Principles: Economic Collapse, What it Means to Black People

Context

Daily, the national and international news describes an unfolding financial collapse on a global scale.  They sloppily compare it to the Great Depression----which is like comparing a weakened 95 year old with the flu and a compromised immune system to a child experiencing growing pangs.  The Great Depression was a growing pang of capitalism in its childhood.  Today's crisis---a time when more jobs have been cut faster and earlier than in any previous recession in American history---is a death watch.

The United States economy is dead in the water.  The government is the "spender of last resorts"---trillions of dollars it does not even have.  So the Treasury is just printing money and handing it to banks---$2.78 trillion dollars in less than 6 months.  Stimulus packages, bail outs, tax cuts, TARP handouts---none of this has worked.  There is no economic foundation for it to work. It won't work regardless of the president or policy.

This crisis is far more serious than the Great Depression because robots have reduced the ability of businesses or the government to put workers back to work.  This is the end of the line---but it will require years to come undone. All major sectors of the global economy are affected. Recent reports suggest that the system of Letters of Credit as well as international shipping, which constitute the lifeline of the international trading system, are potentially in jeopardy. The proposed bank "bailout" under the so-called Troubled Asset Relief Program (TARP) is not a "solution" to the crisis but the "cause" of further collapse.  

After the handing of $20 billion to Citigroup, and the promise to payoff $340 billion of bad debt from that bank, the federal government is on the hook for over $7.76 trillion dollars of debt as aresult of handing money to banks, mutual funds, hedge funds, savings and loans, and investment banks.  Over $700 billion in cash---and one man standing with a sign saying "come get it if you are rich and white with a bank."  It will not solve the fundamental problem. 

This so called "bailout" contributes to a further process of destabilization of the financial architecture. It transfers trillions of dollars of public money, at taxpayers expense,  into the hands of rich white private financiers/investors/loan sharks. It leads to a spiraling public debt of over $2.8 trillion dollars (in-less than 6 months) and an unprecedented centralization of banking power because the treasury actually chose the 9 largest banks to give money to so that they would survive.  Moreover, the bailout money is used by the financial giants to secure corporate acquisitions both in the financial sector and the real economy.  In turn, this unprecedented concentration of financial power spearheads entire sectors of industry and the services economy into bankruptcy, leading to the layoff of tens of thousands of workers. 

The capitalists are building their ark before the storm; surely Africans should for once plan, put in order, and practice purposeful preparation for extremely difficult times.  The facts documenting this collapse are visible everywhere:
  • § In one day, the Dow lost more than 778 points and over 506 points in the next and all the major indexes slid more than 13 percent.
  • § In just 21 trading days in the fourth quarter, it is down about 2,254 points, or 27 percent.
  • § It has fallen 45.3 percent (sometimes trading below 8175 points), since its record close of 14,164 a year ago. This is a record collapse.
  • § Through early October, the Dow suffered its largest five-day point decline ever and its largest five-day percentage drop since the September 11, 2001, terror attacks.
  • § The market's paper loss for the session came to about $793 billion, as measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies' stocks.
  • § So far in three weeks of October 2008 alone, the loss has come to about $3.95 trillion.
  • § Americans' retirement plans have lost as much as $4.2 trillion in the past 16 months - about 38 percent of their value.
  • § In October 2008, the national unemployment was over 6.5%; the joblessness rate was over 14.3%; for African Americans those rates are 15.2% and 31.9% respectively. All are increasing at an unprecedented pace. In fact, over 300,000 workers lost jobs in the month of October alone. And at least 1.2 million workers lost jobs in the past seven months. There presently is no end in sight.
  • § Foreclosures are in line with the great depression; retail sales have collapsed; GM and Chrysler face bankruptcy---with the lives of 3 million working families directly tied to their fate by jobs, health care benefits, retirement, distributors, suppliers, and servicing industries. And another 25 million workers are indirectly tied to the automobile industry for their paychecks and livelihood.
  • § Major banks fail daily. Circuit City has already gone bankrupt. The entire car industry is facing collapse as it burns through over $14 billion dollars per month.
  • § The federal government has literally/quietly handed over $2.1 trillion dollars in transfer payments to selected capitalist businesses around the world in addition to the $750 billion recently approved by the congress. In fact, the federal government now has direct holdings in the insurance, automobile, finance, and investment banking industries as a result of investing monies under the guise of stemming liquidity problems via massive cash bail-out infusions. These are little more than trillion dollar transfer payments from poor to rich.
  • § The capitalist have no intention of loaning that money to workers---and the federal government never placed conditions on these banks to loan that money. Instead these capitalist banks are giving bonuses to their executives, increasing dividends to their shareholders, granting deferred compensation to their CEOs, and buying up other banks---while you lose your homes, cars, businesses, and student loans and educational opportunities.
  • § As a direct result, state, local, and federal governments face falling revenues, falling tax collections, falling spending, budget cuts, and slashing of school funding, education, health care, child care, social services, elderly assistance, etc. The full force of these cuts will hit harder than even the great depression.
  • § But these are only the most obvious features of an entire global economic system that essentially has run its course and is in the beginning stages of degeneration. This will not unfold overnight. Societies measure their life spans in centuries and millennia, whereas humans count their lives in years and decades.
  • § One thing is certain. This ship is sinking, this is the Titanic after it hit the iceberg---a new captain, a new president, a new head of state cannot stop the ship from sinking but my arbitrarily decide the few who are given life rafts/boats. As it stands now, over $2.4 trillion has been given to the ruling rich capitalist via the treasury, the federal reserve, the congress and the president.

The upheaval that has engulfed financial firms and sent the stock market plummeting is also devastating people's savings, cutting into pensions, destroying 401ks, cutting into mutual funds, forcing families to hold off on essential major purchases, and even delay retirement.  Most people now worry that they will have to work longer because the value of their retirement savings has declined. 

Public and private pension funds and employees' private retirement savings accounts - like 401(k)'s - lost about 27 percent between the middle of 2007 and the middle of this year, and lost another 19 percent just in the past three months.  Private retirement plans may have suffered more because those holdings are more heavily skewed toward stocks.

In sum, the stock market lost more than 39% of its value in 21 trading days---nearly $7.3 trillion dollars of value was wiped out globally.  Retirees and those nearing retirement have seen their nest egg eroded, some by 45% or more. And the banking system is under severe stress in the United States and globally.  Make no mistake about it -- a severe recession is here; historically African Americans have suffered far more than all other races.  This period is no different.

With the treasury just printing billions of dollars and giving it to capitalist banks just to keep the top ones in business, depression is next which has the potential to be the worst financial crisis any of us have ever lived through.   Daily things worsen---even as the Fed/Treasury pours trillions of dollars (of freshly printed money with nothing to back it but an IOU) into banks, mutual fund, money markets, and bonds. 

None of this has worked. Sober, careful study and preparation is necessary now.   Fundamental problems are at the heart of this crisis.

Central Problems

The main problem is that more and more people in the historically ‘wealthy' countries no longer have jobs. People have lost their jobs for many reasons, but the main ones are listed here:

  • 1. Computer automated technology has replaced them;
  • 2. The job has been moved to another country;
  • 3. The business that employed them has closed or downsized.

The fundamental economic situation is this:

On one hand, an army of unemployed is growing every year without any hope of finding jobs to secure the average standard of living, and on the other hand, the quantity, of produced commodities for mass consumption increases several times due to the high productivity of robotized factories.

These two situations contradict each other. Companies would produce goods for mass consumption on an increasing scale and at the same time eliminate the consumer market as they lay off workers---as in the case of GM, Chrysler, and Ford. For this reason the companies can't realize their profits, for the sake of which they robotized their production and reduced human power in the first place. The result: an economic crisis that cannot be solved by government using the methods of the old economic policy, the essence of which is to stimulate the private sector by (1) reducing taxes on capital and the rich, (2) reducing the interest on money borrowed from the Federal Reserve which is now approaching 1% (down from 5-6 percent just two years ago), (3) giving Wall Street $750 billion dollars, (4) giving the nine largest banks $250 billion with no strings attached, (5) nationalizing/buying private insurance companies and investment banks, and (6) nationalizing the housing industry thru Fannie Mae and Freddie Mac acquisition---in short---by creating favorable economic conditions for capitalism to function.  This is socialism for the rich ruling class (using taxpayer monies to fund it), and suffering for the rest of the population.

Nothing epochal just happens overnight.  Much time is required for a policy to change the course of a social process on a national level. But, this time all of their economic policy initiatives to reform their financial system will fail, because the main reason for the crisis is absence of a solvent market in the face of high unemployment, consisting of workers who never will be engaged in production, and never will restore the market for goods of mass consumption. With credit being called in for houses, cars, business loans, TVs, credit cards, etc., the old means of treating an economic crisis by stimulation of business, which in turn enhances market solvency by attracting more and more unemployed people into production, will no longer produce results. Computer automated machine production (computerized robots) have forever eliminated millions of workers (who would have been consumers) from manufacturing, construction, agriculture, mining and service industries. Moving production overseas to China to rob socialist cheap laborers is merely a temporary measure until robotic production becomes cheaper than even slave labor.

The existence of the global market and globalism only postpones the economic crisis in a given country, because capitalists increase export of its goods abroad for realization of profits when the solvency of the domestic market diminishes.

This process will proceed until the robotization of production in underdeveloped countries reaches the same level as it has in developed capitalist countries. International competition will force them sooner or later to implement robotization. When cheap labor no longer can compete with unmanned factories producing the same product, underdeveloped countries will be compelled to implement robotized production, and they too will feel the same consequences that developed countries experience. Under these conditions the global market will exhaust itself as the valve that eliminated economic pressure on the domestic market.  Then the fundamental conditions will be present for a global economic collapse.  This present financial collapse is merely the harbinger of things to come.

The difference between losing a job in 2008 and losing a job in the 70s or 80s is that in the past, people may have been laid off for a while and then rehired or they could have gotten another job, even if it paid less, was of a different type (like retail as opposed to assembly line), or was part time. Now, people permanently lose their job and their ability to get another one.

The financial system and the general  economy is in crisis---it will collapse. The resulting increase in unemployment is conducive to a dramatic decline in consumer spending which in turn backlashes on the levels of production of goods and services. Those jobs will not be resored at a profit. 

The financial system and the general  economy is in crisis---it will collapse. The resulting increase in unemployment is conducive to a dramatic decline in consumer spending which in turn backlashes on the levels of production of goods and services. Those jobs will not be resored at a profit. 

Exacerbated by Bush supply-side trickle-down policy, this downward spiral is cumulative, ultimately leading to an oversupply of commodities. 

Business enterprises cannot sell their products, because workers have been laid off. Consumers, namely working people, have been deprived of the purchasing power required to fuel economic growth. With their meager earnings, they cannot afford to acquire the goods produced. 

Layoffs, Unsold Commodities, Overproduction then  Bankruptcies

Inventories of unsold goods pile up, prices drop like oil going from $149 per barrel to $49 and gas at the pump has gone from $4.89 to $1.57 per gallon.  Eventually, production collapses; the supply of commodities declines through the closing down of production facilities, including manufacturing assembly plants, departement stors, car lots, stores, food shops and anything tied to a blue collar job. 

In the process of plant closure, more workers become unemployed. Thousands of bankrupt firms are driven off the economic landscape, leading to a slump in production. 

 

Computer Automated Technology, Relocation of Jobs, Business Closures

As mentioned above, millions of people have lost their jobs because of one or more of the reasons listed.  In each area of the economy, from agriculture to manufacturing to services, the nature of work has become fundamentally redefined, such that human labor is not needed in the way that it was in earlier decades. Instead, people are being replaced by computer automated machines (in the production process) and where it is still cheaper to employ human workers, corporations move these jobs to the cheaper labor markets in Asia.

A plant closed by Ford, GM, or Chrysler will not reopen with workers on an assembly line but with robots if it reopens at all.  A merger of Chrysler and GM immediately means nearly 55,000 workers getting pink slips.  Each could go bankrupt at anytime; they have very little operating cash in their reserves and people cannot get credit or afford to buy new cars.  Without a job, workers will not buy cars, computers, furniture, clothes, printers, etc.  For every one car industry worker laid off, at least 4 to 5 appendage industry (service) workers lose their jobs.  Nearly 2 million family members are affected by these loses.  In fact, over 1,000,000 auto parts jobs alone are tied to Chrysler.

The impact of these movements - movement of jobs to cheaper labor markets and technological displacement of workers - is no longer confined to the families and communities of whom displaced workers are a part. Rather the joblessness of millions of workers is hitting the finance, transportation, housing, retail, entertainment and other industries that rely on people's ability to earn money (through a job) and spend it.  This is why house payments are not getting paid by tens of millions of home owners.  But this is only the beginning. 

Increasing Joblessness and Declining Wages

The worker today is competing with a robot that is not paid wages---so the tendency is for the value of labor power, and hence, the value of human life, to be driven toward zero.

Wages are driven down, safety nets are being destroyed, people are being laid off/fired/bought out, health care benefits are cut, retirement cut, schools closed, homes foreclosed, families evicted, regulatory oversight is being eliminated, tax systems dismantled and rebuilt around new military priorities, and civil and criminal law systems are being transformed in the direction of removing any government responsibility for the welfare of society and its citizens. 

Importance of the Worker to the Global Economy

Working people are the most important elements to economies. They are the ones who buy the products and services created in the process of production.  In fact, 68% of all economic activity (buying and selling) is carried out by consumers with the salaries and wages they get in exchange for their work. 

Even though people don't always produce the stuff, they are the ones that buy it from the businesses; computer automated machines cannot buy anything.  Therefore when human beings - not 1 but millions - lose their jobs and/or take lower paying jobs, they cannot buy the same things they once bought, nor can they buy the amount that they once could. This reduced ability to buy products in the store or services from others, causes those stores and businesses to suffer too because they no longer have the same earnings as they once had.  The result - those businesses and stores must cut back too!

Joblessness impacts the global economy in another way: people cannot pay their bills. This includes taxes, utilities, car notes, mortgages, rents, insurance premiums, health care costs, credit card bills, etc.  While one person may not create a ripple in the economy, multiplied by a million and we have an economic crisis on our hands.

  • 1. Impact of joblessness on income taxes = less money going to federal government for budget, fewer resources going to cover unemployment insurance, etc.
  • 2. Impact of joblessness on property taxes = decrease in state and local budgets, cuts in education and municipal services, more job cuts, declines in infrastructure improvements, etc.
  • 3. Impact of joblessness on utilities = fewer payments to utility companies, smaller revenues for repairs and maintenance, job cuts in utility companies, fewer services, etc.
  • 4. Impact of joblessness on lenders (for large purchases) = tougher restrictions and higher interest rates (for borrowers); fewer loans, fewer payments on interest rates, cuts in jobs, cuts in services, etc. (for banks); investment losses (for investors)
  • 5. Impact of joblessness on housing = people not able to pay rent, more living on street or in shelters, families having to share living spaces, more difficult to find quality housing/neighborhoods, having to take what is there regardless of safety (for renters); not able to make mortgage payments, not able to collect rent on rental property, foreclosure, decrease in quality of life, etc. (for home owners)
  • 6. Impact of joblessness on insurance = people not able to pay insurance costs, fewer people with insurance, greater hardship when tragedies happen, etc. (for people); greater job cuts in the industry.
  • 7. Impact of joblessness on health care = inability to pay costs of care, inability to access quality care and services, etc.
  • 8. Impact of joblessness on retail = fewer retail purchases, more job cuts.

U.S. joblessness also impacts countries that sell goods and services to workers and businesses. When people do not work, they cannot buy the kinds of things they once bought. When people do not buy, the businesses lose money and the people who work in those businesses ultimately lose their jobs too.

Financial Markets: What Really is Going On?

No one, after reviewing the banking and finance data, could deny that the US banking system is on the verge of collapse.  This collapse will not occur overnight.  Nor will it wipe-out all banks at once.  It will, however, serve to concentrate and centralize all capital assets in the remaining few multinational banks.  Monopoly. 

As GM and Chrysler discuss a merger before they go bankrupt, millions of workers stand to lose their jobs and livelihood as a result of the centralization of capitalist industries.  These statistics combined places the modern banking crisis in line with the banking crisis of the 1930's Great Depression.  

This time, however, an entire globe is tied into the collapse of American banks.  As the US and its commodity-purchase market contracts the entire financial structure of world capitalism is endangered---especially China which depends on US consumers buying their cheaply produced commodities.  The US transition to debtor nation status was precedent shattering: there was no previous case in history of a country reversing so dramatically from creditors to debtor. 

Washington Mutual Inc (WM.N) was closed by the U.S. government in by far the largest failure of a U.S. bank, and its banking assets were sold to JPMorgan Chase & Co (JPM.N) for $1.9 billion. Washington Mutual, the largest U.S. savings and loan, was closed by the federal Office of Thrift Supervision, and the Federal Deposit Insurance Corp was named receiver. The bailout came after the thrift suffered deposit outflows of $19.7 billion since September 15 2008---leaving the Seattle-based Washington Mutual bank with about $307 billion of mostly worthless assets and $188 billion of deposits.

The nation's largest previous banking failure was Continental Illinois National Bank & Trust, which had $40 billion of assets when it collapsed in 1984.

Washington Mutual's collapse is the latest of a series of takeovers and outright failures that have transformed the American financial landscape and wiped out hundreds of billions of dollars of shareholder wealth. These include the disappearance of Bear, government takeovers of mortgage companies Fannie Mae and Freddie Mac and the insurer American International Group Inc (AIG), the bankruptcy filing of Lehman Brothers Holdings Inc (LEHMQ.PK), and Bank of America Corp's (BAC.N) planned purchase of Merrill Lynch & Co (MER.N). 

Now the entire Wall Street has its collective hand out for another $750 billion to one trillion dollars of tax money from workers to bail out capitalist: privatized profits paid for with workers tax debts.

Entire industries are debt-ridden, and meeting payments with loans.  Banks' real estate loan troubles grew faster in Maryland and the District of Colombia than in any other place in the country, according to the FDIC.  The total dollar value of real estate loans that are not being paid on time in the two jurisdictions tripled in just four months. The FDIC has also reported that the problems of northeastern banks are dragging down the entire banking industry. 

The nonsense about mismanagement is the same distraction fabricated during the Great Depression to mask the fundamental cause of banking crises.  Less than three percent of the money being lost to investment banks be classified as being caused by fraud and mismanagement. 

Two central questions are instructive.  Why now is the entire banking industry in the beginning stages of a national and international collapse?  Why has less than 500 billion in sub-prime loan debt been blamed for over $27 trillion in global debt which is much larger in scope and impact? The nonsense about bad loans is another distraction from the fundamental economic crisis US capitalism.  Why do good loans become bad loans?  The borrower's economic condition worsens and therefore they are unable to make their payments.  Why are individuals, companies, cities, states, and nations unable to pay off their loans in a certain period of history?  Their means of income accumulation has been interrupted, and it is there that solution must be sought---not in any subjective blaming of individuals. 

For tens of millions of workers the crisis has already reached depression levels.  The economy is moving through the definite stages of capitalism's cyclic crisis.  The stages of the crisis are the ending of the expansion of the market, an agricultural crisis, a financial crisis and an industrial crisis. 

Currently there is widespread weakness in production, a growing credit/debt crisis.  The economy is in the latter phases of a financial crisis.  This is setting the stage for industrial collapse and a global depression unlike any ever experienced in this country and the world.  The junk bond market is now collapsing.  The investment banking industry has literally gone out of business.  The car industry faces bankruptcy.  The insurance industry has gotten $150 billion in free cash and still faces bankruptcy.  Pensions, and retirement funds are in the line of fire and will be hit hard.  Millions of seniors have already lost over 50% of their savings.  Those still invested will lose more.

For the past 7 years (if we can use September 11, 2001 as a turning point), mainstream economists have been falsely painting a rosy picture of the economy to bolster confidence among consumers. In other words, they continued to present a picture of a healthy economy, in spite of the reality that hundreds of thousands of workers were losing jobs and were unable to replace them. In sum, good loans became bad when workers lost their means of income and therefore could not pay their bills on time and sometimes not at all.

Joblessness and the Wall Street Crisis

Mainstream media blames the financial crisis on sub-prime lending practices among banks and financial institutions.  This is wrong.

The financial crisis results from widespread joblessness. When people do not work, they cannot pay their bills. Multiply this by hundreds of thousands and that translates into billions of dollars of unpaid rental and mortgage payments.  Lenders rely on this money to loan out to other people, businesses and banks.  When they do not receive this payment, they cannot continue giving it away to get more money. 

The federal government recently loaned the largest banks $250 billion with hopes that those banks will lend to other banks.  They won't.  These banks will wait it out, and sit on any money they get.  Their logic is simple.  Why risk not getting your money back and going bankrupt?  In fact, the federal government did not even require that they loan the money. 

The capitalist process of production requires the existence of certain conditions. Firstly, the existence of a large class of workers who are obliged to sell themselves piece-meal in order to live: work, make profit for capitalist, get pay check, pay for food/clothing/housing/transportation, run out of money, go back to work, reestablish the former relationship.  Secondly, the method of producing the profit with labor and technology must be owned by the capitalists. They in turn hire the workers to work with the technology to produce the surplus value, then the profit after what was produced is sold.

Goods sold in capitalist countries must be sold at a profit.  But large surpluses of oil, food, clothing, transport vehicles etc., means world prices stay low, cutting into profits.   On a global scale multinational corporations must compete for contracting market spheres. 

In a glutted national economy, the rate of profit falls at an accelerated rate because they are more goods made than can be sold.  With this excess supply, prices tend to fall pushing down profits.  The lowered profits mean even greater competition as companies strive to maximize their profits.  This results in the merger and acquisition flurry we have seen in diversification. 

Just as the production of goods is international so is the distribution of human labor power.  The circulation of labor power is stifled because there is a glut of human labor power as well as a glut of commodities.  As a region's means of selling what it produces decays, so does its banks.  Laid-off workers cannot buy "big-ticket" items such as cars, houses, televisions, stoves, and furniture.  Unemployed workers cannot repay loans.  Neither can real-estate developers who cannot find tenants for office buildings, houses, malls, and shopping centers. 

Being tied directly to the housing industry in a period in which workers cannot pay their house payments either due to unemployment or under employment is fast forcing savings institutions, commercial banks, life insurance companies and mortgage pools into bankruptcy.  This process will ultimately lead to a total financial collapse. 

What this Means to Black People 

What this means to Black people is the financial system will collapse, leading to the degeneration of the economic system, then a social crisis which engulfs the nation and is transformed into a political crisis between classes for control of state power/government rule.  There will be a regression,  a period of fascist dictatorship similar to Hitler and the Third Riech.  Blacks will be the target.  Millions could be exterminated.  In it all, Blacks will have the first chance in their history since being enslaved in the tens of millions to free themselves and use their advanced technological education to rebuild Africa's infrastructure reflective of modernized scientific/technological innovation.