1 September 2008

“The Bank’s Monetary Policy Committee will still be fretting that surging inflation does not trigger higher wage settlements.

“Their fear is that employers will give way to bigger pay demands and pay for them by raising prices, so pushing inflation up again.”

That is why we have been hearing tough talk from both the Governor [of the Bank of England] on the need for pay restraint – if it gets out of control, he is implying, expect higher interest rates.”— ‘‘Soaring inflation could fall back fast’ ‘Analysis’ By Hugh Pym, BBC economics editor.

“The credit crisis derives from ‘the magic of compound interest,’ that is, the tendency of debts to keep on doubling and redoubling. Every rate of interest is a doubling time. No ‘real’ economy’s production and economic surplus can keep up with this tendency of debt to grow faster. So the financial crisis would have occurred regardless of wage levels.” — Michael Hudson ‘Super Imperialism’

Two, totally different interpretations of the world and how it works. The important point however is the ‘explanation’ offered by the BBC is but one expression of the ideological commitment of the corporate/state media to the maintenance of capitalism. Thus the way the BBC ‘explains’ the crisis is essentially identical to the government’s, namely ‘it’s not our fault, it’s a global thing over which we have no control’.

The reality however, is very different. The US, along with the UK via their military and economic control, especially over the financial and oil markets are directly responsible for the current crisis, a crisis compounded by the massive financial fraud perpetrated by the major banks and investment corporations, a fraud that ordinary working people are being forced to pay for.

And the proof of the pudding is in the eating. Over the past thirty years a vast transfer of wealth from the poor to the rich has taken place.

“The economy has polarized to the point where the wealthiest 10% now own 85% of the [US] nation’s wealth. Never before have the bottom 90% been so highly indebted, so dependent on the wealthy. From their point of view, their power has exceeded that of any time in which economic statistics have been kept.” — ‘Super Imperialism’

And even in countries like the UK, the gap between rich and poor is wider now than at any time since the 19th century.

“The adverse effect of this type of globalization on the US economy is also becoming clear. In order to act as consumer of last resort for the whole world, the US economy has been pushed into a debt bubble that thrives on conspicuous consumption and fraudulent accounting.” — ‘Breaking free from dollar hegemony’ By Henry C K Liu.

Globalization – Imperialism by another name

For the past five centuries Western capitalism has sought to extend its control over the entire planet, a process delayed for around seventy-five years by the Russian and associated revolutions. Denied access to markets and resources that capitalism, in order to survive, has to have, in 1991 the world became capitalism’s oyster, the ‘market’ reigned supreme, we were promised a future of unfettered expansion and wealth (remember the ‘trickle-down theory’?).

But it took was less than twenty years for the entire edifice to come crashing down as the inherent contradictions of a now-globalized capitalism floated to the surface like so much scum. The over-accumulation of capital produced by the ‘free market’ desperately needs new markets but likewise, globalizing production produced a vast over-production of goods and commensurately nobody to buy them.

These twin elements, over-accumulation and over-production are the direct result of moving production to the world’s cheap labour markets, which in the short-term produced vast profits for a handful of giant transnational corporations (and ‘cheap’ goods for the minority of the world’s population who live in the so-called developed countries. ‘Cheap’ because they’ve been purchased using borrowed money).

“World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world’s interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, the world’s central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world’s central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars.” — ‘US dollar hegemony has got to go’ By Henry C K Liu.

The media go to great lengths to push the totally ficticious idea as to the cause of the current crisis of capital by labelling it as the “credit crunch”, that is to say, a shortage of cash in circulation, or more precisely, access to cash via credit with which to purchase things.

“World trade is now a game in which the US produces fiat dollars of uncertain exchange value and zero intrinsic value, and the rest of the world produces goods and services that fiat dollars can buy at “market prices” quoted in dollars. Such market prices are no longer based on mark-ups over production costs set by socio-economic conditions in the producing countries. They are kept artificially low to compensate for the effect of overcapacity in the global economy created by a combination of overinvestment and weak demand due to low wages in every economy.” — ‘Breaking free from dollar hegemony’ By Henry C K Liu.

Referring back to the opening BBC piece we read:

“That is why we have been hearing tough talk from both the Governor [of the Bank of England] on the need for pay restraint – if it gets out of control, he is implying, expect higher interest rates.” — ‘Soaring inflation could fall back fast’. ‘Analysis’ By Hugh Pym, BBC economics editor.

Pay restraint? The insanity of an economic system that has survived by extending credit in order to consume an endless flood of products manufactured by the global sweatshop has finally come to an end. Capitalism is effectively caught between a rock and a very hard place, they call it stagflation. Either credit is extended by lowering interest rates, in which case we get increasing inflation (brought about by the financial sector sucking out wealth through the interest it charges) or if not, then the economy goes down the tubes, stagnation.

The obvious solution, increase workers’ real buying power is of course not on, this would mean a reduction in profits for an economy entirely dependent on the extraction of wealth by owning the amount of money in circulation through the interest it charges on debts, in other words the banking and financial sector. This is mercantile capitalism in action, the production of ‘wealth’ by sleight-of-hand. The bottom line is, no real wealth is being created.

It ain’t rocket science folks, only the creation of a rational, socialist economy can solve the crisis we face (a crisis compounded by the destruction of our biosphere). We have to break the power of big capital’s control over the planet, its people and its resources, else it’s endless war.