World and US Situation, 2008

AJLPP Update
Dec. 29, 2008


World and US Situation:Unprecedented economic and financial crisis

Los Angeles-- For more than two years, we revolutionaries had observed the impending total unravelling and complete discredit of the "free market" pretense of monopoly capitalism and the full bankruptcy of the policy of "neoliberal globalization."

But the leaders of the US and other imperialist countries and the puppet states were always lying and boasting about the so-called strong fundamentals of their economies. Only recently have they been compelled by the circumstances to admit that the US and global capitalist system are beset by the worst economic and financial crisis since the Great Depression.

Soon after the bursting of the hightech bubble in the stock market in 2000, which had hit hard the pension funds and savings of at least 40% of American households, US authorities and financial institutions devised the housing bubble in order to hook American households into taking mortgages at low interest rates and into believing that the rising value of houses would enable them to borrow further and consume imports as much as they wanted even if they did not have enough income or employment.

The increased hightech military production under the Bush regime could not make up for the longrunning industrial decline, service orientation and financialization of the US economy.

The housing bubble started to burst in 2006. A growing number of US households could not pay the amortization of their mortgages as interest rates were raised to counter inflation. From month to month the epidemic of foreclosures spread. This exposed the unbridled leveraging by and resultant huge losses and bankruptcies of the biggest financial institutions.

Those involved in the financial catastrophe include the investment banks (Bear Stearns, Lehman Brothers, Morgan Stanley, Merril Lynch and Goldman Sachs), commercial banks (City Group, J. P. Morgan, Wells Fargo and Wachovia), the giant insurance corporation (the American International Group) and the federal government sponsored enterprises (Federal National Mortgage Association or Fannie Mae and the Federal Housing Finance Agency or Freddie Mac).

The mortgage meltdown has exposed US financial institutions as having exported to Europe and other continents toxic financial products, involving the securitization of the bad mortgages, labeled with such exotic names as mortgaged-backed securities, collateralized debt obligations, structured investment vehicles, credit default swaps and so on.

These have generated a chain of financial collapses, including the credit crunch in interbank lending and in the money market and the stock market crash, not only in the US but also on a global scale. The US and other imperialist states have given priority to bailing out the banks and other financial institutions with public money rather than the people victimized by the depredations of monopoly finance capitalism.

The mortgage meltdown has certainly ignited the current financial crisis. But the fundamental cause of this crisis goes much deeper. It involves the ever persistent drive of the monopoly bourgeoisie to extract surplus value from the working class, to maximize superprofits even further by pushing down wage levels and thus to unwittingly contract the market by reducing the income of the working class and effective demand for products.

Thus, the crisis of overproduction and the cycle of boom and bust. These have been further aggravated and deepened by the US' drive to seek and exploit cheaper labor abroad as well as to provide investment and market accommodation to its main allies.

The US adopted the policy of "neoliberal globalization" to overcome the phenomenon of stagflation in the 1970s which it blamed on rising wage levels and government social spending but not on economic concessions it had to give to its anticommunist allies, military competition with the USSR in the Cold War and big government spending for military production, the overseas deployment of US military forces and the costly wars of aggression in Korea and Indochina.

In accordance with its line of "neoliberal globalization", the US has pushed down domestic wage levels, caused industrial decline, favored the military-industrial complex and oil giants and promoted the so-called post-industrial service economy as well as the financialization of the economy.The falling real incomes of the American people relative to GDP has led to the recurrence of increasingly severe crises of overproduction in the form of recessions from decade to decade since the 1980s.

But the US has always resorted to debt financing in order to override recessions and the persistent trade and budgetary deficits. All three sectors of the US economy have gone into extreme and unsustainable borrowings: the government, the private corporations and the households. These have gone too far beyond the limits and have caused the current gravity of the US and global financial and economic crisis.

US Economy on Recession

The US has incurred the understated total debt of US$53 trillion, which is 350% of the US GDP of US$14.6 trillion. This is a far cry from the Great Depression when such debt was only 250% of the US GDP. The US total debt consists of the national government debt of US$10.6 trillion, corporate debt (non-financial and financial) of US$23 trillion and household debt of US$14 trillion.

The US national debt was less than US$1 trillion at the end of the Carter administration in 1982. It went up to US$3.6 trillion by the end of the Reagan administration. This turned the US from No.1 creditor to No.1 debtor of the world. Reagan had engaged in highspeed, hightech military production, incurred large trade deficits in order to accommodate the exports of its anticommunist allies; and attracted foreign investments in US stocks and bonds.

Clinton promoted "neoliberal globalization" and kept on increasing the trade deficit even as he balanced the budget. At the end of the Clinton term, the US national debt was US$5.7 trillion. The Bush regime bloated this even further at a much faster rate. The national debt now stands at US$10.6 trillion. A great part of this debt (estimated at US$2.5 trillion) is owed to China, Japan, the United Kingdom, Germany, Saudi Arabia, the Caribbean banking center, and so on.

The US corporate debt of US$23 trillion is understated. The non-financial corporations take loans from the banks as well as issue bonds. The biggest US corporations like General Motors and General Electric are far more involved in finance than in production. It is easily conceivable that the financial corporations are far more indebted than the nonfinancial.

Banks can generate credit nine to ten times that of bank deposits and, as a result of the Financial Services Modernization Act of 1999, investment banks have been allowed to generate credit 12 to 30 or even more times the placements of investors. Under the Commodity Futures Modernization Act of 1999, various types of financial institutions can generate derivatives without any restraint.

The US household debt is in the form of housing mortgages, auto loans, credit cards and student loans. It has been bloated mainly by the housing bubble. The general run of American households have negative savings; aggregate household debt in relation to aggregate household income has risen to 138%, with a 40-year record increase of 37%. Millions have lost their homes.

The unemployment rate is higher than the official one of 6.7%, which excludes those who have stopped applying for jobs and those supposedly unqualified for available jobs. More than half a million are now losing jobs every month. The drastic fall of employment and income in US households spells further loss of effective demand for the products of both US and foreign productive enterprises.

It took decades for the current financial and economic crisis to grow before bursting. This will not be solved in the short term of one to two years. The solutions made so far, like the bailout for collapsing financial institutions, aggravate the problem. Government dispensing of public money for this sort of bailout is a case of further robbing those who have been robbed to bail out the thieves. It is also a case of throwing good money after bad. It does not at all revive production, employment and effective demand. Even the credit crunch among the banks has not eased because producer firms would not borrow money for production if they cannot sell their products. Bailout money is simply being used by the strongest finance monopoly groups to consolidate and enlarge their monopoly positions.

Worst of all, the national debt bubble is growing and is about to burst. The market for treasury and corporate bonds is expected to collapse next year.

Obama's plan of creating 2.5 million jobs through infrastructure projects and expansion of social services will not offset even only the low estimate of four million job losses from further financial collapses, bankruptcies, plant closures and mass layoffs.

The public funds available for Keynesian pump-priming are limited by further demands of the financial institutions and giant non-financial corporations such as the Big Three automakers (General Motors, Ford and Chrysler), by the continuing wars of aggression in Iraq and Afghanistan, by the drastic reduction of tax collection and by the continuing need to import goods from abroad.

A prolonged recession or depression in the US similar to that in Japan is in the horizon. After the spike in food and oil prices, which delivered superprofits to the giant oil and food corporations, a deflationary trend has emerged and has prompted the US Federal Bank to cut down the basic interest rate to nearly zero.

However, the beneficiaries are not the millions of American workers who have lost their jobs, homes, savings and pension funds, but the stronger financial institutions, which are gobbling up the weaker ones, A longrunning global depression is already being aggravated and deepened by the international credit squeeze and by reduced demand from the American consumer market.

Within the last quarter of this year, millions of workers have been laid off at an unprecedented rate in the imperialist countries and even more so in the neocolonies. The number of people who live on less than US$1 to US$2 a day is rapidly rising. A billion people go hungry daily. Two billion people have no access to clean water. The current turmoil guarantees even more rapid increase in misery in the years to come. Millions of low-wage workers in export-processing zones of monopoly capitalist firms in the neocolonies are particularly vulnerable to the reduced orders for consumer goods and semimanufactures in the industrial countries.

Millions of peasants, farm workers and workers in the extractive industries are bound to suffer even graver destitution as demand for raw materials decline. Migrant workers, especially undocumented laborers will become ever more vulnerable, targeted as they are as scapegoats for rising unemployment in capitalist countries and sent back to their countries of origin.

Beneath their rhetorical concern over climate change and the environment, the imperialist countries continue to intensify plunder of natural resources in the neocolonies. They continue to emit virtually all the greenhouse gasses that is causing global warming and is already leading to declining crop yields, increasing food and water insecurity, diseases and deaths in the exploited and oppressed countries.

Under the auspices of "neoliberal globalization," the US has been vaunted as the engine of growth and market of last resort for the global economy in the last three decades. But now, it has clearly become the center of the global financial and economic crisis and is thus clearly recognized as the generator of the destruction of productive forces and of socio-economic and political turmoil.

As a result of the current severe crisis, the position of the US as the No. 1 imperialist power is deeply undermined, especially in economic and political terms, even if it remains the strongest in military terms. The current crisis is causing an over-all weakening of the US and it is loosening its control over its imperialist allies. The latter are scrambling to protect their national and ultra-national interests and are demanding a multipolar world and moving away from a unipolar world of unquestioned US dominance.

US Imperialist Wars of Aggression

The US is being undermined not only by the financial and economic crisis but also by its own wars of aggression in Iraq and Afghanistan and the global deployment of its military forces. Iraq will remain a quagmire for the US and its puppets for as long as the US maintains military bases and troops and has a stranglehold over the Iraqi economy and oil resources. The Iraqi people will not give up their resistance. If the US under Obama brings more of its military forces to Afghanistan, it will ultimately suffer the same fate as the Soviet forces of aggression in the past. Afghanistan can become a more sucking quagmire for both the US and NATO.

Competition is growing among the imperialist powers for oil and other natural resources, markets, fields of investment and spheres of influence. Imperialist powers other than the US increasingly protect their national interest as they adopt fiscal and monetary measures independently of the US in order to cope with the financial and economic crisis and as they avoid or restrain themselves from being dragged by the US into wars of aggression. There are definite signs that certain imperialist powers are contradicting the position of the US on economic, financial, political and security issues.

As objects of imperialist interest and as active aspirants for a bigger say in global affairs, certain large but less developed countries like China and India have an impact on the changing balance of forces among the imperialist powers. China has become the biggest foreign creditor of the US even as it remains poor and dependent on the US as market for its cheap consumer manufactures and is vulnerable to the looming collapse of the bond market and the fall of the US dollar.

However, it competes with the US for sources of oil and other natural resources and independently seeks markets and fields of investments in various parts of the world. Russia is using its oil and gas resources and its continuing military capabilities to keep itself a major imperialist power.

Complaints are growing against US dominance in the UN, IMF, World Bank, WTO and other global institutions. On the western front, France has joined Russia in demanding the formation of a new European security alliance to replace NATO and in opposing the missile shield put up by the US in Poland and Czechoslovakia. On the eastern front, China and Russia are spearheading the Shanghai Cooperation Organization as a security alliance which includes the former Soviet republics in Central Asia and major countries in the Middle East and South Asia.

Beneficial to the US at first, the full reintegration of Russia and China into the world capitalist system has in the long run resulted in the intensification of inter-imperialist contradictions rather than an amicable and peaceful expansion of capitalism.

Even as its No. 1 position is being undermined, the US remains a key player among the imperialist powers in the foreseeable future. It must be pointed out that the imperialist powers remain allied against the oppressed peoples and nations of the world and always try to shift the burden of crisis to them.

The contradiction between the imperialist powers and the oppressed peoples and nations is still the main contradiction in the world, not only in terms of the given fact that the imperialists and their puppets inflict the worst forms of oppression and exploitation on the peoples of Asia, Africa and Latin America, but also because of the growing real and potential struggles for national and social liberation.

The current crisis of imperialism inflicts severe suffering on billions of peoples in the third world but also incites the people of the world to resist and provides them with a bigger room for maneuver in the struggle to liberate themselves from imperialism and all reaction. The broad masses of the people detest the ever worsening general crisis of the world capitalist system and their ever worsening oppression and exploitation. From year to year, we can expect the rise of various legal and illegal forms of mass resistance by the people.

Revolutionary Armed Struggle

The revolutionary armed struggle of the people will rise to a new and higher level in such countries as Iraq and Afghanistan, which the US and other imperialist powers invade and occupy. The long-running armed movements for national liberation and democracy, such as in the Philippines, Colombia, India, Peru and Turkey, will make great advances and will inspire more people's wars to arise in various continents.

The peoples and governments of the Democratic People's Republic of Korea, Cuba, Venezuela, Bolivia, Ecuador and other Latin American countries are noticeably asserting national independence against the hostile policies of the US imperialists.

South Asia remains the fertile ground for the rapid growth of the armed revolution for national liberation, democracy and socialism. The people's war in Nepal has allowed the Communist Party of Nepal (Maoist) to overthrow the monarchy, establish a republic and take leadership over the coalition government. The people and revolutionary forces led by the Communist Party of India (Maoist) can play the great role of bringing the world proletarian revolution to a new and higher level in the same way that those of Russia did in the wake of the First World War and those of China did in the wake of the Second World War.

At any rate, the proletariat and peoples of Russia and China are in deep discontent on a wide scale. The revolutionary communist parties are steadily growing to raise high the red banner and legacy of Marx, Engels, Lenin, Stalin and Mao.

The implosion of the Soviet Union and the Soviet bloc revisionist regimes, the return of the worst forms of oppression and exploitation in Russia and China and the current depredations of the US and global financial and economic crisis expose the rottenness of the world capitalist system and point to the great challenges and opportunities for the peoples of the world to carry forward their revolutionary cause.

Social unrest is now spreading in China, the former Soviet republics and former Soviet bloc countries. The people are increasingly rejecting capitalism and demanding socialism.

Revolution in Capitalist Countries and Socialism

Within the imperialist countries, the class struggle between the monopoly bourgeoisie and the working class is surfacing and coming to the fore. The workers, the youth, women, the migrants seethe with anger as they face rising unemployment and decreasing income and the scandalous greed and arrogance of the monopoly bourgeoisie. They increasingly condemn capitalism and clamor for socialism.

The Parties of the Left have gained strength in several countries of Europe. To deflect the proletariat and people from class struggle and anti-imperialist solidarity, the monopoly bourgeoisie and its slimy politicians are doing everything to drum up chauvinism, racism, fascism and war hysteria.

But it has been demonstrated time and again that the proletariat and people in the imperialist countries, including the US, are capable of rising against the exploitative and oppressive policies of monopoly capitalism. The current severity of the prevailing financial and economic crisis has definitely begun to stir the broad masses of the people against the capitalist system.

As the crisis prolongs for several years and probably more than a decade, there is ample opportunity for the revolutionary forces to arouse, organize and mobilize the masses and to develop and grow ideologically, politically and organizationally.

The total bankruptcy of "neoliberal globalization" is impressing the proletariat and peoples of the world that monopoly capitalism is evil because it destroys the forces of production and inflicts intolerable suffering and that there is an urgent necessity for revolutionary struggles for national liberation, democracy and socialism.

The conditions of crisis are conducive to revolutionary activity but do not automatically or inevitably bring about revolution. The conscious and organized revolutionary forces, chiefly the revolutionary party of the proletariat, need to work and struggle hard in order to call upon and bring the broad masses of the people on to the road of revolution.