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A tipping point is reached

It’s difficult to know which of two momentous pronouncements yesterday has the most profound significance for the future of the global capitalist economy.

Is it the Bank of England’s expected decision to reduce the base interest rate to 0.5%, and start to print money – an initial £75 billion – with which it will bypass the commercial banks and lend direct to businesses, if it can find any that want to borrow?

This means that “monetary policy in its conventional form has ceased to operate”, according to the Financial Times’ Martin Wolf. A better example of what is meant by “a tipping point” would be hard to find.

Or is it the also expected admission from global giant car-maker (and financial services company) General Motors that there are now serious doubts about its ability to continue as “a going concern”? Continued deterioration in the availability of credit together with slumping demand for vehicles of all kinds has driven it to the brink of collapse.

The fact is that the complete breakdown of the credit system and the implosion of production are tightly intertwined.

Interest rates were last reduced to historic lows to deal with the crash of 2001/2, ushering in a period of frenzied speculation, which intersected at its pinnacle with the beginning of the downturn in consumption in 2004.

The global credit system closed for business in mid-2007 when it became clear that the effects of the deepening recession were irreversible. Financial institutions and investors recognised, however dimly, that the possibility of tempting consumers back into the shops to restart growth was gone. It was called a “collapse of confidence”. Share prices continue to tumble.

Despite trillions of dollars, pounds, yen and roubles being poured into the banks and the auto giants, and virtually unlimited guarantees to underpin new lending these attempts at resuscitating the system have failed. There's just too much over-capacity already to tempt new production. Too many unsold cars.

Neither can the crash be reversed by “quantitative easing” – increasing the money supply to induce spending, touted as the last throw of the dice. Governments have embarked on this desperate measure because interest rates are close to zero, property and commodity prices are dropping as demand has evaporated, and nothing else is working.

There will be attempts to bypass the banks and shovel cash into consumers' pockets directly – the “helicopter drop” approach favoured by the current chairman of the Federal Reserve, Ben Bernanke.

This can only make an unprecedentedly bad situation a whole lot worse. There’s talk already in the US and the UK about “fiscal collapse” – tantamount to state bankruptcy.

Obama’s team is reported to be working around the clock, not on a solution, but “to form an approach” to the disintegration of the auto industry. They must be getting very tired.

Obama, Brown, Darling, Mandelson, Wolf and Mervyn King, the Bank of England’s governor and every one of the fantasists of the capitalist world are pinning their hopes on a recovery, sometime, not this year, maybe later. Maybe never.

As the conference called by the Left Economics Advisory Panel for 25 April puts it, “Capitalism Isn’t Working”. The conference is scheduled to discuss policy solutions for the crisis. They will have to be founded upon collectively-owned, co-operatively managed, not-for-profit ecologically-sound production, distribution and exchange. And that includes the banks. Nothing less will do.

Gerry Gold
Economics editor
6 March 2009

Bruce says:

Nationalisation of the banks, Royal Bank of Scotland biggest annual loss 24 billion (how many zeros is that), Privatisation of the post office, erosion of human right, climate change and failure of food production world wide, the destruction of Gaza by Israeli and the inaction of the rest of the world to stop it. A typical week in paradise! (lost)

"All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind." The Communist Manifesto (chapter 1.)

"What history has shown, and Marx explained, is that before a new period of growth can begin, the surplus productive capacity accumulated during the boom years has to be destroyed. The shocking increase in unemployment that sets worker against worker is just the starting point of that process of destruction. The real enemy is capital itself, and the corporations and governments that do its bidding. They must be stopped. To paraphrase Roosevelt's famous remark on his inauguration in 1932, the only thing we have to fear is capitalism itself" AWTW blog "The only thing we have to fear is capitalism itself"

The contradiction between the needs (and its tendencies) of Capital and the needs of the working class ( and its tendencies) must and will be played out in this next period. The destruction of jobs (factories and machinery) the repossession of homes, goods and public services will bring ordinary people into conflict with individual capitalists, Trans National Corporations , the government and the state, this has been seen historically in this country many times, last week marked the 25th anniversary of the start of the great miners' strike in defence of jobs and communities and a year-long confrontation with the state and the Tory government. Ultimately this ended in defeat for the miners, because of the cowardly refusal of the Labour Party and TUC leaderships to fully back the strike and see it through to its conclusion, this is not to forget the support of individual workers , labour party members, trade unionist and unions. So if we accept that new battles are looming the ? Question for us becomes not one of the crisis of global Capitalism, (we still need to follow its sick twist and turns, and study the system) but more the crisis of revolutionary socialist leadership of the working people and the poor of the world, to a new world based on democracy mutual cooperation and the end of poverty and hunger.

Dulwich Daisy says:

It seems that the issue now is not nationalising the banks but nationalising the government - finding a way forward that puts the machinery of government - the state itself - under popular control. We have not been consulted AT ALL about any of these reckless measures which are not aimed at saving us, but at saving the system - at any cost. When even the Lib Dems Vince Cable is warning that the spirit of Weimar Germany (the New Labour-type government that presided over the collapse of the Germany economy in the 1930s) stalks the land, with similar conditions of the middle classes being crushed from above, you need to act very quickly to find an alternative.

Phil says:

From the standpoint of the Government, the 75 billion injection makes a lot of sense because it is classical Keynesian pump-priming, with the idea of boosting credit levels and therefore investment levels. What we have not seen yet is soaring inflation which would invalidate this strategy. The crisis of the financial economy does not seem to be extending into the real economy, in the sense that there is no evidence that profit levels in general are falling, or at least not falling fast enough to cause a crisis of confidence. Profit levels are still reasonable partly because workers are not well organised and there is a low level of class consciousness. For example, the Jaguar workers have just accepted a drop in wages and hours, because they think this is necessary to hang onto their jobs. The point I am making is that if class consciousness remains low this fact in itself will save the system, even though it is a bad system that denies the realisation of the potential of people. The idea that the financial crisis will inevitably of itself lead to a big showdown between capital and labour is wrong.

Ray says:

Phil I'm afraid you are mixing two parts of a dialectical process together and making a mess of it. Class conciousness (relative) is determined within the (absolute) of capitalism. Capitalism (relative) within the historical striving of society. There is, by it's nature of self existence, nothing determined in advance, in prognosis, in the struggle between labour and capital. But this unity and conflict of opposites in society is nevertheless absolute and drives it towards conclusion. The miners minds of March 1985 were not the same as those 1984 ... these things go on... and on ... dare I say PERMANENTLY!

Gerry says:

Phil, Thanks for your troubling comment. It would be helpful to know what sources you are using to support your assertion that 'there is no evidence that profit levels in general are falling, or at least not falling fast enough to cause a crisis of confidence.'

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