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Originally published by Common Ground Magazine.
By Daniel Pinchbeck
Witnessing the unraveling of the global financial system, I find myself gripped by contrasting emotions. While part of me feels like heading for the hills and hoarding cans of sardines, another part of me is giddy, almost celebratory. The tyrannical rule of Wall Street is ending, along with the self-serving free market ideology of Neoconservatives. The massive amounts of fictitious capital created by our corrupt financial system must be destroyed, so we can address our immediate situation on this planet.
I feel sorry for the millions of people who may suffer during a transition that will be extremely difficult. On the other hand, our rapacious economic system is destroying the integrity of the biosphere, threatening our future as a species. Taking a wider perspective, we can see a new social structure that creates sustainable patterns of behavior is necessary, if we want our descendents to continue on the earth.
In my last book, I looked at many predictions of systemic financial dissolution at this time. I discussed the possibility that a financial H-bomb could melt down the economic system while leaving the “tangible assets” — people, infrastructure, land — still standing. I suggested this could be the best thing to happen to our world. Such a systemic collapse is a tremendous opportunity to change the direction of our society. Those who believe civilization can be run according to different principles — humane, equitable, and collaborative ones — need to step forward now with concrete proposals and put ideals into practice.
Several factors made the collapse of the global financial system inevitable. One problem with capitalism is that it is not self-sufficient, but depends on the constant availability of new markets, forcing expansion by creating ever-increasing amounts of debt. We now have a globalized world market, so exploitation of new territories can no longer take place. As Naomi Klein analyzed in The Shock Doctrine, this led to a policy of “disaster capitalism,” where cataclysms like hurricanes and terrorist acts were seized as opportunities to redevelop internal markets. Such a practice is inherently unsustainable.
Another crucial element that is rarely discussed in the media is the connection between the current financial meltdown and peak oil. Just as our debt-based economic system needed new markets to penetrate, it also required an ever-increasing supply of cheap energy to fuel its expansion. The decreasing supply of fossil fuels relative to global demand has brought the second law of thermodynamics into play, breaking the delusionary spell cast by the financier-sorcerers, who decoupled financial value from real value back in the early 1970s. When we consider the permanent reduction in the supply of cheap energy combined with the lack of new markets, it is obvious the amassed debts will never be repaid. Read the rest of this entry »
I found this letter to the editor in the Scotland Herald pretty spot-on with its analysis, so I thought I’d repost it. Worth reading, even without the article he’s responding to. [alex]
Ian Bell’s superb analysis that we are undergoing a “paradigm shift” in economics is timely and insightful (October 25). This is potentially a wonderful time in human history. As someone who has read Marx, Mr Bell recognises the inevitable consequence of capital accumulation as paper “value” in a system in which money is issued as debt, at interest.
Thus finance capital expands exponentially in the hands of fewer and fewer people desperately trying to increase their individual net worth through calls on the product of the real economy, which has to grow to meet these.
In contrast, the real economy can grow only as far and as fast as increasing productivity and technological innovation will allow, resulting in what the great US Green economist Herman Daly calls the “fallacy of exponentially increasing natural resource productivity”, whereby mainstream economics proclaims resource infinity – a scientific absurdity – and treats depletion and pollution as joint externalities.
Thus the desperate search for economic rents in all areas of life (the encroachment of the private into the public under the Thatcher/Reagan voodoo economics of the Chicago school), and a succession of speculative bubbles. Mr Bell also recognises this as the consequence of class war, whereby the owners of capital retain an outrageously unfair proportion of surplus value. Proof that the class war is still alive: bailouts for the owners of capital, and recapitalisation of destitute banks from public funds, the usual expected remedies now being applied: Some pseudo-Keynesian activity used to stimulate demand (but the owners of capital will not let this go too far). There will be some winners from the fire sales of assets (Citicorp and JP Morgan spring to mind) and there will be great anger and hardship.
But the probability that this will work this time is limited by two things: we are likely at peak oil, thus destroying any prospect of growth in the real economy, and global warming plus biofuel production is increasing basic food prices through scarcity of food and water, and finity is taking care of all other basic resources. Meanwhile, the expansion of western economies (demanded by finance capital) is limited largely to the military-industrial (the civil real economy having been exported to points east to exploit cheaper labour there). So the Keynesian option is seriously limited, except by war, which is problematic since present wars are being financed by the Saudis and Chinese purchase of T-bonds – and these are going badly – but sadly not impossible (read some of Joseph Biden’s speeches and quiver).
The finance capitalist paradigm is broken, probably beyond repair. For students of Marx, there is absolutely nothing surprising about this, the only surprise being that anyone is surprised. Indeed, much of this was also understood (but forgotten by his country) by the great Thomas Jefferson, author of the American Constitution, and president: “I believe that banking institutions are more dangerous to our liberties than standing armies.” Well, now we have both – owned and controlled by the same people.
The Marxian analysis is right, to a point. But Marx was a man of his time, and like Adam Smith, who grew up on the nascent Scottish coalfields, saw the “infinite” potential of extraneous hydrocarbon injections as part-liberator of the working class. (Marxism, too, is into “technological fixes”).
This option is no longer open. A recession that reduces consumption in an ecologically challenged world is no bad thing, so long as we share the hardships. The present crisis offers us a new beginning: a move to steady state economics and a system that returns humanity to a balance with the rest of our natural ecology. We have reached the end of the present paradigm; what matters is to choose the right successor. If we don’t? The words of another great US scholar and statesman spring to mind: “This sucker is going down”. For “sucker” read planet.
Dr John O’Dowd, Bothwell.
this is a nice article that sums up the current financial crisis and some of its global implications. the major piece which is missing, as usual, is an understanding of how global capitalism, and the American Empire in particular, has been propped up by a sea of oil, how the depletion of that oil has sparked this collapse, and why the deepening shortage of oil will prevent anything similar to this capitalist system from coming back, ever again. i’ll try to write an article to explain this soon. [alex]
Death of the American Empire
America is self-destructing & bringing the rest of the world down with it
by Tanya Cariina Hsu
Originally published by Global Research, October 23, 2008.
I believe that banking institutions are more dangerous to our liberties than standing armies. (Thomas Jefferson, US President; 1743 – 1826)
America is dying. It is self-destructing and bringing the rest of the world down with it.
Often referred to as a sub-prime mortgage collapse, this obfuscates the real reason. By associating tangible useless failed mortgages, at least something ‘real’ can be blamed for the carnage. The problem is, this is myth. The magnitude of this fiscal collapse happened because it was all based on hot air.
The banking industry renamed insurance betting guarantees as ‘credit default swaps’ and risky gambling wagers were called ‘derivatives’. Financial managers and banking executives were selling the ultimate con to the entire world, akin to the snake-oil salesmen from the 18th century but this time in suits and ties. And by October 2009 it was a quadrillion-dollar (that’s $1,000 trillion) industry that few could understand.
Propped up by false hope, America is now falling like a house of cards. Read the rest of this entry »
Worth watching this 3 minute video for an incredibly clear and concise explanation of Peak Oil and why it’s the source of this economic collapse, by Dr. Richard Heinberg. The near-term forecast for the economy is probably a series of large swings up and down, but as the oil shortage deepens the long-term trend will be an accelerating decline in economic activity.
For more, see this short explanation of why the current drop in oil prices is only temporary… (once again – my normal disclaimer – don’t hold me to everything he says here.. particularly not the “markets may be efficient…” statement) [alex]
“The Magic Market”
Richard Heinberg
Originally published by Post Carbon Institute, Oct. 13, 2008.
As the world finance system disintegrates and the price of oil wafts below $80 a barrel, we are about to see yet another instance of Market Magic.
Demand for oil is falling as world economic activity sputters. Many analysts are now forecasting that the barrel price could go as low as $50 to $60 in the next few weeks.
Meanwhile, however, the marginal cost of bringing a new barrel of oil into production has been rising in recent years, and now stands in the range of $80 to $100. Therefore, as the spot price and futures prices weaken, efforts to develop new oil sources will be mothballed. Read the rest of this entry »
US Senate — Working for Wall St., not us
Jerry Silberman, Oct. 2, 2008
The Wall St. Rescue bill which gained new life with the Senate rubber stamp yesterday will neither halt the decline of the US economy nor penalize the financial gamblers who have been the most immediate cause of this disaster.
Here are two important historical comparisons —
In the late 70’s and early ’80’s, the offensive by big business against workers took the form of demanding concessions in wages and benefits mostly from industrial unions, claiming that if factories weren’t made more “competitive” through reduction of labor costs, they would go out of business. Of course, no employer guaranteed the future of the plant of the job, we were supposed to trust them. Of course, it was a scam. Plants that took concessions closed. Plants that didn’t closed. The economic transformation was based in much larger issues. In plants that closed after concessions, the bosses simply walked away with more, and the workers were left with less. The money stolen by the bosses as a result of concessions helped fund the elimination of thousands of jobs through automation, as well as the transfer of manufacturing plants out of the country. The labor movement at the time was unprepared to fight back, since it bought into the general principles of the bosses, and is still suffering, despite renewed energy in certain unions.
The several “bail outs” that have happened over the past year are identical to those concessions — big business is threatening us with dire consequences if we don’t protect them, while making no promise that anything will get better if we do. Each bailout is bigger than the last, and more futile — except for the corporate executives who are continuing to stash the cash. Each bailout imposes more costs on us, now and in the future, as positive government programs are sacrificed and more debt is imposed on our tax dollar. Right now about 51 cents of every tax dollar goes to the military. Interest on the national debt, that is tax dollars which go directly to pay the government bond holders is the third largest item in the federal budget, right now one half trillion per year. Since about 140 million people file federal income tax returns annually, this means that on average, about $2000 of your taxes are already going to pay off bondholders on Wall St, in Saudi Arabia, China, and many other countries. This number will jump as a result of this bailout. That’s all money not available for schools, health care, environmental protection, etc.
In the early ’30’s the economy collapsed in what is commonly referred to as the Great Depression. Unlike this collapse that began early in the term of Herbert Hoover. By the time of the next presidential election, millions of Americans were impoverished and beginning to organize to fight back. They were marching in the streets for unemployment insurance, refusing to allow people to be evicted from their homes by blockading homes from the sheriff, WWI vets marched on Washington demanding relief and were fired on by current troops under the command of Gen. MacArthur (later of WWII fame) Radical political movements were growing. The new president recognized that some concessions had to be made to the working class by big business or the US would risk a revolutionary situation. Roosevelt, pressured by those movements of ordinary people who couldn’t take it any more, finally convinced Congress to enact several reforms, including unemployment insurance, Social Security, and tough banking regulations (repealed in the Reagan and Bush administrations) to stabilize the economy.
Although there are many very important differences in the current situation from those historical times, there are some very important common threads, the most important being that collective action by working people to challenge the rich and powerful is the key to any change which can create a more stable, secure and healthy life for us. And our goal must be based on a comprehensive vision of a just society, not just trying to protect a niche for ourselves.
This is a very provocative idea, but an important one. If collapse is inevitable, is it a case of ‘the sooner, the better’? Good article overall, though I think a stronger anti-capitalist analysis is needed here. [alex]
‘The best outcome is probably for humans to hit the wall soon and hard.’
By Roger Baker / The Rag Blog / October 2, 2008
Is industrial collapse the BEST way out of our current economic mess?
Arguably yes and here is why. But does it even matter? Perhaps not. Capitalism, in its global form and as we now know it, is likely finished in any case, so the choice is likely to be an illusion. But the best outcome is probably for humans to hit the wall soon and hard.
The Economic Context
Capitalism as an economic system depends on an endless expansion of material goods production at a rate that allows lenders to earn interest on money saved and invested. The only way to get potential lenders to lend rather than spending their money immediately is to reward them with a real rate of return on their savings. This is done by promising lenders that they will be rewarded with the ability to buy more material goods in the future. A reward must be offered to lenders for not buying and stockpiling bars of gold, barrels of oil, or any other desirable goods or services now as opposed to putting their money in banks or investing it in stocks or bonds or whatever else can earn them a real rate of interest as a reward for offering their savings up for investment by others.
Keynesian economics tries to maintain a mild inflation rate of a percent or two in order to encourage people to save their money in banks and other alternatives that offer a return above the rate of inflation. This is necessary to keep people from simply putting their money under a mattress. If the rate of inflation is one percent and they can earn three percent in a bank, they will bank their spare funds and will, in theory, be able to come out ahead and buy two percent more in the amount of physical goods or services than they had originally put in.
That is how those managing the economic system (like the Federal Reserve representing the banks) try to set things up. It is meant to encourage people to behave predictably and to keep them saving and investing. Under conditions in which in which it is possible to keep the material world always expanding and yielding a production of desirable goods at or above the rate of interest on money saved, this system remains viable and stable. This assumes that the financial system has been well-managed, and that there are no external limiting factors.
Enter Peak Oil
We now live in a world economy that is rapidly approaching the limiting factor of fossil fuel energy sources. The specific limiting factor that is most relevant is a looming shortage of liquid fuel based on petroleum as the total world oil production peaks and declines.
The peaking of world oil production strongly affects the investment equation that underlies the global capitalist economy and rewards investments and savings. The global economy is based on a cheap-oil-related infrastructure for its expansion of the production of real goods. Capitalism requires cheap energy to deliver the exponential expansion of material goods through investments that can pay real interest rates on loans. But this expectation is probably more than the expansion an oil-addicted global production system can really deliver. It changes the system’s economic potential by making it impossible to earn a real rate of return on the money saved by lenders, who in the case of the United States have increasingly been foreign lenders.
The underlying problem is that nobody can think of a way to keep expanding the material production of a global economy that is experiencing a shrinking supply of liquid fuels. These oil-based fuels move almost all goods in our global economy. This economy is based everywhere on the cheap transport of people, goods, and the capital goods needed to expand global production, whether it be by ship, by rail, by road, or by air. When the ability to move almost all goods declines, the expansion of the ability of capitalist investments to exploit nature for human uses must also decline. Read the rest of this entry »
With Congress giving in to this historic power-grab by Secretary of the Treasury and former CEO of Goldman Sachs Paulson and his friends in the banking industry, to seize control of the country’s finances (despite loud and obvious public opposition), it appears the end of capitalism is at hand. [alex]
Originally published by CNN.com, Oct. 3, 2008.
Stocks slump despite bank rescue
Dow suffers worst weekly performance since the week after 9/11 attacks, as investors remain fearful about the economy.
NEW YORK (CNNMoney.com) — Stocks slumped Friday, as a brutal week ended with President Bush signing the historic $700 billion bailout plan after weeks of contentious debate.
Credit markets remained frozen, despite the vote, with two measures of bank jitters rising to record highs. Investors also looked to Wells Fargo’s planned purchase of Wachovia and a dismal job market report.
The Dow Jones industrial average (INDU) lost 1.5% Friday and 7.3% for the week. On a point basis, the Dow lost 818 points this week, its biggest weekly point loss in seven years and the third biggest weekly loss ever.
The Standard & Poor’s 500 (SPX) index lost 1.4% Friday and 9.4% for the week. On a point basis, the S&P lost 114 points, the worst weekly point loss in seven years and the third biggest weekly loss ever.
The Nasdaq composite (COMP) lost 1.5% Friday and 10.8% for the week. The 10.8% decline was the worst in seven years and fifth worst ever. But the weekly point drop of 236 points fell outside the ten worst in history. Read the rest of this entry »
I’ve reposted a nice article which highlights the class dynamics at the heart of the current financial meltdown and potential bailout. It gives a very simple and straightforward summary from a revolutionary point of view, so I’m reposting it.
This is by no means a complete analysis however – for example it overlooks the critical role of oil, which is the lifeblood of the US capitalist economy and motivates many of its military aggression around the world. Specifically, there is a need to understand how the peak in global oil production has affected and continues to undermine the US-led industrial capitalist system, particularly in regards to the bursting of the housing bubble in the first place, along with the rising gas prices, food prices, heating costs, and subsequent inflation of the failing dollar.
Because oil production will never recover to its 2005/6 level, but will continue to decrease more rapidly, there can be no long-term recovery of the global financial markets, and for that reason I disagree with the declaration here that “Capitalism will not collapse…” On the contrary, it WILL collapse, because any system that structurally depends upon constant growth and speculation-upon-that-growth cannot coexist forever on a finite planet where necessary and crucial resources are in permanent and deepening shortage.
The current economic crisis is often compared to other historical crises of capitalism, where after appearing on the verge of death, the system restored itself and came back stronger than ever. Thus we are warned that capitalism is a self-destructive beast, but not a suicidal one. On its face this is solid logic but it overlooks the specific nature of the current crisis and its roots in the global peak oil phenomenon. It is my contention and the purpose of this website to demonstrate that the oil crisis is sucking global industrial capitalism dry like the vampire it is, and that there is no combination of “alternative” energy sources – whether coal, gas, nuclear, ethanol, wind, solar, whatever – that can do for this system what oil does.
Oil is not only the largest energy source, it also provides the material for 99% of pesticides (along with the entire industrial agriculture system), all plastics, almost all pharmaceutical drugs and chemicals, and a massive array of other products and components that keep the industrial economy chugging along. But the real killer is that oil literally fuels almost all transportation of materials and people for this system, including 95% of transportation in the US itself, as well as essentially ALL global air and sea transport. There is simply no way to keep this monster running without more and more petroleum.
Now, just because we’re confident that capitalism won’t recover from the current death-blows doesn’t mean a more vicious and destructive system won’t replace it, which is why this article’s conclusions are relevant and necessary. If we’re headed in the US towards fascism – which is where the rich and their Washington cronies seem to want to take us to protect their wealth and power – the only solution, which will become more and more apparent daily, is to organize a massive resistance here in the US that can stop the vampires and build towards a society based on freedom, justice and democracy.
[alex]
SOME TALKING POINTS ON THE FINANCIAL CRISIS
By Kate Griffiths and Isaac Silver
1. The era of the United States as a “the world’s only superpower” is ending.
The United States economy has not been this bad since the Great Depression. The rulers of the US hoped to retain global power militarily, through the wars in Iraq and Afghanistan, as the country’s raw economic superiority slipped. But these wars cannot be won: opposition among the occupied populations, and growing dissent within the military, prevent any victory on US terms even as the death toll climbs.
2. Beginning during the 1970s, manufacturing stalled, while government and investors focused on the financial sector: banks, real estate, and insurance.
Increasing competition, strong unions, and victories of the Black freedom movement had begun to limit the profits made by US corporations and threaten the power of the ruling class. In response, employers shifted good-paying manufacturing jobs overseas and to nonunionized areas of the USA. As wages stagnated, and workers’ purchasing power declined, workers maintained a precarious hold on our livelihood through working longer hours, sending more household members to work, and buying extensively on credit. The globalization of US capitalism and growth of credit both fueled the financial sector, which provided fluid economic resources that could be quickly moved and re-invested – unlike a physical investment such as a factory or railroad.
3. In 2008, years of government policies favoring the rich provoked instability and sparked collapse of major Wall Street institutions.
As the cost of the basic necessities went up, and wages failed to cover them Read the rest of this entry »
The End of Capitalism 
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