the stock market. “ (’Red Army sings the blues’, Financial Times, 3 October 1998)
The entire global capitalist economy was peering into the abyss. To prevent a plunge to the bottom, the US Treasury, in cooperation with the Federal Reserve, coordinated an international response of cuts in interest rates aimed at sustaining artificially high equity prices, and thus keep US growth and the world capitalist economy afloat - temporarily at least. The Fed’s three interest rate cuts in quick succession, followed by similar cuts by central banks in 22 countries, served as a stimulus to arrest, and then to reverse, the slide in equities in the US, across Europe and other parts of the globe. On 16 March 1999, the Dow broke through the 10,000 barrier, with the FTSE also clocking up significant, and equally unsustainable, rises.
The trick worked for a while because of a remarkable coincidence of events, namely, the recession in the world’s then-largest creditor nation, Japan, and five other Asian economies, on the one hand, and the exuberant expansion in the largest debtor nation, the US, on the other, which served to complement each other perfectly, thus temporarily preventing world capitalism from stepping over the precipice.
In other circumstances, US expansion would have been inflationary enough to undermine the dollar and cause a flight of capital from the US - with all the disastrous consequences resulting from such a flight. Instead, investment flowed into the US, which strengthened the dollar. The strengthened dollar, in turn, enabled the US to play the dual role of an engine of global growth and an importer of last resort for the world economy. US consumers, buoyed by cascading paper wealth, were able to indulge in a spending binge without bothering to save since foreigners were willing to step in with the necessary capital for US investment.
Strong capital inflows helped finance a stock-market and corporate investment boom, enabling US households to spend in excess of their income, and the US economy to grow, despite a growing US trade deficit. While unprecedentedly high stock-market valuations became the driving force behind the spending binge in the US, the latter, in turn, temporarily to be sure, drove equity prices up further still.
The moral hazard factor - the belief that the Federal Reserve was putting a safety net under the market following the 0.75 percent cut in interest rates in 1998, that it would not allow the stock market correction to go so far as to push the US economy into recession, and that it would come to the market’s rescue by opening the monetary sluice gates - helped to sustain high valuations on Wall Street.
The actions of the Fed resulted, as they were bound to, in exacerbating the huge imbalances in the US economy - an unsustainable asset-price bubble, hand in hand with an unsustainable current account deficit. By March 1999, the ratio of the US stock market value to GDP had reached 150 percent.
The US stock market is crucial to the growth of the global economy, furnishing the confidence and collateral for American consumers’ borrowing and spending, which means that US equities cannot stand still. They have to be on a rising trajectory if the US economy is not to come to a grinding halt - and with it, capitalist economies all over the world. But reason suggests that, over time, equities cannot rise at a rate faster than that of the nominal Gross National Product, for the price of shares is based on dividends, which depend on profits; and profits cannot indefinitely increase their share of the economy.
The truth, however, is that the world capitalist economy has for decades been suffering incurably from a crisis of overproduction. No amount of tinkering with interest rates, or any other fine tuning of the economy by the central banks, can get rid of the inherent problem of capitalism. Even bourgeois economists come pretty close to accepting this truth from time to time.
Thus, in February 1999, a whole year before the crazy boom set in motion by the interest rate cuts of 1998 came to a rude halt, Andrew Smith wrote inThe Times: ” The world has too much industrial capacity, a situation worsened by Asia’s crisis, and it will take years of savage rationalisation [ie, recession] to bring capacity into line with demand.” (’Deflation is a debt trap’, The Times, 14 February 1999)
Logically, if there is a mismatch between demand and capacity, that is, if there is far less demand than capacity, there are only two ways out of the situation: first, reduce capacity and bring on an immediate recession; second, increase demand through the implementation of Keynesian measures, which in turn create even bigger problems, preparing the way for a far more devastating crash and crisis of overproduction.
Within the bounds of capitalism, there is no cure for crises of overproduction, which are merely an expression of the contradiction between social productive forces and private appropriation (see below).
Bursting of the dotcom bubble
Wheels began to come off with the bursting of the dotcom bubble, when the Nasdaq plunged from its peak of more than 5,000 in the spring of 2000 to 2,332 on 20 December, reaching a low of 1,725 on 12 April 2001.
Only a few months prior to the Nasdaq’s downward plunge, the global equity markets were on cloud nine, fully convinced that the US economy was set to grow at an ever-increasing rate, hand in hand with low inflation and low unemployment, thanks to the technological miracle. But, as Mr Philip Coggan, with the benefit of hindsight, was ruefully to remark, “there’s a problem with living on Cloud Nine: it is a long way down if you fall off“. (’A long way to fall’, Financial Times, 2 January 2001)
The Fed’s interest rate cuts had, not unexpectedly, failed to solve the problem, for consumers continued to be heavily indebted as companies grappled with unsold inventories. With a quarter of US production capacity lying idle, companies embarked on a programme of aggressive job cuts.
Global industrial production fell at an annual rate of 6 percent in the first half of 2001, as overproduction overwhelmed one sector after another.
From telecoms to chemicals and engineering, from services to manufacturing, the news was dismal. Faced with this harsh economic reality, theEconomist of 23 August 2001 was obliged to admit the arrival of the first economic recession of the new century with the words: ” Welcome to the first global recession of the 21st century.“ (’A global game of dominoes’)
In October 2001, US manufacturing output was 7 percent below its peak in June 2000. Production in the 30 richest countries belonging to the OECD grew by a mere 1 percent, compared with 4.2 percent in 2000 - notwithstanding interest rate cuts by the Federal Reserve from 6.5 percent to 1.75 percent in less than 12 months.
In October 2001 alone, US businesses slashed payrolls by 415,000 - the largest one-month drop in 20 years. In the two months of October-November 2001, the increase in the number of unemployed in the US totalled 800,000, taking the increase for the year 2001 as a whole to 2.2 million, the biggest annual increase in the jobless up to that time. The picture in Europe and Japan was similarly bleak. Thus, the three principal centres of monopoly capitalism found themselves in synchronised recession.
On 22 July 2002, the Dow Jones fell 3 percent to 7,785 - a level 33 percent below its January 2000 peak. The FTSE went down as low as 3,600 before closing at 4,051 on 5 October 2001. European stock markets, too, experienced sharp falls.
Climb out of recession
Since the second world war, the recession that set in in the aftermath of the bursting of the dotcom bubble was the longest. After three years of destruction of the productive forces and products alike, the world capitalist economy began its temporary climb out of the recession.
One of the factors that helped recovery was the state of the housing market, which remained buoyant throughout this period. And this for the reason that, while business investment collapsed and equities plunged, investors shifted to the property sector, thus engineering a housing-market bubble.
Rapidly rising house prices enabled consumers in the US to transfer their equity-extracting tactics to the housing market and merrily carry on spending. A crash in the property market, which was certain to arrive, as it did in the summer of 2007, was bound (as it already has), while burying house owners and other investors in real estate under a mountain of debt, to leave many a financial institution badly burnt. A collapse of the property market was only too likely to trigger a banking crisis of systemic proportions - and it has.
Besides, the three years of recession, as always, became the occasion for further concentration of capital, for further intensification of the exploitation of the working class, through savage rationalisation, increased productivity, cuts in healthcare and pension provision, a reduction in wages and the lengthening of working hours.
Thus it was that, according to official data, the profits of US companies rose from 7 in 2001 to 12.2 percent at the start of 2006 - climbing 123 percent over the same period. During that period, the share of national income going to the workers declined from 58.6 percent to 56.2 percent. Such a state of affairs, while affording temporary relief to capitalism, is not sustainable, for profits cannot indefinitely increase their share of the economy.
The continuing impoverishment of the masses, notwithstanding the real-estate bubble, was bound to undermine consumer spending and economic growth, thus bringing to a grinding halt the post-2002 recovery and precipitating yet another recession, only this time more horrendous, for, the ” last cause of real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces as if only the absolute power of consumption of the entire society would be their limit “. (Karl Marx, Capital, Vol III, 1885, p484)
In the middle of March 2007, Harpal Brar published a collection of essays entitled Imperialism - the Eve of the Social Revolution of the Proletariat. In the preface to that collection, while alluding to the recovery following three years of recession, he wrote, ” One does not have to be a prophet to be able to foretell the inevitable and fairly sharp crash that is bound to follow this short period of industrial and commercial prosperity and stock market buoyancy, for the very means which capitalism uses to overcome the barriers inherent to it ‘again place these barriers in its way and on a more formidable scale’ (K Marx, Capital, Vol III, p250). The bourgeoisie gets over these crises through ‘enforced destruction of a mass of productive forces’ … on the one hand, and ‘by the conquest of new markets, and by the more thorough exploitation of the old ones’, on the other - that is by ‘paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented’ (K Marx and F Engels, The Communist Manifesto, p38).”
He also mentioned in the same preface that the stock market was beginning its downward spiral due, inter alia, to concerns over growing problems in the subprime mortgage sector (loans to uncreditworthy persons), unprecedented levels of debt and the likelihood of the US housing market crashing. Between 2000 and 2005, US house prices rose by 60 percent. Many other countries, including the UK, experienced even higher house price inflation. “The end of the US property boom”, continued Harpal Brar, “which is inevitable, will force US households to tighten their belts, start building up their savings, and thereby put an end to the US’s role as the world’s buyer of last resort. ”
The present crisis
Less than three months after the above lines were written, the present crisis of overproduction broke out with a virulence hitherto unknown, not even in the 1929 crash.
According to the latest analysis from the International Monetary Fund (IMF), world output is expected to shrink by between 0.5-1 percent this year for the first time since the second world war, with the economies of advanced capitalist countries expected to contract by between 3-3.5 percent. (Note on ‘Global economic policies and prospects’, 13-14 March 2009)
This latest forecast by the IMF tears up its earlier forecasts, made only a few weeks previously, in January, and predicts a far more severe slump this year and next. No region or country in the world is expected to emerge unscathed from this slump, according to the IMF. The World Trade Organisation (WTO) forecasts a decline of 9 percent in the volume of world trade. This free fall will take place despite the enormous monetary and fiscal stimuli (see below) already put in place.
The Eurozone economy is forecast to contract by 4 percent, Germany by 5 percent, Japan by a huge 6.6 percent, Italy by 4.3 percent, France by 3.3 percent, and the British economy by 3.7 percent. This contraction of the British economy will be a well-deserved economic lesson for Britain’s former Chancellor of the Exchequer (now Prime Minister), Gordon Brown, who foolishly boasted not so long ago that he had “eliminated boom and bust” and ensured a continuously upward trajectory for the British economy.
The reality is much harsher than the fantasies of a Gordon Brown. Consequent upon the present recession, the financial crunch, the collapse or near-collapse of most of the major British banks, the seizing up of credit, and Britain’s fast-declining GDP, the City of London faces the prospect of losing its status as a major financial centre, with devastating effects on the livelihoods of Londoners, for almost one third of London’s 4.2m jobs are supplied by finance and business services, with a mere 3.7 percent by manufacturing, excluding publishing.
Europe’s economy has been shrinking at a dizzying speed, losing 1.5 percent of production in the last quarter of 2008 alone. (See Financial Times, 11 March 2009)
In the largest European economy, that of Germany, GDP fell by 2.1 percent (an annualised rate of over 8 percent) in the last quarter of 2008 - the worst quarterly result since German reunification in 1990. The first quarter of 2009 is expected to witness an even faster decline. This January’s industrial orders were 37.9 percent lower than a year before, with overseas orders down by 42.5 percent. German exports in January were 20.7 percent below those of January 2008 and 4.4 percent below those of December 2008. Industrial output tumbled by 7 percent in the last two months of 2008.
French industrial production was down 13.8 percent year-on-year in January.
The UK reported a 5.6 percent fall in industrial production in the three months to the end of January 2009, compared with a 4.6 percent decline in the three months to December 2008.
From a peak in October 2007, manufacturing output had fallen in December 2008 by 10 percent in the US and the UK, 13 percent in Germany, nearly 15 percent in France, 17 percent in Italy, and 23 percent in Japan.
According to an IMF report, disclosed on 4 April 2009, in central and eastern Europe (including Turkey), GDP will plunge 2.5 percent, as opposed to the 4.25 percent growth forecast last autumn.
This region must roll over $413bn (€306bn/£279bn) in maturing external debt this year and finance $84bn in current account deficit. As a result, the region’s financing gap could be $123bn in 2009 and $63bn next year - $186bn altogether.
The Japanese economy declined more than 3 percent in the fourth quarter of last year and is forecast to decline a further 6.6 percent this year - the highest for any of the imperialist countries. In January, Japan suffered a 10 percent month-to-month drop in industrial production, with a sharp rise in unemployment to 4.4 percent of the labour force. Japan’s stock market tumbled to a 26-year low on 9 March in response to a record current account deficit of $1.75bn in January - the first such deficit since 1996.
These falling corporate earnings, unprecedented in their ferocity, are clearly indicative of the vulnerability of Japan’s high value-added manufacturing sector to an external demand shock, according to Mr Peter Tasker at Dresdner Kleinwort, a leading German investment bank. Mr Tasker added: “It seems so unfair. Those who partied hardest should get the worst hangovers. Japan stayed in its boom sipping mineral water. Yet it is now suffering from a humdinger of a headache.” (’Something must work’ by Ralph Atkins, David Pilling and Krishna Guha, Financial Times, 7 February 2009)
Japanese exports fell a horrifying 35 percent in December 2008 as compared to a year earlier, as demand for cars, electronics and precision equipment crumbled across the world.
What is true of Japan is equally true of much of Asia. The non-involvement of most Asian banks in the subprime mortgage fiasco has not done much to protect Asia’s economies from a severe downturn, transmitted by trade to a collapse in industrial production and consumer demand. The IMF has halved its 2009 forecast for Asian GDP growth to 2.7 percent from the 4.9 percent it was estimating barely two months ago.
Economies that once seemed have been brought to their knees. Singapore’s economy is expected to shrink by 9 percent this year, and South Korea’s by 3 percent. This is a revised figure after the release of statistics showing that in the first quarter of 2009, Singapore’s trade-dependent economy contracted by 11.5 percent, forcing the government to cut its GDP forecast from -6 percent to -9 percent. This is a sharp deterioration in Singapore’s economy since the last quarter of 2008, during which its economy contracted by 4.2 percent. The country’s manufacturing, which accounts for a quarter of its GDP, was worst affected, suffering a decline of 29 percent from a year ago because of a steep fall in the export of electronics, pharmaceuticals and chemicals. (See ‘Singapore suffers 11 percent contraction’ by John Burton, Financial Times, 15 April 2009)
India, whose economy grew by 9 percent last year, is expected by the IMF to grow this year only 4.3 percent. Even China, with a phenomenal rate of growth over the last three decades, and which grew by 13 percent last year, is forecast by the IMF to grow a mere 6.3 percent. The IMF estimates the whole of Asia’s growth this year to be just 2.7 percent - a fraction of the 9 percent attained in 2007.
The reason for this decline is the increased trade integration of Asia with the rest of the world, and its heavy reliance on external demand. At the time of the previous crisis in the late 1990s, exports accounted for 37 percent of developing Asia’s output; today they account for 47 percent. The ratio of China’s exports to its GDP rose from 38 percent at the beginning of 2002 to 67 percent in 2007. Thus, since the last crisis, Asia has swapped its dependence on external financing for dependence on external demand, 60 percent of which comes from the rich imperialist countries of America and Europe. As the latter themselves are in the grip of deep and enduring crisis, they are buying far less from Asia - and thus are exporting economic contraction via trade.
The global economy is experiencing a dramatic shrinkage and causing world trade flows to evaporate at an even faster rate than the shrinkage in global output. As a result, the hardest-hit are the export powerhouses of Asia. Exports from Japan, Taiwan and the Philippines are barely above half the levels they were at a year ago.
China’s exports fell by a fifth over the last year, its imports by even more. In February this year, China’s exports tumbled by more than a quarter, as it took the full impact of a collapse in global demand for manufactured goods. Weakness in consumer demand all over the world, especially in Europe and America, has fed through the Asian supply chain and is now having its full impact on China. As for Chinese imports, after dropping 43 percent in January, they fell another 24 percent in February.
In addition to problems on the export front, poor countries of Asia and elsewhere are being hit by a decline in revenues from tourism and a fall in the demand for labour in the Gulf region and elsewhere, resulting in a decrease in the remittances sent by workers abroad to their home countries, causing considerable hardship to millions of families.
The car industry
Every sector of the economy - from automobiles to aircraft, electronics to consumer durables, footwear to clothing; in the centres of imperialism as well as in the non-imperialist countries - has become, to a larger or lesser degree, the victim of this crisis of overproduction. We shall illustrate this crisis by reference to the car industry, which is such an important component of the world capitalist economy.
Faced with worsening unemployment and remuneration, car owners everywhere are replacing their vehicles far less frequently. In the US, the average age of trade-ins soared to 75 months at the end of 2008, from 62 months in the final quarter of 2006.
Since October 2008, US car sales have been lower than the annual scrappage rate of 12.4m vehicles; that is, the number of cars on the roads in the world’s largest car market is declining. “Frugalism is the new cool” in the US. Before the credit crunch, in a normal year 16-17m new cars were sold, with some expecting the number of new units sold to reach 20m over the next few years. Now, however, sales are running at an annual rate of little more than 10m - the lowest number since 1982, when the US had a smaller population.
Globally, car production declined to 66.2m units in 2008, from 68.9m in 2007. It is expected to fall further in 2009 to 59.3m - a reduction of nearly 10m units in a matter of two years. This cannot fail to have a depressing effect on the manufacturers and workers alike in the car industry, with wide-ranging ramifications in the many other sectors of the economy that by innumerable threads are linked with, and dependent on, the car industry. (See ‘The thrill has gone’ by John Reed and Bernard Simon, Financial Times, 3 February 2009)
And just the same conditions are staring every other industry in the face. It is clear that industrial production and merchandise exports are in free fall. The reality could be even worse than the forecasts made by the IMF and other bodies, considering the rate at which the figures regarding the deterioration in global output have had to be downgraded.
Crisis reveals the contradictions of capitalism
Like every preceding crisis of overproduction, the current crisis is a damning indictment of capitalism, bringing society as it does “face to face with the absurd contradiction that producers have nothing to consume, because consumers are wanting“. (Engels, Anti-Dühring, p387)
Even the realisation, no matter how vague, of this truth does not prevent the lucratively-rewarded analysts and commentators who write in the economic pages of prestigious organs of finance capital from asserting, in the face of massive contrary evidence, that capitalism, with all its faults, is better than any alternative.
Nothing could be further from the truth. Today, as has been the case for over a century, capitalism alone is responsible for so much misery, starvation and downright degradation, for it alone prevents the means of production functioning unless they have first been converted into capital; into the means of exploiting human labour-power.
In capitalist society, production does not take place unless the capitalist owners of the means of production and subsistence can make a profit, which in turn can only come about if they are successful in selling the commodities they produce. And herein lies the rub. Capitalism, having at its disposal
the modern means of production, is able to expand production in a manner that “laughs at all resistance“. (Engels, Anti-Dühring, p377)
However, such resistance is offered by the market. The methods employed by capital (unlimited development of the productive forces of society) for its preservation and self-expansion - the sole raison d’être of production under capitalism - which drive towards unlimited expansion of production, continually come into conflict with the narrow limits within which this self-expansion, resting on the expropriation and pauperisation of the labouring masses, takes place and can alone take place.
Capitalism forces the consumption of the masses to the levels of starvation, and thus destroys the market for the commodities it produces. This conflict between the methods and purpose of capitalist production finds its expression in periodic capitalist crises which ” are always but momentary and forcible solutions of existing contradictions. They are violent eruptions which for a short time restore the disturbed equilibrium.” (Marx, Capital, Vol III, p249)
In the words of Engels, ” The enormous expansive force of modern industry appears to us now as a necessity for expansion, both qualitative and quantitative, that laughs at all resistance. Such resistance is offered by consumption, by sales, by the markets for the products of modern industry. But the capacity for extension, extensive and intensive, of markets, is primarily governed by quite different laws that work much less energetically. The extension of the markets cannot keep pace with the extension of production. The collision becomes inevitable, and as this cannot produce any real solution so long as it does not break in pieces the capitalist mode of production, the collisions become periodic. “ (Anti-Dühring, p377)
“As a matter of fact,“ continued Engels, ” since 1825, when the first general crisis broke out, the whole industrial and commercial world, production and exchange among all civilised peoples and their more or less barbaric hangers-on, are thrown out of joint every ten years …” During these crises, commerce comes to a grinding halt, the markets are saturated, a multitude of products accumulates, credit and cash vanish, factories are closed, bankruptcies follow in quick succession, the mass of workers are bereft of the means of subsistence - because they have produced too much of the means of subsistence.
There was a time when humanity starved because it did not possess in sufficient quantity the means of subsistence. Under the conditions of the capitalist system of production, the mass of workers starve because they have produced too much of the means of subsistence. We have reached a stage of development at which the capitalist system is an anachronism - an absurd obscenity. And yet we are daily told by the hirelings of capitalism that there is no better alternative to this system; that capitalism is the final destination of humanity, and that Marxism is a failed system.
No, the truth is that, compared with the absurdity of capitalist economics, voodoo magic and a belief in virgin birth represent the highest achievements of scientific thought. The truth is that, as someone remarked a few years ago, bourgeois economics is no more than a modern form of alchemy, with the practitioners of its black arts being nothing more than highly-paid witch doctors.
“The stagnation” produced by these periodically recurring breakdowns “lasts for years“, during which time ” productive forces and products are wasted and destroyed wholesale until the accumulated mass of commodities finally filters off, more or less depreciated in value, until production and exchange gradually begin to move again. Little by little the pace quickens. It becomes a trot. The industrial trot breaks into a canter, the canter in turn grows into the headlong gallop of a perfect steeplechase of industry, commercial credit and speculation, which finally, after break-neck leaps, ends where it began - in the ditch of crisis. And so over and over again. “ (Ibid, p382)
Continued Engels: ” In these crises, the contradiction between socialised production and capitalist appropriation ends in a violent explosion. The circulation of commodities is, for the time being, stopped. Money, the means of circulation, becomes a hindrance to circulation. All the laws of production and circulation of commodities are turned upside down. The economic collision has reached its apogee. The mode of production is in rebellion against the mode of exchange, the productive forces are in rebellion against the mode of production which they have outgrown. ”
During these crises, the ” whole mechanism of the capitalist mode of production breaks down under the pressure of the productive forces, its own creations. It is no longer able to turn this mass of means of production into capital … Means of production, means of subsistence, available labourers, all the elements of production and general wealth, are present in abundance. But ‘abundance becomes a source of distress and want’ (Fourier), because it is the very thing that prevents the transformation of the means of production and subsistence into capital. For in capitalistic society the means of production can only function when they have undergone a preliminary transformation into capital, into the means of exploiting human labour-power. The necessity of this transformation into capital of the means of production and subsistence stands like a ghost between these and the workers. It alone prevents the coming together of the material and personal levers of production; it alone forbids the means of production to function, the workers to work and live .” (Ibid, pp378-9)
Unemployment and misery
The recession is wreaking havoc on working people all over the world. With millions of jobs already lost, unemployment is set to rise inexorably as the recession bites deeper still. In 2008, the figure of global unemployment stood at 190 million. According to the International Labour Organisation (ILO), more than 50 million more are expected join the ranks of these Lazarus layers.
In the EU, 17.5 million people are presently unemployed - 1.6 million more than a year ago. On 30 March, Angel Gurría, the head of the Organisation for Economic Cooperation and Development (OECD), stated that one in ten workers in the advanced economies will be without a job next year (2010) “practically with no exceptions”, warning that the number of the unemployed in the 30 rich OECD countries would swell “by about 25 million people, by far the largest and most rapid increase in OECD unemployment in the postwar period”.
This, he said, would happen as the OECD expected advanced economies to shrink by 4.3 percent in 2009 - with little or no growth expected in 2010. This forecast is far worse that the IMF’s most recent (January 2009) estimate of a 3-3.5 percent contraction for 2009. (See ‘Forecast of 25 million rise in unemployment’, Financial Times, 31 March 2009)
In the US, more than 4 million people have lost their jobs in the past 12 months, nearly half of those in the last three months alone. In February, the US private sector shed 697,000 jobs. This was the third consecutive month in which more than 600,000 jobs had been slashed - a sequence last recorded in 1939.
The US construction industry has cut more than 1 million jobs since January 2007, as construction work shrank at an accelerated pace following the collapse in the housing market. During this recession, the rate of unemployment in the US has nearly doubled from 4.4 percent to 8.5 percent in February this year, the highest since 1992. The US manufacturing sector has experienced three years of consecutive monthly declines in employment, losing 219,000 jobs this February alone. The number of workers out of work in the US now officially stands at 13.2 million.
In addition, the number of part-time workers in the US has risen nearly 80 percent over the last 12 months, to 8.6 million in February - the highest since records began to be kept over half a century ago. If those forced to work part-time, along with those who have given up actively searching for work but are still wanting a job (2.1 million) are included, the real unemployment rate stands at 14.8 percent.
In Germany, the largest European economy, unemployment rose from 7.6 percent last September to 8.1 percent in March this year.
In Britain, the number of people out of work stands at 2.1 million, with unemployment expected to be at 3 million by the end of this year. Presently, official unemployment stands at 6.7 percent of the workforce. In the three months to the end of February 2009, 177,000 British workers lost their jobs. Young people are especially hit by unemployment, with people under the age of 25 accounting for almost 40 percent of the total unemployed in Britain, and an unemployment rate of 15.1 percent in the 18-24 age group - more than twice that in the population generally.
The swelling of this reserve army of labour is, not unexpectedly, accompanied by a dramatic downward impact on the wages of working people, as workers have been compelled to worry about retaining their jobs rather than boosting their wages. As the recession becomes longer and deeper, this downward movement of wages will assume the proportions of a slump.
Unemployment in Spain has risen above 4 million for the first time and stands at 17.4 percent of the workforce - double the average for the EU. Half of the EU jobs lost in this crisis have been in Spain. Spaniards have been losing jobs at the rate of 9,000 a day. Alarmingly, unemployment is likely to top 20 percent and may well reach 5 million. In the past three decades, the rate of unemployment in Spain has only once been below 8 percent, and it exceeded 20 percent in the mid-1980s as well as the mid-1990s.
When the economy was growing, Spain absorbed 5 million immigrants from Latin America, North Africa and eastern Europe, providing employment to a new generation. (See ‘Spain needs to find permanent solutions to its temp problem’ by Victor Mallet, Financial Times, 30 April 2009)
Karl-Theodor zu Guttenberg, economics minister, said on 29 April that close to 1.5 million workers would lose their jobs this year and next in Germany.
In India, more than half a million jobs were lost in the Indian export sectors in the final quarter of 2008, with many more job losses expected this year. In China, a huge 20 million of the 130 million rural migrant workers have lost their jobs and returned to their home towns and villages - representing a 15.3 percent unemployment rate among migrant workers. This is in addition to the 8.86 million officially unemployed, accounting for 4.2 percent of the urban workforce - the highest unemployment rate for at least a decade.
The above figures tell us of hopes destroyed and lives blighted across the world and are a damning indictment of capitalism and the market economy.
Just as an opera is not over till the fat lady sings, likewise a capitalist recession does not end before a big banking failure. The present crisis is remarkable for the fact that it is accompanied by the near collapse of the entire banking system in the US, Britain, and a number of other countries. In the words of Chrystia Freeland, ” The global economic crisis has bankrupted centuries-old institutions, brought down once-mighty industrial brands and shattered a generation’s worth of assumptions about how capitalism ought to operate. Now is the time to declare another casualty of the crash - the imperial style of leadership. ” (’Calmer Obama ushers out the age of the imperial chief’, Financial Times, 11 April 2009)
Not only have financial giants in the US and elsewhere bitten the dust, so has US hegemony of the world capitalist economy and politics.
When, back in the summer of 2007, it became clear that the imperialist financial system was in trouble, the authoritative representatives of finance capital, as well as economic commentators, believed that the losses of the big banks from bad loans would total about $100bn - at the time considered a huge sum. However, the bad loan total has been a moving target; as the economy has continued to weaken, and confidence in the banks to crumble, more bad loans have been the result.
In its latest Global Financial Stability Report (GFSR), released on 21 April 2009, the IMF said that financial institutions across the world face losses of $4,400bn as the world recession erodes the value of their loans and other assets. For over a year, the IMF’s estimates of losses facing the financial sector have swollen with each update. Total writedowns on US assets are now estimated to reach $2,700bn (€2,082bn/£1,837bn) according to the IMF report, up from the $2,200bn it forecast in January, almost double its forecast of last October ($1,405bn), and three times the mere $945bn it forecast last April.
Including loans originating in Japan and Europe, the writedowns are now expected to reach $4,054bn. Of the $1,342bn losses facing European and Japanese institutions, $1,193bn will fall to the former and $149bn to the latter, while the writedowns on emerging market assets held by banks in the imperialist countries are forecast at $340bn - bringing the grand total to $4,394bn. Estimated writedowns on US and European assets, mainly held by financial institutions in these regions, account for 13 percent of their aggregate GDP.
Banks will bear two thirds of these losses, while the remaining one third will fall on insurance companies, pension funds, hedge funds and others.
Even with the IMF’s latest forecast of mind-boggling losses facing the financial sector, there is no certainty whatsoever as to the eventual extent of the losses - except that they keep getting worse, with the past year’s gloomy forecasts turning out to have been overly optimistic.
The crisis of overproduction, and the resultant financial crisis, are mutually reinforcing, with the losses and bankruptcies in the non-financial sector compounding the losses of the financial sector and vice versa. Conventional loans, not just toxic subprime securities (now rechristened ‘legacy assets’) account for half of the estimated writedowns. The IMF’s latest report is likely to cause further disarray among investors, even if its estimates are smaller than those of some private economists.
The IMF expects US institutions to write down $550bn in 2009-10, in addition to the $510bn they had already written down by the end of 2008, while the euro area and the UK stand to lose about $750bn and $200bn respectively, in addition to the $154bn and $110bn already respectively written down up to the end of 2008.
US banks have thus far taken approximately half of the writedowns facing them, while European banks have taken merely a fifth. Since the banks in the US and Europe have hitherto recognised less than half their losses, they will collectively have to write off $1,500bn this year and next. If the US and European banks took immediately all the writedowns facing them, the result, says the IMF, would be a complete wipeout of their equity.
Hence the importance of injecting more capital into the banks and other institutions. To restore their balance sheets to the level at which they were before the present crisis (defined by the IMF as a tangible common equity to tangible asset ratio of 4 percent), US banks require $275bn in capital infusion, euro area banks $375bn and UK banks $125bn. And bringing the banking system back to the leverage ratios of the mid-1990s (equity to assets ratio of 6 percent) would need huge recapitalisation: $500bn in the US, $725bn in the euro area and $250bn in the UK, says the IMF.
To achieve this level of recapitalisation, emphasises the IMF, governments would need to take bolder steps, such as converting preference stock into common equity and enforcing debt-to-equity swap - that is, nationalisation of the banks: ” The current inability to attract private money suggests the crisis has deepened to the point where governments need to take bolder steps and not shrink from capital injections in the form of common shares even if it means taking majority, or even complete, control of institutions. ”
As far as Europe is concerned, it would appear that the worst is still to come. In this regard, the large external financing requirements of the central and eastern European countries, and the exposure of the western European banks to these countries, are of particular concern.
By the end of December 2008, global banks had written off about $1,000bn (€752bn/£699bn) in bad assets, with half those written off in the US. The problem, however, is that, since the onset of the crisis, the provision of new capital has failed to keep up with the writedown of assets.
The US government has already put in place a stimulus package of $787bn (£527bn), the $700bn bank recapitalisation plan, a $70bn housing scheme and additional federal aid to car manufacturers, but, contrary to President Obama’s claims, none of these measures is showing any sign of being effective. Much larger sums than those already earmarked are needed to keep the banks from going under, let alone enabling them to start lending again.
According to Michael Pomerleano of the World Bank, if the rates of default in this crisis are similar to those of the 1982 recession, US banks will require more than $1,500bn of capital just to stay afloat, while new lending will require additional capital. These sums are far in excess of those the US Treasury is presently authorised to spend on bank rescues. With only $32bn left from the $700bn Trouble Assets Relief Program (TARP) funds, the Obama administration is bereft of funds to recapitalise bank balance sheets. It will have no option but to return to Congress with a request for yet further funds, with no guarantee that Congress would be prepared to grant such a request, as most American taxpayers detest bailing out Wall Street.
Reflecting this sentiment, Mr Obama is reported to have warned senior bankers at a private meeting that he was the only thing standing between them and the pitchforks. This being the case, his administration may be forced by politics, as much as by economics, to conclude that nationalisation of the banks is the best of all options.
Since, in the present desperate conditions, the chances of raising the vast sums needed for bank capitalisation are close to zero, it is the governments that are being forced to step in. However, the governments are struggling to keep pace with the daily deterioration in the banks’ balance sheets. So far, governments have provided up to $8,900bn in financing for banks, through lending facilities, asset purchase schemes and guarantees. But all this represents merely a third of their needs, for the IMF estimates that the ” refinancing gap of the banks - the rollover of short-term wholesale funding, plus the maturing long-term debt - will rise from $20,700bn in late 2008 to $25,600bn in late 2011, or just over 60 percent of their total assets “.
This will call for a huge shrinkage of balance sheets. The balance sheets of the banks are still far too large. According to estimates by analysts of Morgan Stanley, the 15 largest banks, which have shrunk their balance sheets by a combined $3,600bn since the beginning of the crisis, will shed an additional $2,000bn in assets this year alone. And this does not even take account of the disappearance of securitised lending by the so-called ’shadow banking system’, which played such an important role in the US.
Market capitalisation of the banks
Not surprisingly, the meltdown of the financial system is reflected in the precipitous fall in the market capitalisation of the giants of finance capital in the centres of imperialism during the period between 1 March 2007 and 21 January 2009.
Citigroup, once the largest banking group, valued at $225bn at the beginning of March 2007, saw its market capitalisation dwindle to $17.2bn by the end of January this year, and presently it stands at a derisory $13.7bn. During the same period, the market capitalisation of Bank of America dropped from £225.3bn to $36.7bn; JP Morgan Chase from $170.9bn to $74.8bn; Goldman Sachs from $82.1bn to $25.4bn; HSBC from $200.5bn to $86bn (presently it stands at $78.3bn); Barclays from $91bn to $14.4bn; RBS from $120bn to $7.5bn; Lloyds TSB from $246bn to $14bn; Deutsche Bank from $67.8bn to $13.1bn; UBS from $123bn to $32.8bn; and BNP Paribas from $96.3bn to $28.2bn.
A decade ago, Banc One, Chase Manhattan, JP Morgan and Washington Mutual had a combined value of around $175bn. Today, JP Morgan Chase, which has
absorbed all these banks (as well as many others, such as Bear Stearns) is worth only $94.5bn. 
AIG, at one time the world’s largest insurance company, now 80 percent government-owned after suffering the largest-ever loss ($617bn) in corporate history, is worth only $1.2bn (42 cents a share) as against $131bn a year ago, when its shares sold at $46 each. AIG has operations in 130 countries and a customer base of 74 million, insuring financial products to the tune of $2tr, half of these for 12 imperialist banks. Doubtless it was considered too big to fail.
No recovery in sight
According to the latest IMF estimates, the fiscal costs of the government’s rescue efforts will, at the high end, amount to 13 percent of US GDP over the next five years, while the cost to the UK will be 9 percent of GDP over the same period. The efforts to stabilise the financial system could end up costing us taxpayers $6,200 (€4,650/£4,200) per head of population.
Most of the giant financial institutions in the centres of imperialism, especially in the US and Britain, are bankrupt and entirely reliant on the direct or indirect, explicit or implicit, support of governments and central banks for securing financing hitherto provided by institutional investors. A major financial crisis or a deep economic recession on their own would be bad news for capitalism, but the present crisis, characterised as it is by the potent mix of an unprecedented global economic slump with a financial meltdown emanating from the major imperialist countries that constitute the core of the world capitalist economy, is nothing short of catastrophic. It is the harbinger of a deep recession lasting many years followed by a mild recovery at some time in the future.
For the moment, the governments in the imperialist countries have stepped in to bail out the bankers with taxpayers’ money in an effort to restore the financial system, gasping for breath, to health (to resuscitate back to life would be a more apposite expression). But this will by no means prove sufficient for a return to sturdy economic health. Those who, like Chancellor Alistair Darling, are predicting a return to robust growth in the near future are deluding themselves.
In the US, with the deepening of the crisis of overproduction, $50,000bn of perceived wealth in the US (stocks and real estate) has declined to below $30,000bn, leaving the original $25,000bn of private debt stranded. With brutal speed, Americans have been forced to learn that they are not so rich after all. Although the Japanese had to adjust to a loss in perceived wealth of three times Japan’s GDP, all the same the US adjustment, amounting to 1.5 times US GDP, is still by far greater than any in US history. Even the crash of 1929 forced the US to write down only 75 percent of a year’s GDP. (See ‘Rebalancing the books’ by Jeremy Grantham, Financial Times, 11 March 2009)
On 11 March this year, in a Financial Times article entitled ‘If this is the Great Depression we are now in 1938′, John Kay said that, by 1933, US equities had lost three quarters of their 1929 value and the US monetary system reached the point of collapse - a trend only ameliorated by
the onset of the war. “Perhaps the clearest lesson,” remarked Mr Kay ominously, ” is that war is good for output, employment and corporate profits.“ Yes indeed! For imperialism, war, far from being an aberration, is normal business.
Drawing historical parallels with the 1929 crash, Mr Kay stated that, presently, the world economy is not at the beginning of the crisis but several years into it: the ” analogue of the 1929 Wall Street Crash is not the 2007 credit crunch but the busting of the New Economy bubble in 2000 … The follies of the 1990s resembled those of the 1920s … The underlying structural weaknesses of the world economy - the US budget deficits and trade deficits financed by Asian surplus - re-emerged in 2000 after being disguised by the imaginary wealth of the New Economy.”
All that the expansionary measures taken by the Federal Reserve and other central banks had done was create a wide boom in asset prices, extend credit to ever more unsustainable levels and help further the growth of the basically flawed financial infrastructure on which the 1990s boom had rested.
The last short-lived period of recovery (2003 to June 2007) did nothing, and could do nothing, to solve the fundamental problem of overproduction inherent to capitalism. It merely managed to prepare the ground for a far worse, far more powerful and more enduring crisis than the last one.
The US economy shrank in the fourth quarter of last year at its fastest rate since 1982, with GDP contracting at an annualised rate of 6.3 percent. In the first quarter of 2009, it shrank at an annualised rate of 6.1 percent. In the same quarter, corporate profits were down by 15.6 percent, or $250bn, from the third quarter. According to the IMF, the US economy is forecast to decline by 4 percent during 2009.
US house prices have declined by more than 25 percent (in California by 40 percent) from their peak, with huge numbers of people, saddled with mortgages worth more than their houses, facing foreclosures that appear in self-reinforcing spirals, as repossessed homes sold on the cheap further push down the value of other properties. The US scenario finds its equivalent in Britain and a number of other countries. In Britain, house prices have declined by 18 percent.
Risk dispersion or disaster in waiting
As a result of tumbling assets prices, millions of households are groaning under the burden of unbearable and unrepayable debt, while the financial system, the brain of imperialist economy, encumbered with losses of colossal proportions, is in a state of meltdown and has ceased to function.
What is more, the pillars of faith on which the new financial capitalism was built have crumbled like a house of cards, revealing it to have been nothing but a bubble emanating from the speculative frenzy that arose from the lack of profitable opportunities for investment in the productive sphere.
All those new devices, invented by statistical geeks so that the high rollers of finance capital could make a fast buck, which were supposed, and believed until the summer of 2007 by the bankers, investors and regulators alike, to disperse credit risk, make the world safer and the financial system more robust and resilient, have turned out to be so many toxicants that have contributed to the near-collapse of the financial architecture of monopoly capitalism.
Gillian Tett, writing in the Financial Times of 10 March 2009, described this allegedly risk-free process thus: “Bankers … repackaged loans for sale to outside investors“, garnering fees “at almost every stage of the ’slicing and dicing’ chain.” As banks shed credit risk, ” regulators permitted them to make more loans - enabling more credit to be pumped into the economy, creating even more fees“. By turning their mortgages into bonds, banks were able to meet regulatory guidelines in a more ‘efficient’ way.
This was portrayed by the financiers as a step towards “a superior form of free-market capitalism“. These obscure instruments, with their “alphabet soup of abbreviations“, which were as baffling as the products the acronyms represented, produced “in 2006 and early 2007 no less than $450bn worth of ‘CDOs of ABS’ securities“. 
Ms Tett added: ”
Instead of being traded, most were sold to the banks’ off-balance-sheet entities such as SIVs  - or simply left on the books
“, thus “making a mockery of the idea that innovation helped to disperse credit risk“, and creating ” an opaque world in which risk was being concentrated” in ways hardly anybody understood. (’Lost through destructive creation’)
The narrative that the new-fangled financial innovations, with their slicing and dicing, served to spread risk around the world to those best able to bear it was promoted by the banks with great assiduity and eagerly accepted by the governments, central banks, regulators and rating agencies. In its (April) 2006 annual report, the IMF made the bold assertion that: ” the dispersion of credit risk by banks to a broader and more diverse set of investors … has helped to make the banking and overall financial system more resilient … improved resilience may be seen in fewer bank failures “.
This foolish assertion has come to haunt the IMF as it bears witness to the catastrophic collapse of the entire financial system of imperialism.
Far from being instruments of risk dispersion, these abstruse devices proved to be lethal explosives. Sliced and diced, insured by monoclines, highly marked by rating agencies, hidden away in SIVs, they were presented as being as safe as houses. “As indeed they were“, to quote the words of Howard Davies, director of the London School of Economics, ” except that the houses concerned were falling sharply in value, and their over-geared occupants were non-status borrowers. Many of the investors, including titans such as Merrill, Citi and UBS, had not understood the risks and lost their shirts (and red braces too). ” (’The architects of financial crisis, a review of Gillian Tett’s book Fool’s Gold‘, Financial Times, 25 April 2009)
By July 2007, as defaults on US subprime mortgages began to pile up, blind faith in the latest products of speculative capitalism began to unravel. Being forced to admit that their models were seriously flawed, rating agencies such as S&P downgraded ratings for mortgage-linked financial instruments, causing shockwaves that led investors (such as money market funds) to stop buying notes issued by shady entities such as SIVs.
As the realisation dawned that the banks were heavily exposed to these shadowy vehicles, panic gripped the robber barons of finance capital. With the rise in subprime defaults, the banks were obliged by their accountants to revalue their instruments. By the spring of 2008, Citigroup, Merrill and UBS had collectively written down $53bn, a horrifying two thirds of which came from the allegedly triple A-rated CDOs, which were, by early 2008, deemed to be worth no more than half of their face value.
Banks attempted to fill the gap by raising new capital in excess of $200bn, but the hole kept getting deeper. As it did so, trust in the ability of regulating authorities to monitor the banks, as well as faith in the banks themselves, collapsed. With the supposedly risk-free new models having been exposed as chimerical, investors walked away from every type of complex financial instrument.
On top of all this came the mother of all shocks last September - the bankruptcy of Lehman Brothers. Hitherto, it had been an article of faith with investors that the US would never allow a large financial institution to go to the wall. But when the US government did nothing to prevent Lehman going bankrupt, it caused distrust, disorientation and terror. Funding markets seized up. Banks and fund managers found to their horror that all their trading and hedging models had crumbled. The capital markets stopped functioning.
“Money, the means of circulation“, had become, just as Engels had explained, “a hindrance to circulation“, and all ” the laws of production and circulation … turned upside down” in a dramatic demonstration of the rebellion of the mode of production against the mode of exchange. No wonder, then, that Mervyn King, governor of the Bank of England, was forced to say that the system was “on the precipice”.
By the beginning of this year, the writedowns of the big western banks were running at $1,000bn (€795bn/£725bn), according to the Institute for International Finance. On 9 March, the Asian Development Bank estimated that global financial assets could now have lost more than $50,000bn - the equivalent of a year’s global output.
Part-nationalisation of banks
The present crisis, unprecedented in its depth, scale and devastating effects, has delivered shattering blows to the economic orthodoxies practised during the last three decades in all the imperialist countries and, through the IMF, the World Bank and the WTO, forced on practically all the rest of the world.
Governments have been forced to step in to replace many market functions. Long-held beliefs in such things as prudence and balanced budgets have made way for huge deficits and the pumping of colossal amounts of money into a terminally-ill financial system through quantitative easing (a modern buzz word for printing money), which might even have horrified Keynes. Gone, too, is Europe’s stability and growth pact, which prohibited members of the eurozone from incurring deficits in excess of 3 percent of the national income and national debt above 60 percent of GDP. Huge amounts of public funds are being deployed to purchase and insure billions of dollars’ worth of toxic assets held by the major imperialist banks.
Governments, in particular the US and British, have been compelled to acquire huge stakes in some of the largest banks. The US government, just like the British government, has been transformed into a huge investment bank, robbing the state treasury and the taxpayers to transfer huge funds into private banks. The US government has injected $52bn into Citigroup, $45bn into Bank of America, $25bn into JP Morgan Chase, and $10bn into Goldman Sachs. On top of this, it has taken over the world’s largest insurance company, AIG.
The French government has a stake of $3.9bn in BNP Paribas, while the Swiss government’s stake in UBS is to the tune of $5.3bn.
On 10 February, the US Senate passed a $838bn stimulus package, accounting for 5.9 percent of GDP. Action taken by the German government so far to boost demand is the equivalent of 4.7 percent of German GDP over two years ($130.4bn). Japan has put in place a stimulus package of $104.4bn (2.2 percent of GDP); the UK $40.8bn (1.5 percent); and France $20.5bn (0.7 percent).
Germany has a €500bn ($660bn) bank reserve fund, known as Soffin, to support banks with a mix of guarantees and fresh capital. Of this sum, €210bn has already been tapped by banks. Another scheme, agreed on 21 April 2009 at a meeting between Angela Merkel (the German Chancellor), her Finance Minister, Frank-Walter Steinmeier, and the president of the Bundesbank, Axel Weber, is in the offing to enable German banks to offload toxic assets, which could leave German taxpayers with a bill of up to €1,000bn. German banks have already written down $72bn on their balance sheets.
Monetary loosening and fiscal expansion
All the imperialist countries, and some others, have undertaken monetary loosening and record-breaking fiscal expansions. A year ago, the Federal Reserve started to prime the monetary pump, which is now in full swing. Within a year, it has moved from 3 percent interest rates to quantitative easing.
The Bank of England has pushed through interest-rate cuts of 450 basis points in the last six months and the interest rate stands at an unprecedented 0.5 percent today. The European Central Bank’s interest rate has been brought down to 1 percent.
The Bank of England’s quantitative easing exercise (commenced on 5 March 2009) involves initially the creation of £75bn of new money in an effort to get the economy moving. The idea is to use this amount (representing 5 percent of Britain’s GDP) to purchase assets, especially government bonds, from banks and other financial institutions, in the hope that the sellers of these assets might use the funds thus made available to invest or lend to
households and businesses. If this initial sum proves insufficient, a further £75bn will be provided. 
This measure is a last desperate throw of the dice by the authorities and is fraught with dire consequences - not least on the inflation front. All in all, things are not looking too good in the centre of British usury - the City of London - and for the British ruling class, with its heavy reliance on banking and financial services for its profitability.
The resort to this unconventional measure, quantitative easing, came in the aftermath of the near-collapse of several of Britain’s banks in 2008, the exhaustion of monetary policy as a tool of economic management, and the part-nationalisation of the Royal Bank of Scotland and Lloyds TSB Banking Group, whose toxic assets, to the tune of £585bn, have been insured by the government.
Budget deficits and national debts
Consequent upon the recession, and the thousands of billions of dollars spent by governments in the centres of imperialism to douse the financial conflagration that threatened to bring the leading capitalist economies, especially the US and British, to their knees, all these countries are headed for huge rises in budget deficits and national debt.
The US budget deficit for 2009 stands and the frighteningly high figure of $1,750bn - a staggering 12 percent of GDP, while its national debt is forecast to rise from 66 percent at present ($10bn) to 97 percent of GDP in 2012.
The combined budget deficit of the eurozone’s four biggest countries - Germany, France, Italy and Spain - will reach 6.4 percent of their GDP in 2010. Their public debt is forecast to reach 83 percent of GDP from 79 percent this year - all this beyond the limits agreed in the 1990s to guarantee eurozone stability. Greece, Portugal and Ireland are in an even worse condition than that. The eurozone’s collective budget deficit will rise to 5.7 percent of GDP this year and 7.1 percent in 2010. Its collective public debt is expected to reach 75.7 percent of GDP this year and 81.4 percent in 2010.
Japan’s national debt, already very high, will this year be 224 percent of Japanese national output.
Britain’s position is worse than that of all the other imperialist countries, with the possible exception of the US. The British government is set to borrow as much in the next two years as the total borrowing Labour inherited on coming to office in 1997, that is, £348bn - dating back to 1691 (£41bn from 1691 to 1974 and £307bn from 1975 to 1997).
Presenting his budget to the House of Commons on Wednesday 22 April, Chancellor Alistair Darling said that net public borrowing this year will rise to a postwar high of £175bn - 12.4 percent of GDP - before dropping to £173bn next year (11.9 percent of GDP) and £140bn the year after that. The government will contract £700bn of new debt over the coming five years.
As a result, Britain’s debt is on course to smash the £1tr barrier for the first time. Presently, the national debt stands at £717bn (49 percent of GDP). It is set to rise to 59 percent this year, 68 percent next year and 74 percent of GDP the year after (last year, Britain’s GDP was £1.4tr). Although by no means a record, as Britain’s debt was more than 200 percent after the Napoleonic wars, hit 250 percent of income during the second world war, and still stood at 100 percent as late as 1963, it will still be the highest peacetime debt level. The fiscal gap will be larger still if the recession is deeper and longer than envisaged by the present forecasts of the Bank of England and the Chancellor, both of which are optimistic to the point of fantasy.
At the present level of low interest rates, the Treasury can continue to service the huge sums it has borrowed. The risk, however, is that if interest rates move upwards, the government will have to make drastic cuts in its spending or raise taxes, or both. Failing that, the moneylenders will vote with their feet and refuse to buy government securities.
In an editorial on 18 April, entitled ‘Labour pains’, the Financial Times gave this warning: ” The UK is not as rich as it thought it was just a few months ago. It needs to change course. Its golden goose - the financial sector - has been plucked. Public services must be pruned while the tax burden will certainly rise. This will entail painful trade-offs. ”
Two days later, the Financial Times stated that this crisis would “cost as much as a big war” and that ” while not unprecedented, such debt would leave the country dangerously vulnerable to a loss of confidence [ie, no one will lend it money].” (Editorial, ‘The folly of hoping for the fiscal best’, 20 April 2009)
It added that “Fiscal austerities will be the dominant feature of UK politics for a decade.”
In view of the underlying weakness of the UK’s public finances, consequent upon the costs of the recession and the billions doled out in bank rescue packages, economic experts are all agreed that it will take two full parliaments of increasing austerity to get borrowing back under control. The Treasury’s own assessment is that four fifths of the borrowing this year and next will be ’structural’ - that is, impervious to economic recovery.
The chancellor has already announced cuts in capital spending, cuts in other government spending and tax increases to the tune of 1.6 percent of GDP. Whichever government is in office after next year’s election will need to find an additional £45bn a year in today’s money by the end of its parliament to get rid of this deficit.
Even if the authorities somehow manage to avoid a sterling collapse and complete meltdown, the end of the recession will bring in no new dawn, for the overhang of debt is only too likely to result in lower growth, unremittingly higher unemployment, lower house prices and stock-market valuations, savage cuts in public expenditure, higher taxes, higher costs of borrowing, declining living standards, and the destruction of the prosperity of the middle and better-off sections of the working class. Fewer and fewer resources will be available for education and health, while child poverty, homelessness and destitution will spread their tentacles further into the lives of working people.
What is true of Britain is equally true of the US and other leading capitalist countries.
The current slump has dealt a devastating blow to market fundamentalism and brought into the open the reason for the political acquiescence of the stagnant middle class. Cheap credit allowed families to consume in excess of their income, as home-equity loans, vendor-financed car deals and credit car purchases served to hide the reality of falling real incomes. Now, the meltdown of the imperialist financial system, the deepening recession,
collapsing equity and house prices, falling employment, have combined to rudely awaken middle America from the dream that ” it too was partaking in the prosperity of the Second Gilded Age“.
As a result, according to Chrystia Freeland of the Financial Times, ” class and redistribution issues are no longer dirty words in American politics“. Ms Freeland goes on to record the visible and rising public anger towards Wall Street as the recession bites deeper, with “late night comedians … calling for public executions” of bankers. This public anger has overnight, as it were, “transformed the Masters of the Universe from heroes to villains“. (’The audacity of help’, 12 March 2009)
In the US, it was an article of faith that people were free to succeed or fail, without any assistance. Now, however, in the name of preventing a systemic failure, hundreds of billions of dollars have been injected into failed institutions that made gargantuan profits while the going was good, and which exacerbated the crisis of overproduction with their speculative frenzy.
Since its eruption in the summer of 2007, the crisis has spread from the suburbs of the US to Europe and beyond, presaging a turbulent period of instability which could pose a serious threat to the very existence of the EU, as its member countries resort to nationalism and protectionism in an effort to ward off the devastating effects of the crisis at the cost of fellow members.
Rising unemployment, falls in house prices and in the value of pensions, and pay curbs on the workers, combined with bailouts for the banks costing taxpayers trillions of dollars, are causing seething anger among the masses - who are told that there is no money left to keep them in their jobs and houses. This anger was clearly evident in France, where, in March, a million workers staged western Europe’s biggest protests since the start of the crisis.
Governments have fallen in Iceland and Latvia. Greece, Ireland, France, Germany, Britain, Ukraine, Bulgaria and Lithuania have witnessed strikes and protests. The effects of the crisis have been felt even in far-flung outposts of the continent: the French Caribbean island of Guadeloupe saw violent strikes, while Russia flew riot police into icebound Vladivostock to suppress street protests.
Respectable bourgeois economists and commentators are openly critical of the US treasury’s bailouts, which amount to a huge transfer of wealth from US
taxpayers to the Wall Street bankers. Jeffrey Sachs has called them “a thinly-veiled attempt to transfer hundreds of billions of dollars to the commercial banks“. The Obama plan to bail out banks ” amounts to robbery of the American people“, said Joseph Stilgitz. Robert Reich, Labour Secretary in the Clinton administration, said that Tim Geithner, the US Treasury Secretary, is “a prisoner of Wall Street“, while Paul Krugman has complained that the US government is giving “cash for trash“.
Martin Wolf, writing two days after the US treasury secretary came up with his latest racket - the so-called Public-Private Investment Program (PPIP) - to enable banks to rid themselves of their toxic assets, correctly called it
the ‘Vulture fund relief scheme’, saying said that the scheme was unlikely to work. If, however, it were to work, “a number of fund managers are going to make vast returns“, convincing “ordinary Americans that their government is a racket run for the benefit of Wall Street“. This, he said, would make it difficult to get US Congress to sanction additional funds for the badly needed recapitalisation of the banks, because the provision of public money to the banks was “unacceptable to an increasingly outraged public“.
“The conclusion, alas, is depressing. Nobody can be confident that the US yet has a workable solution to its banking disaster”, stated Mr Wolf, adding: ” On the contrary, with the public enraged, Congress on the war-path, the president timid and a policy that depends on the government’s ability to pour public funds into undercapitalised institutions, the US is at an impasse. ” He concluded that if the US’s ability to find its way through this crisis “is not frightening, I do not know what it is.“ (’Why a successful US bank rescue is still far away’, Financial Times, 25 March 2009)
Effect on eastern Europe and on Africa
The Washington-based Institute for International Finance has forecasted a steep decline in net private capital flows to emerging countries - from $929bn in 2007 and $466bn in 2008 to a mere $165bn this year, equal to 6 percent of these countries’ GDP - and much worse than the decrease of 3.5 percent that took place during the Asian crisis of 1997-8, with its horrendous social and economic consequences in that region.
$1,440bn-worth of debts of the less developed countries are due in 2009. Central and eastern Europe, owing $1,656bn, principally to western European banks, will experience a GDP decline for the first time in 10 years. Without an injection of international funds, several of these countries could be heading for sovereign defaults.
According to the IMF, central and eastern European countries (excluding Russia, but including Turkey) must roll over $413bn (€311bn/£281bn) in maturing external debt this year and finance $85bn in current account deficits. In the best possible scenario, the region’s financing gap - the money that cannot be accessed through the market - could be $123bn in 2009 and $63bn in 2010 -$186bn in total.
In addition, the region’s banks, largely owned by western European banks, could be sitting on non-performing loans to the tune of 20 percent of total loans. West European parent banks, with a regional exposure totalling $1,600bn, could face losses of $160bn. They might be in need of $100bn in new capital - even $300bn if the crisis deepens further, as is only too likely. Austria, having lent a total of $300bn (£210bn/€235bn) to clients in the region, has an exposure equal to 68 percent of GDP. If Bank Austria, owned by Italy’s Unicredit, is included, Austria’s exposure would rise to 100 percent - the highest of any western European country.
An economic collapse in eastern Europe, which is not that far-fetched a possibility, could bankrupt Austria’s banks and oblige the government to undertake a prohibitively costly bailout. On top of badly mauling hundreds of industrial groups, retail businesses and service companies, ie, those that rely on investment in, and trade with, the region, such a collapse could conceivably bankrupt Austria in the same way as Iceland has been bankrupted. As one bourgeois commentator put it, the governments in eastern Europe at least got one thing right, namely, they made sure their banks were owned by foreigners. If Hungarian households default, it is not Hungary that will go down, but Austria.
What is more, to the horror of imperialism, which not so long ago celebrated the triumph of counter-revolution in central and eastern Europe and the absorption of many of these countries into the warmongering neo-Nazi Nato or the imperialist EU bloc, the stability of this entire region hangs in the balance. Consequent upon the present economic crash, with the resultant rise in unemployment, poverty and debt, there is mounting anger, which is fuelling popular movements with unpredictable consequences. Counter-revolutionary semi-fascistic regimes in the region are increasingly becoming targets of the wrath of the popular masses, who feel duped and betrayed.
At the end of January, Latvia’s government collapsed over its IMF-mandated austerity programme, after pitched battles in the streets of Riga between angry demonstrators and the police. The fear of imperialism and its ideological representatives is that a prolonged crisis could end up totally undermining support for capitalism, the EU and Nato in these countries. Martin Wolf expressed well-founded fears that the crisis would ” undermine confidence in local and global élites, in the market, and even in the possibility of material progress … with potentially devastating social and political consequences “. (’Seeds of its own destruction, Financial Times, 9 March 2007)
Meanwhile, according to UN Educational, Scientific and Cultural Organisation’s (Unesco) forecasts, 390 million of the poorest people in Africa are likely to experience a 20 percent decline in their existing meagre incomes. Declining commodity prices and reduced flow of investments will see to it that sub-Saharan Africa loses $18bn ($46 per person), causing starvation on a large scale.
On 6 May 2009, the UN’s Food and Agriculture Organisation (FAO) revealed that the present crisis will add an additional 100 million to the 900 million people already suffering from hunger, adding that there have never been so many hungry people around the world - and this despite the fact that, over the past year, food prices have come down considerably. With so much surplus food lying in warehouses around the world, there could be no greater indictment of this criminal system, which we are repeatedly told by the defenders of capitalism is the final destination of humanity.
In the run up to the G-20 summit of 2 April this year, the World Bank issued a warning that an avalanche of social and political unrest could be unleashed in the poorest regions of the globe if the leaders at the summit failed to come up with a plan to aid them. There was not much chance of that happening, as the major powers were more concerned with protecting their respective national interests at the expense of everyone else.
The summit merely managed to expose the divide between the US and Europe. While the former advocated yet another large, coordinated stimulus package to boost demand as a way out of the recession, France and Germany, fearing potentially damaging budget deficits with inflationary effects, called for greater regulation of banks, restrictions on executive bonuses and the banning of tax havens.
While talking of free trade and open markets, the principal imperialist powers are resorting to measures of protectionism at an increasing tempo, especially since October 2008.
No wonder, then, that Mr Wolf, drawing parallels with the Great Depression of the 20s and 30s of the last century, should be worried about this crisis undermining free trade, reversing the whole process of globalisation, strengthening the role of government and the credibility of socialism and
communism. No wonder, then, that he should make veiled references to the crisis unleashing civil wars and wars between countries. ” Frightened people“, he says, “become tribal: dividing lines open within and between societies.” (Ibid)
As for Britain, its banks have written off only a third of the losses they will eventually face, and they will be compelled to raise at least $125bn (£85bn) in extra capital to rebuild their balance sheets. Although UK banks have already written off $110bn on complex debt securities and other assets on their balance sheets, the IMF estimates that they have another $200bn in losses over the next two years as more loans to companies and consumers go sour.
The government then faces the long-term task of clawing back the scores of billions of pounds that the exchequer has been compelled to dole out to save the rickety banking system from complete collapse - either through spending cuts, or increased taxes, or both.
By 2017/18, the fiscal impact of the crisis will have cost each UK family approximately £2,840, mostly through lost public services and tax increases. Not just the poorest sections of the population, but also the middle class and the better-off sections of the working class are bound to be badly hit. While bringing misery to vast numbers, the crisis presents an opportunity for forging an alliance between the poor and sections of the petty bourgeoisie facing, for them, the dreadful prospect of being thrust into the ranks of the proletariat. The authorities are deeply worried that people rendered homeless and jobless by the crisis might turn to violent protest.
Not for decades has there been such an opportunity to build a truly proletarian, anti-imperialist, revolutionary movement to give direction to the all-too-likely spontaneous movement of the masses against the ravages of capitalism. The time is ripe, for the combination of an unprecedented crisis of overproduction and a near-collapse of the financial system of imperialism have weakened the legitimacy of the market - especially of the Anglo-Saxon variety, with its emphasis on shareholder value.
By contrast, the credibility of Marxism - of socialism and communism - is on the rise. Bourgeois commentators, such as Martin Wolf of theFinancial Times, take comfort in the fact that “unlike in the 1930s, no credible alternative to the market economy exists“. ( Ibid)
Of course, it is too much to expect that people of Mr Wolf’s ilk would understand the movement of history dialectically and grasp that ” in developments of such magnitude twenty years are no more than a day - though later on days may come again in which twenty years are comprised “. (Letter to F Engels from K Marx, 9 April 1863)
Yes, the loss of the Soviet Union and eastern European socialist countries was a tremendous blow to the proletarian and national-liberation movements. Yes, the two decades since then have been a period of unprecedented reaction and stagnation in the working-class movement. But it requires an incurable reactionary to take this period of reaction and stagnation as a guide to the future. We are once again on the threshold of a period in which 20 years may well be embodied in days - provided the revolutionary parties get their act together and work systematically to prepare the working class for the coming conflicts.
Political and ideological representatives of imperialism blame the present crisis on naked greed, excessively lax regulation, loose monetary policy, fraudulent borrowing, high levels of leverage, animal spirits, and managerial failures, the implication being that with better regulation etc, there would be no capitalist crisis.
Nothing could be further from the truth. The truth is that these crises are systemic to capitalism - they recur because of the contradiction inherent to capitalism, namely, the contradiction “between socialised production and capitalist appropriation“. It is this contradiction that, during the crises, “ends in a violent explosion“. These are, in other words, crises of overproduction, which capitalism is powerless to prevent.
There is but one cure for these crises - for society to take over the productive forces and use them to organise production on a definite plan to serve the needs of the community.
In the words of Engels: “the solution [to the constant recurrence of economic crises] can only consist in the practical recognition of the social nature of the modern forces of production, and therefore in the harmonising of the modes of production, appropriation, and exchange with the socialised character of the means of production. And this can only come about by society openly and directly taking possession of the productive forces which have outgrown all control except that of society as a whole. The social character of the means of production and of the products today reacts against the producers, periodically disrupts all production and exchange, acts only like a law of Nature working blindly, forcibly, destructively. But with the taking over by society of the productive forces, the social character of the means of production and of the products will be utilised by the producers with a perfect understanding of its nature, and instead of being a source of disturbance and periodical collapse, will become the most powerful lever of production itself. “ (Anti-Dühring, pp382-3)
In other words, the crises of capitalism can only be got rid of through the proletariat seizing state power, transforming the socialised means of production into public property, and organising production “upon a predetermined plan” for the benefit of society as a whole.
“To accomplish this act of universal emancipation is the historical mission of the proletariat,” said Engels, adding: ” To thoroughly comprehend the historical conditions and thus the very nature of this act, to impart to the now oppressed proletarian class a full knowledge of the conditions and meaning of the momentous act it is called upon to accomplish - this is the task of the theoretical expression of the proletarian movement, scientific socialism.” (Ibid, p391)
In the light of the above, the tasks of any party claiming to represent the interests of the proletariat are as follows:
If it is going to succeed at the appropriate time in fighting for the interests of the working class, the following basic understandings must be made to permeate the working-class movement:
1. That capitalism is a transitional stage in the long march of humanity from primitive communism to the higher stage of socialism - communism.
2. That capitalism long ago became a historically outmoded system, owing to the conflict between the productive forces (which are social) and the relations of production (private appropriation); this basic conflict lies at the heart of the recurrent crises of overproduction and the resultant misery of the working class.
3. That under the conditions of monopoly capitalism, capitalism has grown into a monstrous system of domination and exploitation by a handful of monopolist concerns within each of the imperialist countries and on a world scale by a tiny group of imperialist countries, which exploit, dominate and oppress the overwhelming majority of humanity inhabiting the vast continents of Asia, Africa and Latin America.
4. That, for reasons of the conditions peculiar to this stage of capitalism, imperialism cannot but result in incessant warfare waged by imperialist countries against the oppressed peoples (for instance, the current predatory war of Anglo-American imperialism against the people of Iraq) and inter-imperialist wars, which have claimed the lives of 100 million people during the 20th century.
5. That socialism alone offers the way out of the contradictions of capitalism; it alone is able to offer humanity a world without the crises of overproduction, without unemployment, poverty and wars. Socialism alone is able to provide the conditions for a limitless increase in production, unending prosperity, fraternal cooperation and peace among peoples and nations.
6. That capitalism itself creates the power, namely, the proletariat, which alone is capable of putting an end to the anarchy of production and all other horrors of the capitalist system of production, for ” of all classes that stand face to face with the bourgeoisie today, the proletariat alone is a really revolutionary class. The other classes decay and finally disappear in the face of modern industry, the proletariat is its special and essential product. ”
7. That the struggle of the proletariat for the overthrow of capitalism must be led by a vanguard revolutionary party of the proletariat.
8. That the state is nothing but an instrument in the hands of one class for the suppression of another class; that the proletariat too needs a state of its own; that the struggle of the proletariat for socialism must lead to the establishment of the dictatorship of the proletariat, which lasts for a whole historical period, and is the instrument of the proletariat for suppressing any attempts of the bourgeoisie at the restoration of capitalism, on the one hand, and for creating the material and social conditions for the transition to the next, the higher, stage of communism, in which the state
withers away and society is able to move from the formula “From each according to his ability, to each according to his work” to ” From each according to his ability, to each according to his needs“. (K Marx and F Engels, The Communist Manifesto)
9. In the words of Lenin, ” If we translate the Latin, scientific historical-philosophical term ‘dictatorship of the proletariat’ into more simple language, it means the following: only a definite class, namely that of the urban workers and industrial workers in general, is able to lead the whole mass of the toilers and exploited in the struggle for the overthrow, in the struggle to maintain and consolidate the victory, in the work of creating the new socialist system, in the whole struggle for the complete abolition of classes. “ (V I Lenin, ‘A great beginning’, June 1919)
10. That commodity production and socialism are incompatible and it is the function of socialism to eliminate commodity production and the market and make way for planned production, which, instead of being regulated by profit, is guided by the principle of the maximum satisfaction of the constantly rising material and spiritual needs of the people.
11. That all bourgeois prejudices against the Soviet Union of the period of J V Stalin’s leadership must be dropped. During that time, the Soviet Union made earthshaking achievements in every field - from socialist construction, through collectivisation, to victory in the anti-fascist war - of which the proletarians and oppressed peoples of the world have every right and duty to be proud. Negating that important period in the history of the international working-class movement has only served to negate the most glorious achievements of the working class to date, to defame the dictatorship of the proletariat and the international communist movement and to sully the banner of Marxism Leninism. Our movement must understand that anti-Stalinism always was, and is now, a cover for attacking Marxism Leninism in general, and the dictatorship of the proletariat in particular, the purpose being ” to kill in the working class the faith in its own strength, faith in the possibility and inevitability of its victory, and thus to perpetuate capitalist slavery “. (J V Stalin, Report to the 18th Congress of the Communist Party of the Soviet Union, 1938)
12. That the guard and fight against all forms of opportunism - social democracy, Trotskyism and revisionism - must never lessen, for “the fight against imperialism is a sham and humbug unless it is inseparably bound up with the fight against opportunism“. (V I Lenin, Imperialism - the Highest Stage of Capitalism)
13. That in its struggle for power, the proletariat in the centres of imperialism must wholeheartedly support the national liberation struggles of the oppressed peoples against imperialism, for the ” revolutionary movement in the advanced countries would actually be a sheer fraud if, in their struggle against capital, the workers of Europe and America were not closely and completely united with hundreds upon hundreds of millions of ‘colonial’ slaves who are oppressed by capital “. (’The Second Congress of the Communist International’ by V I Lenin, 1920)
 Synchronicity: the simultaneous occurrence of events with no discernible causal connection.
 In the last few weeks, there has been an upward movement in the price of shares of some of these banks. However, in view of their continuing volatility, we have decided not to change these figures.
 Collateral Debt Obligations of Asset Based Securities.
 Structured Investment Vehicles.
 In fact, on 7 May 2009, the Bank of England announced that it was pumping an additional £50bn into the economy through quantitative easing.
 Toxic assets are now rechristened ‘legacy assets’ - a polite expression for a “pile of poop” of around $1,000bn sitting on the banks’ balance sheets masquerading as an ‘asset’, as Steve Palmer writing in FRFI of April 2009, wittily and correctly characterised them.