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Commentary :: Elections & Legislation

A Systemic Crisis of Capitalism

The current crisis that is sweeping Wall Street is the expression of the death agony of the capitalist system itself. Statement from Editors of The Organizer.
A Systemic Crisis of Capitalism

The current crisis that is sweeping Wall Street and that saw the U.S. Congress bail out the speculators to the tune of $850 billion on “Giveaway Friday” is not a "market correction" or the result of the greed of a few bad apples in an otherwise pristine barrel. It is the expression of the death agony of the capitalist system itself.

More and more mainstream economists and financiers are warning that despite the huge bank bailout, this financial crisis is headed toward an economic collapse as deep as, if not deeper than, the Great Depression of the 1930s.

Economist Michael Hudson writes: “Treasury Secretary Henry Paulson’s bill is a fraud. This massive trillion dollar deleveraging process cannot be stopped. The system is expurging excess credits which are unsustainable. The levies you’re building with Congress’s bailout may plug a few holes, but it won’t stop the flood.” (Counterpunch, Oct. 21, 2008)

Financial guru Martin Feldstein echoes this view: “The big problem with the bailout plan is that more foreclosures and more defaults are needed to ‘cleanse’ the system produced by excessive credit expansion” (Wall Street Journal, Oct. 18, 2008). Feldstein estimates that financial institutions are still holding $2.3 trillion in “toxic debt” in the mortgage industry alone.

But speculation did not only run amok in the housing industry. The “sub-prime” crisis is only one small piece of a larger puzzle.

In a letter written to his shareholders, financier Warren Buffet warned of the massive explosion of “derivatives” in all the financial markets.

Buffet said that huge sums of derivatives – estimated at more than 1,000 trillion dollars -- had mushroomed over the past 37 years, since Nixon’s 1971 decision to take the U.S. dollar off the gold standard. These forms of “fictitious capital,” he said, have become “financial weapons of mass destruction carrying up dangers that are potentially lethal.” (quoted in Mumia Abu-Jamal’s “Behind the Money Crash,” Oct. 8, 2008)

The financial panic of 2008 was set off by just one small leak in the derivatives dam. On Oct. 23, economist Nuriel Rubini wrote that the massive “hedge fund” market – yet one more component of the derivatives market -- is on the verge of collapse, with hundreds, if not thousands, of bankruptcies and failures waiting to occur. “The worst is yet to come,” Rubini wrote.

House of Cards Topples Over

In his White House speech on Sept. 23, George W. Bush explained why he had abandoned his "laissez-faire" policies and was now proposing a massive government bailout of the financial entities that are facing huge losses due to their market manipulation and speculation. He described the economy as a house of cards made up of paper debt that could collapse at any moment and bring the entire economy to a halt if the government did not step in immediately with its massive bailout package.

The capitalist system has been able to offset the contradictions that led to its crisis in the Great Depression on the basis of a permanent war economy and the proliferation of this "fictitious" economy" where mega-profits are made through speculation outside the sphere of production. War and speculation (with their mounting paper debt) have become the main driving wheels of an economy whose aggregate debt has soared to the mind-numbing figure of $53 trillion in the United States alone.

The current crisis is not the result of "bad policies" or measures of deregulation that could have been avoided. The crisis is systemic. The deregulation of the financial markets, promoted by both Democrats and Republicans over the past decades, was required by a system addicted to war and speculation.

The $3 trillion debt imposed on the U.S. people by the two unending wars in Iraq and Afghanistan, combined with the recent orgy of speculation in the housing industry, increased the height of this house of cards, built up over decades by mountains of paper debt, to new levels.

Herein lies the dilemma that today faces the captains of industry and finance, as well as the politicians in their service. For decades, the capitalist system has been able to put off a major financial and economic crisis by building more weapons of mass destruction and by artificially pumping ever more fictitious capital (or "toxic debt," as it's being called today) into the economy.

But by postponing the day of reckoning of a failed economic system in this manner, the inevitable collapse of the house of cards has only been rendered more devastating.

Plunging Toward a Depression

It is estimated that the total value of all stock market holdings on the world market is around US$50 trillion; that is, one-twentieth the value of the derivatives market.

The French daily Le Monde reported on Oct. 24 that globally, one half of the stock market values, or US$25 trillion, “have disappeared into thin air” since the financial crash of September-October 2008. This plunge of stock markets internationally – from Japan to Europe to Brazil – is unprecedented.

Stock markets express overall the financial value of all goods and services produced in the real economy, whereas derivatives are totally fictitious ventures. But these two distinct markets are linked; the collapse of either one necessarily impacts the other.

The fictitious markets cannot mushroom indefinitely because, in the last analysis, the only real values in a capitalist system are the ones produced by human labor. At one point or another, all the speculative ventures must come crashing down to their real values, bringing along with them the economy as a whole.

An article in the Sept. 27 San Francisco Chronicle titled, "Even if $700 Billion Bailout Passes, It Won't Cure What Ails the U.S. Economy," notes that the "bailout won't bail out an economy that appears to be headed downhill."

This holds even more true today. The world economy is now in a recession and is heading toward a depression. In a period of just one month, the value of all stock market holdings worldwide plummeted by half -- despite all the half-measures taken by the world’s politicians and financial institutions. Whatever “stabilization” of the financial markets may occur in the coming weeks, it will be extremely fragile and temporary.

There IS an Alternative

Throughout the postwar period, the U.S. "free market" economy has been identified as the linchpin of a functioning and successful world economic system. Never mind that 2.5 billion people around the world survive on less than $2 a day, that more than $800 billion are spent on the military every year, or that the private assets of the 200 richest people in the world are greater than the combined incomes of the poorest 2.4 billion.

We have been told again and again that There Is No Alternative to the status quo -- that socialism is dead. Conservative historian Francis Fukuyama proclaimed "the end of history" after the fall of the Berlin Wall in 1989 and concluded that capitalism constituted "the final form of human government."

After the momentous events these past weeks, all those pundits stand exposed as liars and charlatans. And, yes, There Is An Alternative -- the expropriation of the major means of production and the creation of a socialist society where working people, organized into multi-party councils, would decide all major economic, political, and cultural questions.

Under such a system, production, investment, research and development, would finally go toward providing for human needs. Vast resources would be allocated to provide for everybody's basic needs. Under such a system, democratic rights such as freedom of speech, freedom of the press, freedom of assembly, and freedom of association would become realities for all.

-- The Editors
THE ORGANIZER NEWSPAPER
P.O. Box 40009
San Francisco, CA 94114
Tel. 415 641 8616
www.socialistorganizer.org
 
 

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