The present financial crisis afflicting the global economy should not be seen from the narrow focus of the credit crunch and its relationship to the sub-prime mortgage crisis in the Western countries, especially the US.
The crisis goes to the very foundations of the global capitalist system and it should be analysed from that angle. What is at the core of the crisis is the over-extension of credit on a narrow material production base. This is in a situation in which money has become increasingly detached from its material base of a money commodity that can measure its value such as gold.
The expansion of the world economy from 1945 onwards was based on the US providing some kind of link between money and the gold standard, which the US tried to maintain until its collapse in the 1970s. Increasingly the dollar became the global currency but without a backing to its currency from a money commodity.
The over-expansion of credit that has taken place since then, especially with the globalisation of the world economy, has meant that a lot of paper money and monetary instruments in the form of derivatives and ‘future options’ have lost any relationship to the ‘fundamentals’ in the material production of the world economy.
That is why there has been a growing outcry that the growth of ‘speculative capital’ has over-run the growth of ‘productive capital’ with large amounts of money and credit circulating without the backing of any production at all.
That is also why the relationship between the ‘fundamentals’ in the economy and the new credit instruments created on a daily basis in many cases from speculative ‘short-selling’ have become narrower and narrower over time.
This is also why the present financial crisis is also a reflection of the energy and food crisis, because oil and food products such as wheat, rice and other commodities have been subjected to speculative trading to back up paper money many years in the future.
The British Prime Minister, among the world leaders, is the only one who has seen this connection when he brought it up in the World Bank meeting a few months ago and also when he met the US Democratic Party Presidential candidate, Barack Obama, when he visited Europe recently.
Thus the amount of credit floating around the world is ‘loose money’ completely run-wild, which claims a relationship with a narrow production base. This is in a situation when the US is increasingly unable to repay debts it has accumulated in its Treasury Bonds and Bills, in which the rest of the world have placed their reserves.
Uganda has millions in these US Treasury Bills, which are held as our ‘reserves.’ China has billions as well as India and Japan in these bills and bonds. This means that should the world economy collapse under pressure of ‘loose money’ wanting to be given a value (which they do not have) so that the holders of that ‘money’ can preserve their wealth, those holdings in US Treasury Bills (or US debt to the rest of the world) will be lost forcing many weak economies to collapse along with it.
This is why it is wrong to conclude, like the Daily Monitor columnist, Fredrick Masiga, has done that “capitalism has shown over the years that it can always reinvent itself by growing a new skin to resist the pangs of conscious inflicted on it by its own greed.” That is a false conclusion.
US and British capitalism are being put under pressure to stay afloat only by nationalising corporations and banks that can no longer sustain their operations because of shortage of ‘liquid cash.’ These corporations and banks demand that the state should bail them out.
The state is being forced to bail these enterprises out on condition that they shall sell the bulk of their shares to the state. This means that these capitalist states are being forced to move in the direction of central planning and management of the economy. For lack of space, we cannot go into this matter in greater detail.
In short, what Karl Marx called ‘the financial oligarchy’ is demanding that the state should take over their burdens and maintain the ‘value’ of their valueless credit instruments while insisting that the poor workers and the middle classes shall take care of themselves.
In other words, they demand communism for themselves and capitalism for the poor because capitalism is the only way the poor can ‘compete’ to survive, while the oligarchs have the protection of the state to look after their needs.
Remember that Marx defined communism as: ‘to each according to his needs’ and socialism as: ‘to each according to his capabilities.” Capitalism is even better defined as: ‘to each according to his devices.’
In the next article I shall discuss how Uganda and other African countries can try to survive the collapse of the global capitalist economy.
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