Is the economic crisis over? Many capitalists think it is. World stock markets have been rising, some banks are trying to pay parts of their government bailouts back and investment banks are now claiming they are making a profit again. The economic pundits of capitalism are so relieved that they are now arguing whether the international bail out was necessary in the first place. Complacency has returned and the bankers are once again demanding that they be left to regulate themselves. What these fans of the free market have so quickly forgotten is that “it was the state wot done it”. When Brown made his parliamentary gaffe of announcing that he and his fellow leaders “had saved the world” he was actually closer to the truth than he has been on many other issues. Without the massive state intervention we would have seen the unwinding of the entire global banking system, which would then have had an impact on the world economy much greater than it currently has. As it is there are still $760,000 billion credit derivative contracts outstanding (Financial Times 05-06-2009) and the full scale of corporate debt is as yet unknown. And unemployment is rising everywhere despite attempts by states to save local car manufacturing jobs (see page 7 in this issue). Without the use of the state as the lender of last resort the economic, and more especially social, turmoil would have been incalculable. But our ruling classes have learned from the past and they knew that there was, as Thatcher once said “no alternative”.

As our article on page 3 shows, the latest shenanigans in Westminster confirm that the capitalist state is politically and morally bankrupt, but what if it were seen to be economically bankrupt too? States are regarded as safe since governments cannot go bankrupt (well Mexico and Argentina can default but “real states” can’t). Or can they? The US now faces a budget deficit of 13% of GDP and its unfunded liabilities are now four times GDP. Its latest attempt to raise money on the financial markets almost went the way of Latvia’s until it offered 3.5% on long dated bonds to investors. The dollar (which revived under the first enthusiasm for the state programme of taking on bad debt) has now fallen 10% again in three months since February. Some commentators now refer to it as “the American peso” and the Chinese state which holds rather large amounts of dollars has repeatedly called for the US Government to support the dollar. The only thing left which allows the dollar to hold its special place at the centre of the world economy is the lack of a serious rival. And the US is not alone. Japan has had the biggest fall in growth rates of all the leading industrial countries, whilst Ireland and Spain have joined Latvia, Estonia and Bulgaria as suitable cases for scrutiny by the IMF. Ireland’s sovereign debt has been downgraded twice in the last three months and Standard and Poor have warned that the UK is next.

The US has in fact one of the highest levels of debt ratios to GDP in its history. According to one study this amounts to 30% of GDP compared with 39% for the total of all the economic stimuli applied in the previous 12 US downturns since 1929 (FT 01-06-2009). And the character of this stimulus is not to kickstart productive activity but simply to engineer a soft landing to a speculative boom - which has its roots thirty or more years ago in the end of the post-war boom. “Quantative easing” or the printing of money, the expansion of non-productive credit are all about postponing the day of reckoning. Capitalism has become like a Ponzi scheme directed by states’ creating funny money in order to hide the lack of real economic activity. As Edward Chancellor put it in the same Financial Times

Public policy today serves to delay the day of reckoning rather than promote a return to economic equilibrium.

And when that day of reckoning comes around the challenge for the working class and its revolutionary minorities will be to fight for socialism. We have already seen in Gaza and Sri Lanka, and elsewhere, a big enough glimpse of the barbaric alternative which capitalism will ultimately inflict on us all.