After the sub-prime crisis it is now the turn of sovereign debt. Bourgeois analysts have rushed to condemn the present serious situation as market madness. Actually the real madness is the entire global capitalist system which is agonisingly debating its own incurable contradictions. The so-called markets are nothing but a dozen or so international banks and financial centres. They speculatively “administer” something like 600 thousand billion dollars a year, equal to 12 times global GDP. This is a mass of fictitious capital which moves every day to the four corners of the earth in search of an immediate economic advantage with the aim of generating more capital to reinvest in other speculative activities like a sort of chain letter where you can see the chain. Money in itself cannot produce more money (except fictitious it should be noted) unless it is productively invested through the wage labour-capital relationship. Speculation, whatever form it takes, does not produce new value but represents only the transfer of value that has already been produced.

This phenomenon is not new to capitalism but it has grown exponentially in the last few decades simply because real production is facing a crisis of profitability which makes it difficult for the accumulation mechanism to operate. What has been universally defined as a financial crisis is really an economic crisis whose origins lie in the increasing difficulty of capitalism to survive with an ever lower rate of profit which is less and less remunerative for investment. The profits crisis has prompted an ever- increasing amount of capital to detach itself from production in search of the false prospect of valorisation through speculation, shifting the problem from the productive to the speculative sector. This in turn - after causing a series of burst financial bubbles - has returned to the world of real production, worsening the very precarious condition which launched the perverse speculative mechanism in the first place. This is the context in which the crisis of sovereign debt was born and raised and which, with different levels of intensity, engulfs all the major capitalist states.

Sovereign debt, or rather public debt - in other words the debt that the state contracts with national and foreign subscribers in order to finance it own activities - is so much greater the more the state has to intervene to support the national economy. In the last few decades, besides the normal financing of public affairs, sovereign debt has had to provide for the failures which the progressive decline in the rate of profit has wrought on enterprises in both the private and public sphere. When the crisis then broke out in the financial sphere the public debt had to shoulder the burden of restoring the health of the banks and institutions directly involved in the crisis. It meant a sort of nationalisation of finance way beyond state support for some of the giants of private enterprise like the engineering section of the motor manufacturers.

For the top imperialist countries the costs of war and arms expenditure have done the rest. One example above all the rest is the American situation. For years the crisis of the falling rate of profit has continued within the mechanism of the valorisation of capital. It has favoured the flight to speculation and determined the bursting of the financial bubble which has burned billions and billions of dollars, forcing the state into a hasty and costly intervention which has dried up its financial reserves and brought it to the brink of collapse. Its sovereign debt has reached 14.5 thousand billion dollars equal to 102% of GDP. According to some American analysts the debt is really greater and would be equal to 140% of GDP if it were not for a statistical calculation which does not include the amount of bonds acquired by insurance funds and the individual states. With these sort of numbers the US could never have entered into the parameters of the Maastricht agreement, or if it had already been inside it would have ended up worse than Greece, Portugal or Spain. If we added on the debts of individual states, which amount to 11% of GDP, and included the debts of families and firms the picture we end up with is catastrophic. The state of Minnesota has declared itself bankrupt. It is no longer capable of ensuring social services and cannot pay state employees. It is waiting for the Federal Government to intervene with finance which has not yet arrived. Another forty states are almost in the same condition. The wonder is that the reclassification of US bonds has only happened now and not before and then only by Standard and Poor, whilst Moody’s continue to grant Triple A status. In this regard the protest of the US Treasury over a presumed error of 2000 billion in the calculation appears ridiculous if not embarrassing. Furthermore, the weakness of American bonds quoted in dollars has unleashed a planetary currency war with the Euro at the head that puts the already shaky European economy at risk. China - with $1,250 billion in its monetary reserves - is crying that it is a scandal. It reproves the US Government for living beyond its means, of not doing enough to put things right. It threatens the possibility of diversifying its foreign exchange holdings (which it began to do some years back) and calls for a new international currency as substitute for the dollar, if only in the form of a basket of more trustworthy currencies.

So what are the remedies for getting out of the crisis? The usual ones, with a few differences. In 1929 the financial means existed to set up a mechanism to support demand, but today this is no longer possible. The financial means no longer exist, states are heavily loaded with debt and the only way that capitalism can keep going is by a further degradation of labour power. Let’s give a general example, again from the USA, where the biggest social carnage in modern history is being organised. With a social fabric where real unemployment has already reached 16% (official figures say 9.8% but these are absolutely false because they don’t take into account people who are not signing on and do not include anyone who has worked even a few weeks in a year), where 50 million live in absolute poverty - and 90% of them survive on handouts from charities - the axe is coming down on public spending. The bi-partisan plan proposed, or imposed, by Obama foresees an assault on social care and welfare benefits, a further overhaul of the relation between capital and labour, drastic reductions in public spending, partial tax increases which would only hit income from wages and not from financial returns and rents, and deep cuts to anything associated with state intervention. No more social state, only taxes and cuts which means more unemployment and an increase in both absolute and relative poverty. It also means greater exploitation in the workplace with an accompanying reduction in real wages, first of all in those sectors exposed to international competition and then everywhere else. Getting a job is difficult and there is no guarantee of keeping it when you do. The retirement age has increased and cuts in medical care will follow. The proposals underline how Obama’s plans for reforming the health system - which exist only on paper - are now being aborted whilst huge spending cuts are envisaged for the already inadequate Medicare and Medicaid. More or less the same recipe that has been imposed on Greece in order to receive the subsidies from the ECB and which the other European countries are being obliged to adopt in order to survive this second wave of the international crisis. This is as much as capitalism can concede in its period of historical decline. The paradox is that while the development of the productive forces could easily allow more goods and better services for everyone, within the framework of capitalism this is transformed into a crisis of the rate of profit which not only does not allow social well-being from the wealth produced, but triggers economic crises with their devastating consequences weighing down on the shoulders of those who produce the wealth, the proletariat. This is without taking into account the danger of wars that are no longer limited to strategic areas for raw materials, but more general warfare for the survival of this or that imperialism, never mind the environmental devastation and unlicensed predation of the planet’s resources.

If this is the outlook, it is more than ever the hour of the world revolutionary party, of class revolt against the crisis of capital, against the inevitable politics of tears and blood, for the creation of a society without classes, without capital and without the cursed economic laws linked to the logic of profit. A retro idea? No! This is the only solution to the devastating consequences of an outdated economic and social system which, in order to survive in its own contradictions, is forced to feed off the international proletariat. This is the only practical way out of the whole historical arc of capitalist productive relations.