NEW YORK (13 April 2001) - Not so long ago, "free-market" pundits were basking in the sun of their own triumphalist propaganda. Communism and socialism were dead! The "welfare state" was dying! History had ended!

And riches poured in for the rightful Masters of the Universe.

"There is no alternative," declared capitalist icon Margaret Thatcher, to what is often called "neoliberal globalization."

And as stocks rocketed ever higher, the talk was of a "new paradigm" and a new "global economy" which transcended the old capitalist business cycle.
But today the specter of collapse and catastrophe is haunting Wall Street

Hitting a brick wall at 90 mph
Since the fall of 2000, official statistics for U.S. Gross Domestic Product [GDP --a measure of economic activity] has registered a sharp decline. From 1996 until the winter of 2000 the U.S. GDP steadily increased from the sluggish early 1990s. The last few quarters of 1999-2000 saw relatively sizzling figures of up to nearly 6% growth.

But from those heights it has rapidly fallen to from 1% to a flat zero. As one "equity strategist" told the London Observer, "It's not just the case that the U.S. has slowed down, but that it was doing 90 when it hit the wall."

This sharp U.S. downturn is wreaking havoc with the prospects for economic stability throughout the imperialist world. Equity markets in London, Frankfurt, and Paris have seen record declines. In Japan­where a giant financial, real estate, and stock market bubble burst ten years ago, leaving Japanese banks holding some $300 billion in bad loans­the ongoing puny economic outlook has been further jeopardized by the gathering U.S. crisis.

For the dependent economies of the so-called Third World, synchronized recession in the imperialist countries means shrinking export markets. And imperialist pressures on subservient governments to acquiesce in the looting of national patrimony will intensify, thanks to the Third World's debt-slave status.

Meanwhile, as world markets retract, competition between national and regional blocs of capital intensifies. Past battles between Washington and the European Union over beef, farm subsidies, and bananas, and policy differences such as sanctions against Iran, Iraq, and Cuba will become even sharper in a global economic recession. In fact, as prominent global-minded bourgeois economist Fred Bergsten said in the New York Times, "The United States and the European Union are on the brink of a major trade and economic conflict."

What happened?
Throughout the 1990s a huge bubble expanded in U.S. equity markets, especially in the NASDAQ index, home to many so called "new economy" companies which sell technological applications and services. These include giant manufacturers of computers and their components (e.g. Compaq, Oracle, Cisco, Microsoft) as well as thousands of "dot.com" Internet outfits.

At the height of the NASDAQ bubble, stock prices hit stratospheric heights of hundreds of times companies' earnings, where a ratio of 15 or 20 to one had previously been considered risky. Some serious bourgeois economists warned that a crash was surely coming.

The dot.coms attracted huge amounts of so-called venture capital in the frenzied anticipation that buying and selling over the Internet would soon supplant traditional wholesale and retail operations .. and much more. The "venture capitalists" bet on huge profits they thought just around the corner. Brokerage house hucksters raked in large commissions from sales of such stocks. The corporate media generated a huge hype that helped a stunning bid up of prices of various fly-by-night operations which were little more than jazzed-up web-pages selling little and never making a dime of profit.

Up to 90% of these outfits have gone bust, along with the hundreds of billions of dollars in money capital that went down the proverbial rat hole. The NASDAQ index, which lists most of these technology stocks, has in the past year tumbled over 60%. The S & P index of 500 large companies is down some 25% and the bellwether Dow Jones index of the 30 top U.S. industrial giants is hovering around 20% off previous highs. Taken all together, in the past year some $5 trillion in equity value has evaporated from the "portfolios" of all who are "invested" --many with borrowed money-- in the stock market.

Since ownership now exists in the form of shares, its movement and transfer become simply the result of stock-exchange dealings, where little fishes are gobbled up by the sharks, and sheep by the stock-exchange wolves.
--Karl Marx, Capital, volume 3

No surprise that the worst hit have not been the huge brokerage firms, but smaller firms, workers and others holding "long-term" 401-K accounts, and individuals "playing the market." The heavy hitters who raked in huge commissions on sales on the upswing --and who are able to buy stocks at discounted prices-- often had the information to begin to pull out their funds at the crash's early stages (which itself brought down stock prices after the cashing in).

And now a dynamic has set in where more people want out of the market than want in. This dynamic increases the tendency of downward pressure on stock prices.
Toss this in with the instability of the world economy, and you get the main feature of U.S. and world markets: extreme volatility. The sharp declines during the week of 20 March were followed by large rises in the Dow index the following week, only to fall back again. In mid-April (as of this final editing of this article), stock prices again spiked upward. These fluctuations drive smaller players out of the market and --along with the retraction of world economic activity-- accelerate capitalism's inexorable motion towards concentration and monopoly.

Falling sales, falling profits
But what fundamentally drives down stock prices is the business prospects of the companies whose stock is on the market. This boils down to a question of volume of sales­earnings­of the commodity or basket of commodities representing a company and its brand name and the rate of profit that the sale of these commodities brings. Earnings and profits have been steadily dropping for some time, dramatically for many operations. Neither sales genius, media hype, willful "confidence," nor interest rate cuts can stop or reverse the dynamics of the capitalist business cycle and a recessionary downturn when it sets in.

The plunge in stock prices in mid-March registers in the Wall Street casino the public reports by major corporations and banks of steady, often sharp declines in sales and profits. The financial magazine Barron's notes that first-quarter 2001 reports from Thomson Financial/First Call indicate the "most depressing 'confession season'" since they began collecting "pre-announcement" data in 1996. "Thus far," Barron's writes, "a total of 870 companies pre-announced ahead of the regular earnings season, and of those, 610 or 70% have been negative earnings projections."

Throughout 2001 there has been a steady drumbeat of negative earnings and profit reports, often hasty "revisions" of previously upbeat deceptions and self-deceptions. (In many cases, accounting tricks that put off the bad news in previous reports can no longer hold back the reality of contracting markets, slumping sales, and sinking profits. "Right now ... nobody has any confidence in the earnings estimates that are out there," one portfolio manager at a major asset-management firm told USA Today.)

Meanwhile financial stocks­brokerage firms and investment banks­are particularly vulnerable to the permanent threat of new debt bombs exploding in the Third World. In fact, the twin financial crises in Turkey and Argentina, currently deepening in both countries, has been a significant part of the "background noise" and world context for the turmoil on Wall Street and other imperialist equity markets.

Of course, sinking profits means mounting layoffs. Food and household goods giant Proctor and Gamble announced nearly 10,000 or 10% of its workforce. Walt Disney Co., another of the 30 giants that make up the Dow Index, is sacking 4,000 workers. Dupont another 4,000. Major auto parts manufacturer Delphi is eliminating 11,500 jobs. Hundreds of thousands of jobs have vanished in computer and Internet-related companies. While bourgeois economists and official government spokespeople have not yet anointed the economic downturn as a "recession," they cannot avoid applying that term to the "manufacturing sector". In the coming months, expect official figures on U.S. unemployment to rise substantially for the first time in a decade. (Job losses are by no means limited to the industrial working class. Dot.com staffers, brokers, mid-level bankers and other professionals at financial institutions, and what used to be called Yuppies are being hard hit.)

Hi-tech feeds low profits
In the past 10 years there has been a giant wave of business expenditure on capital goods, that is, technology, means of communication and data processing equipment, and machinery. Marx called this part of capital outlay constant capital or fixed capital. These huge investment outlays, driven by advances in computer science, became an imperative for firms­large, medium, and small­in order for them to sell their brand names and commodities at competitive prices. But these investments have, in general, not resulted in the expansion of productive capacity. These capital goods outlays do not significantly draw more and more workers into mills, mines, and plants. What this replacement of older, now obsolete technology has done is facilitate an increase in relative surplus value, the rate of exploitation through speed-up and more production from fewer workers.

Companies first to join this decade-long wave of capital goods expenditures got a big initial boost in volume and profit-rate over their competitors. But as the new technologies and methods become the generalized norm­destroying those who fail to catch up­the rate of profit for all industrial sectors tends to converge around a common average. The "computer age" registers and confirms these laws no less than the rise of steam and electrical power in the past two centuries and the replacement of horses by railroads.

Furthermore the rise in the proportion of capital composition of overall capital outlay in technology and machinery over living human labor; the increase in the rate of surplus value, that is increased exploitation of labor; the convergence toward equalization of the rate of profit­ all establish a recurring dynamic whereby there is a long term tendency for the rate of profit to fall.

This is perhaps Marx's decisive theoretical breakthrough in discovering the key to the regularity and inevitability of capitalist crises and permanent instability of the private profit system.

Results of "Asia Crisis" of 1998-99
The 1990s boom for U.S. Capital was accompanied and fed by intensified imperialist exploitation of the semi-colonial world. Through the process of "neoliberal globalization", imperialist institutions such as the International Monetary Fund, World Bank, and World Trade Organization have enforced the unequal exchange, austerity, debt bondage, and overall looting of wealth and resources from the workers and peasants of the Third World to the banks and ruling classes of the imperialist centers. Neoliberal advances have resulted in the further dependence of Third World economies on exports to the U.S. and other imperialist powers.

Most immediately, the U.S. slowdown will lead to ruinous devastation of Third World capitalist economies.

The fundamental character of this dynamic was scientifically analyzed by V.I. Lenin in the heat of World War I in his book, Imperialism: The Highest Stage of Capitalism. As Fidel Castro has more recently pointed out, "neoliberalism is merely the continuation and latest manifestation of such pillage."

The unfolding world capitalist crisis of 2001 is directly linked to the way in which the imperialist countries got through the so-called "Asian Crisis" of 1997-98. World currency and equity markets were convulsed by a series of shocks that began with a devaluation of the Thai baht, then quickly snowballed into dizzying plunges in other East Asian currencies and accompanying huge economic retraction. To protect the assets and holdings of imperialist-centered banks, the IMF rushed in "liquidity" --new loans to semi-colonial governments-- and rammed through as "collateral" the austerity measures designed to devastate the jobs and living standards of workers and peasants.

As a result of collapsing currencies, the price of East Asian commodities significantly cheapened in the U.S. and other imperialist markets. Shares prices of south Korean, Thai and other companies became so low that U.S. and other imperialist capital was able to step up acquisitions at bargain basement prices, thus accomplishing a chief aim of the metropolitan super-rich.

Capital fled from East Asian currencies and economies and flew across cyberspace back into the "safe havens" of U.S. equities, bonds, and interest-bearing U.S. Treasury notes.
Next, what racist pundits termed the "Asian contagion" spread to Latin America, roiling the biggest markets of Brazil and Argentina, and even the hybrid, artificial currency markets of Russia. The IMF worked overtime to protect the assets and loan payments of imperialist banks and to contain the situation without producing panic in world markets.

But when the Russian government informed the IMF that it was effectively defaulting on certain "obligations," near panic began to set in. Banks and other "financial instruments" such as hedge funds (which cater to wealthy individuals and often wager large sums on rises and falls of various currencies based on "forecasts" of computer-generated mathematical models) became vulnerable to insolvency and collapse. At this apex of the 1997-98 crisis, Federal Reserve chief Alan Greenspan was compelled to organize a then-secret meeting of top Wall Street investment firms to bail out Long Term Capital Management­a huge hedge fund­whose collapse was deemed too risky for the cause of worldwide capitalist stability.

Greenspan and the Clinton Administration team led by Treasury Secretary Robert Rubin managed after that critical conjuncture to restore some short-term stability. But the huge bill for that escape is coming due in the current, more dangerous crisis which has now begun.

After the crash of Asian and other "emerging markets," their stabilization and recovery depended on exports to the giant U.S. market. Capital pouring into the U.S. in effect financed the growing disparity between U.S. imports and exports. The massive influx of capital contributed heavily to blowing up a huge bubble in U.S. equities, which in turn fed a consumption boom. The expansion of credit and concomitant growth in corporate and household debt­the latter nearly $1.4 trillion not including individual home mortgage debt­ was virtually unbounded. The foundation for the current crisis was laid.

Confidence job
There's no question that what can be called a consumption boom tied to a now-bursting stock market bubble developed in the late 1990s. As the paper wealth of millions of mostly petty-bourgeois households rose dramatically with the equity bubble, consumer spending also rose sharply. Most of this was fueled by borrowed money and not by cashing in potential stock market profits. Credit card debt exploded. Old-fashioned savings accounts fell to zero. Actual household incomes may have only covered basic housing, food, health, and education costs but many giddy holders of stock paper saw the apparently incredible returns month by month and year by year and felt flush with money.

Today the fear is that consumer spending will collapse as the impact of evaporating paper wealth in stocks, layoffs, loss of overtime pay, credit card debt, and failing businesses sets in. Declining "consumer confidence" is Wall Street jargon for the growing squeeze on working class and middle class households and the possibility of a snowballing cash panic.

Every worker knows that one's ability to consume food, medical treatment, or a bed to sleep on is contingent --under capitalism-- on the amount of money (or permitted drawing of credit) you have to pay for it (or in the case of food to grow it). This depends on income from the sale of your ability to work and produce profits for an employer.

The confidence of owners of capital ("investors" who employ wage labor) is based on anticipation that the rate of profitable return will justify the release of their money into the stocks or bonds of a particular enterprise or project.

The pessimism on Wall Street is not a question of "negative psychology" or lack of consumer confidence. It is based on actual, material facts regarding profits and debt. But there's no doubt that a growing mood of gloom and doom on the Wall Street casino can become itself a material factor and lead to a snowballing panic which can wreak havoc and financial devastation.

In a 1999 presentation given to an International Student and Youth Seminar on Neoliberalism, Fidel Castro pointed out that in the U.S., "the rate of savings in relation topersonal income is currently below zero. Yet, they are buying the entire world. They save nothing and buy the world. An artificial economy is maintained on the basis of promoting, exhorting, and demanding consumption

"They are telling the consumers 'consume more, consume more' and when they find the consumers have bought more carsthey applaud and encourage them. It is crazy and absurd.
"Who pays for this? The rest of the world. Where do they get their raw materials from? The rest of the world.What does the rest of the world receive? Papers, that go to reserve, or to pay debtsthe external debt of Latin America reaches no less than $700 billion." Such a situation, Castro stresses in speech after speech, is unsustainable.

Greenspan to the rescue?
The other side of this unsustainability is the mystification of economic dynamics under capitalism and the search for a White Knight to lead the way out of the morass. This explains the deification --and more recent vilification-- of Federal Reserve chief Alan Greenspan and his control of the government committee setting the interest rate at which U.S. government reserve banks loan money to private banks. Hopes for further cuts in this "federal funds rate," now at 4.5% after four consecutive 0.5% cuts this year, has been presented as the Great White Hope for avoiding a coming catastrophe.

Cuts in interest rates make it possible to borrow more money to go further into debt, or to refinance old debt. So the "solution" to a deepening economic crisis fueled by the ballooning of debt is adding more debt.

Frantic brokers and their loss-laden clients are begging Greenspan to lower interest rates more than he already has. Rate cuts are presented by many as a panacea for all that ails the stock market, a talisman to ward of recession. This is an illusion.

Lower interest rates may convince someone to buy stock or temporarily boost equity prices in the hope that corporate sales and profits will boom. But low rates won't necessarily convince a worker or other consumer to borrow more money, assume more debt, or run up more credit card bills if they are already in hock up to their ears or fear losing their job. The millions of people in the middle classes who have seen their paper wealth in stocks evaporate in the past year while running up debt are not necessarily in the mood or position to go on a new spending spree, especially if they lose their previously high-paying job.

And interest rates can only go to zero --exactly where they are in Japan today, which is still mired in stagnation ten years since its own bubble burst.
Greenspan must also factor in the effect of interest rate cuts on the position of the U.S. dollar, and the potential for capital flight from U.S. money funds. Lower interest rates mean better terms and less financing charges for the borrower, but also less return for the seller of money. Bank failures and stock market crashes in Japan combined with a too-low U.S. interest rate could cause a massive repatriation of Japanese money in many tens of billions out of U.S. Treasury bonds to cover losses and prevent catastrophe at home.

n short, there are no technical solutions or formula that can attenuate the extreme tension and contradictions of world capitalism as the U.S. locomotive derails.

Resistance to Neoliberalism
Capitalism has always been a cyclical, crisis-ridden system. Its booms always contain within them the forces and contradictions that lead to bust. The trend in the past decade toward greater integration of world markets, the tremendous growth in the volume of world trade, and greater speed in the export of capital and the contracting and implementation of financial and economic transactions­all these components of modern capitalist globalization render more profound the tendency toward instability, crisis, and catastrophe for the capitalist system.

From Turkey to Argentina, from Ecuador to Indonesia, imperialist agencies like the IMF are compelled to attempt to slash jobs, wages, and living standards in the name of stability for loan sharks and speculators in New York, London, Paris, Geneva, and Frankfurt. But the political price is growing. The past few years have seen more generalized resistance to neoliberal programs, especially in Latin America. A series of mass uprisings in Ecuador have toppled governments and pushed back austerity measures. In Argentina there is deep working-class resistance including huge general strikes to brutal measures proposed by a weak central government servile to the IMF.

The permanent nightmare of imperialism is the spread of mounting national and global resistance by working people and youth. The economic and social turmoil that is now at hand is also drawing into struggle the working class, family farmers, and young people in the United States, the European Union, and Japan. The potential for the globalization of labor solidarity has never been greater.

The objective and the subjective
The crash at the beginning of 2001 marks the opening period of an unfolding, unwinding crisis in the political economy of world capitalism. This crisis is fueled by the very factors that accompanied the 10-year expansion in the U.S: the rapid expansion of credit and accumulation of debt; the vast fabrication of paper wealth­"fictitious capital" in Marx's words­driven by snowballing speculation in paper securities which do not expand productive capacity; the technological revolutionization of the methods of production which lead to initial increases in the rate of surplus value and profit; and culmination in the overproduction of commodities and capital and declining rates and volume of profit.

This is not to say that the current conjuncture presents a picture of imminent or final collapse of the system. The survival and revival of world capitalism is a political question for its defenders and opponents. Deep going economic crises under capitalism unfold politically.

Every capitalist economic crisis becomes a social and political crisis of the capitalist state and its institutions. But even a monumental collapse of the underpinnings of the capitalist economy­such as the Great Depression of the 1930s­does not automatically lead to the replacement, transcendence, or overthrow of capitalism. There is no crisis that the capitalist system's politicians and economists cannot overcome if they are given the time and the political space to do so. Marxists foresee the inevitability of capitalist crises. But what is not inevitable­in fact what is precluded­is the inevitable collapse of the capitalist system as a whole. Capitalism will not die from its crises. It must be consciously overthrown.

In the 20th Century, world capitalist economic crises translated into colonial plunder, trade wars, two world wars, and the rise and spread of fascism. War and fascism will also be unleashed ultimately out of the current crisis of neoliberal globalization. Before this crisis is over it will affect every corner of the globe.

What is also certain is that new and uncontrolled forces will come out of nowhere from within the oppressed and exploited global majority. Set in motion by the capitalist crisis, these new revolutionary forces will vie for power in order to construct a humane, socialist world that is of, by, and for the working people. As Fidel Castro told a conference of 6,000 Latin American and Caribbean students last year, "only socialism can replace neoliberalism."

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