Worst Economic Crisis Since Great Depression
No End in Sight for Working People
In the six months since the financial crisis exploded with the collapse of New York investment bank Lehman Brothers, the world economy has been gripped by the greatest economic crisis since the Great Depression of the 1930s. U.S. and European banks have admitted a trillion dollars in losses, while the banking system of Iceland totally collapsed. Almost all of the major economies of the world, with the exception of China, have started to contract, with millions of workers losing their jobs and businesses going bankrupt right and left. Hardest hit for now are the new capitalist economies of eastern Europe, who are being slammed by their dependence on borrowing from foreign bankers, falling exports and plunging currencies.
Here in the United States, the news is grim. The housing market continues to fall, with prices down more than 20% and new housing starts off a staggering 80% from the peak in January 2006. Monthly job losses continue to climb, with more than four million jobs lost since the recession began, most of those in the last four months. The unemployment rate in January was 7.6%, up from 4.7% before the recession began. A growing number of big corporations like Circuit City have given up the ghost and liquidated, while hundreds and thousands of smaller businesses are going under. State and local governments are raising taxes and cutting services, adding to the woes of working people.
The financial crisis continues despite the U.S. Federal Reserve Bank lending some $1.5 trillion, and the Federal government pumping hundreds of billions more into ailing financial companies. The companies given the most government aid, from insurance giant American International Group (AIG), to the former world’s largest bank, Citigroup, have had to come back for a second round of bailout money and will need a third round soon. Bank losses continue to rack up as unemployment and business bankruptcies climb, and may come to $2 or $3 trillion more.
As the recession and financial crisis tighten their grip on the economy, the U.S. and other governments are desperately trying to turn the tide. With U.S. interest rates lowered to almost zero, and trillions of dollars of financial aid to big banks unable to stem the crisis, there is talk of ‘nationalization’ of some banks, a stunning turnaround for a system wedded to deregulation just two years ago. There are also early signs that the Federal Reserve has had to crank up their electronic printing presses to pump more money into the economy, an act of desperation that could lead to much higher inflation down the road.
A $790 billion economic stimulus package was signed into law in February. But despite the big numbers, the actual impact will be at best to take the edge off the recession. $90 billion will go to household making six-digit incomes. Much of the rest of the tax cuts and new spending will be largely offset by tax increases and budget cuts by state and local governments. Working people will benefit from more money for unemployment benefits, health insurance and schools. But even the optimist official forecast is for two more years of unemployment even higher than it is today.
Another problem is that the government’s attempts to make businesses profitable again can actually hurt the economy. The bank bailout last October let banks collect interest on the money that they stash away with the Federal Reserve. Previously, these ‘reserves’ paid no interest, giving banks an incentive to lend. But now banks can make a profit by not lending, and hundreds of billions of dollars are piling up in banks even as small businesses and working people are starved for credit.
The fundamental problem is that there is a crisis of overproduction. Big businesses can produce more than people can buy. At some point, enough businesses will be closed that the others will become profitable and the economy and profits will start to grow again. Mainstream economists say that this will happen later this year, assuming that no other crisis erupts – and this is a big if! But even if and when the economy begins to grow, there will be little relief for working people.
Take, for example, the auto industry. All around the world, car companies can produce millions more cars than they can sell. The U.S. government has given billions of dollars in loans to General Motors and Chrysler, and is considering more aid for them, their parts suppliers and auto finance companies. But these loans have the goal of a ‘viable’ industry, which means even more plant closings, layoffs, and wage and benefit cuts. When enough plants will be closed the companies will be profitable at a lower level of sales. But what about the hundreds of thousands of auto, auto parts and auto dealer workers who have lost their jobs? What about the tens of thousands of retirees whose benefits have been slashed? These jobs and benefits are not coming back.
This is why we need to fight back. We need to follow the example of the Chicago Republic workers who wouldn’t let Bank of America shut the company down and lay off all the workers without a fight. In Minnesota, welfare rights, labor, student and other community groups have formed a People’s Bailout Coalition to make the rich pay and to protect the interests of working people. In California, high schools students have walked out of class to protest budget cuts.
Looking towards the future, we need to reject capitalism and fight for socialism. Is all that we can hope for is a return to what existed before the crisis? A return to a capitalist economy where millions go without health insurance even when the economy is growing? An economy where working peoples’ incomes fall in the long run while the rich get richer? An economy where we have to go up to our necks in debt to make ends meet while always having to worry where the next paycheck is coming from? An economy that is drained by one or more wars thousands of miles away to protect the interests of big oil? An economy where more than forty years after the civil rights act, African American, Latinos and women still earn less than whites and men? We can do better.
Working and oppressed people need a socialist system where political power is in the hands of the working class and the economy serves the people.
So as we fight for our needs and rights today, we should educate and organize for a socialist government and economy that will benefit us, and not Wall Street and big business.