The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Gyrating Stock Markets, Government Debt and Capitalism in Bankruptcy

Aug 22, 2011

Financial jitters, already visible for a time, became a panic after rating agencies announced they had downgraded the United States credit rating. The selling panic swept through the “sovereign debts,” that is, the debts which governments have accumulated over many years, but which have grown enormously since the financial crisis of September 2008.

It is the old game of speculation that humanity has known ever since money was invented. And it has always been used to fleece the majority of the population to benefit the minority that possesses money. But under capitalism, speculation has really expanded. And today, with modern means, speculators are amassing incomparable sums of money, making transactions almost instantaneously.

Speculators are not just a few exceptions who play games at the edges of the general functioning of the capitalist economy. The big banks are the biggest speculators. They use not only their own funds, but also money handed to them by all the other capitalist groups (industrial, commercial, insurance) as well as funds from rich individuals. The entire capitalist class is involved in this speculation.

For a long time, speculation has been one of the fundamental aspects of the capitalist economy. But, with the general financialization of the economy during the 20th century, speculation now plays the central role in the functioning of capitalism.

For a number of years now, finance has produced a much higher return than has the real economy. The financiers might walk off with a profit of 12 to 15%, even 20%, on the capital they place, while real production stagnates; unemployment rises everywhere; and official figures for the gross national production, already overstated, increase just 2 or 3%, or at best 5%.

The Consequences of the 2008 Bank Crisis

The current crisis is the consequence of the bank crisis of 2008. Or, more exactly, of the medication all the governments used to overcome the 2008 bank illness.

The immediate cause of the crisis of September 2008 was uncontrolled speculation by the banks and financial institutions, centered on the American housing industry.

Acting as though housing prices in the United States would continue to rise indefinitely, the banks competed to push loans on people, as long as the loans were guaranteed by the rising price of housing. But when the American housing market crashed, all the banks, and not only in the United States, found themselves holding pieces of paper representing loans practically without value.

Even more complicated, these loans themselves engendered other forms of credit – the banking system showed great imagination in inventing new pieces of paper, ever more complicated and obscure … but which were directly and indirectly linked to a housing market in the process of collapsing.

This situation ended up in a major banking crisis, what the bankers called “a crisis of confidence.” The banks no longer trusted each other because of the bad debts they had all accumulated. They stopped lending to each other and to other corporations.

Yet the circulation of money between banks and companies, and among banks themselves, makes up the life blood of the capitalist economy.

Governments around the world – the servants of the banks and corporations – did not compel the banks to loan money to the productive economy. Instead, to solve the crisis, governments tried to convince the bankers that they could make a nice big profit by lending again. In any case, all the governments acted to buy up the old rotten loans still held by the banks.

As long as private lending produced a private profit, the banks and the capitalist groups benefitted from the interest payments. But as soon as lending was no longer profitable and there was a risk that the capitalists could lose money, governments around the world took on all the losses. This produced a “miraculous transformation” of private debt into public debt. Or, to speak in terms of social classes, the bourgeoisie privately pocketed the profits from the extravagant loans, but the governments forced the laboring classes to pay for the banks’ losses.

Outrageous sums were injected into the economy under the pretext of giving the banks and the industrialists confidence in the solidity of their own economy! Not a single government proposed to expropriate these criminal bankers without compensation. And even the few demagogic words governments uttered about banking regulation never led to the slightest action.

The hundreds of billions, even trillions made available to the bankers were taken out of government budgets, to the detriment of spending that would have been useful for the majority of the population. Social protections, retirement pensions, public employment, public services, education were all cut to pay for saving the bankers. But even that was not enough, so governments took out loans from the banks themselves – then turned around and gave the money right back to the same bankers as a gift! This is what produced the considerable growth of government debts.

These expenditures and the sacrifices that they implied for the population were said to be necessary in order to save the banking system from a so-called “systemic crisis.” But these policies regulated the problem of the crisis of confidence among the banks for only a short moment.

Far from being a solution, this policy aggravated the problem. The colossal sums injected by the states into the economy further increased the quantity of money in circulation. And since no government constrained its capitalists to use this money to invest in production, to create jobs or to raise wages, all of this has now led to a level of financial speculation never before seen, while reducing the ability of everyone else to buy goods.

In 2008, it was the banks and financial groups that were threatened with failure. Today it is the state apparatuses of all the biggest countries in the world, including that of the United States.

Behind the Somersaults of Finance, the Crisis of the Capitalist Economy

The markets, the “investors” – in other words, all the capitalists – are beginning to fear that they may not be able to recover the funds they have invested, along with the interest they expect. This is not just because the governments, beginning with the U.S., are in debt up to their necks. It is, more fundamentally, because the economy itself, industrial production, is stagnant.

The austerity plans demanded by the financiers – the reduction of expenditures for public services and social protections, the drastic reduction in the number of public employees – will decrease even further the ability of the laboring classes to buy anything.

In the end, the crisis of the capitalist economy is the result of the contradiction between the increased capacity to produce and the limits of consumption by the laboring population. Overcoming the financial crisis by taking more from the pockets of the majority of the population can only aggravate this contradiction.

After their little spectacle, the Republicans and the Democrats reached agreement, with Obama at their head, to increase the debt ceiling of the U.S. government in order to aid big capital. In Europe, after the negotiations between Merkel and Sarkozy, the European Central Bank plans to do what its statutes supposedly forbid: to buy up the bad debts of the European governments in order to assure the banks that the interest on their loans will be paid, even if these loans were issued at usurious interest rates.

Austerity has become the key word for all politicians everywhere in the world, that is, austerity for the working population. Big capital takes from the wage earners, but also from the so-called middle classes – like small business people, small farmers, supervisors, along with teachers and some professionals.

Despite the current tumble in stock prices of private companies as well as of government securities, big capital will rebound tomorrow. Capital today is flooding out of the stock market; this capital must end up some place where there is hope that a profit will be made tomorrow. Some financial consultants already recommend their customers benefit from the decline in stock prices by buying back stocks in those companies likely to return solid dividends. They add that investors must “have patience to wait for the stocks to increase in price again” … in other words, to be rich enough, powerful enough to be able to wait.

Cynical consultants recommend, since stock prices have declined, that big companies would do better to buy up their competitors rather than to invest in new factories.

But big capitalists do not need consultants in order to act on what they know already. The crises of the capitalist economy always end up increasing the power of the biggest groups, once the dead branches are cut off. These financial somersaults will be translated into layoffs, closing of factories, reduction in wages, not to speak of all the other forms of austerity imposed by governments on the exploited.

The social meaning of all this is not that “the markets are more powerful that the governments,” as the media frequently repeats. It is that governments, completely at the service of big capital, add to the profits taken directly from exploitation – that is, from production itself. Since production is down, the governments steal from the working classes, using the power of the state apparatus to do so, also putting this theft at the service of the capitalist class. There is no better description of the parasitic nature of big capital today, and its damaging effect on society.

Overthrow the Power of the Capitalist Class

No one has a solution to the crisis of the capitalist economy – certainly not those who profit from it. This crisis and the concrete ways in which it proceeds are the demonstration that the economy can no longer function on the basis of private property in the means of production and finance.

The immediate problem for the workers is to defend themselves so that the burden of the crisis doesn’t fall completely on them. To defend their jobs and their wages is more important today than at any point in the recent past, to prevent the majority of the world of labor from falling into extreme poverty.

This requires the radical expropriation of the capitalist class, beginning with the banks and large industrial and commercial groups; and the reorganization of the economy on the basis of collective property, freed from the drive for private profit and from competition. It also requires planning for everyone’s needs in relation to the capacity of production. That can be done only by the mobilization of the working class with a level of determination and political consciousness that doesn’t exist today. But that can come quickly, provoked by the capitalist class itself, and by the destruction brought on by capitalism.

The struggle of the exploited to defend their living conditions becomes meaningful within the perspective of radically overthrowing this social and economic organization that is making totally clear its own bankruptcy.

Confronted with political parties that discuss everything in terms of capitalism, working people need their own party, based on the goal of overthrowing the power of the capitalist class and of carrying out a social revolution – that is, a true communist party.