US: The struggle at Republic Windows & Doors

[From www.ft-ci.org]

United States: Factory occupied in Chicago
By Celeste Murillo Thursday, December 11, 2008

On Friday, December 5, the workers of Republic Windows & Doors, a Chicago factory, faced with the sudden announcement of closure, voted to occupy the factory until the bosses pay for vacations they owe and severance pay. The same day the government announced that more than 500,000 jobs had been lost in November (2 million jobs lost in 2008), 250 workers, mainly Latinos (80% of the factory), decided not to bow their heads. With an enormous, serious social crisis, 6.7% unemployment (or 12.5%, counting those who are no longer looking for work and the underemployed), the struggle at Republic could become a first step of resistance against layoffs and the crisis.

“You got bailed out, we got sold out”

The bosses broke a basic labor law that demands 60 days’ advance notice and failed to pay the workers wages and vacation time owed, much less severance pay. Although the workers assert that the order books never indicated a crisis like the one the bosses are describing, the businessmen’s excuse is a lack of enough credit to go on functioning.

One of the most irritating factors, that provoked a wave of commitments to the workers’ struggle, is the fact that the bank that withdrew credit to finance wages and other expenditures is none other than the Bank of America, which got 25 billion dollars as part of the gigantic bailout the government carried out with public money. For that reason, one of the most frequent slogans is “You got bailed out, we got sold out!” Last weekend, the factory was visited by politicians and union leaders, on the edge of the massive solidarity from the Latino community, from Chicago workers, students and neighbors.

Yesterday’s outrageous bailout for the banks and financial institutions, denounced by some demonstrations, is now being questioned again and explains the ample national coverage of the conflict and the pressures the bank is getting to resume offering credit. The thing is, medium-sized businesses like Republic (with around 300workers, though at the peak of the real estate bubble it reached 700) are a sector particularly sensitive to the crisis underway, since they closely depend on bank credit. Besides, according to the official census (Bureau of Labor Statistics), 80% of workers work in businesses like Republic (companies with fewer than 1,000 employees). On the edge of this reality, these “average” businessmen have responded to the crisis just like capitalists of all sizes, by unloading the costs on the shoulders of workers. And businessmen like the Illinois Manufacturers' Association are afraid the struggle at Republic will become a symbol among factories that confront similar credit difficulties.

A struggle that bears witness

The method of struggle the workers chose, the plant occupation, the “sit-in,” as it is called in the US, has not been used since the 1930’s, when big struggles like Auto Lite in Toledo or General Motors in Michigan were carried out (see the supplement Lucha de Clases Nº 6), that challenged the bosses, who were speeding up the pace of production in factories, to recover from the crisis. Other than isolated examples, since that time, the workers have never occupied workplaces, a method that could be extended in a situation where layoffs are multiplying and there are fewer possibilities of getting work. Beyond its weight in the economy, the fight by the Republic workers raises an important precedent for working-class struggle. The action by the Chicago workers also has an enormous symbolic weight, since the plant occupation and direct action are quite rare among pressure tactics promoted by union bureaucrats, and that is why this struggle has won enormous sympathy among workers.

Union bureaucrats, legislators, the Governor, and even Obama himself, quickly came out to say that the workers “are right,” to ask for what belongs to them. What unites them [politicians and bureaucrats] is their fear of workers’ direct action. What they want to avoid, at all costs, is that this struggle should become an example in a wave of layoffs. That is why they do not dispute when businessmen unload the crisis onto the workers; neither the bureaucrats nor the bosses’ politicians are demanding that the firm should be reopened or that their books should be investigated, not even when there are rumors that the bosses would open a similar factory in another state! It is vital that the workers not allow themselves to be blackmailed by the “lack of credit” or the consequences of bad deals by the bosses. In the face of closures and layoffs, it is necessary to fight for nationalization without compensation of these businesses under workers’ control. At press time, negotiations were still being carried out, since, although the bank had agreed to a “limited loan,” the UE union said that an accord had not been reached.

“Now we are an example for lots of workers, if the companies treat them unfairly.” “This is going to change something,” said a worker at the door of Republic. The workers at Republic have to win and affirm once again that there is an alternative to what is offered by the conciliating bureaucracy, that never tires of surrendering the rights of the working class. A victory at Republic would strengthen the entire class that has been harshly punished and has big challenges in front of it.

10 million unemployed workers in the United States

From: http://www.ft-ci.org/
Thursday, November 13, 2008

More unemployed workers, more poor people, and for a longer time
10 million unemployed in the United States
By Celeste Murillo

The figure that overshadowed the economic panorama these last few days was 6.5% unemployment in the United States. All analysts now predict a rapid increase that could reach 7% this year and around 9% in 2009. Unemployment and the fall in consumption are added to data that show the definitive entry of the US economy into a recessionary cycle.

The data that caused most pain were the October job losses (240,000) and the review by the US Department of Labor of the September job losses. That organization had anticipated the elimination of 159,000 jobs, but by the end of September the sum turned out to be 284,000 (almost double).

Thus far in 2008, 1,200,000 jobs have been eliminated, more than half of which disappeared in August, September and October. The branches most affected were industry (90,000 jobs lost in October, in an obvious setback during the last few months) and construction (49,000 jobs lost) which had been one of the big sources of work in the last few years (in connection with the real estate bubble). In only two years in the construction sector, 663,000 jobs were lost (see "The jobs that were lost"). This, without taking into account that in this sector a percentage of employment is illegal, where immigrants (a big part of the undocumented) tend not to be counted in statistics because of the informality of working conditions.

Less work and fewer rights

At this time, the share of working adults is at its lowest level in the last 15 years: 61.8%. Among adults, the rate of employment of males is the lowest since the Department of Labor began keeping statistics in 1948 (with the exception of 2 months during 1983).

The number of unemployed people climbed to a total of 10,100,000, the biggest since 1983. Among them, the groups with the most unemployment are the Latino community (8.8% are without jobs) and the African American community (11.1%), while unemployment among white workers is 5.9%. We should also note that women and young people in all groups suffer higher rates of unemployment. Only 32% of the unemployed gain access to unemployment insurance. Many of the newly unemployed fail to meet the requirements to enjoy that right: part-time workers and those who have not worked for the minimum period (which varies by state), remain outside. In the 2001 recession, 45% of the unemployed gained access to the insurance. In the 1950’s, the rate was greater than 50%.

Taking under-employment into account, the rate of people with problems finding work has increased to 11.8% (last year it was 8.4%). This category includes part-time workers – who have not found full-time jobs or whose working hours have been reduced – (6,700,0000) and those who are no longer seeking work (calculated at 484,000 in the most recent survey). 1,600,000 people who want to work, but did not go out to seek jobs during the four weeks before the census, would also belong in this group.

Another data point that makes the already bitter situation worse is the fact that 22% of the unemployed (2,300,000 or 1 out of every 5 unemployed) has failed to find work for 6 months or more; in the last 25 years, this level has never risen. It is estimated that 800,000 people have already been deprived of unemployment insurance, and in November and December, an additional 350,000 more could be (National Employment Law Project). The same center estimates that for the half of mortgages that are late or have foreclosure notices, the reason is that the owners have lost their jobs or their source of income.

The automotive sector, that serves as a thermometer for the US economy’s state of health, continues to show signs of having entered into recession. Last week, they had announced the fall in their sales (Chrysler, by 35%, Ford, by 30%, and General Motors, by 45%). Although Congress approved the $25 billion assistance package for the Big Three automakers, they said it is not sufficient and announced layoffs, suspensions and job cuts. General Motors’ stock has fallen to $3.36 per share, the lowest market price since 1946

The Big Three automakers announced job cuts and layoffs for the end of 2008 and the beginning of 2009 (see “Layoffs continue”): General Motors said it will cut 30% of its labor force; Ford also announced a 15% personnel reduction this year, plus a 10% additional reduction in February (bloomberg.com).

Inequality

In the last 30 years, the gap between rich and poor has grown enormously. Proof of this is the abysmal difference between what a CEO collects and what an average worker earns. If in the decade of the 1970's, a CEO collected 27 times the average wages of a worker, in 2007 this difference climbed to 275 times.

The bursting of the real estate bubble revealed how the astronomical increase in indebtedness of working families was what fueled the consumption of the last decade, while real wages remained virtually stagnant. This is now the situation of many impoverished groups facing debts they cannot pay (mortgages and credit cards).

There are more and more layoffs, affecting ever more people and more often. Businesses are also favored by the flexibility of contracts, since the part of the working class that is unionized (9% in the private sector) and can collectively negotiate better conditions at work is in the minority (although the union bureaucracy, clearly, is no guarantee). In this context, the AFL-CIO union bureaucracy has been a big collaborator in liquidating what workers had previously conquered and their rights, by dividing and weakening the ranks of labor.

—

The jobs that were lost in October:

Industry: 90,000 (the most affected sectors were metal part fabrication: 11,000, furniture, etc.: 10,000 and autoparts: 9,000).

Construction: 49,000. Since the peak of the construction industry (September, 2006) 663,000 jobs have been lost.

Services: 51,000.

Commerce: 38,000 (the sectors that lost most: automobile dealerships: 20,000, department stores: 18,000).

Financial services: 24,000. Since the peak this sector reached in December, 2006, a total of 200,000 jobs have been lost.

—

Layoffs are continuing

In October:

Pepsico 3,300

Goldman Sachs 3,260

Xerox 3,000

Time 3,000

These firms have already announced layoffs:

General Motors 5,000

Ford 2,200

Chrysler 18,500

American Express 7,000

Circuit City 7,300

Sources: Bureau of Labor Statistics, Labor Notes, Bloomberg, The Wonk Room.

Obama faces the most serious challenge to US domination

From: http://www.ft-ci.org/

Thursday, November 13, 2008
US: Transition and Crisis
Obama is facing the most serious challenge to US authority
By Claudia Cinatti

One week after his election victory, Obama has begun to outline the key figures of his team, that will lead the transition in the little more than two months that remain before his taking office as President next January 20.

The names that have emerged are in tune with the strategy of lowering the expectations of "change" that his election caused and indicate that Obama will turn to the traditional establishment of imperialist policy to face up to the most serious challenge that has confronted the United States since the end of the Second World War.

Domestically, the country is going through the worst economic crisis since the Great Depression. To the alarming figures that have been announced in the past week about the state of the economy was added Paulson's confession that the bailout package and buying "toxic assets" from banks has not really worked, and that it is necessary to change the strategy of government policy to revitalize the economy, which led to the nth fall of the Wall Street stock market. Internationally, Obama has still not found the solution to the two Bush-era wars -- Iraq and Afghanistan -- and he will have to wrestle with the more general situation of instability in the Middle East, and, probably, with new conflicts that will arise in the meantime, of which the war between Russia and Georgia was only an early indicator.

In addition to this, there is the demand by France, China and other countries that a new international financial structure be established, as French President Sarkozy requested, a new "Bretton Woods" that would set up clear rules and permit more regulated economic functioning. In contrast with popular expectations by young people, workers, blacks and Latinos, who voted for Obama, and millions in the world that were hoping for "change," the imperialist bourgeoisie is hoping that the new face of US leadership will have a beneficial effect on its interests and that Obama's presidency can partially reverse the decline of US hegemony.

Towards another New Deal?

One of the big tests that Obama's administration will be subjected to will be the policy that it determines to face up to the profound recession that has already settled on the US. It should be enough to recall that the Big Three automakers, Chrysler, General Motors and Ford, the icons of US capitalism, are in serious problems, and that GM and Ford reported billion-dollar losses, $4.2 billion and $2.9 billion, respectively, in the last quarter.

Obama is avoiding acting like the new US President, hoping that Bush and Congress -- which is also resuming -- are the ones who will take some of the necessary measures. As part of this strategy, Obama will not attend the next meeting of the G-20, to take place on November 15.

In the November 7 press conference, the same day that the unemployment figures became known, Obama said he agreed with the need to implement a fiscal stimulus plan, to help reactivate the economy, extend unemployment insurance, that unemployed workers only receive for six months, reduce taxes on low-income households, and pass a government assistance package for the three automakers, which he repeated to Bush during the transition meeting they had on November 10. Up to now, Obama's economic policy, in addition to supporting Paulson's plan for bailing out the bankers, has been very moderate, and during the campaign he only promised some $60 billion, to be allocated between public works and social assistance.

The partisans of another New Deal consider that this policy is insufficient for facing the crisis. For instance, the Nobel laureate in economics, Paul Krugman, calculates that the stimulus package should be at least 4% of GDP, that is, some $600 billion. Last Monday, in his column in the daily New York Times, he advised Obama to show "audacity" in public spending. Comparing the current situation with that of the Great Depression, this economist concludes that although it is true that the New Deal failed to take the economy out of the Depression, this was owing to Roosevelt's excessive "prudence," and he advises Obama to "figure out how much help he thinks the economy needs, then add 50 percent," given that "It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little." Leaving aside the fact that Obama will become President with a monumental government debt, swollen by the bailout for the banks, which makes this "bold policy" difficult at least, one must say that Roosevelt did not lack "audacity" in government spending. This became clear when, faced with the failure of the New Deal, he turned towards war industry, with the enormous government investment that involved, which finally took the US economy out of the Depression, and, after the war, guaranteed decades of US dominance in the capitalist world. That is, the New Deal was the first step in a series of policies to protect the interests of the US imperialist bourgeoisie.

The big lesson that arises from the New Deal is that the political representatives of the bourgeoisie defend class interests that are opposed to those of workers and the oppressed minorities and that without touching the property of big capital and the enormous power of corporations (as Roosevelt failed to do with the property of the "60 families" that owned the US), sooner or later, capitalism will lead to new catastrophes.

Iraq, Afghanistan and foreign policy

Since his nomination as a presidential candidate, Obama has been surrounded by former Secretaries of State, like Brzezinski and M. Albright, analysts and military men from the "realist" group of the US imperialist foreign policy establishment. Their strategy is to repair the image of the United States in the world, an image seriously damaged by the unilateralism of the Bush years, and in that way get more cooperation from traditional allies and even from new actors, to end the wars in Iraq and Afghanistan in the least costly way possible and face the multiple challenges that the US will confront in the coming period.

In Iraq, on December 31 this year, the UN mandate that has covered the presence of imperialist troops expires, and tense negotiations are underway between the Iraqi government and the US over the terms of a possible agreement for extending the mandate. In addition, provincial elections, that are very important for the balance of forces among the different Shiite and Sunni factions, will be held in January.

The situation of NATO troops in Afghanistan has been seriously deteriorating since 2006. Unlike Iraq, where negotiations with Iran and the agreement with Sunni groups has permitted lowering the number of attacks against the occupation troops, in Afghanistan this year the number of attacks by the Taliban against NATO troops is the highest since 2001. The Taliban has recovered its ability to fight, as well as a big social base. President Karzai, a US puppet, is completely unpopular, and the conflict has spread to Pakistan.

Bush's policy was to pressure the Pakistani government that, after three months of fighting in which US troops participated, launched a brutal military attack in the border region of Bajaur to try to recover territory still under control of the Taliban and other tribal forces and prevent them from advancing on Peshawar. At the same time, it is attempting to find "reconcilable" groups among the Taliban and other hostile forces, to recreate something like the policy of agreement with the Sunni resistance in Iraq.

Obama has changed the war in Afghanistan -- and the conflict in Pakistan -- into the priority of imperialist policy. His strategy is to diminish the presence of troops in Iraq and concentrate the military and diplomatic effort on getting a victory against Al Qaeda.

According to the daily Washington Post, "Obama's administration is planning to explore a more regional strategy for the war in Afghanistan -- including possible conversations with Iran, that has played a mixed role on the eastern border of Afghanistan in the last few years, at times cooperating with the aims of the United States and at times aiding the extremists."

Obama's chances of getting greater cooperation from the NATO allies could be superior to those of the Bush administration, although at the moment no one has given indications of wanting to make a greater commitment. As for the "enemies," Obama has said he is for resuming the dialogue with Syria and with Iran, since his plans for Iraq and Afghanistan depend in large measure on cooperation from Iran. Many are speculating that the fall in oil prices will affect the popularity of Iranian President Ahmadinejad and that a leadership more inclined to negotiating with the United States will come out of the next elections, that take place next year. However, the openly pro-Israeli position that Obama has adopted, confirmed by the appointment of Rahm Emanuel as a central figure of his team, could make for the failure of this policy, on which a large part of the planned foreign policy "change" is based.

The profound economic crisis and the questioning of US authority by different social actors will be the coordinates of the next administration. The oppressed peoples of the world have nothing good to look forward to from Obama's presidency; he will be the new face of US imperialism and will seek to defend the interests of the capitalists and their corporations.

The President's Men: Under Obama, the fat cats will still control our lives

[This week's issue of La Verdad Obrera, from Buenos Aires, carries a story that shows the "change" Obama promised is not even much of a change from the ruling-class faces that were running the country before November 4; as detailed below, Obama's current advisors and possible future Cabinet members consist of Clinton administration retreads, Rahm Emanuel, who may as well be a Republican, and some actual Republicans. For US readers, I have added the titles of some of the Obama advisors, to show how closely leading figures in the new administration (but the same old ruling class) are linked to existing elite institutions and centers of power in the US. As economist Robert Pollin observed, US workers vote Democratic and get Republican results; undoubtedly, Obama's administration will be no exception. -- YM]

From: http://www.ft-ci.org/
La Verdad Obrera 303/International/Thursday, November 13, 2008

US: The President's Men

Only three days after having won the elections, Obama has announced the names of those who are going to carry out fundamental responsibilities in his transition team and in the future administration.

This "dream team" for the interests of the ruling class and US imperialism is composed of directors of corporations, former officials from the Reagan and Clinton administrations and Democrats with a reputation for being "hardliners." Even the participation of prominent Republicans is not ruled out; among them, some analysts are already saying that the current Secretary of Defense, Robert Gates, the former CIA agent and "pragmatic" conservative who runs the Pentagon and is therefore one of those mainly responsible for the military policy of US imperialism, could remain in his job.

Some of the main members of the transition team are:

John Podesta, in charge of directing the process of transition between the Bush administration and Obama's taking office. He was Clinton's chief of staff and is a well known lobbyist for oil and defense firms.

Rahm Emanuel will be Obama's White House chief of staff. This investor, with very close relationships with the Wall Street financial elite, currently occupies a seat in Congress. He is well known for being one of the main representatives of the right wing of the Democratic Party. He supported the war in Iraq and is an active Zionist militant, from a lobby that has a lot of influence on US foreign policy.

Among the economic advisors that accompanied Obama in his first press conference on November 7, the same day that the alarming unemployment figures were announced, were no less than:

Paul Volcker, former Chairman of the Federal Reserve, who in 1979 carried out "shock therapy" that consisted in tripling interest rates, which caused a profound recession, and, in 1982, led to the "debt crisis" of the semicolonial countries.

Clinton's former Treasury Secretaries, Larry Summers and Robert Rubin, who is Director and Senior Counselor of Citigroup. And the current President of the Federal Reserve Bank of New York, Timothy Geithner. In summary, those who for the moment are advising Obama are some of the architects of the financial policies of the last few decades.

Just in case any doubt remained, in addition to these celebrities, executives of corporations like Time Warner, Xerox and Google, and even the multi-millionaire Warren Buffett, are among Obama's advisors.

Fracción Trotskista on the US: The crisis and the wars brought Obama's election victory

From: http://www.ft-ci.org/

An African American is at the head of the main imperialist power
The crisis and the wars brought Obama's election victory
By Claudia Cinatti
Wednesday, November 5, 2008

On November 4, Barack Obama was elected President of the United States, with the significance of being the first African American to achieve that. The Democratic candidate attained an ample victory (bigger in the difference of electors than in the percentage of the popular vote) over the Republican McCain-Palin ticket, and his party obtained a majority in both Houses of Congress, achieving the biggest electoral result since Lyndon Johnson's election in 1964.

Obama's election campaign, centered on a vague promise of "change," managed to excite millions of young people and workers, who hope that his administration will effectively lead to a radical change from that of George Bush and to reversing the "conservative revolution" of the last few decades. These expectations go beyond US borders, and at an international level, millions have the illusion that, under Obama's administration, the main imperialist power will have a more "benevolent" policy towards the rest of the world.

However, Obama's victory is not owing to his "personal qualities" or his "ability in oratory", nor is it the victory of the idea of "equality of opportunities" or of the "end of racism," as most analysts in the liberal press claim; rather it is the result of the disastrous situation in which the burden of two unwinnable and unfinished wars in Iraq and Afghanistan is combined with the outbreak of the worst economic crisis since the Great Depression of 1930. In that sense, it recalls, with all the differences of the case, the victory of the Democrat Franklin Delano Roosevelt over his Republican rival Herbert Hoover at the end of 1932, in a complete economic depression.

Obama will take office at a very critical moment for US imperialism. From the beginning, his presidency will be under the pressure of the economic crisis, which is already being expressed as a social crisis, with thousands of layoffs, as well as a growing number of families that have lost their housing, and challenges to US authority in the world. Without going further, Wall Street welcomed Obama's victory with a fall of 5% in the Dow Jones Index, the same as the NASDAQ and Standard and Poor's, showing that what predominates is the economic crisis and the recession, rather than the supposed enthusiasm for "change." As some analysts say, the real news of the day is not his victory, but the ever clearer confirmation of a "forced landing" of the Chinese economy, the other aspect, next to US overconsumption, of the growth cycle of the world economy of the last few years, which is abruptly coming to its end.

Between the illusions of the masses and the interests of the establishment

Obama's victory represents an important cultural change and has a strong symbolic impact for the African American minority and other oppressed minorities like Latinos (who voted for the Democratic candidate by more than 70%), in a country that originally based its "greatness" not only on the enslavement of blacks, but also on the fact that racial discrimination was legal in many states until scarcely 45 years ago, when the civil rights law was approved, and racism continues to be very strong in broad sectors.

The massive vote for the Democratic Party expresses, in a distorted manner, the popular rejection of the politics of the Bush era, identified with the disaster of the war in Iraq and an aggressive imperialist policy, with the enrichment of bankers, businessmen and the elite of corporate directors, with the tax cut for the rich, in short, with a monumental transfer of resources towards the richest 1% of the country. However, the determining factor was the leap in the world economic and financial crisis in the month of September (so-called "Black September"), when Obama's "responsible" attitude contrasted with the autism of the Republican candidate, who was denying the very existence of the crisis. Without the economic crisis underway, Obama's victory possibly would have been unthinkable, in spite of Bush's deterioration.

Although detailed analyses of the composition of the electoral base of each party were not available by press time, the geographical distribution of the vote shows that the Republican Party, although it is in a very big crisis and an intense internal division, that casts a shadow over one of the fundamental legs of the two-party system, kept its traditional base in the states of the so-called "Deep South," like Arizona and Texas and in the rural states of the center of the country (although they lost key places like Florida, Virginia, Iowa, Colorado, among other states that had been won by Bush in 2004). In spite of the enormous repudiation and extremely low popularity of the Bush administration, the Republican Party kept a significant electoral percentage, making it clear in its campaign that a strong right wing exists in the country. For its part, the Democratic Party obliterated [its rivals] in the eastern and Pacific coastal states and in the industrial states, like Ohio, which would indicate that significant sectors of the working class -- especially union members -- voted for Obama.

Popular expectations of "change" concretely mean measures to protect jobs, help for those who are about to lose their only housing, a health service that covers the more than 43 million US inhabitants that lack medical insurance, legalization of immigrants, policies against racism, increasing taxes on the rich, the end of the war in Iraq, and a radical change regarding the unilateral and militarist policies of the neo-conservative administration.

But after Obama's victory, these are not only the expectations of young people, workers, blacks and Latinos, but, above all, the decision of the ruling class establishment that, faced with the crisis and the deterioration of the Republican Party, chose Obama some time ago as the best candidate to fix the situation of the US in the world again and to wrestle with the social discontent that could be unleashed as the crisis and economic recession deepen. That is why the main Wall Street firms financed Obama's campaign, and among his advisors you will find the most experienced imperialist politicians, like, for instance, Brzezinski, the intellectual author of supporting the mujahidins against the Soviet Union in Afghanistan, Bush's former Secretary of State Colin Powell, who began the war against Iraq, Paul Volcker, head of the Federal Reserve in 1979, who kicked off the neoliberal offensive with the rise in interest rates, causing a deep recession, and Clinton's former Secretary of the Treasury, Robert Rubin. One of Obama's main economic advisors is none other than Warren Buffett, the richest man in the world.

Before taking office, Obama already indicated that he will defend the interests of the capitalist class. He voted and lobbied for Paulson's bailout plan, that is, saving the bankers with $700 billion of government money. The Democratic vote was actually crucial for congressional approval of that plan, given the opposition of most Republicans in Congress to the plan of their own administration. This sum of millions contrasts with the modest $50 billion that Obama promised in his campaign, for public expenditure on public works and social expenditures, and scarcely $10 billion for those who owe on their mortgages.

The thing is, beyond his race, Obama belongs to the political elite that governs in favor of the interests of the imperialist bourgeoisie, with their two main bosses' parties, Republicans and Democrats, alternating in office.

Obama and the crisis of US hegemony

On the international plane, Obama will have to struggle with the heavy inheritance of the Bush administration and its "preventive war," that led to the failures in Iraq and Afghanistan, two wars that the US did not manage to resolve in its favor. This strategic error, by the neoconservatives who sought to take advantage of the September 11, 2001 attacks to strengthen US authority in the world with an aggressive imperialist policy, by appealing to military supremacy and unilateralism, qualitatively weakened the position of the US, gave rise to unprecedented anti-Americanism, mainly in the Middle East, Latin America, and, to a large extent, in "old" Europe, and facilitated the emergence of other political actors on the international scene. This situation of weakness was obvious during the war between Russia and Georgia, a US ally, where Bush could not line up the European powers behind his policy, especially Germany, which favored its own interests concerning Russia, the same as France, in spite of the pro-Americanism of its President, Sarkozy. Far from the illusions of activists and the anti-war movement, the foreign policy that Obama set forth during the campaign is particularly centered on gradually withdrawing troops from Iraq and reconcentrating military power in Afghanistan, where the Talibans recovered, and the conflict spread to Pakistan, to get an imperialist victory there. Unlike the hard position of John McCain, essentially continuing Bush's policy, Obama declared himself to be a supporter of a "dialogue without conditions" with Iran, in order, through diplomacy, to try to get a wing of the government inclined to US interests. Although it is still not clear what Obama would have up his sleeve to tempt the Iranians, this policy contradicts the maintainance of the unconditional alliance with the State of Israel, which is pushing for a more offensive policy against the Iranian regime. If an arrangement with the regime of the ayatollahs is not achieved, Obama's promise to withdraw troops from Iraq could remain up in the air, given the vacuum that the withdrawal of US troops without a clear agreement would cause in the region. Finally, the President-elect declared himself to be in favor of a more multilateral focus, to permit collaboration by other powers, essentially centered on seeking European cooperation in the war in Afghanistan, a matter that does not elicit much sympathy among the European governments, in spite of their semi-naive enthusiasm over the new President-elect.

Whatever the political orientation that he ends up defining, the complex international situation will quickly test the viability of his policy. The profound economic crisis, combined with the military failures, is seriously questioning the bases of US power. Although no power is able to contest US hegemony, significant regional powers like Russia or China and even their main allies, like the European powers, could indeed dispute the terms of US authority. A preview, perhaps, of what is coming is the coldness with which Medvedev's Russian government welcomed Obama's victory. by reaffirming its policy of locating short-range missiles on the eastern border of Russia, if the US goes ahead with its plan to install a missile system in Eastern Europe.

In this scenario, where, for the first time since 1973, the whole world is marching towards recession, it is most likely that the rivalry among capitalist corporations and their states will break out again, which will facilitate the development of regional conflicts and open a period of great instability and inter-government tensions on an international level.

Perspectives after Obama's victory

In the next few weeks, it will be seen which tendencies the composition of Obama's cabinet expresses; until now, he has been surrounded by key figures from the Clinton administration. The transition from the election to becoming President on January 20, 2009 (in reality, this process can last beyond the formal dates, owing to the process of congressional approval of all candidates) could be a period of great political instability, both in the US and internationally, with unexpected challenges that seek to test the new President.

But the big challenge for his own administration could, in this case, come from within the US, given the magnitude and heavy burden that the monumental economic crisis entails. Earlier rather than later, the illusions and expectations of the workers, the black and Latino minorities, and the millions that see their livelihoods threatened by the recession, will collide with the reality that Obama's administration will not defend their interests, but the interests of the big imperialist corporations and banks.

Most of the "progressive" sectors that, with more or less enthusiasm, called for voting for Obama, justified their position in that his administration will be more susceptible to pressure from workers' struggles. Roosevelt in the 1930's, Kennedy in the 1960's, and Obama in 2009, confirm once and again that beyond "liberal" (or "leftist") rhetoric, or "populist" policies, like the New Deal, the Democratic Party, together with the Republican Party, defends the interests of the imperialist bourgeoisie. It should be sufficient to recall that during Kennedy's presidency the US invaded Cuba, the Democrat Johnson began the war in Vietnam, and that Roosevelt himself, when his New Deal policy appeared incapable of revitalizing the US economy, and a new crisis occurred in 1937, changed the New Deal into the "War Deal," that is, he changed the direction of the economy toward war preparations in 1938, to challenge Nazi Germany and Great Britain for world hegemony. It was this "war industry" that effectively permitted the recovery of the economy and allowed the US to enter the war and come out as the only hegemonic power in 1945, although on a worldwide scale, it shared authority in the world with the Soviet Union. We say this, although it still remains to be seen if Obama will make a significant change of direction in economic policy in the context of defending the bourgeois imperialist regime. Nor can we rule out a clearly protectionist drastic change, as some election rhetoric from the former candidate and the Democratic majority of the two Houses of Congress could presuppose.

Historically, the "lesser evil" strategy has favored the Democratic Party's acting to contain the "progressive" middle sectors and the tendencies of the advanced workers to radicalization, as occurred in the 1930's, with Roosevelt's cooptation of the CIO's militant unionism, or at the end of the 1960's with the movement against the war in Vietnam. This has been a big obstacle for the political independence of the workers, the majority of whom vote for the Democratic Party.

The depth of the economic crisis and the new historical period that is beginning will probably accelerate the experiment with Obama's administration. Illusions or frustrated expectations could translate into class struggle and the emergence of new political phenomena, as occurred in the 1930's with the rise of the CIO (at first, "Committee for Industrial Organization" and from 1937, "Congress of Industrial Organizations"), which in a few months attracted to its ranks thousands of unskilled workers, that were rejected by the union bureaucracy of the AFL ("American Federation of Labor"). This phenomenon of workers' activism was part of a rise of combative strikes by employed and unemployed workers, like those of the Toledo automotive workers in 1934 or the Minneapolis Teamsers.

It is true that history does not repreat itself, but it also true that we are in a crisis of a historical magnitude similar to that which gave rise to the most intense processes of radicalization of the US working class. In the coming period, the possibility will be open that the working class, which has been struck hard since the Reagan administration, and which has suffered harsh defeats in the last 30 years of the neoliberal offensive, during which its union representation was reduced to only 12% of the workforce, will recover its organization, and that the opportunity will be opened for US workers and the oppressed minorities to break with the parties of those that exploit them.

James P. Cannon against the 1948 Henry Wallace Campaign

James P. Cannon opposes the third (capitalist) party 1948 Henry Wallace Campaign

[In 1948, James P. Cannon, the principal founder of Trotskyism in the US, spoke out unequivocally against the bourgeois third-party candidacy of Henry Wallace, Franklin Delano Roosevelt's first Vice President. Cannon faced a minority in the then Trotskyist SWP, which proposed that Trotskyists support Wallace's presidential campaign. Cannon's characterization of the Henry Wallace campaign as "completely bourgeois," with "not a trace of a principled difference" from the Democrats and Republicans, absolutely applies to the current presidential campaigns of dissident Democrat Cynthia McKinney, candidate of the pro-capitalist Green Party, who is running to push the Democrats to the left, and perennial presidential candidate, anti-Mexican, anti-Chinese, multi-millionaire (worth $3.9 million in the year 2000) Ralph Nader, a lifelong Democrat. In 1984, Nader, the darling of the suburban petite bourgeoisie, watched as a union organizing drive at his magazine Multinational Monitor was smashed (at Nader's request). Then Nader's lawyers dragged the union organizer into court on a completely bogus charge. In 2004, Nader ran as the presidential candidate of the viciously xenophobic, anti-immigrant "Reform" Party. What a guy! --YM]

Cannon's statement, which follows, comes from his remarks at a February 1948 meeting of the SWP's National Committee:

The Wallace party must be opposed and denounced by every class criterion. In the first place it is programmatically completely bourgeois, as all the comrades have recognized. Its differences with the Republican and Democratic parties are purely tactical. There is not a trace of a principled difference anywhere. And by principled difference I mean a class difference.

A reasonable argument could be made for the support of Wallace’s movement in any circle of American capitalism. The fundamental issue that he is raising is the question of policy towards the Soviet Union. Wallace’s policy can be just as much a preparation for war as the Truman-Marshall program. Just as much. It is a matter of opinion as to which is the most effective way of preparing war against the Soviet Union—whether by an outward effort to reach agreement by concessions in order to prepare better and put the onus of responsibility on the Soviet Union before the fight starts, or by the rough and tumble “get tough” policy of Truman and Marshall. At any rate it is a tactical difference within the camp of the bourgeoisie.

It would be very, very bad and demoralizing if we would allow for a moment the antiwar demagogy of Wallace to be taken by any member of our party as something preferable to the blatant aggressiveness of Truman and Marshall. That would be nothing less than the preparation of the minds of party members for “lesser evil” politics—based on the theory that one kind of capitalist tactics in the expansion of American imperialism is preferable to another, and that the workers should intervene to support one against the other.

If I read the documents correctly, the argument is made by the Chicago comrades that the capitalists do not support Wallace and therefore it is not a capitalist party. I think it is quite correct that all, or nearly all, of the monopoly capitalists at the present moment oppose Wallace. That is not decisive at all as to the class character of the party. The class character of the party is not determined by the class that supports the party at the moment but rather by the class that the party supports. In other words, by its program. That is the decisive line.
. . .

The class character of the party is determined first by its program; secondly by its actual policy in practice; and thirdly by its composition and control....
The control of the Wallace movement rests in the hands of Wallace and those he supports. He determines the candidates and he determines the program. To talk about getting into the movement to change its program and get another candidate—that’s absurd! The program and the candidate are presented to you in a finished package: Wallace for President, and Wallace’s program. He made a speech in Cincinnati where he took up the challenge. He said: “Yes, I accept the support of the Communists, but when they come into our movement they don’t come in to support their program—they support our program.” He was quite right.

Of course you have only to look around to see that the bulk of Wallace’s organized support at the moment is Stalinist—the Stalinist party, Stalinist-dominated unions, Stalinist front organizations, etc. But these Stalinist unions in the Wallace movement function as supporting organizations and not as controlling powers. They roughly play the same role toward Wallace’s wrapped-up, pre-determined program as the PAC and the Political Committee of the AFL will play in the Truman movement....They represent far more workers than the Stalinists in the Wallace camp, but that still doesn’t make the Democratic Party a labor party.

The same is true about the Wallace movement. Get into the Wallace movement and change its program and candidate? Even from a practical point of view it seems to be completely utopian. The whole movement is organized on the basis of the candidacy of Wallace and his program. To join the formation and holler for a different program, a different man—this seems to contradict the whole premise of the movement. They would say to you: “If you’re not a Wallace man, why do you join the Wallace movement?” It would be a very difficult question to answer.

The Wallace movement has another ugly side to it. It appears as a one-man Messiah movement. He is the head of a “Gideon’s Army” throwing the bible at his adversaries. That, it seems to me, is the worst kind of substitute for independent political action by the workers’ own organizations. Wallace’s Messiah movement is a diversion and an obstacle in the way of a labor party. Support for it cannot be considered for a moment. On the contrary, it must be exposed and fought.
. . .

America’s Two-Party System

The traditional two-party system in the United States has been very well suited for normal times. The ruling capitalists couldn’t ask for anything better than this system which absorbs shocks and grievances by shifting people from one bourgeois party to another. But that system can blow up in time of crisis. The aggravation of the crisis which we all see ahead can shake up the whole American political situation, so that the old two-party system will no longer suffice to serve the needs of the American bourgeoisie.

The Democratic Party is a badly shaken organism already. The whole structure can fly apart in times of crisis. It is quite evident now that the AFL-CIO scheme to deliver the labor vote once more to the Democratic Party is meeting strong resistance, even if this resistance is more passive than active. That seems to be one of the undisputable factors of the present political situation. The AFL and CIO chiefs may raise five, ten or even fifteen million dollars for the election campaign. But there is no confidence among them that they can get out the labor vote for Truman as they did for Roosevelt.

The less it becomes possible to mobilize the workers’ votes for one or the other of these two old bourgeois parties, the more impelling and powerful will become the urge of the workers to found a party of their own or to seek a substitute for it. That mood of the workers will create a condition wherein American capitalism will objectively require a pseudo-radical party to divert the workers from a party of their own. This development, in my opinion, will most likely precede the development of a mass fascist party. America will most likely see a new radical bourgeois reform party before the development of American fascism on a mass scale.

That is what really happened in the Thirties, in a peculiarly distorted form. Roosevelt revamped the Democratic Party to serve the role of a pseudo-radical, “almost” workers party. By that he choked off entirely, for the period, the development toward an independent labor party. The Roosevelt “New Deal” became a sort of American substitute for the social program of the old, social democracy. Is a repetition of that performance likely within the framework of the Democratic Party? I doubt that very much. I think there can be only one Roosevelt episode. The whole trend since his death has been in the other direction.

Next time, the role played by Roosevelt—which was a role of salvation for American capitalism—will most likely require a new party. In the essence of the matter that is what Wallace’s party is. Wallace is the, as yet, unacknowledged, candidate for the role of diverting the workers’ movement for independent political action into the channel of bourgeois politics dressed up with radical demagogy which costs nothing. That is what we have to say, and that’s what we have to fight—vigorously and openly, and with no qualifications at all. We have to be 100% anti-Wallaceites. We have to stir up the workers against this imposter, and explain to them that they will never get a party of their own by accepting substitutes.

Summary

The slogan: “Build An Independent Labor Party!” is a slogan for the class mobilization of the workers. In some incomprehensible way this seems to have been transformed in the minds of some comrades as a mere demand to break the two-party system of the capitalists. This is not the same thing at all. It means merely a bourgeois party shake-up and not a class alignment.
Now, a break-up of the two party parliamentary system in America is undoubtedly a good thing. It destroys the fetish of the trade union bureaucracy to the effect that it is impossible to operate on the political field outside the traditional pattern. Splits in the two old bourgeois parties are bound to shake up the labor bureaucracy, loosen things up and create a more favorable situation for agitation for the formation of a labor party. But this break-up of the two-party system and splits in the bourgeois parties come about under the pressure of social crisis. These are not our tasks. Bourgeois parties are not the arena for our operation. Our specific task is the class mobilization of the workers against not only the two old parties, but any other capitalist parties which might appear.
. . .

The opposing comrades admit that we would have to pay a price to work inside the Wallace party. The admission price is just simply this: Get in there and rustle votes for Wallace for president. If you won’t pay that price you cannot get in. You have no grounds even to haggle, because it is a Wallace for President movement. That is a price we cannot pay, because it is a price of principle. It is against our principles to solicit votes for bourgeois candidates under any circumstances. It vitiates the whole concept of independent working class political action.

It is wrong to assume that the Wallace party has a great future—that it is certain or nearly certain to become a future labor party. And it is doubly wrong to say, “This is the last chance to get in,” or something approximately of that sort. A mass labor party in the United States, by its very nature, couldn’t be a closed corporation....

Influence in mass parties is not determined by how long you have been there, but how much force you have. If we are in the unions and have forces there, we will be a power in any labor party formation that arises, the moment we join it, roughly in proportion to the strength of our forces in the unions and the general propagandistic power of our press.
. . .

LaFolette’s 1924 Campaign

We had an experience in 1924 in this country of a third party headed by Senator LaFollette, which was quite different from the Wallace movement in this respect—that it had a much broader base of support in the labor movement. Instead of merely one small sector of the trade union movement supporting it, as is the case with the Wallace party, LaFollette’s party was supported officially by the AFL and by the Railroad Brotherhoods, and even by the Socialist Party, which gave up its traditional independence. The Communist Party ran its own candidates and for the first time put itself on the national political map. The Socialist Party traded its independence for the privilege of going along with this bourgeois movement supported by the workers. They broke for the first time their traditional principle of no combinations with bourgeois parties and no support of bourgeois parties. That was an important stage in the degeneration of the American Socialist Party. They gave a finger to the LaFollette movement; eventually the bulk of the Social Democrats gave their whole hand to Roosevelt.

"No country is going to emerge unscathed" Fracción Trotskista on "Capitalism: prognosis uncertain"

Unprecedented bailouts to avoid financial collapse
Capitalism: Prognosis uncertain
By Juan Chingo Thursday, October 16, 2008

After last week’s crash in the stock markets that threatened a financial collapse and the beginning of a new Great Depression, the imperialist governments, especially the European governments, closely followed by the US, announced the biggest bailouts of the banks and the financial system in the history of capitalism.

The daily paper Financial Times calculated that the European governments (including those that do not belong to the Eurozone) put a total of 1.873 billion euros – which is approximately equal to the annual GDP of France! – at the disposal of saving the banking sector. That huge sum of money, to which is added the sums laid out by the US government and rescues of other countries like Australia, is an approximate sign of the scale of the disaster. However, this money injection of millions and the “radical” measures that the governments of the main powers have taken, like calling for measures of partial “nationalization” of the banks, in reality a capitalist measure for bailing out the bankers, were not sufficient to halt the stock market failures, after a brief euphoria. Beyond the oscillations of the bonds markets, what has begun is a period when the economic prospects are of a deep and prolonged recession at a world level.

To employ a media metaphor, a first operation of high complexity has been carried out on capitalism. The patient has shown slight symptoms of life, in spite of the intensity of the operation. His recovery could be slow and painful, and he will certainly need new operations. Diagnosis: his condition continues to be uncertain.

Unexpected response by the main European governments

After a week which had shown a strong division and a policy of “every man for himself,” the governments of the main European powers gave an unexpected response, by coordinating the common lines of a plan to rescue the financial system to be applied by each government at a national level. These measures were adopted by the Eurogroup Summit (the fifteen countries that make up the Eurozone), following the “leadership” of Great Britain, that belongs to the European Union (EU), but has not adopted the euro, and its Prime Minister, Gordon Brown, who, facing the imminent collapse of the British banking system, one of the most affected in Europe because of its high exposure and indebtedness, was the first to develop a plan of massive state intervention in the banking system (that really looks like a “desperate act”). Faced with the crisis, the agencies of the EU, like the European Commission, appeared totally incompetent, displaying the structural weaknesses of the construction of the EU. The plan of the European governments has three main components: (1) state guarantee for the credits between firms, to reactivate inter-bank credit; (2) recapitalization of the banks in difficulties with public funds through buying shares and temporary new accounting rules; (3) the purchase of toxic assets from banks, if it is indispensable or unavoidable, although there will not be a common rescue fund, basically because Germany has doubts about who would control those public monies.

These measures signify an unprecedented intervention by the state, both in the liabilities of the banks (capital strengthened, with public money, wholesale financing guaranteed, by government, inter-banking backed by public assistance, clients’ deposits primarily guaranteed, by a public agency) and in the assets (part of the most unliquidated credits [those not converted into cash] of commercial banking is going to pass into the hands of the state, in exchange for cash liquidity). The aim is to avoid economic collapse for lack of liquidity. That is why, perhaps, the biggest element, in terms of maintaining the functioning of money markets, is the plan to guarantee inter-bank loans for up to five years, a measure that seeks to disentangle the blocks of this credit circuit, essential for the functioning of the entire financial system. Although it could work in theory, the loans are not mandatory. So far, commitments in money by country are: Germany, 500 billion euros; France, 360 billion euros; Spain, 150 billion euros; Austria, 100 billion euros, etc. The British Prime Minister announced that his government will become the majority stockholder in the Royal Bank of Scotland (RBS), at the same time it is majority stockholder in the group resulting from the merger between Lloyds TSB and the Halifax Bank of Scotland (HBOS). The bill is equivalent to 37 billion pounds (46.472 billion euros) that the taxpayers will have to pay in exchange for assets of the affected banks.

The US, closely following European governments

On October 14, with enormous reluctance, the US Treasury Secretary, Henry Paulson, announced the details of the plan to acquire preferred stocks for a value of $250 billion, from the bailout proposed by the Treasury, now approved by Congress.

Paulson met privately with the sharks of the nine main US banks and told them that they had to accept the “injection of capital” and that this could not be voluntary. The aim of bringing together the nine executives and making them all participate in the plan, is to avoid stigmatizing a bank that accepts state participation, which could trigger a run against it. At the same time, Paulson reassured the CEOs (directors) of the banks by telling them that state purchase of preferred stocks would not dilute the power of the stockholders, since it only entails collecting interest on the $250 billion that would be handed over, in addition to the fact that the banks will not be required to eliminate dividends, nor will the directors responsible for the disaster be obliged to resign. According to the now approved law, it was only agreed that some limits would be placed on their compensation, but, given Paulson’s position as a former executive of Goldman Sachs, one could only expect that these limits will be cosmetic. Nor does this imply a compulsory restructuring of the banking system, as Sweden did at the beginning of the 1990’s, that is, concentrating investment in the banks that are considered “salvageable,” and having strategies like separating the bad assets for auction (as happened during the S&L, savings and loan, crisis, at the end of the 1980’s) for those that can no longer continue to function. Washington’s proposal contemplates fewer conditions that its European counterparts; it is a scandalous rescue of what remains of US banking, that seeks to avoid partial confiscation of the capital of the bankers.

For its part, the FDIC (Federal Deposit Insurance Corporation) will offer an unlimited guarantee for bank deposits of non interest-bearing accounts, generally those of businesses, a measure similar to that adopted by the European countries last week.

The White House announced the purchase of bank credits after the United Kingdom, Germany, France and other countries of the European Union (EU) made public the injection of large quantities of money to save the firms and face up to the crisis that is devastating international markets. The problem is that this new Treasury plan has the aim of helping the US match the European countries in what has become race among countries – now moved to the level of inter-imperialist blocs – to reassure investors that their banks are not going to go bankrupt or that other countries will not eclipse their bailout plans, and, by so doing, divert bank deposits or investment capital. As Kenneth S. Rogoff, Harvard economics professor and an advisor of John McCain, said, “The Europeans not only set up an action plan, they forced our hand.”

The European leaders quickly got on the horse: "The scale, ambition, and potential costs of the programs announced yesterday suggest that European leaders like Gordon Brown, French President Nicolas Sarkozy, and German Chancellor Angela Merkel were determined to respond to the challenge of the financial crisis through concerted actions, showing a degree of leadership that left Washington, the global economic leader, overshadowed. 'Europe united has made a bigger commitment than the US,' said Sarkozy to the head of the EU, on announcing a package of 360 billion euros for France. 'The European politicians are surpassing the US in their efforts to solve the crisis,' said the Unicredit di Italia bank" ( "EU takes a €2 trillion financial gamble”, The Guardian 10/14). But more than the "boldness" of the European governments, what stands out is the unprecedented loss of US influence on the financial terrain, even compared with the prospect of only a week before. This is what the following analysis emphasizes: "Since the creation of the Bretton Woods monetary system in 1944 every global financial initiative of any significance has been devised, led and co-ordinated by the US Government. This US leadership did not mean that America always got its way in financial affairs — nor that US co-ordination always succeeded, as exemplified by the breakdown of Bretton Woods in 1971. But it did mean that international financial initiatives were never attempted until ideas and the leadership came from Washington. The sole exception to this rule in the past 30 years was the creation of the euro; but this was viewed in Washington as an intra-European affair with limited global consequences. The present global banking crisis has been a very different matter, since it originates in the US itself. Even a few weeks ago a solution without US leadership would have been inconceivable. In the past few days, however, the failure of the Bush Administration to follow through in any concrete way on the $700 billion 'Paulson package' that it rammed so painfully through the Congress, has focused attention on Washington’s vacuum of leadership and ideas. Aghast at the dithering incompetence of the US in handling this crisis, European politicians have realised that Henry Paulson, the supposedly brilliant US Treasury Secretary, was an emperor with no clothes. Instead of waiting for US leadership, they had to take responsibility for Europe’s problems. In trying to do this, they have found an unlikely intellectual guide and champion: the British Treasury and Gordon Brown." ("Reliance on the US will never be the same," Anatole Kaletsky, The Times, 10/13). The political crisis and US leadership vacuum in the current crisis is not a minor fact. It is the expression on the financial plane of the weakness shown on the geopolitical plane in Georgia, where the European leaders had to act for themselves and arrive at an agreement with Moscow, two unprecedented situations. If the new administration does not succeed in reversing the situation, even if only partially, this vacuum in the ability of US leadership could ignite a run against the dollar, affecting its ability to arbitrate, while enjoying its monopoly on the world's reserve currency. In turn, the US loss of influence could accelerate the need for different international actors to make autonomous decisions beyond their previous willingness, to avoid having the crisis devour them, as the European governments did. Although it is still premature to draw conclusions before the scope and prospects of the crisis are clearer, from a geopolitical point of view, whatever the outcome of the crisis may be, the US will have to adopt itself from the new relations of force that emerge from the crisis.

As for the EU, the moment of truth will come when some of the weaker or smaller countries suffer intense economic pressure, as "deleveraging" [reducing the amount of debt a company holds] intensifies. Prevented from using a policy of devaluation as in the past, they will have to resort to sophistries over the use of fiscal policy and possibly even help from the stronger member states, a matter that will truly test the coordination of the last few days.

Profound problems continue to be posed in the financial system

The massive bailouts have lessened the dynamic that was coming in recent weeks when the stock market crash and panic that was going through the markets, and, even more important, paralysis of the interbank circuit that was already affecting companies' credit sources, made it appear that the international financial system was taking a big hit. But the financial system continues in problems. A key sign of that is the situation of the monetary market, that improved slightly, but not sufficiently. There are growing signs of a credit drought because the European banks are withholding credit for the private sector and companies as that they are trying to repair their capital fitness (the minimum capital required to maintain its risks or credit exposure). In Germany, one-fifth of the corporate lenders are already experiencing credit drought conditions, a quite dramatic increase compared to only one month ago, when credit was still flowing freely. In turn, the process of additional deleveraging of bank balance sheets is continuing. Although recapitalization of banking could turn out to be helpful in sustaining this process, it would be of use only with difficulty to reactivate credit immediately, given the risk of new potential losses. For that reason, some economists were proposing giving the current recapitalizations more scope than the European governments have undertaken — partial nationalization in the case of the United Kingdom — moving forward, in fact, to a temporary nationalization of banking as a way of reestablishing credit: "The recent decision of the US Federal Reserve to bypass the banking system and to lend directly to the non-banking sector by buying commercial paper is a step in the right direction. It allows companies to obtain cash by borrowing long; a service banks do not want to provide anymore. The step taken by the Fed is insufficient, however. The Fed cannot take over all bank lending operations. Only the government can do this by temporarily transforming private banks into public ones. It can then order the management of these state banks to lend to each other. Such a transformation (call it a temporary nationalisation) will make it possible to jump start the interbank market and allow the normal flow of credit to be activated" ("Temporary full state ownership is the only solution," Paul De Grauwe, Financial Times, 10/9).

In turn, there are worrying reports that other segments of the credit market are suffering a dramatic worsening, like the credit-card debt and debt for buying cars, that for some could be the next subprime crisis in a few months. A sign of this has already been the impact of the suspension of payments in General Electric's quarterly results, that suggested that the growing defaults on credit cards and other loans that forced it to set aside up to a billion dollars to cover this year's losses. GE Capital, that reports half of its earnings, could suffer losses of up to $6.6 billion this year and up to $9 billion in 2009 (before taxes), largely because of the deterioration of consumers' financial situation.

In this context, there are voices that call for prudence in the face of what they consider the worst economic situation in decades. Among them, the economist George Magnus, from the Swiss bank UBS, who sees slightly more encouraging signs after the decisions made by European governments and the G7 to curb the "... point where financial instability has become so acute that only an exceptional, immediate and global government attack on the causes of instability is likely to avert a systemic banking failure, in which non-financial companies could rapidly fail too." However, he still indentifies four current sources of danger: "Even if a financial meltdown is averted, we should be under no illusion that the deleveraging in the financial and household sectors will stop. As a result, four big battlegrounds remain. First, there is a high possibility of further bouts of financial stress and failures. Money markets are still broken and recovery will take time. Second, illiquidity, a preference for cash-type instruments, even over government bonds, and a considerably ex­panded supply of government bonds raise the threat of an untimely increase in bond yields. Third, the global recession that has started may yet turn out to be sharper than expected - and certainly longer. This will bring sustained, and some new, credit risks. Fourth, much slower growth and the risk of some home-made financial crises in emerging markets warrant close scrutiny." ("Is there time to avert a Minsky meltdown?", George Magnus, Financial Times 10/13). For his part, the economist Nouriel Roubini maintains, that, after seeing the abyss of systemic disaster up close, governments have chosen an aggressive policy, but he warns that the amount promised for bank recapitalization will hardly manage to cover 50%, and he demands essentially Keynesian short-term measures, like the expansion of public expenditures and other more populist measures, like the partial cancellation of debt for those who owe mortgages, as a way to reactivate internal demand. For Roubini, only the resolute application of policies like these will mark the difference between a U-shaped economic recovery lasting between 18 and 24 months, and a Japan-style decade of poverty.

The next Achilles' heel: The severity of the international recession

What is unavoidable is a hard recession, as recognized by Bill gates himself, whose estimates of US unemployment have been raised to 9%, way above the analysts' consensus. It still remains to be seen if even the measures taken will be sufficient to avoid a depression characterized by the absence of internal demand and deflation. It is this prospect that destroyed investors' confidence on October 15. The optimism triggered on October 13, thanks to the rescue plans set up on both sides of the Atlantic, remained a worthless piece of paper, given the possibility of a recession, posed by the Federal Reserve and the fall in retail sales, that reached 1.2% in September. Confidence will not return so easily. With the European stock exchanges falling more than 5%, Wall Street could only join the panic caused by the delicate situation of the global economy. This is the way the Dow sank by 7.87%, the Standard and Poor 500 by 9.03%, and the Nasdaq (technology) by 8.47%.

According to the Fed, "economic activity was weakened throughout the 12 districts of the Federal Reserve," as a result, on the one hand, of disinvestments and, on the other hand, of consumers' reducing expenditures. To this one must add the fact that the Fed's Chairman, Ben Bernanke, asserted that "restricting the flow of credit to househholds, businesses, and local and state governments, financial turbulence and pressure on financial firms, involves a significant threat for the growth of the economy." In a speech prepared for the Economic Club of New York, the main authority at the Fed again insisted that "financial turbulences involve a significant threat for the US economy."

But this is not just a US prospect, but a world prospect: the Baltic Dry index, an indicator of prices for maritime transport of dry materials in bulk (minerals, coal, metals, cereals, etc.) fell 20% in the last two days. This could indicate a more rapid deterioration than expected of the Chinese economy. To this is added concern that the financial crisis has affected financing of international commerce. Exporter countries of southeast Asia like Korea, one of biggest economies in the world, are in serious difficulties. The Financial Times reports that, "Lest anyone miss the point that one of the world's most successful exporting nations is in a bind, Mr Kang, the finance minister, recently told a parliamentary session that 'apart from exports, everything - including investment, consumption, employment and the current account balance - is showing a trend similar to that seen during the [Asian crisis]' and it adds, "Arguably, this time around, Korea could be seen as a victim of its own success. On a macroeconomic level, a country that derives 40 per cent of its GDP from exports will now have to cope with dwindling western demand for its products. Companies such as and LG supply consumers worldwide with goods ranging from computer chips and mobile phones to televisions and fridges. Korea is also the world's leading shipbuilding nation ... Hyundai, meanwhile, has built the world's largest car manufacturing centre in its southern fiefdom of Ulsan, using a dedicated deep-water port to ship out 1 million vehicles a year" "Sinking Feeling," Financial Times 10/13). This situation is combined with a deterioration of the financial system as a result of massive indebtedness of businesses and households, similar to that of the US, in the context of the ahrdening of the international credit market, which makes the country extremely vulnerable: "Elsewhere on the checklist for vulnerability, South Korea ticks several boxes. It has high external debt. Short- and long-term borrowing totals $400 billion, above the levels at the time of the last crisis both in nominal terms and as a percentage of GDP. The current account balance has teetered into the red, for the first time since the crisis of 1997-98. Portfolio capital flows into the country are susceptible to swift changes of direction - foreigners have been net sellers of the stock market in each of the past four years ..."

But the deacceleration of China, more rapidly than expected, could be the death blow that was lacking for the entire world economy. And this seems to be what is happening. The chief executive of Rio Tinto, one of the two largest mining giants in the world, said that "... there was a marked reduction in Chinese demand for raw materials compared to the overheated levels of 2007 and added that the 'vast majority of Chinese producers of aluminum were now having operational losses'" (Financial Times, 10/15). The correspondent of the Argentinean daily Clarín offers a similar vision in situ: " ... Minister Wang Chen, from the Information Office of the State Council, who during supper will speak clearly with moving frankness of how the scene has changed. 'The impact will be great. China is observing the phenomenon, and we have made modifications in the development strategy,' he comments. The usual comparison with the crisis of 1929 is exaggerated, for his government, but he does maintain that 'We understand that the US is on the verge of recession. In addition, the crisis has had destructive consequences in Europe. We are the second-biggest country in foreign trade, but now we are unable to export many products.' 'How does that affect the production process?' 'Small and medium-sized firms East and West are bankrupt. And there have been extreme cases of businessmen committing suicide. But we have also had many fewer bankruptcies this way than in the West.'" ("China: wave of bankruptcies, suicides and changing plans because of the crisis," Clarín, 10/15).

Another sign that the situation is deteriorating more rapidly than was thought, is the low interest rate recorded last week. The real estate market, that has been one of the sources of internal demand, together with car sales, has weakened. A possible significant collapse of the real estate market next year will probably affect the banking sector. Although only a few predict a growth in GDP of less than 8%, a worse scenario that would generate a more acute deacceleration cannot be ruled out, if the deterioration of the real estate market provokes an extreme withdrawal of private investment.

A forced landing by China would have enormous consequences for raw materials markets and for the countries that depend on them, and it would call into question China's role as shock absorber of the severe economic collapse of the imperialist countries. International recession could in turn ignite new tensions and spikes of financial crises. No country is going to emerge unscathed.


An inherent defect in the imperialist system

A big weak point in the rescue plan of the European governments are the international loans. The problem is that the complete guarantee for the monetary market can only be made at a European level. However, the governments have not arrived at the point at which, for instance, if a Spanish bank does not return the money that it received on loan from a French bank, the French government will provide insurance. This guarantee would permit giving more confidence to loans in the vital intra-European circuit, since banks believe more in their own governments (but the monetary authorities of each country are not willing to use public money to guarantee the unpaid loan from a bank of another country). This is one more sign that what has been approved are different national plans, although they are presented as European plans.

This last point is a demonstration of a big flaw in the international capitalist system on the European level, that we could also extend to the inter-bank loans between firms of different continents, especially between European and US firms, strongly intertwined in the financial globalization that developed in the last few years. The international crisis reveals that, in the context of the existence of financial corporations that have been internationalized, national states are unwilling to rescue foreign firms, and the different governments do not wish to assume the liabilities of other nations, in spite of displays of "coordination" and "solidarity" by different imperialist governments. In other words, transnationalized financial institutions exist, but there is not the least institution to manage inter-bank loans in the global economy, nor even on the European scale, where the integration of national capital is greater than at the transatlantic level. A clear sign on the financial plane — for its part, the most "globalized" of all the capitals — of the not-to-be-resolved contradiction of capitalism in its imperialist stage, between the degree of development of productive forces — that, unlike classical imperialism of the beginning of the twentieth century, has achieved an extremely high degree of centralization and international concentration of capital — and the existence of national borders. This tendency continues the more that advancements have been made, in comparison with the beginning of the twentieth century, in establishing various degrees of national coordination, as for instance the EU itself, but without resolving this basic contradiction of imperialist capitalism. This defect, in this crisis or in the future, could undermine the integration of the global economy, leading to fragmentation of the world market, of the convertibility of currency, among other matters. Against the new "neokautskyian" theories that suggest that greater integration of capital and the injection of money in the financial system will prevent catastrophic scenarios like those of the 1930's, it is good to publish the extreme vulnerability that the world capitalist system has shown in these days, although now these ideologues feel relieved and believe they are vindicated, perhaps prematurely, by the exceptional bailout that has been carried out. On the contrary, these theories, although they start from elements of reality that have undoubtedly changed since the 1929 Crash, the Great Depression, and the period between the World Wars, they evaluate them in a one-sided manner, leading them to reformist conclusions, like denying the historical possibility of new interimperialist wars or denying that the bourgeois unity of Europe is a reactionary utopia.

US--"Decline, in slow motion" by Cde Celeste

[I have been concerned about housing for years; I joined the Grantist WIL in 2004 because I wanted to do something about the precarious housing situation of working people here in southern New England. The best article I ever wrote for the Grantists was entitled, "Give me shelter." So I was moved by Cde Celeste's paragraphs about the plight of those fleeing foreclosures and what has happened to the neighborhoods they used to live in. What follows is a note from Cde Celeste's blog. The description of street-level change in New York, that she refers to, will also be translated. -- YM]

As others see us: “Decline, in show motion”
By Celeste Murillo
http://teseguilospasos.blogspot.com/2008/10/la-decadencia-en-cmara-lenta.html

While on both sides of the Atlantic they continue paying out billions of dollars, and the hysteria of the stock markets increases (up, down, rebound, fall, rebound-and-fall-again), life goes on for millions, but it gets worse, or with worse prospects. No one is an optimist now, or the optimists are the least pessimistic: recession is a fact.

Although little gets said about the tent cities on the outskirts of Los Angeles, the foreclosures, and the newly unemployed, the social crisis already arrived a while ago, and it only promises to become merciless.

In the same week that Paulson was announcing the purchase of bank shares to save them from bankruptcy, the raids against undocumented immigrants in the factories increased (in Los Angeles some weeks ago, the biggest raid took place, with the deportation of almost 700 people).

While Gordon Brown and the European Union (EU) were guaranteeing the bailout of the European banks, layoffs and suspensions of autoworkers began in the Spanish state.

Today, I read a postcard written from New York, which, for some reason, (I believe because of the tour of the stores) made me remember the unhappy walks of Jimmy in John Dos Passos’ _Manhattan Transfer_, which speaks of the growth of those smart [fashionable] neighborhoods in New York, that were built on the destruction of the neighborhoods that once served as a home for those who have now been fleeing from foreclosures, layoffs and deportations…. But, by chance, it carried a mark of anger as well.

* * *

[What follows is the text of the "postcard" Cde Celeste mentions above, and it is really a well-wrtten essay about social change. -- YM]

October 5, 2008
From the other side

By Ernesto Semán

http://barrabie.typepad.com/barrabie/2008/10/del-otro-lado.html

Thursday morning, while the US Congress was debating the fate of $700 billion, one of the first political graffiti in more than a decade appeared in Brooklyn: “No bailout it screws u!” it said on a highway column. It’s a neighborhood of bridges and highways, and the graffiti possibly came from the Red Hook Houses, an enormous public housing complex that coexists with the noise of the highway, and that also survives in the middle of a neighborhood that has changed at top speed.

Barely going up to the bridge over the graffiti, like the balconies of other houses in the area, Red Hook offers the best views of Wall Street. Every morning for fifteen years, a credit and consumption policy that transformed the US economy was set in motion from the other side of the East River. Right here, from this side of the river, every day one could see the ambivalences of that change.

[To be continued]

Fracción Trotskista on "Capitalism in intensive care"

The crisis gets politicized and globalized quickly
Capitalism under intensive care
By Juan Chingo Thursday, October 9, 2008

The European division, in the face of the international financial crisis, and last week’s fracture in the Democratic and Republican parties in the US, show that the world capitalist crisis – the biggest since the 1930’s – is becoming politicized at an accelerated rate. The leap in the European crisis and the repercussions in the semi-colonial and dependent countries, are indicators of the globalization of this financial disaster. As we have been explaining, greater internationalization of the economy and of finances that occurred in the last few decades, permitted a recovery of the rate of profit, but has also oiled the mechanisms for spreading crises.

US: Will a great depression be avoided?

The House of Representatives’ approval of the Paulson Plan on October 3 was not enough to curb the fall of markets throughout the world. Faced with this situation, the Federal Reserve (the Fed) had to take extreme measures to avoid financial collapse and, above all, remedy the lack of financing for firms, which could precipitate the beginning of a Great Depression.

Thus, the monetary authority will pay interest to banks for the reserves they have in the Fed, with the aim of improving the conditions of liquidity of financial entities. But, still more important, it announced the setting up of a fund to buy IOU’s of firms that have remained without financing in the credit markets. The creation of a “Commercial Paper Funding Facility” (CPFF), announced by the Fed, has the aim of providing liquidity to firms that issue private debt and every time find fewer buyers in the markets.

But this is not enough either, and the stock markets continue to drop. This time, the cause was the speech by the Chairman of the Fed, Ben Bernanke, who asserted that he would be “reconsidering whether his current position – keeping interest rates at 2% -- continues to be adequate in light of events” and left the door open to lowering interest rates in the short term, in the face of “the worsening prospects of economic growth.” These statements, that show that the crisis is going to continue to worsen, unleashed the panic. Numbers in red seized the banking sector. Sovereign, Wachovia and National City, that were the only ones that had registered increases as October 6 began, fell by 15%, 11% and 9%, respectively. Meanwhile, firms like Citigroup, Goldman Sachs or JP Morgan fell between 8% and 13% at the close. One of the most punished banks was the Bank of America, with a collapse of more than 26%.

The seriousness of the crisis is shown by the powerlessness of the monetary and political authorities. A good example is the opposite effect of that expected from the approval of the $700 billion bailout plan, or the negative reaction to the Fed’s buying up the debts of firms.

The concerted attempt by the main central banks of the world to lower the interest rates by half a point scarcely had a limited impact.

Everything seems to indicate that, more and more, a perverse logic based on the certainty that, in the face of the magnitude of the crisis, any intervention is a drop in the ocean, is beginning to install itself.

A savage US financial and economic decline

The conviction that no measure will work expresses the profound deterioration of US finances and economy. To make a metaphor, the “circulatory system” of capitalism is obstructed. This dictates there are parts that the blood – money and credit – does not reach, which threatens to kill the patient, the economy. Even the imperturbable Warren Buffett, the richest man on earth, who, with this private rescue of banks and firms, has become the modern J. Pierpoint Morgan [1], has said that the “credit drought” is “sucking the blood” out of the economy.

We are going through a critical period when the mechanism of transferring funds from savings to investment could be seriously affected.

Inter-bank credit has become so expensive as to make transactions practically impossible, owing to the fact that no bank believes it will recover the money lent. This distrust is now moving to society, as the beginning of the run on various segments of the financial and banking system shows. The situation is beginning to resemble the 1929 crash, when any mechanism to encourage liquidity was completely useless. A vicious circle had been established: the banks were using government money to solve their problems and not for giving credit. This lack of financing was stifling the real economy. To avoid suffocation, firms were withdrawing their funds from financial institutions, to be able to maintain their activity and face up to their current expenses. The result was that the banks needed more money from government to clean up their balance sheets.

The Fed’s financing of firms seeks precisely to avoid this scenario. Will it arrive in time or are the damages already irreversible?

Data on the real economy are more and more worrying. In September alone, 159,000 jobs were lost, the biggest monthly decline since March 2003. But the current rate of unemployment, that is around 6%, will be insignificant if the system of financing the economy collapses.

There are already symptoms of what might happen. For instance, California, the most populous state in the US, has revealed in advance that it will need a $7 billion US government loan to be able to pay for public services like police, hospitals and firefighters. Leading businesses, like General Electric (GE), are desperately seeking financing. General Electric managed to get Warren Buffett’s company Berkshire Hathaway, to buy preferred shares for $3 billion dollars. But not all companies are as lucky, and many firms are deeply in debt. This rise in the cost of financing will not only make investment plans more conservative, but will affect profits. Although, unlike the collapse of the “dot com” bubble, most companies are less exposed – an expression of the fact that accumulated profit has not been reinvested – many automotive and auto parts companies and retail merchants, have mountains of debts.

European (Dis)Union: The crisis could hit the euro really hard

For the European Union (EU), unlike the US, the current crisis could become a crisis of the monetary system. The widening of the current banking crisis to the EU could destroy its common currency, the euro, whose creation was never accompanied by the establishment of adequate institutions to face financial crises. This is not an accidental oversight, but has to do with the structural weaknesses of the EU project, and sharply expresses its insurmountable contradictions.

The thing is that the EU largely facilitated the integration of European banking, by creating giants that were beyond its ability to administer at a continental level. Now that credit markets are paralyzed, these institutions have a credit (liability) exposure that exceeds the tax ability of the countries of origin, by several times. This is the case with the German Deutsche Bank, with a liability that exceeds by 1.5 times what goes into the government coffers by taxes, and Barclays, of England, whose liability is two times England’s tax ability. This contrasts with, for example, the liabilities of the Bank of America, which are approximately half of US tax revenues.

The current crisis, that is fully striking at the main European banks, has shown this weakness of the EU project, by triggering a policy of “every man for himself” among its member countries.

There is an accelerated process of re-nationalization of financial policies in the 27 member states of the EU, which are not now looking to Brussels (headquarters of the EU institutions) before acting. For instance, Ireland decided to guarantee all deposits (including debt) of the banks for two years, which precipitated a war for deposits within the EU. The unilateral step taken by Germany, after a coordination meeting in Paris with France, England and Italy to find common measures for the crisis, was a pathetic sign. Subsequently, the commitment reached on October 7 among the finance ministers of the 27 countries (Ecofin) is far from establishing a common standard for protecting deposits. They agreed to increase the guarantee for individuals with a sum of at least 50,000 euros. But the initial proposal to raise it to 100,000 euros was not agreed to. Some countries, like those of Eastern Europe and Finland, among others, considered that such a high ceiling would involve a very heavy burden, while Greece, Spain, the Netherlands, Belgium and Austria announced that they will raise the guarantee limit to 100,000 euros. But this could be insufficient to respond to the real problem: the danger of flight of medium-high assets that exceed this quantity toward other European countries that have guaranteed 100% of deposits, like Germany and Ireland. This risk continues to exist because, as the collapse of the British banks shows, widespread mistrust continues. Some media give a more optimistic view of the finance ministers’ meeting. For instance, Financial Times Deutschland emphasizes the statements by the French Minister, Christine Lagarde, that the UE will not accept its own version of Lehman Brothers (the US investment bank whose fall signified a before and after in the world financial crisis). According to this daily paper, there is no massive rescue plan, like the one France suggested and rejected, but there is a coordination of national efforts. Angela Merkel, the German head of government, announced that she is working to establish criteria that would make it possible to distinguish between institutions that are systematically important and those that are not. This criterion could become the mother of all disagreements. If the US Congress split up over the plan to bail out US banks, who can guarantee that the 27 will manage to agree on which banks to save when the national interests of the member states are at stake? This policy can only end up exacerbating the disputes within the EU.

The fundamental problem is that stronger countries like Germany are unwilling to use their tax resources to save, for example, Spanish banking, whose rescue would cost more than 500 billion euros. In this context of European dis(unity), it is not surprising that the stock markets continue to plummet.

The bailout plan of the British government, that announced an assistance package of $62 billion, was not enough to calm the panic. According to the finance minister, the money will serve to buy shares in the main banks of the country – a partial re-nationalization – that on October 7 suffered steep falls that amounted to around 40% in the case of the Royal Bank of Scotland (RBS). So far, the institutions that have confirmed their participation in the recapitalization program are Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide, RBS and Standard Chartered.

The case of Iceland, one of the weakest links of Europe, shows the extremes the crisis could reach if it continues to develop in the countries of the Continent. Iceland is in advanced “Argentinization” (referring to the Argentinean economic crash and default of 2001); its currency has been devalued by 50% in a single year against the euro and the dollar, losing, in fact, its ability to serve as a means of payment. Icelandic authorities complained that the friends of the country have not offered financial assistance, forcing it to seek an injection of money from Russia. But it would not be necessary to reach this point for the Eurozone to be put into doubt. For instance, the abandonment to its fate and the possible collapse of Italian finances or the Spanish banking system [2] would put the EU’s integrity at risk. And that could happen very quickly in view of a bank crisis of great magnitude, for instance, the Italian Unicredit, strongly exposed in Eastern Europe and the Baltic countries, or from some government crisis.

Many people cling to the idea that the history of the EU is marked by crises that threatened to destroy it, but, as a last resort, ended up strengthening it. Without going further, the establishment of the euro practically required the collapse of the European Monetary System of 1992-1995. For many people, this could be repeated, resulting in the rise of a Federal Europe where the central government takes significant powers to such an extent that, for instance, France in the Eurozone would be like Texas in the US. But the existence of strong national interests makes this scenario highly unlikely, or even utopian. For “France to be Texas,” changes greater than the current ones would be necessary -- that the crisis be much more devastating, or the conquest of new zones of influence, etc., -- that could sweep away the differences that separate the 27 states of the EU, especially the different interests of the powers, since there is no evolutionary road towards greater integration. On the other hand, if the crisis deepens, it is highly likely that it will hit the euro really hard.

What will happen to the dollar? Is the situation headed towards fragmentation of the world market?

Astonished, the short-sighted analysts of The New York Times say, “The stock markets are plummeting; the credit market is still frozen, and some foreign officials predict that the US will lose its financial superpower status. However, the dollar, the most visible symbol of US financial power, is rising.”

A combination of factors explains the strength of the dollar.

In the first place, the dollar’s increase corresponds to the repatriation of funds of US financial institutions to the US, that they need so much, alongside of the fact that speculators are getting rid of their positions throughout the world, by “taking refuge” in US Treasury bonds. The dollar has been strongly supported by the Federal Reserve, that established a monetary exchange network with the European Central Bank, the Bank of Japan, the Bank of England, and other banks to provide foreign banks with dollars. The Federal Reserve had to expand dollar liquidity to the international financial system on an unprecedented scale, to the extent of $1.25 billion.

In the second place, the dollar has recently risen owing to the momentary fact that US economic indicators in the second quarter were better than those of Europe and Japan, that have already entered a recession, at the same time that the previous devaluation of the dollar pushed US exports, especially agricultural products, to the world.

In the third place, the countries of Asia, in large part, supported the dollar as part of an aggressive export policy that allowed them to maintain high growth rates after the 1997-1998 crisis. As various analysts suggest, when Chinese consumption is hardly more than 30% of GDP, the transition to an economy based on the internal market is not something that can be done rapidly and without shocks; that is why these countries have a strategic interest in avoiding a rapid depreciation of the dollar. The massive accumulation of reserves, a result of this aggressive commercial policy, led to these countries’ buying US Treasury bonds or bonds from enterprises like Freddie Mac and Fannie Mae, that is, financial assets. Now, when there is a big question mark over the future of the euro, sovereign funds have to be prudent in a policy of diversification.

That said, we must consider political factors. The problem is, if US dominance was based on the control of the dollar as the world’s reserve currency, this privilege was sustained, not so much by the weight of the US economy in the world, which had been receding in recent decades, but fundamentally because after the collapse of the former USSR, the US was the only superpower, based on unquestionable military supremacy and international influence (“consensus”). These factors had been severely eroding recently, as the disaster in Iraq and Afghanistan and the recent conflict between Russia and Georgia show. The fact that Germany, a key part of NATO, committed itself in Moscow not to support the entry of Georgia and the Ukraine into NATO, amplifies the weakness of the US.

If the dollar managed to maintain itself, that would be a blow for the European Union and the euro. However, the worsening crisis in the US and internationally undermines the bases that until now have supported the dollar’s strength, at the same time that the massive bailouts of the financial and corporate system in the US and the geometrical growth of US government indebtedness are sinking its bases of support. It would appear that the question is whether there is going to be a run against the dollar.

In this framework, the current international financial crisis that has its epicenter in the US, and that is, at the same time, a crisis of the Anglo-Saxon model, and, even more important, of the “pattern of growth” promoted through the indebtedness that allowed living beyond one’s means for decades, is a blow that could be too strong for the US capacity for leadership and the strength of the dollar. In great part, this will depend on the handling of the current crisis by the US authorities, that, as last week’s crisis in Congress has shown, had rarely manifested such impotence and cowardice, and such a “leadership vacuum,” on the part of the administration, the Congressional leadership, and the two presidential candidates. In this context, the hypothesis that Jacques Sapir, French economist and historian, brings up, cannot be ruled out: “Whether the most dreaded scenario develops or not, depends on the way the managers of private funds in Asia and in the Middle East decide to improve their stockholders’ portfolio strategy. If the feeling of uncertainty about US leadership and its ability to administer the current crisis leads them to lose their confidence (at least a ‘confidence with problems’), leading them to get rid of their stocks in dollars, then the sovereign funds would have to follow them rapidly to avoid big capital losses. A fall of 25% to 35% in the value of the dollar against other currencies, together with dramatic changes in the capital flow movements and commodity prices, would then become quite a probable fact. This would create great uncertainty throughout the world and push towards ever larger fragmentation of financial space, with the probable emergence, as a result, of regional reserve currencies” (“How far could the US dollar fall?” Real-World Economics Review, issue no. 47). In this sense, voices are already beginning to be heard, like that of the former President of Thailand, Thaksin Shinawatra, who was the first to distance himself from the IMF's post-Asian crisis orthodoxy by suggesting the need for an "Asian bond that could save us from the dollar" (Financial Times, October 6, 2008). The possible fall of the dollar, which would mean the loss of the main international reference and exchange currency, would lead to the rise of different currency zones, that is, to a situation of greater anarchy and inter-capitalist struggle on a world level, with tensions and conflicts between states, and also opportunities for class struggle, of comparable size to those experienced in the first half of the twentieth century. Those decades showed the sharp development of the epoch that Marxists called that of "crises, wars and revolutions."