Andy Blunden June 2009

The US exploits the rest of the world to
postpone its own civil war

The Global Financial Crisis of October 2008 is stage one of a two-stage process. When the US economy began to slide into recession in 2001, Bush II ordered a relaxation of all regulation and control of credit, thus unleashing a ballooning of various forms of fictitious capital. Value represents a claim to some portion of the social labour. How this is represented in money terms is now quite indeterminate, since the breakdown of the Bretton Woods arrangements and the floating of the US dollar in 1973. But nonetheless, capital is only real to the extent that it commands some proportion of the social labour. Fictitious capital refers to forms of credit which have been created without creating new claims to social labour. Fictitious capital is indistinguishable from other capital, but confers the same social power on its creators. It depends for its value on its continued circulation, and any effort to withdraw it from circulation exposes the fact that it is worthless and brings about a collapse in capital values. Because fictitious capital is indistinguishable from capital created by exploitation of wage labour, its collapse is uncontrollable and unpredictable. Fictitious capital is like a pyramid scheme: at a certain point, when the scheme can no longer honour its obligations, the whole thing collapses.

The fundamental reason that Bush II gave the go ahead for an accelerated creation of fictitious value was to avoid a class confrontation. The most notorious component of the fictitious value was the ‘sub-prime loans’. These involved giving mortgages to poor people who never had a chance of repaying their loan, but for a few years, would enjoy a home of their own.

On the other side, despite escalating spending on the Iraq and Afghanistan wars, Bush cut taxes thus making huge hand-outs to the better off sections of middle-class America. At the same time, he created a scheme which provided to old age Americans, free medicine at inflated cost to the government, prices being set unilaterally by the big pharmaceutical companies. And at the same time again, regulation of the financial system was dropped allowing the wealthiest of the wealthy to generate vast piles of ‘fictitious capital’ in the form of a mysterious array of financial instruments. Thus every section of American society was receiving hand-outs, keeping everyone happy and willing to keep quiet about the human costs of Bush’s wars. But at what cost?

Vastly increased public spending on war and medicine combined with reduced tax revenue meant rapidly escalating government debt. US government debt has been dangerously large since the Reagan Administration which operated much the same policies as Bush II, but under Bush I and Clinton, the expansion of this debt was reined in. By the end of Bush II’s reign, the US government debt was increasing at a rate of US$3.3 billion a day. Every US citizen owed a US$34,000 share of that debt.

This debt has been financed by borrowing from China, India and other countries where living standards are abominable, and workers work for wages which are below that of the poorest of American workers (and some Americans really are poor!). Why should countries as poor as China and India pay to subsidise the life-style of the citizens of a country as rich as the USA? Because America has an economic gun to their head. Americans buying the products of Chinese and Indian factories is the fuel which runs the capitalist economies in these countries. It is not so much that China or India needs to buy things from the US, but like the “banana republics” of Latin America a few decades ago, their whole economies are geared to low wages producing cheap goods for the American market, and then lending the proceeds back to the American government, as a form of investment capital, controlled by the national elite. Hypothetically, the Chinese (and other newly industrialised countries) could produce for own their domestic market, but for that, they would have to pay wages which would allow their workers to buy the products they produce. But this would ruin the whole scheme for the ruling elite who manage to grab a share of the cash circulating in this arrangement for themselves on the basis of low wages and rapid capital accumulation.

So we have the elites in poor, newly-industrialised countries helping the Americans (and others) maintain an unsustainable lifestyle and getting a share of the proceeds themselves. If the Americans weren’t there to soak up the cheap products of China’s low-wage economy, China would have to completely restructure their economy, with the working masses wielding purchasing power, and inevitable along with purchasing power, political power. Contrary to what Mao said: Political power grows out of a full purse, not the barrel of a gun.

When a vast mass of fictitious capital began to collapse, the situation was stabilised ... by the US government stepping in and acting as the lender of last resort. Both John Maccain and Barak Obama promised tax cuts, and Obama is sticking by that promise at the same time as writing out cheques to rescue vast corporations. The New York Stock Exchange turn over $300 billion dollars every day. And that’s only the stock market. The $700 billion package legislated at the end of the Bush Presidency has to be seen in that context. As powerful as the US government may be, the funds it has at its disposable are actually minuscule compared to the kind of money tied up in the capital market, most of it fictitious.

Unsurprisingly, Obama has done nothing to reduce expenditure on medicines for the aged in America and plans to spend more on health, in a country with the most expensive and inefficient ‘health service’ in the world, is honouring his pledge to cut taxes for the rich, shows no sign of trying to reduce war expenditure, planning only to shift US troops from Baghdad to Kabul, and on top of this is trying to prop up a failing capital market whose funding problems overshadow even the US government’s liquidity.

As a result, the US government debt is now growing at an accelerated rate: the debt is now rising at a rate of $3.8b per day and stands at US$36,500 per citizen on top of private debt of about US$130,000 per citizen.

Why? Because Obama’s aim is to try to avoid civil war in the US or elsewhere in the world where the working people are working for next to nothing to subsidise the lifestyle of rich Americans. Sooner or later, the US government will prove to be unable to honour its debt. They can print money and thereby devalue the dollar, but that would not avoid the problem but only accelerate the process, being a clear declaration of intent to default on their debt. One way or another, the largesse extended to Americans will cease and Americans will have to work it out amongst themselves who is going to take a cut in living standards, and it won’t be pretty: a class war to end all class war. When that happens, the only way of rescuing the countries who have been carrying the US will be a restructuring of their whole economies to supply domestic demand. But that means first of all that an equivalent domestic market has to be created. Henry Ford said “Robots don’t drive Ford motor cars,” and nor do workers living on starvation wages.

So the explosion is still to come, but workers need to be prepared. In the US and Europe and other exploiting countries, workers need to be prepared for a surprise attack on their living standards and prepare to take control of the economy away from capital while ceasing the exploitation of workers in the newly industrialised countries. In the newly industrialised countries whose economies are geared to supplying Walmart with cheap goods and the US government with never-to-be-repaid loans, workers need to organise to demand a higher living standards. This is not something genuine bourgeois elements should fear, only parasites and exploiters need fear.

Andy Blunden

See “Bretton Woods”