The credit crunch: Cyclical downturn or more severe?
By
Jaimeson Champion
Published Nov 18, 2007 9:31 PM
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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