Oct 22, 2009
The following article is a translation of an article appearing in the December 2009 issue of Lutte de Classe, the political journal of comrades in France, active in Lutte OuvriĂ¨re.
"A Record Year for Wall Street" – this was the triumphal headline sported by the October 15, 2009 edition of Les Ă?chos, the French economic daily. Stocks, which had plummeted when the crisis hit the stock exchange, are touching the heights again. Huge merger and acquisition operations have resumed, and speculation in every form and shape – including the riskiest – is thriving. But, at the same time, production remains in a slump, unemployment is worse, and international trade is contracting.
TV networks around the globe have shown Wall Street bankers cracking open the champagne, apparently forgetting the panic that overpowered them a year ago. At the same time, the news reported that there were more than a billion people starving worldwide. This contradiction not only sums up the present crisis in a nutshell, but it also describes the permanent functioning of the capitalist system.
Economic crises are the periods when capitalism most clearly and most brutally reveals its hideousness: the colossal waste of human labor, the brutal impoverishment of part of the population, the accelerating concentration of capital – i.e., of economic power – in ever fewer hands. The present crisis also illustrates the dominance of finance over the whole economy, which it strangles in its parasitic grip.
If we gauge by the return of huge profits to the big investment banks, finance is back to business as usual, as if nothing had happened – except the "real" economy, especially production, has been left in ruins. And it's not finished. Financial activities have recovered, profits of the most powerful industrial and banking groups have continued or even increased, stock prices on the stock exchanges have soared in speculative fashion – but none of this means we are near the end of the crisis!
The only result of the quick and massive intervention by the different States after the September 15, 2008 bankruptcy of Lehman Brothers, one of the biggest investment banks in the United States, is the apparent quelling of the panic and crisis of confidence that struck the banking system. And even this may be only temporary. A new wave of speculation is already inflating new bubbles, which inevitably will burst. And while the interbank market – where banks lend to and borrow money from each other – is back on its feet and running as smoothly as it did before the crisis, banks still don't offer their clients the credit facilities they enjoy themselves.
The banks' crisis of confidence was based fundamentally on their knowledge that all the banks taken together held enormous amounts of junk in their reserves – but no one knew exactly how many worthless securities any individual bank held. The first securities to be considered "toxic" were those backed by U.S. mortgage loans after the real estate crisis and collapse of the U.S. mortgage system in the summer of 2007, when borrowers were unable to pay on their loans. But within a few weeks, the mistrust of this rather limited category of securities spread to all those other risky securities that had been flooding the financial markets. As a consequence, the banking system was paralyzed, and bankers refused to lend money to each other for months, despite an unprecedented amount of liquidity in the economy. They had no confidence in the securities that ordinarily served as guarantees. On the day-to-day interbank loan market, interest rates skyrocketed, but most banks remained unwilling to make loans – even at those excessive rates. This created an incredible situation: liquidity was at the same time more abundant than ever and yet not available for cash-thirsty bankers. There was fresh water everywhere, but not a drop to drink!
The very banks that previously had played a major role in the onset of this financial crisis, now reached new heights of irresponsibility when they brutally blocked credit operations. The private interests of the big investment banks took the whole banking system to the point of collapse. In the end, it took direct intervention by the States, acting to represent the general interests of the capitalist class, to save the bankers from the consequences of their own practices.
"Saving the banking system" became the battle cry of all the imperialist States – including those that proclaimed themselves hostile to state intervention – as they put all their resources in the service of the banks. On the third day of the panic triggered by the bankruptcy of Lehman Brothers, the U.S. government announced it was freeing up 700 billion dollars to buy back the junk securities held by banks. The governments of the Netherlands, Belgium, Luxemburg, Germany, the United Kingdom and France followed suit. It is estimated that more than three trillion dollars were released to convince bankers that the States would not let them fail – no matter what it cost the States. However, this figure is just that: a figure, one which borders on the unreal not only because it is so huge that it is difficult to understand what it means, but also because so much state intervention is totally hidden from view. Not only has society no control over the money spent to save a failing capitalist system, but it also has no access to the relevant information either. Behind the smokescreen of gigantic sums blown away in the financial crisis, there is human labor, the exploitation of which allowed capital to be accumulated, capital which was then gambled away in speculation's casinos. In the end, the billions injected into the economy to save the banks – in the form of banknotes, Treasury bonds, other government obligations, and credit lines – will be taken from society's account. All this represents a gigantic waste of human labor.
State interventions – pompously and wrongly called "plans for relaunching the economy" – were aimed at reducing the mistrust existing between banks, in order to get them to relaunch their credit operations. Beyond their technical differences, these actions all consisted of guarantees that the banks could exchange the junk securities they owned, which nobody wanted to buy from them, for Treasury bonds – which are believed to be risk-free because they are backed by the State.
Given the determinant role of the United States in the global financial system and the attraction exerted by U.S. Treasury bonds during the financial debacle, the decision of the Federal Reserve (the "Fed") to issue increasing volumes of Treasury bonds, swapping them for private securities, played a critical role. On the other hand, the Fed's balance sheet took a nosedive, weighed down as it was by more or less risky, more or less "toxic" securities. Between September 10 and December 31, 2008, the Fed's holdings of other "assets' went from 950 billion to 2.3 trillion dollars. Similar things happened in the past, when the Fed's "printing press was running overtime," as the saying went. Times have changed and money now comes in many other forms than banknotes, but today's state interventions are similar and have the exact same consequence: they create money out of thin air, with the end result being inflation.
By issuing massive amounts of money, in exchange for the junk securities it was taking in from private banks, the Fed demonstrated that the dollar itself was based on nothing but hot air. However, this did not immediately affect the dollar's status. Investors looking for a safe investment continued to prefer the dollar to any other currency or any other government bond. Especially in the heat of the financial crisis.
But as soon as the panic subsided, the dollar started its downward spiral, currency speculation was revived and the threat of a new monetary crisis loomed on the horizon.
The other aspect of state intervention was the role the States played to recapitalize the banks, whose own capital had been devalued by the financial crisis. In some cases, recapitalization took the form of a temporary nationalization that lasted as long as it took to wipe out the losses and make the bank profitable again. In other cases, the State simply injected money into the bank, buying shares (without even asking for the corresponding voting rights), promising to sell them back whenever the bank decided it wanted them. These back-and-forth movements created new opportunities to make yet more gifts to the banks – demonstrated by the French government's recent sale of shares back to the Banque Nationale de Paris (BNP), shares the government had recently bought from BNP. Thanks to the BNP's quick recovery, the value of its shares had doubled when it asked for them back – a situation which benefitted every BNP shareholder, except the State, which sold its shares at yesterday's price and thus renounced a potential profit of five billion euros.
More important than the loans were the decisions of the central banks to supply the banks with unlimited liquidity to overcome the drying up of credit between the banks.
One after another, the central banks lowered their prime rates and opened up unlimited credit lines at these lower-than-ever rates.
In the United States, the prime rate has oscillated between 0% and 0.25% since the end of 2008. In other words, the Fed's money was offered free to any bank that asked for it. In the United Kingdom, the interest rate was brought down from 5% to 1.5% in a matter of weeks. As for the European Central Bank (ECB), its reaction was a bit slower, because it is the emanation not of a single State, but of the Eurozone – a conglomerate of States that have diverging interests. In the end, however, the ECB toed the mark, bringing its key rate down to 1.25%, then to 1%.
All the central banks pushed their rates down, but they didn't fix them at exactly the same level. So rate differences created a new opportunity for speculators. They would borrow money in a currency that had a very low interest rate and then invest it in a different, more rewarding currency. Even if the percentage difference was small, these operations yielded huge profits, given the gigantic sums in the hands of speculators. And, with the Fed's interest rate set close to 0%, global speculation was financed primarily by the U.S. dollar.
Assured that their losses from their devalued toxic assets would be limited, and having unlimited access to practically free money, the banks recommenced their operations, thereby starting up the financial system. They needed to get their accumulated capital circulating in order to turn a profit on it!
The plan to bail out the banking system was a plan to bail out the bankers. Never before had anyone practiced the old slogan, "Leave Profits Privatized While Socializing Losses," with such vigor.
Not only did the message sent to the financial system absolve it of its past actions, it was also a commitment for the future, saying: "Go ahead, do what you want, speculate as much as you are able, the State stands behind you to repair the damage." In these conditions, it was inevitable that the recovery in financial activities meant a revival in speculation. The end of the crisis of confidence among the bankers freed stupendous sums of money that had been frozen. But this money was even less likely than before the financial crisis to go into productive investments. Fundamentally, industry cannot absorb all the money that is in the financial circuits, given the enduring stagnation of the market, further aggravated by unemployment. Moreover, the banks have not yet extended the lower interest rates they benefit from to their clients (at least not fully) – they prefer to pocket the difference.
The big banks borrow from the central banks at very friendly rates and lend at high rates, asking for tons of guarantees. This is one reason for the rapid re-establishment of their profits.
Another factor is the intensity of speculative operations. The policy carried out by the States toward finance is a guarantee, a protection from the hazards of speculation. Of course, these guarantees have their limits, which are those of the productive economy. Speculators know that, but it doesn't hold them back. They all plan to withdraw from the market just before the last speculative action sets off the collapse.
In the capitalist economy, every crisis is a period of exacerbated competition that has two main functions: to eliminate the weakest and increase the concentration of capital. While a number of small finance companies and banks were wiped out by the crisis – in particular those that specialized in mortgage loans in the U.S. – the States' massive intervention saved the bigger banks on the brink of failure and the financial institutions most at risk (speculative funds, companies specializing in the riskiest securities, and so on). The States' intervention thus prevented the crisis from playing its only useful role in a completely irrational economy, namely, getting rid of the system's lame ducks. But this intervention did not lessen the development of fierce competition. On the contrary, it played a major role in it.
Seldom, in the history of capitalism, has the merger of state power with finance been so obvious. And behind the States' aid to the banking system in general, the powerful politicians intervened massively in favor of their favorites. They did so without any problem, since state intervention – that is, the distribution of public money – is carried out in complete opacity.
Goldman Sachs, the most powerful investment bank in the United States, is a flagrant example. As one of the main actors – and beneficiaries – of each and every speculative bubble over the past few years, it was one of the banks that had accumulated the most junk bonds. Nonetheless, it breezed through the financial crisis without problem and was able to announce a record profit of 3.4 billion dollars for the first quarter of 2009. Indeed, the crisis has reinforced its position inside the banking system.
The fact is that Henry Paulson, who was Treasury Secretary from 2006 to 2008, had led Goldman Sachs between 1999 and 2006. He never lost sight of the interests of his former investment house, no more than did the State and the various organisms that are supposed to control the banks, which themselves are filled with former top-level Goldman Sachs executives.
On September 12, 2008, the financial crisis neared its climax. Two leading investment banks, Merrill Lynch and Lehman Brothers, were on the verge of bankruptcy. Merrill Lynch quickly found a prospective buyer: Bank of America, another banking giant, backed by State money. But Paulson refused to use State money to bail out Lehman Brothers, which meant he pushed them over the cliff. The fact that Lehman Brothers was Goldman Sachs's main competitor is of course a mere coincidence. Lehman Brothers declared bankruptcy on September 15th, launching a chain reaction that panicked the global banking system.
Three days later, the U.S. government made an about-face, freeing up 85 billion dollars in public money to rescue AIG, the biggest insurance company in the world, which was heavily indebted to Goldman Sachs and could have jeopardized the bank's position had it gone bankrupt.
Simultaneously, Paulson announced that the federal government opened a 700 billion dollar credit line to buy toxic assets from the banks. Not surprisingly, Paulson's Troubled Asset Relief Program – or TARP as it was called – greatly benefitted Goldman Sachs despite the fact that, being an investment bank, it was theoretically not eligible to use the TARP. Goldman Sachs got around that problem by transforming itself overnight into a bank holding company – a maneuver which gave it access to loans from the government and credit lines from the Fed. Goldman Sachs, solidly backed by the U.S. government, taking advantage of the demise of other U.S. investment banks, came out of the crisis stronger than ever. In the words of U.S. journalist Matt Taibbi: "The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."
To make sure that the changing of the president and the government would not ignore its interests or weaken its influence at the summit of the State, Goldman Sachs was one of the main financiers of Barack Obama's campaign.
The enormous quantity of money and bonds that had been temporarily frozen because of the banks' mistrust of each other was put back into circulation. But since no one had been able to – or had wanted to – reorganize the global financial madhouse and clean up the chaos, the financial system was simply put back on the same disastrous track it had been on before the financial collapse.
While the leaders of the G20 countries try to impress the crowd by haggling about tax havens and traders' bonuses, the financial system gathers momentum with new high-risk financial operations. It was encouraged to do so, since the real message of G20 leaders is quite clear despite their smoke screen about "moralizing" finance. At the last G20 meeting, central banks announced that they would maintain their low prime rates.
The beginning of the recovery, which politicians and commentators are so proud of, is a purely financial, speculative recovery.
Capital owners bet that stock prices will go up, despite depressed production, betting on the big corporations' ability to dig out profits by increasing the exploitation of their workers. The comfortable profits announced by most of the companies on the stock exchange, whether in the United States or elsewhere, act as springboards for a speculative takeoff in market activity. Commenting on the evolution of the main indices since March, Les Ă?chos wrote: "The Dow Jones, the CAC 40, the DAX have gained over 50%. The S&P 500 has gone up 60%, with the prize on the U.S. market going to the NASDAQ, which gained 69%." Wall Street's leading index, the Dow Jones, is not yet back to its all-time high of 11,400, but the fact that it crossed the 10,000 threshold meant that many shares are back to their pre-crisis level and that big shareholders have recovered their fortunes.
The opening of credit facilities also means the return of huge merger and acquisition operations and takeover offers, through which industrial and financial conglomerates try to swallow up each other. Capital owners are not eager to invest in production, especially if it is a long-term investment, but will readily fight to take control of reputedly profitable companies. And these operations, or mere announcements about possible operations, send stock prices – and the stock exchanges – soaring!
Speculation has also caused the prices of some raw materials to shoot up. A barrel of oil sold for $33 in December 2008; it sold for $75 in October 2009. Obviously demand did not more than double over those nine months. In fact, the owners of capital were simply betting that the expectation of an economic recovery and, thus, the expectation of an increase in the demand for oil will push up its price. Today's speculators do not care if their expectations never come true or if demand slumps tomorrow, so long as they are able to sell their stocks – and make a profit – before the market turns down. This is exactly how a speculative bubble gets started, grows and bursts.
An August 1st article in Le Monde provided this significant information: "According to JPMorgan Chase, one of the main stakeholders in the futures market, more than 25 billion dollars have been invested in futures over the last six months. Nothing better illustrates the magnitude of these speculative transactions than the 100 million dollar bonus that a Citigroup trader specializing in oil is about to be paid." (Note that this staggering bonus represented less than half a percent of the amount of money devoted by the banks to speculate on oil.)
In its October 4-5 issue, Le Monde announced "The Return of Securitization." Remember that securitization – which consists of mixing debt instruments of all sorts, including high-risk loans, into a "pool," out of which securities backed by these debts are issued – was the factor that directly launched the financial crisis.
Finance is forever inventing new instruments, including securities riskier than those that led to the recent debacle. The speculative funds that sell these risky securities are blooming. In its August 24th issue, Les Ă?chos ran an article titled "Hedge funds' greatest success in 11 years," explaining that it was "time to create new funds." These so-called "hedge funds' specialize in the riskiest speculations. But most of them are issued by the big banks; the funds they use to speculate come from either the banks themselves or from companies or wealthy individuals. The fact that they are proliferating again, like mushrooms after a rain, is the indication that the whole capitalist class has reverted back to speculation.
This recovery in financial operations is the opposite of an economic recovery. The gains proudly advertised by finance and the price paid to obtain them represent a massive drain of resources from working people, a drain strangling every aspect of economic life. Finance, increasingly detached from production, chokes it, parasitically living off it.
While finance is soaring, production stagnates, even recedes. In Europe, despite a few months of expansion of the automobile market, following the introduction of various "cash for clunkers' rebate deals, car manufacturers are expecting a 10% shrinkage in the market in 2009 and another 8 to 10% contraction in 2010. Estimates for the U.S. are comparable.
According to the director of Peugeot's international sales division, car rebates account for "90% of total sales in European countries," but they did not really enlarge the market. They only prompted buyers to purchase cars somewhat earlier than planned, thus jeopardizing future sales.
In Germany, the Federation of Machine Tool Manufacturers declared in a news release, July 1, 2009, that it expected "no improvement of the situation" after "a 51% drop in orders from foreign countries in one year" and "a 42% setback of its activities in Germany."
Machine tools are a vital industrial sector, accounting for an important share of Germany's exports. So it wasn't surprising that the bosses concluded, "we are not yet at the bottom of the crisis."
The boss of BASF, the world's biggest chemical company, agreed, declaring euphemistically: "I think the crisis will last a bit longer....[The economy] is not fundamentally in better shape."
Eurostat, the Statistical Office of the European Union, confirmed this analysis: "In July 2009, compared with July 2008, there was a 15.9% drop in the industrial output of Eurozone countries and a 14.7% drop if we take into account all 27 countries of the European Union."
For the first time since 1982, the volume of global trade has receded. The World Trade Organization estimates a 9% decrease for 2009. In some sectors, imports and exports are 30 to 50% lower than last year. The receding international trade is an important aspect of the market slump. But the slump was aggravated by the drying up of credit, tied to the banking crisis, because international trade is almost entirely dependent on credit.
The reduction in international trade has always engendered protectionist policies by the States, which further slow down international trade.
So far, governments have not adopted harsh, obvious protectionist measures – higher customs tariffs, for example – because resorting to protectionism would have far more serious consequences than in the period that followed 1929.
The international division of labor is more developed now than then. It is not limited to two poles: under-developed countries producing raw materials, on one hand, and the developed, industrialized countries, on the other.
In today's production processes, the elements that will ultimately end up in a single finished product – a car, for example – cross national borders several times. Even inside a large market, like the U.S. market, national self-sufficiency is impossible. An important part, if not most, of the elements that make up a Ford or General Motors vehicle come from abroad. At least a third of today's international trade corresponds to exchanges between the different companies of a single multinational. The country that would try to protect its economy with higher tariffs would hurt its own capitalists first. The imperialist powers are more than ever "gangsters chained together with the same chains," to quote Trotsky.
But protectionism has not disappeared. It has adopted more subtle forms, like monetary manipulations or State subsidies.
It has become fashionable, since the beginning of the crisis, to explain it not by the functioning of the capitalist economy, but by deregulation; in other words, by the complete freedom of capital to circulate, to be invested in and withdrawn from one country to another, one sector to another, and by the suppression of traditional barriers between investment banks and commercial banks, between banks and insurance companies, between the financial and the productive sectors. However, the deregulation of the 1980s and 1990s was a consequence before being a cause – or rather, an aggravating factor – of the crisis. Deregulation was an adaptation to the growing financialization of the economy, to the huge development of credit and thus to generalized indebtedness.
From the early 1970s on, the market did not grow fast enough to guarantee high levels of profit, so big capital launched a war on the workers to reduce the share that went to their wages. It won that war. But, in so doing, it reduced the possibility for consumption and thus aggravated the fundamental cause of the crisis.
In the imperialist countries, the magic potion for reinvigorating the market was credit: State credit – that is State indebtedness – and credit to households. After 1971, the periods of "growth" that followed the periods of recession were all due to the development of credit.
This credit-backed "growth" enriched the banks and encouraged an outrageous inflation of the financial sphere, parallel to the continued growth of indebtedness.
The indebtedness of households has increased in every imperialist country. In 2006, indebtedness represented 45% of the Gross Domestic Product in France, 68% in Germany, 84% in Spain and 107% in Great Britain.
In the United States, indebtedness of American households represents 93% of the GDP – with housing mortgages alone accounting for 77%. The American mortgage loans – whose failure in the so-called "sub-prime" crisis of 2007 was the first phase of the financial crisis – were only the latest form taken by the frenzied race for credit, i.e., indebtedness.
Companies followed a similar pattern, for similar reasons. The debts of non-financial companies grew at the same rate as the debts of households. In 2006, a little before the sub-prime crisis broke out, private (i.e., non-state) indebtedness was much bigger than the GDP in all the big imperialist countries.
The entire economy was based on the ruse of credit. In other words, the "growth" the bourgeoisie were so proud of was an artificial growth. Long before the 2008 banking crisis and the massive injection of State funds, finance was taking a major and growing percentage for itself making the economy take a big step toward financialization.
The growth of State indebtedness was even more important. Public debt has always played a major role in the functioning of the capitalist economy, especially in times of crisis or war. Long before the present phase of the economic crisis, the growing State deficits, accumulating year after year, represented ever more enormous sums.
France's budget deficit went from 36.2 billion euros in 2006 to 38.4 billion in 2007 and 56.6 billion in 2008, reaching 140 billion in 2009! This means that in 2009, half the state's spending (the budget is roughly 280 billion) will be financed by credit! After the first six months of 2009, state debt amounted to 1.4 trillion euros.
The explosion of State debt was accompanied by the explosion of interest payments. The system had come full circle! In order to bail out the financiers, States colossally worsened their own indebtedness. Then, to pay back their debts, the States borrowed more money from the financiers, who took a higher percentage of the budget to service the debt. Why should the banks bother with productive investments? It is a lot easier to make huge profits lending money to the States. The rentier economy, a usurer economy, which had caused the crisis, came out of it stronger than before.
Competition, which was the moving force of early capitalism, has become a caricature of itself. Competition no longer concerns goods produced by human labor, allowing efficiency to be judged, but securities that are, in themselves, worthless. The following quote from Les Ă?chos really exposes the insanity of the system: "In order to attract investors [a euphemistic word designating parasitic financiers who live off the state budget] France will diversify its debt offer. Competition will be fierce. Next year, Eurozone countries will try to borrow about one trillion euros – more than in 2009. France's Treasury cannot afford to make a mistake if it wants to find buyers for the 175 billion euros in medium- and long-term bonds it will put on the market."
The political leaders of the imperialist world talk about the need for stricter rules to be imposed on the banking system, for the return to some kind of compartmentalization, for a more rigorous State control over financial ebbs and flows. But talking about it is all they do. Even on secondary issues like traders' bonuses or the suppression of tax havens, the measures they envisage are ridiculously inappropriate.
Of course, they could do what they talk about. Capitalist economy could return to a stricter regulation of financial activities, and still be capitalist.
Even in the United States, where legislation in the economic sphere has traditionally been more liberal than elsewhere, banking was strongly regulated and compartmentalized between the 1930s and the 1980s. The various functions performed by banks were separate and compartmentalized. A 1935 law even squarely forbade the banks to cross state borders inside the U.S., imposing, in the name of the small regional banks, a dividing up of the banking system.
However, the laws of economics are stronger than any regulation. In the late 1960s, at a time when the international monetary system was ruled by the Bretton Woods agreement, which had established fixed exchange rates, and when the banking system was regulated, the American currency, the dollar, found a way to get around the regulations, via the invention of the so-called "Eurodollars." With the creation of money by the banks strictly regulated inside the United States, U.S. banks opened credit lines in dollars outside the country. It was the first in a long series of inventions, the first instrument in the financialization of the economy.
In order to launch the euro and ensure some stability in the Eurozone, the different European bourgeoisies that had launched the venture put up barriers – the "Maastricht criteria." These barriers were all swept away in a matter of weeks. While a country's budget deficit should not be more than 3% of its GDP (and total indebtedness, no more than 60% of GDP), France's budget deficit this year reached 8.2% of GDP.
Behind the juridical formulations, the Maastricht criteria reflected the aim of the richer States of the Eurozone not to assume the excessive deficits of the poorer States; in other words, not to pay for the bourgeoisies of these poorer countries.
Confronted with the financial crisis, the States all agreed to intervene massively in order to save the banking system, even if it meant ditching the Maastricht agreements. However, the absence of a coordinated policy on the European scale and the varying forms and sizes of the aid are the source of tensions that undermine the Eurozone and, consequently, the European money itself. The EU is today footing the bill for its lack of political unity compared to its main economic competitors – and first of all, the United States.
By injecting huge amounts of money in the economy, not only did States considerably increase the monetary mass, but they also made the monetary system itself more fragile. Speculation on exchange rates is today one of the most profitable speculative fields – as well as being the most necessary. All the big companies engage in it permanently.
The consenting victims of this type of speculation – in other words, the imperialist States – also use variations in exchange rates against each other. Today's monetary manipulations play the role of yesterday's protectionist measures.
In October 2008, the dollar was worth 0.79 euro. A year later, it went for 0.67 euro, a drop of 15%, favoring U.S. exports to the Eurozone. American leaders, even while repeating that they want the dollar stabilized at a high level, don't hurry to intervene in the monetary markets to "defend" the dollar.
Lacking a European state, the Eurozone finds it more difficult than the United States to play on its currency's exchange rates. Worse: since the euro is not the only currency in the European Union, exchange rates have been used in protectionist ways even inside Europe itself. In only three months, between July and October, the British pound, for example, lost 10% of its value respective to the euro. This not only favored British exports to the Eurozone, but also introduced another measure of instability in the European Union's economy.
In an interview published August 27 by Challenges magazine, Nobel laureate for economics Joseph Stiglitz, who headed the IMF before inspiring the antiglobalization movement, compared the situation created by the U.S. "money-printing press" to that of a man "skiing on the edge of a cliff shrouded in mist." The dollar has long been plagued by inflation, like any other currency. The fluctuations in the price of the dollar in relation to gold follow a general downward curve, accompanying the long crisis of the global capitalist economy. The crisis of the dollar that marked the end of the Bretton Woods agreements in 1971 was the first and highly spectacular episode of the crisis. Nothing better illustrates the continual erosion of the dollar than the comparison of these two figures: on August 15, 1971, when Nixon announced the decision to devalue the dollar and break the tie between the American currency and gold, gold stood at $35 an ounce; today, it is over $1,000 an ounce!
The almost unlimited printing of greenbacks that finances the U.S. government's aid to the American banking system, coupled with the Fed's accumulation of tremendous amounts of "toxic securities' undermines confidence in the dollar. Can this precipitate the downfall of the U.S. currency?
The British pound, one of the main currencies in the world, already went through this experience. In 1992, it was the target of a speculative operation so massive that the British government was obliged to devalue the pound (which, by the way, meant a profit of one billion dollars for a speculator by the name of George Soros).
Because of its role as a global monetary instrument, the dollar's situation is very different from that of other currencies, including even the pound. Its strength lies in the fact that it serves as an instrument for international payments and as a global reserve currency. The fact that China, Japan or oil-producing countries have mountains of dollars in their vaults chains them to the U.S. currency and forces them to do what the U.S. government doesn't do: intervene on the monetary market to buy dollars to mop up the surplus of dollars. Recently, the central banks of several Asian countries (Korea, Indonesia, Thailand, Hong Kong, etc.) came to the rescue of the dollar and bought a billion dollars worth of the currency to maintain its exchange rate.
Any devaluation of the dollar would mean that part of the reserves accumulated by these States at the expense of their working classes would go up in smoke. Paradoxically, the weak dollar itself has become a means for the biggest imperialist power to plunder the less developed countries.
But the tacit agreement uniting all the States that have dollars in their reserves will not necessarily be enough to save the U.S. dollar. There is so much liquidity in the global economy that speculators could mobilize sums equivalent to or even greater than the reserves of all the central banks.
The possibility of a U.S. bankruptcy is today openly discussed. Not only by economists, but also by certain governments – if we are to believe the information that filtered out of secret meetings organized to try to find an alternative to the dollar, putting together a "basket" of different currencies able to serve as an instrument for trade, particularly for oil. However, an international currency accepted by everyone is not easily done. A severe crisis of the dollar would inevitably bring about a crisis in the exchange rate system, with rates varying brutally, further aggravating the difficulties of international trade.
The consequences of the crisis are particularly serious among the semi-developed industrialized countries of Eastern Europe (the ex-People's Democracies or ex-members of the Soviet Union). The Estonian or Slovak "miracles' have gone down the drain.
The location of big German or French car plants in Slovakia, for example, in search of cheap labor, meant that the growth rate of the country's GDP was impressive for a number of years. But today, this is what hit Slovakia hard with the recession. The drop in industrial production has taken on dramatic proportions for East European countries: 20.4% in Slovenia, according to Eurostat, and 27.9% in Estonia.
For the East European countries that are not members of the Eurozone – and they are the majority – the economic crisis has meant a weakening or even a collapse of their currencies. The financial crisis has pushed the Western banks to withdraw their capital from these countries.
Given that the banks in these countries are essentially controlled by Western banks, the IMF decided to open credit lines to Romania, Hungary, and other countries – less to help the Romanian State, for example, to pay the wages of its civil servants, than to prevent Western banks from the consequences of a generalized collapse of the banking system in Eastern Europe.
Theoretically, the crisis of the global economy and the reduction in trade should be less dramatic for the poorer countries which have been pushed aside from world trade. But this theory ignores the impact that financialization of the global economy has on these poor countries.
Not only are these countries already caught under the burden of their debt and the ukases the IMF imposed on their governments to carry out austerity policies; they are now threatened by highly unstable prices for basic food like wheat, rice or corn, caused by financialization and its ensuing speculation. It is particularly dramatic for those countries that are not self-sufficient in their production of basic food. For underfed populations on the verge of famine, a couple of percentage points' variation in the price of basic food means that millions will die.
Capitalist economy amplifies the consequences of catastrophes like a year of drought or flooding. In Ethiopia or in Sahel Africa, the peasants who will survive the famine caused by local catastrophic crops will then be threatened by the international increase in the price of food due to speculation that comes with a world-wide bad crop year.
Finally, the problems of the global economic crisis are also bound to affect the poor masses of the poorest countries through the important role played by money that migrants send back home. An increase in the unemployment rate of the imperialist "host" countries automatically aggravates poverty back in the "home" countries.
The aggravated phase of the crisis is now in its third year, having broken out in the early months of 2007 with the downturn of the U.S. housing market and the first bankruptcies of mortgage companies. Its balance sheet so far is a disaster on the economic as well as on the social and human levels: production has receded; plants have been shut; unemployment and its negative material and moral consequences are on the rise.
By intervening rapidly, States have been able to save the banking system and momentarily avoid what their economists call a "systemic crisis." But in doing so, they have jeopardized the future.
The bourgeois class and their political knaves have not yet presented the workers with the bill for their generous gifts to the banking system over the last two years. Even if it were true that we are seeing "the light at the end of the tunnel," the bill would not easily be paid by the working class and the popular masses. But the truth is that bankers and politicians are the only ones who see the end of the tunnel!
The money distributed widely by the States to the banks, appearing as huge profits, comes from exploitation, one way or another. Footing the bill in the present situation necessarily means an aggravation of the exploitation of the working class, but also a series of attacks against other layers of the population. The current agitation by the French farmers against the aggravation of their living conditions is not accidental or superficial.
The capitalist class cannot overcome the crisis of its own economy without devastating the living conditions of all the laboring classes and the very poor. The present economic upheavals are sure to have far-reaching consequences on the social level.
The bourgeoisie and its politicians will inevitably adopt a policy that will push the working class into a new "period of frightful poverty, of biological misery for the workers," like the one described by Trotsky in his 1932 pamphlet On the American Crisis, which analyzed the situation in the richest of the big capitalist powers.
If, as was the case in the 1930s, the working class everywhere, in all the big imperialist countries, appears to be surprised and disoriented, it will nonetheless inevitably be pushed to react. Despite the existence of formerly "reformist" parties that are now totally at the service of the bourgeois class and in spite of union leaderships that are fully embedded in the system, there will be social explosions. No one can say when or under what conditions these will be touched off. But the crisis renders it more pressing that the working class oppose its own policy to the policy of the bourgeoisie.
The workers' morale is presently affected by the objective situation itself (growing, massive unemployment, fear of losing one's job). But more important, in view of the struggles that will inevitably be fought, there is a lack of class-consciousness among workers.
In France, one of the worst consequences of the coming to power of the Socialist and Communist Parties – which both defended the interests of the bourgeoisie while in office – was to befuddle the workers and make them forget that they have their own class interests.
This idea has been replaced by all kinds of reformist misconceptions, by nationalism, by the idea that members of the French "nation" have common interests and a host of other more or less reactionary ideas and behaviors. Unfortunately, a good deal of those who insist on distinguishing themselves from the SP and CP do so only in terms of election-time partnerships or on specific social issues.
Marx's slogan "The emancipation of the proletariat is the work of the proletariat itself" can still be seen on banners or on backdrops. But even in the case of groups that call themselves "far left," it is overshadowed by other slogans responding to a whole range of issues, which are certainly legitimate (environmentalism, feminism, etc.), but which do not foster class consciousness. On the contrary, they tend to make no distinction between the working class and the other social classes, with the end result that the workers find themselves coat-tailing the petty bourgeoisie.
And it is certainly not the leadership of the unions who will work to revive class consciousness – all those who have been integrated into the apparatus of the imperialist state, viscerally mistrustful of any working class mobilization that might end up calling in question the capitalist order.
The demand for a "fair industrial policy" put forward by the CGT is today's fashionable slogan (as for the other union confederations, they don't even bother to justify their abdication with any kind of demands). Starting from the correct assumption that the bourgeoisie is destroying the country's industrial fabric and industrial jobs, the CGT draws the conclusion workers ought to ask the bourgeoisie – or the president of the Republic – to carry on a "good policy" aimed at developing industry and industrial jobs. The reformist apparatuses are so careful not to rock the boat of the capitalist order, that they end up uttering appalling platitudes. The workers' living conditions can be defended not by following the lead of the present masters of the economy, but against them.
In this period, when the crisis renders the fight of the bourgeois class against the working class particularly ferocious, advocating mutual understanding amounts to choosing the side of the bourgeoisie.
Putting forward objectives that aim at smoothing the antagonism between the interests of the capitalist class and those of the exploited class and attempting to reconcile them amounts to putting oneself in the service of the exploiters.
On the contrary, the only genuine class policy is to expose the existing class contradictions, to put them on center stage and to put forward demands showing that the working class cannot pull through without an all-out fight against the bourgeoisie.
When the crisis is exacerbating the class struggle, those who would replace it with electoral fights – between parties which, once in office, carry out their policy for the bourgeoisie – substitute shadows for social reality. France's present government is slavishly in the service of the propertied classes. Trying to focus workers' attention simply on the party that runs the country and only on the electoral level is to disarm the workers.
The crisis has given Trotsky's Transitional Program renewed relevance. Its aim was to endow the working class with a political compass in another severe crisis of the capitalist system.
For years, confronted with unemployment and massive layoffs, we emphasized the slogan "Ban all layoffs." This slogan may now have been adopted by left-wing or other far-left organizations, like the POI and the NPA, or even the CGT and the French CP. But it's necessary to see that this slogan is but one element of a whole set of demands aimed at challenging the bourgeoisie's dictatorship over the economy. Isolated from these other slogans, emptied of its true meaning, the slogan can be used even by reformists.
True to say, demanding that layoffs be forbidden implies challenging the sacrosanct right of the bosses to do what they want inside their company. But it is not a recipe to be applied mechanically. Otherwise, this slogan will become yet another example of wishful thinking, especially if it is brandished haphazardly in one plant after the other. This is particularly true if we are dealing with bosses that have already announced the plant's shutdown. Forbidding layoffs implies challenging the bosses' dictatorship over the economy. "Ban the layoffs' must be linked to slogans demanding that work be shared among all the workers and the workers' wages maintained. It must also be linked to a slogan demanding the end of business secrecy – which is what today gives capital owners the possibility to speculate, thus frittering away society's productive forces. To take up these objectives and to be able to impose them requires a relationship of forces that only the whole of the working class mobilized can impose.
More generally speaking, the Transitional Program is not the juxtaposition of partial demands isolated from one another. They center, all of them, around the struggle to get rid of the capitalists' dictatorship over the enterprises and over the economy. Their aim is control by the working class and by the population over production and the economy.
One of the essential aspects of this program concerns the banks. The blatant parasitic nature of finance pushes forward the necessity of controlling and regulating the banking system. What is only demagogic speech in the mouths of bourgeois politicians will become an objective for the mobilized proletariat. It is impossible to make the economy function in the interests of the majority of the population without expropriating the banks and merging them into a single bank controlled by the population.
These transitional demands, resting on needs flowing from the concrete situation, aim at the overthrow of the power of the bourgeoisie. They will be meaningful only if and when the exploited masses, entering in struggle, take them up. No organization has the power to launch such struggles, but when they get under way, it is vital that there be militants defending and popularizing a program of struggle, a policy aimed at bringing the working class to control and then take over the economy.
Only an organization whose aim is the reorganization of society on a communist basis can go all the way to the very end of this process. And that is the gist of the problem. The present crisis shows us, once again, the disastrous failure of capitalism, its incapacity to ensure the harmonious development of society. Expropriating the capitalist class and abolishing private property represents the first, inescapable step towards the reorganization of the economy on a rational basis, that is to say, a planned economy – or, in Trotsky's words, towards the "introduction of reason in human relationships."
22 October 2009