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Back to Front - In love with the City


As an object lesson in sheer cluelessness, the government’s interest rate cuts and VAT cut takes some beating. The new year has dawned, and all they have managed to do is spark a run on the pound while mortgaging the country for a generation at least.

We cannot spend or borrow our way out of a slump, any more than we could in other times spend or borrow our way to riches. It only means consuming more imports and incurring more debts.

Take a look at Japan. The country’s long slide into deflation began in 1990 with a collapse in the property market, which spilled over into banking failures. Fiscal and monetary stimuli failed. Japan’s ruling class defended their financial sector, producing a slump that has not yet ended.

What we could do is invest our way out of the slump – invest in making things. That would mean the government acting like a bank (or like banks should have been doing), offering direct loans to businesses. Instead, some call on the government to beat deflation by printing money – a measure that would only deepen deflation.

The last three decades saw the most reckless speculation ever, and the greatest global real estate bubble. By 2005, global financial assets – stocks, bonds, loans, mortgages – were worth four times global GDP. Financial derivatives (a form of claim on these financial assets) have a notional value of ten times global GDP – about $500 trillion. The crash covers every kind of financial asset: there are no firebreaks.

But, hey, that’s capitalism.

Thatcherism’s free-market mania for asset stripping, abusive lending, and hedge fund secrecy has ended in ruin.

Gordon Brown when he was Chancellor was the City’s darling. They loved him. He loved them. And like a true love match, the relationship is still going strong even though times are tough. Having a spot of trouble? Here’s a few hundred billion...no, no problem – British workers will pay for it through their taxes, for decades.

But it’s not just cluelessness that is leading the US and British governments to turn a debacle into a decades-long disaster. There’s a structural problem: the political dominance of their financial sectors. And people thought that what’s good for the City was good for the country!

In fact, as we ought to know by now, the opposite is true. What’s good for the City is bad for Britain. The bigger the dominance of finance capital, the greater the destruction of our manufacturing industry, and the bigger the debacle – which is why Britain is even worse placed in the crisis than the US.

We are especially badly exposed: since 1997, personal debt has risen by 165 per cent to over £1.5 trillion and we have a debt-to-income ratio for the personal sector of 173 per cent. Companies’ borrowing costs have soared, threatening yet more company failures. With the crisis globalised, there’s not much in the way of export markets to turn to. The market will not provide.

By now it should be plain enough that sticking with capitalism is the road to ruin and more war. As 2009 dawns, we have to plan for a future, as the article inside (page 9) sets out. Because if the working class does not plan for a future, it won’t have one at all.