Global capitalism faces its worst crisis since 1945.
by Lynn Walsh, Socialist Party
Global capitalism faces its worse crisis since the end of the second world war. “This is not a normal crisis”, financier George Soros told the gloomy delegates attending this year’s Davos forum of big business leaders. “We are at the end of an era of credit expansion…” The world economy faces a combination of financial crisis and economic slowdown, both originating in the heartland of US capitalism, with the two trends reinforcing each other. The fantasy of ‘decoupling’, according to which Europe, Asia and other economies could grow independently of the US, has already been dispelled by the beginnings of a slowdown in Europe and Asia. Instead, there is, in reality, a ‘recoupling’, as the US slowdown impacts on the rest of the world. Inevitably, if the US goes down it will drag the rest of the world with it, to a greater or lesser extent. The forces that have produced the US downturn have taken a year or so to develop, and the effects of a US recession will take time to work through the world economy.
The collapse of the subprime housing loan market in the US is a major crisis in its own right. Major banks like Citicorp, the world’s biggest bank, have announced record losses – Citicorp was forced to write off $18 billion in dodgy housing loans. Altogether, US and European banks have written off over $120 billion, and there is undoubtedly much more to come.
More recently, the previously unknown ‘monolines’, the bond insurers, which have come to play a key role in the bond and securities markets, have been forced to announce huge losses, with the US authorities now trying to mount a $15 billion rescue of a number of these bodies.
In the week beginning 21 January, stock exchange speculators around the world at last began to catch up with reality, waking up to the growing evidence of a US and world recession. Shares plunged between 6-10% on major exchanges, and are now between 15-20% down on last October’s peak prices. A 20% fall is officially a ‘bear’ market.
The huge losses (€4.9bn, $7.2bn) incurred by the French bank, Société Générale, as a result of a rogue trader, is another symptom of the crisis. The forced sell-off of shares by the bank to cover its losses may have contributed to the sharp fall on major stock exchanges. But it is absurd to try to blame the crash on the hapless Jérôme Kerviel. In reality, SocGen’s losses were just one symptom of a general crisis, at most exacerbating the problem. It is predictable that Kerviel’s fraud will only be the first of many that will be uncovered in coming months, just as the Enron crisis in 2001 was followed by a series of scandals involving big corporations like WorldCom and a whole string of top investment banks.
Alarmed by worldwide stock exchange falls, Ben Bernanke, chair of the US Federal Reserve, dramatically cut interest rates by 0.75% to 3.5%, the biggest single rate cut since 1983. This move stabilised stock markets, with many regaining their previous levels. However, lower interest rates, while they may ease the immediate liquidity crisis, will not overcome the paralysis of the financial system – and stock exchanges will continue to be highly volatile.
These events were reflected at Davos, the annual forum for capitalist leaders, where the optimism of last year – stimulated by record profits and bonuses for the bankers – was replaced by doom and gloom. Most Davos delegates considered Bernanke’s rate cuts ‘too little, too late’. “There are hardly any dissenters from the view that the US is in recession – the debate is only over how deeply and for how long”. (Lex, Financial Times, 22 January) Beyond wealthy financial circles, however, Bernanke’s move has reinforced the view that the Fed is always ready to step in to help wealthy investors, but not so helpful when it comes to helping working people.
Already, the financial crisis and the prospect of a serious downturn have shaken confidence in the ‘magic of the marketplace’. Global economic crisis will have a profound effect on the consciousness of the working class and labouring poor around the world. In the US, a pro-free market commentator, David Brooks, warned of “a backlash against Wall Street and finance sweep[ing] across a recession haunted country”. (International Herald Tribune, 26 January) (more…)
Has the media ever been as rotten as it is now? Of course, the media is part of society and defends the current system. But within limits, there has been room for probing, investigative journalism. Today’s news stories, however, are dominated by repetitious, unchecked stories usually in the cynical service of political spin and naked profit. Peter Taaffe reviews a devastating book which lifts the lid on the workings of the media.
Major govt. limo pile up outside the church with Special Branch escort to get to holy communion in time, before confession. Bless me father for i have sinned (big time) its been 5 years since me last confession (not before a tribunal!) I stole and then I lied just because you asked me to but now you know the truth about me you won’t see me anymore well, I’m still fond of you Gaud.
