History Repeating As Farce - Part 2

“When we think about this conjuring up of the dead of world history, a salient difference reveals itself. Camille Desmoulins, Danton, Robespierre, St. Just, Napoleon, the heroes as well as the parties and the masses of the old French Revolution, performed the task of their time – that of unchaining and establishing modern bourgeois society – in Roman costumes and with Roman phrases. The first one destroyed the feudal foundation and cut off the feudal heads that had grown on it. The other created inside France the only conditions under which free competition could be developed, parceled-out land properly used, and the unfettered productive power of the nation employed; and beyond the French borders it swept away feudal institutions everywhere, to provide, as far as necessary, bourgeois society in France with an appropriate up-to-date environment on the European continent.”

Eighteenth Brumaire Ch. 1

Thatcher did not carry through a Revolution in the way the French Revolutionaries of 1789 did, but the economic and social changes she wrought were thoroughgoing, and, like the changes after 1789, were designed specifically to meet the needs of Capital. The actions of Thatcher, as with the similar actions of Reagan, in the US, were not some whim, but were conditioned by the very economic conditions which confronted them, and the specific conjuncture of the Long Wave Cycle, in which they occurred, which made the old Keynesian solutions, no longer applicable. They performed the task of their time. Thatcher unchained an established bourgeois democracy by introducing a deregulation of old restrictive monopolies, much as the bourgeois revolutions of the 18th and 19th Centuries broken up restrictive feudal monopolies, but she did so not in “Roman costumes”, but in Victorian costume, harking back to Victorian Values, to the principles of Free Trade, and to Empire. And with Reagan and other Imperialists they too swept away restraints to such Free Trade, and the ability of Capital to settle anywhere in the search of more and more profit.

But, under modern conditions Cameron's reflection of these measures cannot be other than farcical, because now is not then. The objectives which Thatcher had set were achieved. The working-class and its organisations were smashed. Any further attack on the Trades Unions could only ever have marginal impact, and might even be counter-productive. If it was ever necessary to achieve the absolute majorities in strike ballots that have been hinted at, then any strike that did occur, would pose the Tories with far more problems than they face now. If ever an absolute majority of workers do decide that enough is enough, and take action, then nothing will be able to stand in their way. In the meantime, it would mean that socialists would have to pay more attention to Marx's dictum about “winning the battle of democracy”, in gaining majority support for any action, and less time in manoeuvring and position seeking.

The deregulation that Thatcher and Reagan sought was introduced, and its end result was the accumulation of huge amounts of unsustainable private, debt, the lunacy of the Sub-prime crisis, which was a feature of it, and the virtual collapse of the Global Financial System, which could only be arrested by the very opposite of that deregulation, in the form of the nationalisation of the Banks and Finance Houses in the US, UK, and Ireland, a solution, which ultimately will have to be implemented in Europe too, before the debt crisis is over. And, of course, the farce of the repetition of those earlier events, under Cameron, is that the measures, now being proposed, in the form of austerity, are themselves being proposed as solutions to the build up of debt that arose as a direct consequence of the policies of Thatcher in the first place! Contrary to Cameron's propaganda, the deficit had nothing to do with profligacy under Labour. In the period after 1999 up to 2002/3, Labour was actually paying down the debt. Under Thatcher and Major, between 1979 and 1997, borrowing accounted for 3.4% of GDP; between 1997 and 2005 it averaged just 1.2%. Moreover, even when Labour did begin to act counter-cyclically, under Brown, the increase in the deficit was nothing extraordinary. It is clear from the data that the significant change DID come in 2008/9, when, even excluding the amounts pumped into the Banks, net debt rose from 36.5% of GDP, to 43.2%, a bigger cumulative rise than in the previous 7 years combined!

But, as Ann Pettifor has pointed out, it is not Public Sector Debt that is the real threat to the UK economy. It is Private Debt. Where Public Debt stands at around 70% of GDP, Private Sector Debt stands at around 450%! The Public Debt was created to deal with the Financial Meltdown that was the result of the deregulation of Financial Markets, introduced by Thatcher and Reagan, in the 1980's, and the massive accumulation of private debt is itself the direct consequence of that deregulation of Financial Markets, and of the encouragement to workers, the Middle Class, and Small Capitalists to drive themselves into penury, in order to keep the economy going, and to compensate for the fact that their real living standards were stagnating. And, today's image of Thatcher, wants those that have suffered, as a result of that process, to also be the ones who pick up the Bill that would otherwise be borne by the Banks, Finance Houses, and their shareholders. But, absent any credible alternative, a large portion of those affected, see no solution other than in a return to the cause of those problems in the first place. They cannot let go of the shade of Thatcher, even before she's dead, as the recent fascination shown over the film illustrates. As Marx put it,

“From 1848 to 1851, only the ghost of the old revolution circulated - from Marrast, the républicain en gants jaunes [Republican in yellow gloves], who disguised himself as old Bailly, down to the adventurer who hides his trivial and repulsive features behind the iron death mask of Napoleon. A whole nation, which thought it had acquired an accelerated power of motion by means of a revolution, suddenly finds itself set back into a defunct epoch... The nation feels like the mad Englishman in Bedlam who thinks he is living in the time of the old Pharaohs and daily bewails the hard labour he must perform in the Ethiopian gold mines, immured in this subterranean prison, a pale lamp fastened to his head, the overseer of the slaves behind him with a long whip, and at the exits a confused welter of barbarian war slaves who understand neither the forced labourers nor each other, since they speak no common language. “And all this,” sighs the mad Englishman, “is expected of me, a freeborn Briton, in order to make gold for the Pharaohs.” “In order to pay the debts of the Bonaparte family,” sighs the French nation. The Englishman, so long as he was not in his right mind, could not get rid of his idée fixé of mining gold. The French, so long as they were engaged in revolution, could not get rid of the memory of Napoleon, as the election of December 10 [1848, when Louis Bonaparte was elected President of the French Republic by plebiscite.] was proved. They longed to return from the perils of revolution to the fleshpots of Egypt , and December 2, 1851 [The date of the coup d’état by Louis Bonaparte], was the answer. Now they have not only a caricature of the old Napoleon, but the old Napoleon himself, caricatured as he would have to be in the middle of the nineteenth century.”

And all this to pay for the debts run up as a result of the policies of Thatcher.

Back To Part 1

Forward To Part 3

History Repeating As Farce - Part 1

“Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce.”

Marx – The Eighteenth Brumaire of Louis Bonaparte.

Thatcher, the Grammar School educated, shopkeeper's daughter, desperate for the support of millionaires; Cameron, the Eton educated millionaire, desperate for the support of shopkeepers. Thatcher, declaring a war in the Falklands, she had not really intended to wage; Cameron intending to wage a War against Libya, but declaring he was waging anything other than War. Thatcher undermining the fascists by shooting their Immigration fox; Cameron lining up with the fascists and loonies across Europe and undermining himself. Thatcher, the Iron Maiden, mugging the Europeans for Britain's Rebate, before walking away with the loot; Cameron flouncing out of the room, like a Maiden whose honour has been besmirched, without even bothering to find out what price would be placed on her virtue. Thatcher waging open war against “Red Ken”, to prevent any challenge to the central authority of the State; Cameron waging a covert war with “Blonde Boris”, to protect his own authority within the Tory Party. Thatcher slapping around the “Wets”, known as vegetables; Cameron slapping around Nick Clegg like a wet lettuce. Thatcher unleashing the mass of the State to defeat the Miners; Cameron unleashing the mass of Eric Pickles to defeat the Local Government workers.

In the 1980's Thatcher smashed the working class and introduced austerity, which, was the only solution available for Capital, given the economic conditions. Cameron seeks to mirror Thatcher in different economic conditions. But, there are big differences. In the early 1980's, workers had experienced 30 years of economic boom. During, the 1950's, they began to recover from the devastation that had been wrought on them during the 1930's, and the period of War. Their living standards rose, including those elements of the Social Wage, such as better education, which Capital needed to meet its requirements for more technological production. Things, such as home ownership, began to be taken up by workers, who, until then, had only known renting, as a means of meeting their housing needs. It had begun during the 1930's, when workers, experienced rising wages, in new developing industries, in the Midlands and South-East,, and when new building techniques reduced the cost of housing. The introduction of labour-saving consumer durables, in the home, freed up female labour, to meet the growing demands of capital, for an increased labour supply.

Workers found that they could win higher pay, as employers were more than able to pay, in a growing economy, and as the principles of Fordism spread. Large employers effectively entered into a compact with workers, whereby they would ensure that real wages rose, year on year, linked to rises in productivity, in compensation for the workers enduring the tedium of mass production assembly lines, which generated those rises in productivity. The ability to obtain such pay rises, gave confidence to build new Trade Union organisation at a plant level, creating a new force in the shape of the power of the shop stewards, as workers found they could simply down tools rather than wait for full-time union officials to intervene, and often derail their struggle. It created an increasingly reformist consciousness, which was manifest in an increased level of support for Left leaning Trade Union and Labour leaders, as well as for, what were essentially, syndicalist political groups such as the International Socialists. This was both the strength and the weakness of working-class development during the period. Strength in that it saw a rebuilding of rank and file working-class organisation, weakness in that it was diverted into these dead-end political solutions. Just how dead end those solutions were was demonstrated when the conditions that created them disappeared, when the Long Wave Boom ended.

When the Boom began to falter, in the late 60's, Capital began to respond. It was no longer able to so easily accommodate workers' demands. Not only was productivity and profitability falling, but the ability of the State to accommodate the requirements of the other part of wages, the Social Wage, was declining too. It was no longer necessarily in the majority of large employers' interests to agree to pay increases or other improvements, and they began to resist, resulting in strikes becoming more prolonged. The Labour Government also attempted to intervene by introducing anti union legislation in the form of “In Place Of Strife”, but the workers were still too strong, and able through the unions link with Labour to defeat it.

As the Boom turned to recession Governments sought, during the 1970's, to utilise the economic orthodoxy, which from 1949 had successfully cut short every previous recession. But, under the new conditions, that could not work, and instead it only resulted in rising inflation, and then stagflation. So long as employers could respond to rising Money Supply by conceding to wage rises, in the knowledge that the increased cost could be passed on in higher prices, this spiral would continue, and no real solution to the problem of Capitalist profitability could be found. Cuts in nominal wages were difficult to achieve, because, as Keynes discovered, decades before, wages are “sticky downwards”. The best tactic for Capital is reductions in real wages via inflation. But, that required destroying the economic muscle of the working class organised in its Trades Unions.

In the late 1970's, Thatcher, with the help of her advisors, such as Sir John Hoskyns, Sir Keith Joseph, and Frederick Hayek, recognised this and began to plan for dealing with it. The “Ridley Plan”, developed by Tory MP, Sir Nicholas Ridley, set out a strategy for taking on the Trades Unions and defeating them. They would begin with the weaker unions such as the Steelworkers, and move on until they felt able to take on the Miners. Alongside these attacks, they began to introduce new anti-union laws, introducing a small number of measures to begin with, on which they could gradually build. At the same time, the changed economic conditions, of the Long Wave downturn, began to facilitate such a struggle. Under the advice of Hayek, a curtailment of the Money Supply was introduced. This meant that employers not only had an incentive to resist pay rises, but they would now find that if they didn't resist, they would not be able to pass them on. The consequence was a sharp rise in Unemployment, which eventually rose to around 6 million, though the Tories introduced more than 20 changes to the method of calculation to keep the official figure to around 3 million.

But, Thatcher's strategy was clever in another way. Some of the measures used to massage the figures, did so by encouraging workers to voluntarily come off the list of those seeking work. In addition to the mass of schemes run by the Manpower Services Commission, such as YTS, which paid young workers a bit more than dole to do a training course, there were things such as the Enterprise Allowance Scheme, which paid people more than their dole, if they would set up their own business. Comedian Alan Davies, in a documentary series, a while ago, described how he and other comedians, at the time, used it to obtain additional money by describing themselves as a business. But, there were many other such changes. They introduced a measure whereby workers, over 59, could obtain a higher rate of benefit, if they basically signed to say they were not looking for work. They encouraged a development of people being switched on to Incapacity Benefit, which often paid more than dole, so that the unemployed figure was reduced. All of this was designed to reduce the likelihood of workers putting up fiercer resistance to being made redundant.

In reality, the political strategy of the working-class, including that of the political leadership from the Left, was completely incapable of responding to this. It relied on “more militancy” defeating bosses, who now were likely to go bust and shut down if they did concede. It relied, on the other hand, on electing a Labour Government, who would be pushed to take action against Capital in a way it had never shown itself likely to do, on the basis of past performance. And, because it was incapable of responding to this situation, the working-class increasingly recognised it had no answers, and turned away. Had, Thatcher been defeated in 1984 over pit closures, as she had been a couple of years earlier, it would have been a temporary victory, until they came back stronger. The strategy of the “revolutionary left” was essentially that, a strategy for revolution. The only real solution to the Miner's Strike, for example, would have been if it had escalated into a struggle for power by the workers. But, although I remember attending meetings of the National Labour Briefing Editorial Board, in Birmingham, at the time, and hearing from Chris Knight that we were in a situation of dual power, in many of the coalfields, living in one of those coalfields, and being on picket lines every day of the strike, I could only smile, because the reality was quite different.

And, the other side of that reformism took a decisive twist to the Right too. If repeated industrial defeats signalled the failure of Syndicalism, Economism and Luxemburgism to provide a solution, then the other side was the increased concern for Labour Lefts to concentrate on getting a Labour Victory. The Left inside the Labour Party quickly fractured into Hard and Soft Lefts, and the Hard Left amounted to little more than the revolutionary sects, who were themselves bitterly divided against each other. I remember perfectly well how former Lefts, argued for keeping our heads down, not to rock the boat etc., which was most shamefully displayed in the attitude towards the Miners and others such as those opposing the Cuts. I remember at the time being a Councillor for a supposedly Left-wing LP Branch, and nominating Eric Heffer for Leader, and finding he received no votes, whilst the vast majority went to Kinnock. All of these defeats, industrial defeats, and political defeats, ate away at the working-class, and set the ground for Thatcher to smash the class, and its ability to resist. Once that was done, the road was open to pump money into the economy, so that inflation could rise, whilst wages did not, thereby raising the rate of profit. And, in order to compensate for falling real wages, the increased Money Supply and deregulation of the Financial and Credit Markets, which Thatcher introduced, meant that workers were encouraged to borrow like there was no tomorrow, and, in the process, put into hock all of those real assets that they had built up during the post-war period. Increasingly, workers, as well as being wage slaves, were turned into debt slaves.

Cameron, by contrast, has come to power during a period where the global economy is at a fairly early stage of a New Long Wave Boom. The reality of that is hidden because of the relative decline of developed economies such as that in Britain, and as a result of the recession in those economies, which is a consequence of the Financial Meltdown of 2008, which was itself a consequence of the build up of debt during the 1980's and 90's, and of the relative decline of the developed economies compared to the BRIC and other rapidly growing economies. The smashing of the working class, during the 1980's, set the scene for a rising rate of profit, within the global Capitalist economy, and, on the back of that, large surpluses were built up at the same time that large debts were accumulated. The BRIC economies, and others, accumulated massive surpluses, stored in Sovereign Wealth Funds, Private Investment Funds, Government Reserves, as well as private balances. Large companies accumulated huge amounts of cash, on their Balance Sheets, whether they were in the BRIC countries or in the developed economies. At the same time, household Balance Sheets, and those of small businesses, who had been encouraged to borrow on a massive scale, since the 1980's, accumulated huge debts, only sustainable on the basis of a secular downward trend in interest rates from 1982 onwards, made possible by increasing Money Printing, and by setting those debts against increasingly unsustainable and inflated assets, such as property and shares, that were themselves a product of that huge Money printing.

In other words Cameron has come to power under conditions, which are in many ways the opposite of those, which confronted Thatcher. In place of a Long Wave Downturn, Long Wave Boom; instead of a strong, militant working-class, a working-class that is smashed and demoralised; instead of a working-class that had built up real assets, a working-class that has been reduced to debt slavery.

Forward To Part 2

Northern Soul Classics - Who's Making Love - Johnnie Taylor

Old classic from Mr. Taylor. See also my favourite JT dancer - Friday Night, and the wonderful I Ain't Particular

Don Cornelius - Soul Train - Johnny Taylor

In memory of Don Cornelius, the founder of Soul Train who died yesterday. Don was the first to prove that Black people could establish a succesful media company without the support of powerful white interests.

Civil War In The Capitalist Class

There seems to be a simmering Civil War taking place within the ranks of the Capitalist Class. The removal of the knighthood, for Fred Goodwin, is a manifestation of it. As with other Civil Wars, the actual banners raised, under which the opposing sides fight, are not a reflection of the real reason for the conflict. The war is being fought out under banners such as “Moral Capitalism” or “Responsible Capitalism” or “Predatory Capitalism” and other such meaningless nonsense. But, the real conflict is one between the interests of Big Money Capitalists based in the City of London, and Wall Street, and the interests of Big, and not so big industrial capitalists.

In Capital, Marx's analysis demonstrates, not only the fundamental contradiction between the interests of Labour and Capital. Particularly in Vol. III, where he looks at Capital as a whole, he also sets out the conflicting interests between the Productive Capitalists, whose activities create Surplus Value, and the Commercial Capitalists, Money Capitalists, and Landlords, who claim a share of this Surplus Value for themselves in the form of commercial profits, interest and rent. In the 19th century, as Marx and Engels described, the Productive Capitalists were, in fact, able to form an alliance with Labour against the old ruling class, the landed aristocracy, precisely on this basis, of the former asserting its interests over the latter. Commercial Capital, makes profits through buying commodities from the productive capitalists below their value, and selling them at their value. The productive capitalists agree to this because they would otherwise have to lay out additional Capital themselves, to ensure the sale of their commodities. The Merchant Capitalists, through specialisation, can achieve this more efficiently, thereby providing the productive capitalists with a saving on their costs. The same is true in relation to the Money Capitalists, who reduce the productive capitalists' costs, by minimising the Money Capital they have to hold themselves. The Landlords, extract rent from the Capitalists as a result of the monopoly ownership of land. Moreover, wherever a particular piece of land facilitates the Capitalist in making above average profits, because of its location or fertility, the Landlord is able to extract a Differential Rent, which reduces this surplus profit down to the average.

Just as the Capitalists have an interest in reducing the Value of Labour Power, so as to lower wages, and thereby increase profits, so Productive Capital has an incentive in minimising the share of Surplus Value they have to hand over to the Commercial Capitalists, the Money Capitalists and the Landlords. Historically, as I set out in previous posts there has been a connection between Money Capitalists – the Financial Aristocracy – and the Landlords – the Landed Aristocracy. Indeed, both extract a form of rent. The latter for lending out their land, the former for lending out their Money. For a long time from the latter part of the 19th Century, the Productive Capitalists had the upper hand. It was manifest in the rise of Fordism, and the Social-Democratic consensus, by which Big Capital co-existed with the working-class via the intermediary of the Trades Unions, and parties which developed and sustained Welfare States, and Keynesian policies. That broke down in the 1970's and 80's with the end of the Long Wave Boom, when Keynesianism showed it could not deal with the crisis. The decline of Productive Capital, and the ending of Keynesianism, was mirrored by the rise of Money Capital, and of Neo-Liberalism, which represents its ideological interests.

For the period of Long Wave downturn, Money Capital, and its Neo-Liberal ideology have been dominant. That dominance has been reflected in the political representation and links that the Money Capitalists were able to form within the political elites, within the corridors of the State, and within sections of the media. For the same reasons as its rise arising out of the end of the last Long Wave Boom, its position was bound to come under challenge once the new Long Wave Boom started around 1999. The fact of the Financial Meltdown, and the role of Money Capital in bringing it about, was bound to provide a basis for its rule to be attacked. What we are seeing is the playing out of this conflict, a struggle for dominance within the ranks of Capital, between the Money Capitalists and the Productive Capitalists.

There was an interesting example of that yesterday. Howard Dean, Chair of the Democratic National Committee, said on CNBC that one of the Republicans top spin doctors had advised candidates in the GOP primary elections not to use the term “Capitalism”, because it was a dirty word. However, he said, using the term “free enterprise” was okay. The difference is that the former is associated with Wall Street, whereas the latter is associated with all of the firms, especially the smaller firms who were actually engaged in making stuff.

Over the last 30 years, we have seen a secular trend of falling interest rates. That is an indication of the way the dominance of the Money Capitalists has led to its interests being met by the State. Of course, to an extent, low interest rates, benefited Capital as a whole, because it made possible a continuation of spending by workers during a period when their wages were stagnant or falling. But, the main beneficiary was Money Capital. The reason is as follows. If interest rates are high, then the demand for credit by businesses and consumers will be less than if they are lower. The lower this demand for credit, the more competition, between lenders, will force them to reduce their margins, in order to win the available business. The higher the interest rate, the Banks and Finance houses have to pay, to borrow in the Money Market, the higher the interest rate they have to charge for commercial credit. For example, if the Banks have to pay 5%, they may only be able to lend at 8%, because, at these levels, demand is choked off. But, at 1% they may be able to lend at 3%, because the demand will be higher at this lower rate. Although, in the first case, the margin is bigger in absolute terms (3 percentage points), in terms of profit it is lower, because it is only 60% more than their borrowing cost, whereas in the latter it is 200% more than their borrowing cost.

When Money Capitalists had to rely on savers depositing funds with them, their costs were higher, because they had to offer high enough deposit rates to attract savers. Today, they do not, because they obtain the funds to lend from the Money Market. And, at the moment, they are able to obtain longer term funds, from the Central Banks, who, in order to pump liquidity into markets, to avoid a recession, are lending money at historically low rates. In fact, for the Big Productive and Merchant Capitalists this is probably a disadvantage under current conditions. The Big Capitalists are generally able to raise their own funds, through Bond issues, as well as for some of them, like Microsoft, being extremely cash generative in their own right. That is also true for Merchant Capitalists like Tesco. Facilitating consumer credit is only useful to these capitalist to an extent.

Today, with huge levels of private and household debt, even at historic low interest rates, large amounts of income goes, not to purchase commodities, but to pay interest on credit card debt etc. The other effect of the money printing, and unsustainably low interest rates, has been a bubble in asset prices. The most notable of these has been the pumping up of house prices to around four times where they should be. Housing comprises a significant proportion of household expenses, and therefore, of the Value of Labour Power. Bloated house prices, and consequently bloated levels of rents, mean that upward pressure is put on wages, which in turn reduces profits. The beneficiaries are the Money Capitalists, and the sectors associated with them, such as the Estate Agents, as well as the Landowners, who see the amount of Absolute and Differential Rent (Capitalised in Land Prices) balloon up on the back of the surplus profits of housebuilders, arising from bloated house prices.

Not only the mass of workers – especially those seeking to buy for the first time, or to move up the housing ladder – but also Productive Capitalists would benefit from a collapse in house prices, and the attendant collapse in land prices, because it would mean that this important element of the Value of Labour Power would be restored to affordable levels, reducing pressure on wages, and therefore, profits. It would also be a far more equitable and efficient means of reducing the amount paid out in Housing Benefit than the Liberal-Tories vindictive proposals to cap it.

Fred Goodwin's knighthood is an irrelevance, not just because of the distasteful nature of the Honours System, but because it is quite clear that he is being scapegoated. The removal of his knighthood, along with the pressure put on Stephen Hestor not to accept his bonus, and the further pressure being put on other bankers, is really just a part of the skirmishes between these different fractions of Capital. After all, there have been many more CEO's in the rest of industry who have seen their salaries rise by 50% in the last year.

What Happens If Greece Defaults?

Its possible that we are approaching the end game in the long running debt crisis in Europe. On any rational basis, Greece is already in default. It is almost wholly reliant on the bail-outs it has received from the EU, and IMF just to cover its current running costs, including the costs of paying the interest on its existing loans. Its private sector creditors have already agreed to write-off 50% of the loans they have made, and now the current discussions are about increasing that figure to 80% plus. The question is not really about what happens if Greece defaults, but about what kind of default it is. But, the other question is, if Greece did have a disorderly default would the consequences for workers across Europe, be as catastrophic as is being portrayed?

In his blog Paul Mason, writes,

“I understand the IMF believes a "sustainable" settlement needs an 80% plus write off - and the IMF rules do not allow it to sign off deals that are unsustainable.”

In a sense, this shows the nature of the real problem. If Banks and Finance houses can write off more than 80%, of what they are owed by Greece, then it shows that in the big scheme of things, those debts in themselves are not that significant. What is significant, is the fact that if Greece has a disorderly default, then that will trigger claims by Banks and others on the Credit Default Swaps they have bought with other Financial Institutions, which are a bet that Greece WILL default. The amount that these institutions might have to pay out on these CDS bets, could be many times what the actual Greek debt is. That creates massive instability and fear because, no one knows who is liable to pay out, on these bets, how much those bets are, and so who themselves might become insolvent. It is what led to the Credit Crunch after the collapse of banks like Northern Rock in 2007, and particularly after the collapse of Lehman Brothers in 2008. Already, the exposure of European Banks, and the fear that, unlike US Banks, which were nationalised and recapitalised in 2008/9, those Banks do not have sufficient Capital to withstand such an event. Already, that has caused interbank rates in Europe to rocket, many foreign Banks will not lend to them, and other global businesses will not deal with them. It was to deal with that situation that the ECB, with help from the federal reserve and other Central Banks, made available €0.5 trillion a few weeks ago to provide the European Banks with liquidity. So, the problem is not a Greek default as such, in fact, a lot of the Greek and other peripheral debt that was on Banks Balance Sheets, has been transferred to the Balance Sheet of the ECB over the last few months, because the ECB has been printing money to buy peripheral Bonds in the secondary markets, and the sellers of those Bonds, will have been the European Banks. The problem is a disorderly default.

The problem is that the actions of EU politicians, particularly German politicians, seems to be driving inexorably towards such a disorderly default. It was obvious more than a year ago that under current conditions, austerity measures could only have a negative effect. Perhaps the biggest problem for a country like Greece is not the debt, but its inability to generate the income to pay it off. The same cause is what leads to the debt in the first place, the inability to cover your expenditure from your income. In the new global economy, that is a problem for all developed economies, as they confront the expanding power and competitiveness of China and other new, dynamic economies. Austerity can only act to contract the economy, and create the conditions under which businesses are loathe to invest, because they can see no possibility of selling what they produce. What Greece really needed was a massive injection of new Capital in the same way that West Germany provided for East Germany, and other East European economies after 1990. But, with a growing European recession, it is not just Greek businesses that will be reluctant to invest. That is why we see around the globe, not a crisis of overproduction of Capital, but a massive hoarding of Money, which does not re-enter the Circuit of Capital, but sits in Bank deposit accounts earning low rates of interest, but whose owners are happy to take it, because they have become concerned with return OF Capital, not return ON Capital.

Paul Mason continues,

“Numerous hedge funds are reported to have bought Greek debt so as to operate in the space of uncertainty this opens up, much as a gambler operates next to a roulette wheel. If the "haircut" is 80%, I am told, many of them lose money and are prepared to trigger credit insurance contracts that will then torpedo the entire deal. They will not lose money as a result, but the European banking system will go into crisis.”

The actions of Germany's politicians, at first sight seem perverse. Almost every global economist, almost every organisation representing the interests of the global Capitalist class – IMF, World Bank, OECD, NIESR, S&P – as well as numerous think tanks, and business groups, have pointed out that the policy of austerity is not working, and that measures to stimulate growth are vital. Yet, Merkel continues to echo the views of Cameron and Osbourne that yet more austerity is needed! But, as I showed recently in relation to Cameron, thinking about this in Marxist terms, rather than crude Economic Determinist terms, makes this not at all difficult to understand. Economically, Germany has every reason to desire stimulative measures in Greece, and other parts of Europe. Germany's economy, and the prosperity of its workers have been built on being able to export to these European economies, and the existence of these other economies in the Eurozone, has meant that the value of the Euro has been lower than would have been the Mark, providing German exporters with a competitive advantage.

But, the picture that has been painted across Europe, is that the crisis in Greece was caused by a profligate government, and workers who retired too early on too high Pensions etc. That was never true. The real problem for Greece, as with other economies in Europe, including Britain and Ireland, is that low interest rates encouraged investment not in productive activity, but in blowing up speculative bubbles in shares, property etc. The cause of Greece's problems is not Greek workers, but Greek Capitalists. However, having established this narrative, just as the Tories have established the narrative that Britain's problems are due to overspending by Labour, and high wages and pensions for workers in the State Capitalist sector, it creates its own dynamic. Any attempt by the Tories now to reverse course will undermine their narrative, and mean that people will quickly catch on to the fact that they were conned by the Liberal-Tories. In Germany, with elections due, Merkel faces a similar problem. The SDP and Greens, who look set to win in the next elections, are both in favour of the creation of EU Bonds, and of the ECB acting as lender of last resort to stand behind it. If Merkel wants to have a chance of winning, she has to have a different narrative. Given that the CDU appeals to that same kind of strata in Germany, that the Tories appeal to in Britain, it is quite clear that to maintain electoral support, she has to be seen to be demanding fiscal responsibility by those who Germany is bailing-out. Of course, there is another reason for Germany to push this line. When a new European State is established, Germany will be the economic power at the heart of it. Ultimately, it will have to be the force that provides the financial ballast for that State. It has to ensure that other economies will not simply leach off it. That is why Germany is insisting on a level of fiscal responsibility that is unlikely to be maintained once such a state is established – the Maastricht criteria were not adhered to, and Germany was one of the first countries to breach its requirements.

But, if Germany continues to push in this direction it may well push Greece over the edge, making all of those plans redundant. Paul Mason writes,

“Not free are Merkel, Monti - because constrained by politics in Italy - and the Greek government. The latter have, off the record, briefed that the IMF's proposed austerity programme means "civil war". The most likely outcome of next week is they accept a fudged austerity programme that then does not work. One Greek commentator put it to me like this: "the people who sign a deal that gives away Greek sovereignty over debt that then goes wrong have to be prepared to be court-martialled". He wasn't joking.”

He may be right. Much of what has happened over the last year or so has been for public consumption. Many of the deals were done on the basis that an agreement to undertake various austerity measures would provide the justification for agreeing the latest bail-out, without any expectation that the measures would be fully implemented. That has bought time during, which the Banks and Financial Institutions were able to off load their Bonds to the ECB, and other Central Banks. Money Capitalists have been busy off-loading their potential losses on to workers and productive Capitalists, whose taxes will be expected to cover the losses. That is why they have been pulling money out of not just Greece, not just the peripheral economies, but even out of France.

So, what if Greece does go through a disorderly default? It would mean that money would be withdrawn on a huge scale from Ireland, Portugal, Spain and Italy overnight, with probably France, and other potentially vulnerable economies following suit. Claims on CDS's would escalate, probably bankrupting huge numbers of European banks, which would inevitably have a knock-on effect on US and other international Banks. It would create a Credit Crunch much more severe than that of 2008/9. Of necessity, such a credit crunch means that money stops being made available for businesses, consumers, homebuyers etc. As in 2008, it would mean that share prices crashed, and along with it house prices, as all asset prices are revalued, Banks raise mortgage rates severely, and begin a firesale on all properties where there are arrears, to prevent a capital loss in a collapsing market. Given the scale of the property bubble in places like the UK, and Spain (still) it could see property prices fall by 90%. The stopping of credit to business would inevitably lead to a sharp contraction of economic activity.

But, its important not to get too carried away by all this. There is a general misconception that the Great Depression was caused by the 1929 Wall Street Crash, and that a similar Financial Crash now would have the same result. But, the Great Depression was NOT caused by the Wall Street Crash. It may have acted as a trigger, but the real cause of the Depression lay with the ending of the Long Wave Boom that ran from the late 1880's, to 1914-20. It was that, which led to the onset of a period of low growth for Europe, which saw a number of economic crises during the 1920's, and 1930's, of which the Great Depression of 1929-33, was merely the worst. In 1987, when there was an even sharper sell-off on the Stock Market, it did not lead to a more severe economic crisis than had already existed from the late 1970's. So, the fact of a financial crisis and a revaluation of assets is not at all the same thing as an economic crisis, based upon an overproduction of Capital, particularly one associated with the termination of a Long Wave Boom.  And, today we are in the first half of a Long Wave Boom, not downturn.

A Credit Crunch does not affect all aspects of economic activity in the same way. For example, the drying up of credit is important if you are a small business dependent upon credit for working capital on a day to day basis. But, nearly all big companies have huge cash balances out of which to finance working-capital. It may lead to a drying up of consumer credit, but under current conditions, where households have huge amounts of private debt, and they are attempting to deleverage, that should be less of a problem, because, the demand for credit itself should decline. One means of that deleveraging may well be that large numbers of people themselves default on their private debts in the same way that countries might be led to do. In that way, the real burden would fall on those Money Capitalists who have been lining their pockets for the last 30 years, during the period of Neo-Liberalism, and who are largely responsible for the current debt crisis.

Of course, it is always portrayed that such a crisis will have terrible consequences for ordinary workers. But would it? If small businesses go bust, because of lacking working capital, its possible they might be taken over by a bigger company, which tends to provide better conditions for workers. If not, with a large scale devaluing of Capital Assets, it would be easier for the firm's workers themselves to take it over, and run it as a Co-op. Such a derating of Capital is always portrayed as meaning big losses for workers in their Pension Funds, but is it? The Value of the Fund might fall sharply, but Pensions are mostly paid out of the income the Fund receives not from Capital Gains made by the Fund. As a consequence of what is called “Pound Cost Averaging”, massively falling share prices, will mean that workers contributions into their Pension Funds, will buy many more shares than they did previously. Moreover, as the price of shares falls dramatically, the Yield on those shares, the percentage of dividend to share price, will rise sharply. Because, Pension benefits tend to be paid out of this Dividend Income, the potential arises for being more able, rather than less able to cover future pensions. The same is true with Pension fund investments into Bonds.

At the moment, the fear in the global economy means that owners of large amounts of Money are prepared to put it wherever they think it is relatively safe. That means that the price of Bonds in countries like the US, the UK, Japan who are able to print money to cover their debts are unsustainably high. Moreover, it is the actions of those States in printing money with which they buy their own debt, in order to pump liquidity into their economies, which also forces the Yields on those Bonds down, whilst at the same time, pushing inflation up. Once the event that is causing the fear has gone, the basis of that will disappear. The owners of Money will be able to look at investing it where it might bring in a reasonable return. Once the fear has gone, after the debt crisis explodes, businesses will once again be able to plan on investing, and be able to utilise some of those vast stores of Money – at least $15 Trillion in the US alone – waiting to be invested.

The real losers in such a process will be the Money Capitalists who over the last 30 years have rule the roost, and who have drained Surplus Value away from productive capital, both directly, and through the turning of workers into debt slaves. The Money capitalists through the links they have, and the power they exercise over right-wing parties like the Tories have been able to protect themselves from that denouement. Workers should not be conned into believing their interests are served by a continuance of that. In fact, were workers to obtain control over the funds in their pension Funds, such an event that put Money Capital in its place, could be highly beneficial to workers, who would be able to pick up huge amounts of productive capital at low prices. And a fall in house prices of 90%, would go a long way to resolving the current housing problems by making houses once again affordable for first-time buyers.

In 2008, the International Co-operative Alliance put out a statement arguing that none of the Co-operative and Mutual Banks across Europe had been affected in the way the Capitalist Banks had. If huge swathes of Capitalist Money Capital was wiped out, it would open the door for a huge expansion of those Co-operative Banks. And, as I argued a year or so ago, over the collapse of the Irish Banks, rather than the Capitalist State bailing them out, the State should have just protected the deposits of savers, whilst the Banks were allowed to go bust, and their workers take them over to run as Co-ops, taking over the assets of the Bank.

Rather than being a threat to workers, properly armed with the idea of workers taking over bankrupt capitalist property and running it themselves as worker owned Co-ops, a Greek default, and the subsequent devaluing of Financial and other assets, could provide workers with a golden opportunity.

Northern Soul Classics - Cheyenne - The Promised Land

Top Northern instrumental dancer from the days of the Torch.