Monday, November 19, 2007

The credit crunch: Cyclical downturn or more severe?

Published Nov 18, 2007

The global capitalist economy is showing ever greater signs of instability. A question on the minds of many members of the multinational working class here in the U.S. and around the world is just how severe a capitalist crisis is coming.

Are the workers facing a cyclical boom-bust process of the type that has happened numerous times over the course of the development of capitalism? Or is this the prelude to a crisis that is much more severe? Is the current volatility on Wall Street heading toward a 1987-type market crash, or is it the opening stage of a crisis on a much larger scale?

Cyclical crises in capitalist economies

The boom-and-bust cycle is inherent to the capitalist mode of production. Under capitalism, periods of rapid expansion in production are followed by sharp slowdowns and recession. This cyclical process results from regular crises of overproduction.

As Karl Marx wrote in “Theories of Surplus Value,” “Overproduction is specifically conditioned by the general law of the production of capital: to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labor with the given amount of capital, without any consideration for the actual limits of the market or the needs backed by the ability to pay.”

Overproduction leads to glutted markets. Glutted markets lead to falling profits for the capitalists. This causes the bosses to intensify their drive to slash wages and cut jobs, exacerbating the pain and suffering of the working class during recessionary periods.

In the U.S. today, signs of a cyclical downturn resulting from a crisis of overproduction are readily apparent. From 2000 to 2006 the housing sector was the primary engine for economic expansion in the U.S. The housing bubble of those years was characterized by an unprecedented spike in new home construction.

The rapid expansion in the production of homes brought a profit boom for the capitalist class. Home construction is a multiplier industry, so the bubble meant increased commodity sales in numerous other industries. This increase in commodity sales applied to everything from kitchen appliances and television sets to pickup trucks and building supplies used by construction workers.

The drive to increase production and profits irrespective of the limits of the market, or of the workers’ ability to pay for the goods they produce, was exemplified by the proliferation of infamous sub-prime mortgages during the recent housing bubble. These predatory loans proved unaffordable for millions of working-class families across the country. Delinquencies and defaults on mortgages in the U.S. have now hit record highs.

The housing market is glutted with millions of unsold homes as tidal waves of foreclosures have swept over entire working-class communities. Jobs are being cut and wages slashed with greater intensity in industries ranging from auto production to retail sales.

Is this crisis more severe?

Historically, the capitalist ruling class has dealt with crises of overproduction by increasing the money supply in concerted efforts to increase liquidity—easy access to credit—in the economy and increase aggregate consumer purchasing power. Responses to recent capitalist crises like those of 1987 and 1997 highlight this strategy. Both crises were met with the slashing of interest rates by the U.S. Federal Reserve and other central banks, flooding the global economy with liquidity and eventually stabilizing the markets.

It is not surprising that the capitalist ruling class has sought to do the same thing in recent months, ever since the stock markets began gyrating wildly. What makes this situation seemingly more severe is how remarkably little effect the massive liquidity infusions have had in terms of stabilizing the markets.

For months, central bankers and finance ministers in the U.S. and countries across the globe have been scrambling to inject billions upon billions of dollars worth of liquidity into the markets. The Federal Reserve in the U.S. has cut interest rates multiple times.

Thus far, every attempt to stem the growing crisis has seemingly failed. The major stock indexes have not recovered, foreclosures and bankruptcies continue unabated, the dollar continues to fall to new lows, and the price of oil continues to climb to record highs.

The current developing economic crisis appears to contain within it deep contradictions that yield to no easy solution from the capitalist class or its state. What does that mean for the future?

It is important to remember the words of Russian revolutionary V.I. Lenin in a speech to the Second Congress of the Communist International in July 1920. Lenin reminded comrades that no capitalist crisis would ever prove “terminal” without the work of committed revolutionaries dedicated to organizing and mobilizing the working class.

In his speech, Lenin said, “Comrades, we have now come to the question of the revolutionary crisis as the basis of our revolutionary action. On the one hand, bourgeois economists depict this crisis simply as ‘unrest,’ to use the elegant expression of the British. On the other hand, revolutionaries sometimes try to prove that the crisis is absolutely insoluble. This is a mistake. ... Practice alone can serve as real ‘proof’ in this and similar questions. All over the world, the bourgeois system is experiencing a tremendous revolutionary crisis. The revolutionary parties must now prove in practice that they have sufficient understanding and organization, contact with the exploited masses, and determination and skill to utilize this crisis for a successful, a victorious, revolution.”

Lenin’s words are as applicable today, as revolutionaries prepare ideologically for future upheavals, as they were when he delivered them.

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