A deep liquidity crisis began with the crash in subprime mortgages, prompting the central banks of the richest nations in the world to inject billions of dollars to restore liquidity to the markets. The banks could not deal with homeowners’ inability to pay and the fall in the property values that supposedly underwrote these debts, provoking a crisis of solvency. The governments of the leading countries then spent trillions of dollars on nationalizations and rescue operations for banks and financial institutions. However, there is a crisis of confidence, there is a run on the banks, and many countries have raised the guarantees on deposits. The debacle is global, it is getting worse by the day, and no one knows where the bottom is.
Reality responds and leaves doubts behind
For some time, there has been an argument amongst economists as to whether the economic expansion of the American economy would end with a “hard” or “soft” landing. The question has been settled. Then the discussions reached a new plane: “Will the crisis affect the real economy or remain confined to the financial sector? Will the American economy slow down or will it fall into recession? Is there the possibility of decoupling from the crisis, that is, can some countries remain independent of the crisis?”
Reality is answering these questions. The center of the crisis is financial, but production is already feeling the effects, and the slowdown is being converted into a recession much more rapidly than previously expected. Technically speaking, a recession is defined as two consecutive quarters of negative growth, but that is nothing more than a technical definition that does not necessarily correspond to reality. Industrial output in the United States has seen nine straight quarters of decline and the country has already lost 750,000 jobs this year, including 159,000 in September alone.
In Europe, Ireland, the country that was a model of recovery, is already in recession, as is France. And, by the end of the year, Germany, because of a sharp fall in exports, and Great Britain and Spain, because of the real estate crisis, are all expected to follow suit.
The thesis of “decoupling” was abandoned before it could even be argued very strongly, as the entire world economy is affected by the crisis. The question of the moment is: Are we entering a depression like the crisis of the 1930s?
The World Bank projects an increase in the American GDP of 1.1 percent for 2008 and 1.9 percent for 2009; other estimates predict 0 percent growth for the current year. The European Union (EU) calculates that it will have to reduce its already weak growth forecast, while the World Bank projects European growth at 1.7 percent and 1.5 percent for 2008 and 2009, respectively.
Some comparative studies point to the end of a stage of economic growth with low inflation. The tendency that is outlined in the industrialized nations is for a “slowdown in economic growth by half and a doubling in the rate of inflation.” In Latin America, predictions are for an acceleration in inflation, and therefore, in poverty, which could reach 37.9 percent of the population.
Clearly, the crisis has made a qualitative leap and these growth estimates will surely be revised downward.
Social impact and political crisis
Mortgage holders who fear losing their homes, retirees who see risks for their pensions, workers in construction and transportation, public sector and metal workers, plumbers and professors, as well as those who are critical of the bailouts for the rich, job losses, and the devaluation of their retirement contributions, have all begun to protest. Meanwhile, the deepening of the recession is guaranteed, leading to a stagnation in the living conditions of the American population and a crystallization of the sharp inequalities that already exist (in the United States, there are 51,000,000 people living in poverty; of those, 35,000,000 suffer from hunger).
Fear, panic, and discontent will increase. Thousands of families in cities like Los Angeles and San Francisco already live in tents or sleep in their cars because they have lost their homes. Others, before abandoning them, vandalize their houses and rip out materials to sell.
The rescue plan that Bush sent to Congress—supported by both presidential candidates and by the leadership of the Republican and Democratic Congressional delegations—was rejected. A second attempt was approved after delays and criticism, and included numerous changes (the original plan was just three pages long, while the one that passed Congress was four hundred pages!). The EU did not develop a unified response to the crisis. On the contrary, various countries resorted to separate national “solutions,” and the coherence of EU policy must be put between quotation marks. How will the lack of economic and political leadership in the face of this current systemic crisis impact the collective consciousness of millions of people? This is another of the unknowns in play.
This is capitalism…
The financial gurus and analysts can do nothing more than talk about the lack of regulation and the absence of state controls in the face of the “greed” of the speculators and bankers. They blame “money madness” and the idea of making money out of money without having to pass through the difficulties of producing anything. Thus, they lay the blame on neoliberalism, forgetting to add that many of them not too long ago hailed the financialization of the economy. But they cover up the fact that neoliberalism is nothing more than a phase, and, therefore, excuse the system of capital itself.
They refuse to admit that, although the financial sector has been the catalyst of this crisis, aside from its specificities, this is a classic crisis of over-accumulation and overproduction. It is an example of how, time after time, capitalism comes up against its own constraints. The accumulation of capital is always conditioned by the methods and forms it is obliged to adopt, and its continuity depends on being able to overcome those older forms by resorting to newer modalities, means and criteria that must then be overcome themselves at some moment in the future.
This is what took place between the 1970s and today. The restructuring of the productive spaces, distribution, and commercialization that capital carried out in order to resolve the crisis of the early 1970s, required the dismantling of the array of regulations and state controls that made the markets too “rigid.” It is worth remembering the arguments in our own countries—the neoliberal gurus’ drivel about the benefits of the free market, the elimination of bureaucratic controls, of excessive state intervention. However, all these “rigidities” and controls had been raised up by capital itself in order to deal with a crisis at the end of Second World War.
A new phase of capital
The solution to the current crisis, whose duration will not be short, will be another phase of capital. The phase inaugurated by Reagan and Thatcher has reached the end of the line. The phase that will replace it, whose characteristics are impossible to predict with precision, will certainly present a more concentrated capitalism, a loss of American financial hegemony, and a questioning of American economic leadership in the medium term. Everything suggests that we will see new relations between nations and a new international equilibrium.
Globalization appears to have reached the limits of its development. The recent failure in the preparatory meeting for the Doha Round, and the support for protectionist measures by a large number of countries (Argentina among them) headed by India and China, was a foretaste, a sign of the exhaustion of neoliberalism. From now on, we will have a greater multilateralism together with a stronger defense of the internal markets of individual countries.
A return to protectionist policies and state regulation—although not of postwar magnitude—which are visible on the horizon, will give greater space for local bourgeoisies to maneuver. These measures themselves, however, will inevitably create their own crisis that will have to be managed amid a weakening of ideological support for the system as such.
Having made consumerism, the reign of the market and individualism, and above all, money as the measure of all values, capitalism stands exposed because the crisis is of its own making. Thus, a deep crisis of legitimacy is growing, which opens the possibility for an effective political intervention by those who aspire to a profound transformation, from a socialist perspective, of our societies.
“It’s Capitalism, Stupid,” read a sign raised by workers in the streets of New York. A sign of clarity amongst so much self-interested confusion.
This article was originally published at www.PuntoDeVistaInternacional.org and is reprinted with permission of the author. Translated by Todd Chretien.