Even though we knew that it was something more devastating than a mere soap bubble, when the subprime crisis first broke out we could not have envisaged how much worse it would get in such a short time.

Unprecedented State Aid ...For the Bankers

A few weeks ago the US monetary authorities took the unprecedented decision to lend Morgan Chase a stack of dollars at an almost zero rate of interest so that it could purchase Bear Stearns - one of the biggest investment banks in the USA but now on the edge of bankruptcy - at a knock-down price. Given that this is a commercial bank which is listed on the stock exchange and whose shares are held by the major institutional investors (pension funds, other big investment banks, municipal investment funds, etc.), there was in fact a risk that the collapse of Bear Stearns would unleash a chain reaction that could have drawn in the entire American financial system and with it a good part of the rest of the world. Such a fear was anything but unfounded, given that the credit crisis had already crossed the shores of the Atlantic, whilst in the other direction it had reached the Far East, above all China: the major holder of US Treasury bonds as well as being the major exporter of goods to the US.

In Great Britain state intervention has already been required to rescue the Northern Rock bank from insolvency as a result of the losses it suffered on the market for US housing loans. Recently the Swiss bank, UBS, has officially lost €11.4 billion for the same reason and Germany's Bayern Landesbank 4.3 billion. Before that Deutsche Bank had announced

write-offs of $2.5 billion linked to investments on the commercial property market and to the repackaging of debt.

J. Halevi, “The Stock Markets Collapse” in Il Manifesto 2.4.08

But, aside from data on banking losses, the real economy is now showing unequivocal signs of crisis. Contrary to the expectations and arguments of the majority of economists and bourgeois analysts the crisis has not been contained within the financial sphere but extends throughout the world economic-financial system.

In February, for the second month in a row, orders for American industrial goods fell by 1.3%, a reduction which affected all sectors. Industry is slowing down and unemployment is growing. According to Labor Department figures, in March the unemployment rate rose from the February level of 4.8% to 5.1%, while, in the last week of the month, there were 407 000 applications for welfare relief, 38 000 higher than in the previous week. However, the record was reached by the Conference Board index which measures confidence in the outlook for the future. This fell to 47.9 points, its lowest for 34 years.

Misery for the Masses

Obviously, alongside the growth in unemployment there comes social discontent.

In Los Angeles alone, there are now at least 200,000 residents who have lost their homes and who are either living in tents or on the streets. More than 28 million Americans are signed up for food stamps, the programme which allocates one hundred dollars a month to people who haven't the means to buy the food they need. In 2001 this figure was 21 million. Moreover, fifty million have no health insurance and no-one knows exactly who and how many people will receive a cent of the funds flowing into the pension funds, seeing that many of them are in danger of collapse.

Nor are things going well in the euro zone, albeit in a different way. Here all the forecasts for GDP are being revised down: from 1.7% in April last year to 1.3% six months later, to 0.6% in March this year to 0.3% at present. For Italy zero growth is predicted.

In the face of these numbers even the president of the Fed, Bernanke, speaks openly of recession. Meanwhile, Lehman Brothers inform us (in Il Manifesto of 5 April) that "the Fed will not be able to return to raising interest rates before 2010 because the economy needs to be stimulated".

The Depth of the Crisis

It is therefore obvious - as we predicted - that the policy of flooding the financial markets with liquidity, hitherto pursued by the Fed and the rest of the world's major central banks, has failed. If, on the one hand, the collapse of the financial system has so far been avoided, on the other hand, far from stimulating the revival of the so-called real economy, it has induced the passage of financial speculation from the mortgage debt market to the markets for raw materials and basic necessities. You can get an idea of the extent of the phenomenon by looking at oil where, for every real barrel of oil traded, two hundred barrels are bought and sold in paper-only transactions. This fictitious demand, which nevertheless is added to the real demand, leads to higher prices and even though these do not reflect the real relation between supply and demand, all the oil that is sold - whether on paper or in reality - is sold at those prices. Thus, we are seeing the paradoxical phenomenon of stagflation where prices rise even as the economy stagnates.

At least half of the massive increase in the price of oil over the last few months is due to these kind of manoeuvres. It is the same with the price of basic food crops such as cereals. One typical example: a tonne of rice which cost $365 at the beginning of 2008 today costs $760. Exactly double, and this is only the beginning!

This perpetual reapportioning of the production of fictitious capital with the aim of parasitically appropriating surplus value - even though in theory it should at least be necessary to contain it within a much-reduced framework - is the clearest demonstration that it is now intrinsic to the very process of capital accumulation and is thus inseparable from it.

The crisis, therefore, is structural and, since the foremost power in the world lies at its epicentre, it is destined to become more widespread and acute than anything that has gone before. Capitalism has already experienced similar crises at the end of the 1880s and the beginning of the 1900s and, yet again, at the end of the Twenties in the last century. Even in a much smaller world than today, it took two great wars for capitalism to get out of crisis. And, even if the weapons were less powerful, there was enough devastation, hunger and spilt blood during both of them to evoke the words: “Never again!” And yet it is once again being confirmed that barbarism cannot be stopped without putting a stop to capitalism.

Translated from Battaglia Comunista 4, April 2008