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Second wave of the crisis reaches land

In pursuing what the prevailing law defines as their perfectly legitimate individual interests, investors are collectively destroying the universe within which they – and we all – live. As agents of the capitalist way of doing things they have no alternative.

The latest assault on Italy, where investors are bailing out of banking and the market rate of borrowing has soared, underlines what is surely obvious to all – the second wave of the crisis which erupted in 2007-8 is now underway.

The punitive rates of interest charged for the loans needed by Greece, Portugal, Spain, Ireland, Italy and Iceland to avoid default only ensure that such defaults are inevitable.

Rating agencies have now declared Ireland’s debts to be worthless. Greece is virtually certain to default in the immediate future. The recession – decline in production – in each of these debt ridden countries is deepening. A collapse of the euro as a currency, leading to an immediate slump in trade, is a distinct possibility.

The formerly mighty US is locked into a political impasse over proposals to reduce its staggering $14 trillion debt mountain. If it is not sorted out soon, the US government will come to a default and the unthinkable – a dollar default – comes closer.

Occasionally, in struggling to find solutions to the impossible contradictions which dog their attempts to explain the deepening crisis, a rare commentator will be found shedding light on the inevitable consequences of following the current path.

The Financial Times’ Martin Wolf is one member of this rare breed. In a recent column reviewing the crisis in the eurozone he revealed another two of the impossible contradictions that are skewering the global economy -

The solution? Wolf says “debt restructuring [a polite term for state bankruptcy, default, and debt cancellation] is merely a necessary condition for an exit. It is unlikely, in all cases, to be enough.”

His chilling prediction sets the scene for the coming months. “Some economies may just wither away.”

Putting it simply, mounting and ongoing resistance to the measures – “austerity” hardly begins to encompass it – being used to attempt to reduce unsustainable global levels of debt, means that debt must now be “restructured”, wiped out.

But the debt grew throughout the last 40 years to fund growth. So growth must now give way to contraction. Latest estimates suggest that the value of Greece’s debt must be reduced by 75%. And so must its production. And not just in Greece.

Grasping how markets, governments and corporations are driven by forces more powerful than the sums of their parts is vital. We have to get to grips with the contradictory forces at work in the capitalist economy and show that the system itself is broken and unsustainable.

Cuts in services, £9,000 fees for university courses, soaring unemployment, inflation, mounting house repossessions, privatisation and attacks on pensions are the consequences of the crisis that broke in 2007-8.

What is coming up the line as the second wave of the global tsunami advances will shake society to its foundations. At the same time, it will create opportunities for transcending capitalism and creating a rational, sustainable economy. It’s a chance we can’t afford to squander.

Gerry Gold
Economics editor
13 July 2011

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Your Say

Penny Cole says:

In the end coal isn't the problem - capitalism is the problem. If coal can be used in a cleaner way, would we not do it, during the transition to a different energy environment? Maybe we would decide to do that. But in the current profit-driven energy market, the only people interested in building new coal-fired power stations in Britain have already made clear that fitting carbon capture and storage can't be profitable until carbon reaches a phenomenally high price. But at present the EC carbon market is collapsing, and shows no sign of rising.

When we create a human society which operates a market for need, not for profit, all the technologies and transitional strategies can be up for democratic discussion. The reality is that at present the majority of people have no control over what happens. Let's not put the cart before the horse here. Supporting the NUM means supporting a democratic, collectively-owned energy sector.

Charles Pearson says:

While I am all for supporting the NUM and other unions, and as a socialist who knows who the enemy is it would please me to see the whole lot of the ConDem government exiled to the moon, I think Chris is simply ignoring that coal is a big part of the problem of trying to mitigate (it is too late to stop completely) the dangers of global warming. Unfortunately, whatever we do in the UK or Europe as a whole, China seems committed to coal - opening many new mines (and with little regard to safe working conditions) and only international agreements have a hope of reducing carbon emissions.

However, capitalists and their supporters have so far successfully undermined efforts in this direction, as at Copenhagen, and are continuing with their subversive market-based "solutions", which actually make things worse.

I would love to see coal miners assisted to find a different and well rewarded kind of work, but no capitalist government is going to do that. So I hope Chris tries to help in the struggle for socialist alternatives. I don't think George Monbiot is right in now supporting nuclear power stations, but finding alternatives to fossil fuels must have high priority, without threatening food supplies, as some biofuels do.

Chris Skidmore Yorkshire Area NUM says:

How do we stop "Wiind Turbine Huhne" from ruining our country by de industrialising it, harming our national parks & sea board areas by sticking thousands of wind generators on every moor & hill side he can stick them??? Why do people like him "think Coal thats dirty must have wind"? there has never been one public debate on this subject people like him Meg Hillier Huw Irranca Davies & Greg Barker + the Labour & Tory Leadership are quite happy to ignore the fact that their new energy policy will lead to widespread power cuts, economic disaster & no growth to try to retrieve the situation for future generatiions. Does Caroline Lucas think she kept warm in either of her homes last winter by wind generated power?  What does the rest of the country think, 7.5 m tons of home produced coal (that ought to be at least 6 times that amount) + imports thats what will keep the lights on. Huhne will be alright in years to come he will enjoy a £60,000 p.a. pension so the cost of keeping warm won`t worry him!!

Our European neighbours are already "digging" themselves out of the mess they are in . Isnt it time we did as well & left the EU?

Fiona says:

Isn't it likely though that some of the bigger and still growing economies, such as Germany, will just about hang on? Or will they find that their 'surplus capacity' will also have to be destroyed and further production halted? Germany, for instance, will still be in better shape economically than Greece, Irealnd, Spain etc. etc. If the mighty do fall I suppose the landing could be harder, on the other hand they just might have sufficiant cushioning to absorb the worst of the shocks.

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