Capitalist ‘sea of debt’ paves way to bigger crisis

BY BRIAN WILLIAMS

Few workers need to be told that they’re facing the worst economic crisis of their lifetimes. After seven years of a so-called recovery, millions still cannot find jobs or can only find part-time work. For most of those who are working, wages are stagnant or falling. Not only is there no end in sight, the workings of capitalism today are paving the way for a deeper catastrophe.

At the root of the crisis are the bosses’ falling rates of profits and contraction in the rate of investment in capacity-expanding plant, equipment and employment.

“Working people in the United States are also being hit hard by the disastrous consequences of the rulers’ drive over the past several decades to float their rate of profit on a sea of debt, in which we are left to drown,” says Jack Barnes, national secretary of the Socialist Workers Party, in Are They Rich Because They’re Smart? Class, Privilege and Learning Under Capitalism .

One example is the growing auto sales credit bubble with car loans topping $1 trillion.

Remember the collapse of the housing bubble and “subprime” loans that was one of the sparks of the 2007 financial collapse? According to the Wall Street Journal banks have a new phrase, “near-prime,” but it’s the same thing. These subprime auto loans increased from $2 billion in 2008-2009 to $22 billion in 2013. Like the subprime housing loans, they’re packaged as securities and resold as a financial “investment.”

“Someone is going to get hurt,” J.P. Morgan Chase & Co. Chief Executive James Dimon said in June. But don’t worry, he added, auto lending is only 12 percent of the $8.4 trillion mortgage market so it’s not a “systemic issue.”

The Federal Reserve Bank of New York reported in May that mortgages, the largest component of household debt, increased $120 billion since the end of last year. While credit card balances declined, student loan debt rose by $29 billion.

Household debt is also on the rise in Sweden, France and other countries around the world.

The Journal June 22 sought to calm any worries, stating that the percentage of people in the U.S. with subprime credit scores is the lowest in a decade and that loan defaults “are near record lows.” A month later the paper was singing a different tune. “Big banks are socking away more money to cover possible losses on consumers loans,” it reported, “as their executives warn the long boom in credit quality has peaked.”

In the decades since the 1974-75 worldwide recession capitalists have placed speculative bets on stocks, bonds, derivatives and other kinds of commercial paper, what Karl Marx called fictitious capital. They do this instead of investing in factories and producing the things that can help humanity — such as rebuilding and repairing needed infrastructure.

Even while stock market prices are still high, many of their financial bets are not doing too well. “Long-term returns for U.S. public pensions are expected to drop to the lowest levels ever recorded,” reported the Journal July 25. In other words, relying on expected “good returns” — instead of fully funding pensions — has not worked out too well. As a result now there is more than a $1 trillion funding gap.

Meanwhile, world trade has been stagnant at best for the last 18 months, according to the Financial Times. And the global volume of exports and imports in April this year are below what they were in January 2015.

With the continuing drop in oil prices, energy companies worldwide have slashed more than 385,000 jobs. Amid lower prices, increased bankruptcies and defaults on loans by oil companies and what capitalist economists call “oversupply,” the Journal reported July 26, there has been a “resurgence of U.S. shale oil production” which could spark further price drops.

Depression conditions affects workers worldwide

In the U.S. and 24 other “advanced” countries, two-thirds of the population earn the same or less than those doing the same jobs a decade ago, says a July report by the McKinsey Global Institute, highlighting the impact of the slow-burning depression. In 2014 more than half a billion people, many in Europe, but also in Australia, New Zealand, Canada and the U.S., had lower or stagnant real incomes compared to 2005.

Among those hardest hit are young workers, the report notes, “raising the spectre of a generation growing up poorer than their parents” and “losing faith in aspects” of the capitalist economic system.

In Russia, a country not included in the McKinsey report, conditions facing working people are also going from bad to worse. “Almost a third of Russians now buy less food than before, while 49 percent admit they save on medicine by ignoring doctor prescriptions,” reported Bloomberg News. “Some two-thirds say prices of goods and services bought by their families are rising at double the pace of officially reported inflation, if not faster.”

The nation’s largest supermarket chain, Magnit PJSC, reports a drop in purchases for the first time. Retail sales in June shrank for a record 18th month, dropping 5.9 percent from a year earlier, according to the Federal Statistics Service in Moscow.

Front page (for this issue) | Home | Text-version home