FOR years now the capitalist class internationally through their mouthpieces in government and the bourgeois press have been peddling, often contradictory, statistics to show that the world capitalist economy has recovered from the financial crisis of 2008-2009.
While in Britain the line is usually that of a ‘long, slow recovery’, with Cameron and the Tories warning of financial Armageddon if there is the slightest deviation from the most savage austerity cuts, in the US the claim has been even more audacious. There it is claimed the financial crisis was ended years ago through pumping over $10 trillion of worthless, electronically produced money (so it’s not even worth the paper it’s printed on) and handing it to the banks through the Quantitative Easing (QE) programmes.
This may have been accepted as gospel by every paid lackey of capitalism, but it has never convinced the working class of the world who daily have seen their lives torn apart by ‘austerity’ while at the same time witnessing the obscene wealth being accumulated by the bankers and speculators – the very people responsible for the crisis.
Now the cosy scenario of economic growth and gradual recovery for capitalism is being torn apart at the seams as the reality of the historic nature of the capitalist crisis becomes so obvious that it cannot be covered up any longer.
This week statistics emerged regarding the true state of the US economy that proved that far from having recovered from the crash it is rapidly heading for an even bigger disaster. Figures show that the US trade deficit shot up to $51.4 billion in March – the highest level since October 2008.
A trade deficit occurs when a country imports more than it exports and has been steadily growing in the US over the past few decades. The significance of the huge deficit being run up monthly by the US economy, is that it represents large amounts of US dollars flowing out of the country and being held by foreign countries and speculators – if at some point they decide to sell, this would drive down the US dollar with disastrous consequences.
What the figures underline is that despite talk of recovery US industry is flat on its back with any perceived ‘growth’ in the system coming from the service sector.
The service sector includes accountancy, computer services, restaurants, tourism etc., in short it is an industry that produces no goods or commodities. They produce nothing that contains real value but exist only to service manufacturing industry.
Quite simply you cannot have a capitalist economy reliant on service industries.
The whole point of QE – the basis on which it was sold to the working class – was that by handing all this free money to the banks it would stimulate them to invest in manufacturing industry and drive forward economic growth, increased wages and full employment.
The reverse was true. Bankers have no interest in investing money in industry which can’t produce a profit, instead all the free money was used in investing in risky speculations returning a high return in the so-called developing world.
Vast amounts were also used to indulge in another of capitalism’s dirty little scams designed to enrich the ruling class.
One of the puzzles for some people about the present crisis is how the real manufacturing economy is dying on its feet in America while at the same time stocks and shares and the profits of major companies are at an all time high. The answer to this conundrum is what is known as ‘stock buyback’.
On a massive scale large US corporations are using all the cheap money made available by the Fed through QE and near zero interest rates to simply buy back shares in their own companies. By using cheap loans to buy back their own shares they cut the number of shares on the market, thus driving up the price of the company shares.
The grossly inflated share price, which does not reflect in any way increased real profit for the company, then provides the basis for massive increased pay outs to shareholders and equally massive bonus’s for company directors. This share buy-back is happening on an industrial scale in America.
A recent article in the US radical magazine, Counterpunch, highlighted cases where it has become so insane that shareholders are getting more in dividends than the profits made by companies. The article quotes a report from Bloomberg which noted:
‘Companies in the Standard & Poor’s 500 Index really love their shareholders. . . . Money returned to stock owners exceeded profits in the first quarter and may again in the third. The proportion of cash flow used for repurchases has almost doubled over the last decade while it’s slipped for capital investments, according to Jonathan Glionna, head of U.S. equity strategy research at Barclays Plc.
‘Buybacks have helped fuel one of the strongest rallies of the past 50 years as stocks with the most repurchases gained more than 300 percent since March 2009.’
Another on-line financial investigative magazine, Wolf Street, reported that the giant multinational conglomerate, GE, has actually managed to disguise huge losses using buyback, it said:
‘GE, in order to paper over a net loss of $13.6 billion and declining revenues in the first quarter, said on April 10 that it would buy back $50 billion of its own shares. That’s on top of the $10.8 billion in actual buybacks last year. The announcement was beat only by Apple’s $90 billion announcement last year, to which it added another $50 billion on Monday.’
Another multi-national company engaged in buyback to cover a disastrous drop in profits is McDonald’s the fast food, low pay company at the heart of the struggle by US workers for a living wage of $15 an hour.
In the first quarter this year McDonald’s revenues fell by 11% and their net profit fell by 33%.
The company immediately announced a share buyback programme of $18 billion.
All this ‘financial engineering’ (as it is politely called) has the effect of loading these companies up with vast amounts of debt – debt that they are forced to continue to run up on a massive scale just to keep papering over the scale of their continued losses.
It relies upon a never-ending supply of worthless free money artificially produced by government and central banks in the US, Britain, Europe and Japan.
The entire world capitalist system is kept going through a vast bubble of debt, far in excess of anything ever seen before in history, a bubble that will explode at any time and bring these once mighty multinational companies crashing down and with them the entire financial system of capitalism. From being the world’s strongest capitalist country America has become the world epicentre of the economic crisis of capitalism.
What will be the final nail in the coffin is the insurrectionary wave sweeping the working class in America. The capitalist class, who are by no means unaware of their precarious situation, know full well that all the financial engineering in the world won’t stave off collapse and that what is in store is an almighty showdown with workers and the unions as they attempt to dump the full effect of the crash on the backs of the working class.
It is no accident that the front runner for the Republican presidential nominee, Wisconsin Governor Scott Walker, is standing on a platform almost exclusively centred on introducing union-busting laws.
The right-wing politicians are gearing themselves up for a fight to the finish with the working class, a fight that will involve having to smash up completely the trade unions.
They face, however, a powerful movement amongst workers epitomised by the struggle against low pay that has bought hundreds of thousands out onto the streets and established unity between the low paid, students, youth and workers like the longshoreman, determined to fight against a system that makes billionaires out of a handful of bosses and speculators but imposes pay cuts and poverty on millions.
This movement is rapidly reaching the revolutionary conclusion that capitalism has reached the end of the road historically. It cannot provide anything but a future of misery for workers and the middle class, it deserves to perish and be replaced by a socialist system that produces not for profit but for human need.
We live today in the period of the American socialist revolution as part of the world socialist revolution – the historic requirement is to build rapidly parties of the Fourth International in America and every country to lead this revolution to the victory of socialism.