The Global economic crisis known as the “credit crunch” reached its first birthday last week – and it’s a long way from being over. The anniversary coincided with new figures showing home repossessions, unemployment and food prices all rising fast.
Millions of people have been plunged into poverty, uncertainty and chaos since the crisis erupted.
The forecast for the future is grim. Japan announced this week that its economic situation is “deteriorating”. The country has only recently emerged from a slump that paralysed its economy for most of the 1990s.
The Organisation for Economic Cooperation and Development (OECD) last week predicted “slowdowns” in the US, Britain, Germany, Japan and Canada, coupled with “strong slowdowns” in France and Italy.
The International Monetary Fund now estimates that the crisis will be more prolonged than it previously thought. It warns that emerging economies such as China now risk being sucked into the crisis. The OECD is also warning of “downturns” in India and Russia.
A recent report by the US-based Citigroup banking giant said, “The impact of slowing economic activity has not yet been fully felt... The default cycle has only just started. That’s the bad news – and there’s plenty of it.”
The figures are staggering. Last week the Royal Bank of Scotland announced a pre-tax loss of £691 million in the first six months of 2008 – the second biggest loss in British banking history. The US housing finance giant Fannie Mae announced second quarter losses of $2.3 billion.
But it is ordinary people who are being hit hardest by the credit crunch. Foreclosure filings in the US – forced home repossessions – were 121 percent higher in the second quarter of this year compared to the same period last year.
Some 27,100 homes were repossessed in Britain last year. But the Council of Mortgage Lenders predicts this figure will rise by 65 percent this year, taking the total to 45,000.
It expects 170,000 mortgages to be in arrears of more than three months by the end of 2008.
The first half of the year saw 9,150 being repossessed – a rise of 41 percent compared to the same period last year.
Many people felt they had some kind of security by getting on to the “housing ladder”. In some cases people were relying upon the value of their houses to help them survive through their retirement.
Still more have used their houses as security to access loans to supplement their wages. For all of them, the reality of repossession is devastating.
But housing is by no means the only area where the credit crunch is evident. Official unemployment figures in Britain leapt by 15,500 in June – the highest such jump since 1992.
According to a report by the Recruitment and Employment Confederation, the number of workers in permanent jobs in Britain is now falling at the fastest rate since December 2001.
The crisis in financial markets centred around the credit crunch has occurred alongside a huge spike in the prices of basic commodities such as food and fuel.
According to United Nations figures, the number of people living in hunger rose by about 50 million worldwide last year.
The credit crunch was triggered by a crisis in the US “subprime” mortgage market. High interest mortgages were sold to people too poor to qualify for normal mortgage rates. These people now cannot afford their repayments and are defaulting on their debts.
The problem is compounded by the fact that subprime debts have been chopped up, repackaged and sold on to a host of other financial institutions across the world.
So when people started defaulting, nobody could work out who would end up being saddled with the bad debts.
This sparked panic on the financial markets. Banks that would lend money to each other on a regular basis suddenly stopped for fear that they wouldn’t get it back. Speculation from shareholders and investors fuelled the panic.
One by one, the big banks were forced to admit that they were stuck with bad debt linked to the subprime collapse.
The credit crunch has also triggered a wave of fear and confusion among the ideologues of free market capitalism. Martin Wolf, chief economics commentator at the Financial Times newspaper, declared that the idea of global free market capitalism had “died”.
“I now fear that the combination of the fragility of the financial system with the huge rewards it generates for insiders will destroy something even more important – the political legitimacy of the market economy itself,” he wrote earlier this year.
Josef Ackermann, chief executive of Deutsche Bank, announced, “I no longer believe in the market’s self-healing power.”
Even Alan Greenspan, former head of the US Federal Reserve, is now talking of the need for more state intervention to regulate the free market.
Big business and the governments that back them are worried about the economic consequences of the crisis. But they are also worried about the ideological fallout – the prospect of ordinary people losing all faith in a system that is plunging them into misery.
That is why there is a concerted attempt to portray the credit crunch as a kind of aberration, the result of “mismanagement” in the economy.
This leads to an endless debate over whether the market should be regulated and what sort of regulations are needed. Solutions that involve anything deeper than tinkering with the system are ruled out.
Economic crises often lead to shifts within the ideology of our rulers. Some may advocate more state intervention to prop up failed companies and the system as a whole.
But they will fight to keep the capitalist system in place – in whatever form. And that means the crises will continue, because crisis is part and parcel of the capitalist system.
Capitalism rests on competition. Different sections of capital compete to see which can make the most profits. This inevitably forces some companies to the wall.
They are eaten up by the more successful companies, which grow and strengthen their competitive position as a result.
These firms can then use some of their profits to invest further, for example in improved machinery. This again allows them to undercut their rivals.
The 19th century revolutionary Karl Marx referred to this process as the “accumulation of capital”. He talked about the “centralisation and concentration” of capital that takes place as capitalism develops.
The process of companies competing against each other also leads them to race from one sector to another, chasing the highest profits.
Rather than leading to the market producing things that people need, competition creates an anarchic and irrational system that systematically leads to the overproduction of goods.
For instance, if there are ten companies producing sofas and 1,000 sofas sold each year, the rational thing for each company to do would be to produce 100 sofas.
Instead, we have a situation where each company fights to grab the whole of the market for themselves. This inevitably results in a lot of unsold sofas.
And as the goods pile up unsold, companies stop producing them and lay off workers. The interdependency of different sectors and companies under capitalism means that a crisis in one sector impacts on several others, which in turn impact on several more. The crisis spirals out of all control.
There are ways that the system can temporarily accommodate to these crises – by developing new markets in technology or finance, for example.
But these solutions do not fundamentally change the way that capitalism operates – so ultimately the same problems are stored up for the future.
All this means we need massive struggles by ordinary people across the globe to bring the capitalist system to an end.
But it doesn’t mean we should let the bosses off the hook in the meantime. In a context where millions are suffering the effects of the crisis, the far right can make gains. We need to mobilise people to make sure that the mood shifts left.
The crisis can lead to mass resistance. Already this year, over a million people in Britain have struck against Gordon Brown’s public sector pay freeze.
Across the country people are fighting the attacks that are mounting – whether this means campaigning to defend post offices, fighting against academies or defending pensions.
There are concrete demands that we can put forward to stop workers paying for the crisis. Wage increases should be no lower than the RPI rate of inflation. We should increase taxes on big companies and impose a windfall tax on the energy companies.
Empty homes should be taken over by councils to deal with the housing crisis. Pensions should be linked to earnings to lift pensioners out of poverty.
The People Before Profit Charter was launched to unite people around such demands and build a force that can push back the bosses’ attacks. Together we can mount a coordinated response to the crisis from the left – and make the bosses pay for their own crisis.
For full details of the People Before Profit Charter go to » peoplebeforeprofit.wordpress.com