US at centre of world capitalist collapses

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‘THERE is a real sense in markets today of the economy falling off a cliff.’ That was the verdict of Michael Saunders, the chief economist of the world’s largest bank, Citigroup, on financial and economic events on Tuesday.

George Soros, the financial speculator who made billions two decades ago in deals that forced sterling out of the European ERM, said that the world was experiencing ‘the most serious financial crisis of our lifetime’.

Neither of these figures at the heart of the world of finance capital, who have done very well out of capitalism, are panic-mongers or prophets of doom. They were talking about the present economic collapses and chaos ripping through the world’s largest capitalist economy in the United States and its reverberations around the world, particularly in Britain.

Ben Bernanke, the Chairman of the US Federal Reserve Board, promised the American Congress that the central bank would continue to view restoring financial markets to health as ‘a top priority’. He said that risks to growth were ‘skewed to the downside’ and that the inflation risk had ‘intensified’.

US President George Bush was also on Capital Hill to tell Congress that there was an ‘implicit government guarantee’ to support the collapsing mammoth mortgage lenders Fannie May and Freddie Mac.

While Bernanke and Bush were using measured words in a desperate attempt to calm fears of a financial meltdown, capitalist market forces were ripping apart their carefully formulated plans.

Even as Bush was speaking, the share prices of Fannie Mae and Freddie Mac dropped catastrophically by 27% and 26% respectively on Tuesday, despite the promise of an immediate additional $20bn credit for them from the US Treasury. New York’s DJIA share index dropped by 1%, to 10,962, and it is 40% down on its highest point in the past year.

Fannie Mae and Freddie Mac are responsible for 40% of the $12trillion US home loans and if the government were to take over their liabilities the bill would be billions of dollars, equivalent to almost 40% of US annual economic activity (Gross Domestic Product).

The $29bn for Bear Stearn, the takeover of the bankrupt IndyMac lender, $20bn for Fannie Mae-Freddie Mac and the ‘blank cheque’ offered to them by Treasury Secretary Hank Paulson on Tuesday will add billions to this year’s American budget deficit of $357bn.

The US trade deficit of $700bn and the budget deficit are funded by government dollar bond issues, which have been bought up by states which have accumulated huge reserves – China, Russia and oil producers in the Middle East, like Saudi Arabia and the Gulf states.

It is reported that China holds $400bn, Russia $150bn and the Middle East states $200bn. Financial pundits are asking if these states will buy more debt, or even hold onto their existing investments, as the dollar declines, inflation lets rip and the US economy slumps.

Yesterday bad news was piled on bad news for Bush and Bernanke as June’s inflation figures were published revealing that prices rose by 1.1% in a single month, 13% annually, with energy prices leaping six per cent, 70% over a year.

These are manifestation of the fact that the US is in the midst of an economic catastrophe that is engulfing the whole world capitalist system.

Bush’s and Bernanke’s vain attempts to salvage US capitalism have provoked right-wing Republicans like Senator Jim Bunting into accusing them of engaging in ‘amateur socialism’. Such a remark will not be lost on American workers, who face house repossessions, rocketing prices and sackings.

The only answer to the threatening capitalist catastrophe in the US today for the working class is to put an end to US imperialism through the American Socialist Revolution, alongside workers internationally, who confront all the effects of capitalism’s crises and collapses.

The urgent task facing American workers is that of building a US section of the Trotskyist International Committee of the Fourth International to lead this revolutionary struggle.