A catastrophist view

[Louis Proyect <lnp3@xxxxxxxxx>]

The Turn of the Tide
By Alan Woods

"People of the same trade seldom meet together, even for merriment or
diversion, but the conversation ends in a conspiracy against the public, or
in some contrivance to raise prices." (Adam Smith, The Wealth of Nations)

So, after all the talk of an economic revival in the USA, the headlines are
now dominated by an epidemic of financial scandals, steep falls on the
stock markets, waning confidence and increasing uncertainty. The
nervousness on the stock markets is just a surface manifestation of a far
deeper crisis that expresses itself on a global plane in extreme
instability at every level - economic, social, political and military.

Last Wednesday there was a massive 282-point fall on Wall Street, which
triggered slumps on Asian and European markets before continuing with fresh
falls in New York. The FTSE 100 index of leading UK shares slumped more
than 4 percent the next day - its worst one-day fall since the 6 percent it
lost after the terrorist attacks on New York and Washington. In one day,
more than £45 billion was wiped off the value of shares.

The immediate cause of the panic was that the wave of accounting scandals
and grim corporate news dealt a hard blow to investors' confidence around
the world and by the end of the week, the FTSE 100 index stood at a
five-year low.

US investors were dumping stocks amid reports of a federal investigation
into accounting practices at the pharmaceuticals giant Bristol-Myers Squibb
and a second downgrade in as many days for General Motors' shares. By
lunchtime, the Dow Jones industrial index had slumped by as much as 200
points, which the Guardian described as a "dizzying nosedive". The panic on
the floor of the stock exchange was palpable: "When is this going to stop?"
asked Brian Belski, market strategist for US Bancorp Piper Jaffray, an
investment bank. "It's anyone's guess. No one knows."

The financial authorities moved to calm the market as investors showed
signs of panic. The French Finance Minister, Francis Mer, described the
falls as "extreme, even excessive" as he pledged to tighten the regulation
of markets. In London a spokesman for the Treasury said that Britain was
"better placed to withstand the ups and downs of the financial markets"
than in the past. He continued to sing the same old song: "The fundamentals
of the economy remain sound and we remain cautiously optimistic about the
prospects of the UK economy both this year and next."

On Thursday Bristol-Myers shares sank 13.6 per cent, down $3.15 at $20,
after the Securities and Exchange Commission revealed it had launched an
investigation into whether the company had inflated its revenues last year
by $1 billion. Efforts by President George Bush to pledge tough new reforms
for corporate leaders did nothing to allay the fears. The influential
Nasdaq technology market ended on Wednesday lower than at any time since
May 1997.

Violent swings

What is the reason for this sudden attack of nerves? Wall Street has been
hammered by continuing worries about future profits. But the underlying
crisis is far deeper than that. The violent swings on the world's stock
markets are a graphic expression of the violent mood swings of the
bourgeoisie. Ten years after the fall of the USSR, capitalism is gripped by
a mood of pessimism and fear of the future. Gone is the old boastful
confidence. Gone are the times when the great majority of economists
expressed blind faith in the so-called New Economic Paradigm. The truth has
at last dawned on even the most obtuse defenders of "market economics" -
that the ship is leaking badly, and has entered rudderless into uncharted
and stormy seas.

The bourgeoisie and its strategists really have no idea where they are
going. In place of a strategy, they have resorted to a series of improvised
expedients. Alan Greenspan pushed through eleven increases in interest
rates in as many months. This unprecedented behaviour on the part of a
supposedly conservative and responsible banker is fairly typical of the
general conduct of corporate America. They were drunk with success. The
party seemed to have no end. The sky was the limit!

Now they have woken up the morning after with a bad head. The profits of
the big corporations have collapsed. And as everyone knows, profits are the
lifeblood of the capitalist system. No profits, no investments. That is
such an elementary statement that a child should be able to grasp it.
Unless and until there is a recovery in profitability, no real economic
recovery is conceivable.

full: http://www.marxist.com/Economy/turn_of_the_tide.html

Louis Proyect
Marxism mailing list: http://www.marxmail.org



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