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Markets on the brink

One thing has become clear over the past 10 days.

We know what happened to the billions given to to the banks by the US and British governments through so-called “quantitative easing.”

It was used to pump up speculative bubbles in share prices and commodities.

This much the recent market turmoil has made clear.

But the real danger lies elsewhere – it is the real risk of a deeper and more serious recession.

The reasons are not hard to find.

None of the basic causes of the 2008 recession have been addressed.

No significant steps have been taken to regulate the speculative movement of capital or to limit its destructive consequences.

Even less has been done to address income inequality.

It was the driving down of wages in the US which prepared the way for the mortgage crisis.

It has been the systemic imbalance in trade between the big German and French monopolies and the economies of southern Europe that has resulted in the EU debt crisis.

Every action taken by the EU and the European Central Bank will worsen these problems.

The forced privatisation of public utilities in Portugal, Greece, Ireland and Spain will see them bought up by the big monopolies that lie at the centre of the EU.

The drastic cuts in public services, pensions and employment will further reduce purchasing power in the economy.

The US Congress has blocked any measure that could revive investment in the productive economy. Redistributive taxation has been ended. Federal investment in infrastructure will effectively stop.

This is the background to the renewed turmoil in the share markets. Financiers know super-profits will not flow from the productive economy. The doctrinaire imposition of neoliberalism, not to mention the sheer greed of the super-rich, is now undermining capitalism itself.

The financial and economic crisis that broke out in 2008 has revealed deep structural problems in the capitalist system, nationally and internationally.

The concentration of capitalist ownership – monopolisation – has involved the accumulation of enormous economic and political power in very few, but giant, corporate hands.

In the financial sector in particular this process has been accelerated by “financialisation,” where financial assets have been created and exchanged at increasingly “fictitious” values, using the savings of working people to prime, fuel and lubricate the process, with the banks and financial institutions greatly increasing their domination of most other sectors of the economy.

The City of London has been the centre of these developments for powerful US and British monopolies. In the rest of the European Union (EU), notably the eurozone French and German financial monopolies with their controlling shareholdings in the industrial monopolies, have also grown massively, increasing the already large systemic imbalances in trade and banking credit between the stronger and weaker economies.

The main imperialist governments and central banks realise that, from the standpoint of their own state-monopoly capitalism, many of these banking monopolies are “too big to fail.”

They are also powerful enough to put up substantial resistance to any government or central bank efforts to regulate them effectively.

Three years after the financial crash, all national and international attempts, such as Basle II, to regulate financial markets and their monopolies more effectively or to break up the big banks have so far failed, leaving the economies vulnerable to the same kind of financial crises and collapse in the future as before.

The financial crisis has had a deeper and more prolonged impact on the economy in Britain than in many other developed capitalist countries because the financial sector occupies a comparatively large share of the British economy.

The policies that favoured the financial sector, such as liberalisation of the City of London, weak regulation, no credit or capital controls, high interest rates, have been the very ones that have disadvantaged British manufacturing industry – the sector that has led the emergence from recession in Germany and France, but which now accounts for less than 11 per cent of Britain's GDP.

Thus, early last year, Britain was the last major capitalist economy to pull out of the recession. But recovery has stalled since autumn 2010 and GDP is still more than 4 per cent below its pre-crisis level, whereas it has more than recovered in Germany and the US.

Nor are the immediate prospects any better as incomes and public spending continue to fall, while the banks refuse to extend credit for house purchases or business investment.

Government insistence on retail banks maintaining a higher ratio of capital reserves than proposed for the EU will make credit more expensive.

At the same time, the circulation of capital through British offshore tax havens is unlikely to be regulated, while US banks and the US state are allied with Britain in a struggle to limit the application in Britain of an EU directive regulating hedge funds.

The decisive role that the City of London as a financial centre plays in dictating government policies and determining the course of economic development represents a major structural weakness in the British economy.

This is even more so now that US finance capital has come to exercise substantial economic and political influence through the City, which it uses as a global centre for unregulated offshore banking.

Britain and its crown dependencies, many of them unregulated tax havens, are now the base for almost 25 per cent of all US capital investment overseas.

The British state is used by British and US finance capital to promote their joint interests within the European Union, especially to open up the European banking and financial markets.

However temporarily or longer-term, the joint interests of British and US finance capital comprise the basis for British imperialism's wider political, diplomatic and military alliance with US imperialism at the global level.

The Communist Party of Britain (CPB) proposes an Alternative Economic and Political Strategy to develop a popular, democratic anti-monopoly alliance led by the working class that can begin to shift the balance of class forces against finance capital.

The key initial elements of this strategy are also reflected in the People's Charter, adopted as policy by most trade unions and in 2009 by the British TUC.

The main demands of the charter are to tax the rich and big business, take finance, public transport and the energy utilities into public ownership, invest in housing, education, productive industry and non-nuclear renewable energy and an end to policies for militarism and war.

The fundamental treaties of the EU, on the other hand, prohibit the implementation of key elements of the People's Charter – in particular, controls on the movement of capital, public ownership of the financial and infrastructure sectors, such as transport and energy, and state aid for industry.

This is the basis on which the CPB supports Britain's withdrawal from the EU.

It is also why, in the meantime, the Lisbon Treaty must be revoked and the Euro Plus Pact, which aims to tighten EU federal control over member state finances, must be resisted.

John Foster is a member of the Communist Party of Britain's economic committee.

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This document was last modified by Mick Carty on 2011-08-17 14:55:05.
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