A surprising error made by many people commenting on the stock market even by the Nobel Economics Prize winner Sumuchon is to deny there is ay relationship between what happened on the 19 October 1987 and the tollowind days and the general slate of the international capitalist economy. The 19 October events are said to be'unhoulthy' and this explains the crash. The interna honal economy is alleged to be fundamentally 'sound' and hence not connected with the stock market crash True theres not yeta generalised recoson of the international capıtalıst economy. Produchon continues do increase slightly in most of the main capilalst countries. But the function of the stock exchange is precisely lo anticipate what i qoingto huppen, not to express what has already happened. So tho 1987 crash lia harbinger of the 1988 recession lo quote from the Economist of the 31 Or at least that is how the muddle and top ranks of the international lober 1987 bourgeoisie seen. Their concern, which briefly turned into a stock market panic:, becomes in turn a factor in the objective unfolding of the situation. What happens on the slock exchange obviously has a great many геретси sons on the economy as a whole Share ownership is a tarfrom neghgible parl of The bourycotsic's assets When these boldings suddenly lose one thrd of their value the capitalists' wealth is sharply cut back. Then spending on luxury goods This will be reduced This is the near unammous verdict of all the experts decline in luxury consumer spending has been calculated at about 19o of Us nahonal income. Thee a lactor accentuating the drift into recession.
But shares are especially an important element in the assets of the big capitalst companies which are practically all organised as public limited com panes quoted on the stock exchange. When these shares suddenly become worth a lot less the financial base of these fris is eroded. The affects the relationship between their own capital and their debls and consequently Their polential lo raise new finance This causer a tendency for investment lo decline which once again stimulates a dynamic towards recession The tall was so great because the use of the stock market had been so phenomenal, Shares had reached such a level on the Tokyo and New York stock exchanges that the dividends paid out on these shares represented a yield (price carmings ratio) of 1.596 do 2.5%6 lessthan you could get on a simple deposit account in a bank Again this made a fall in shure prices mevitable. But the colossel extent of stock market speculation, which had preceded the 19 October crash cannot be simply explaned by sayınd it is another version of lhe "madness caused by the thirst for cuck and easy profits" as Protessor Galbraith argues by analogy wilh the glock market speculation preceding the 1929 crash.
Today's unique wave of stock market speculation is explained by one of the mann leatures of the 'long depressionary wave'
affecting the international capilalıst economy since 1974 which we have highlighted on several occasions. The overaccumulation of capital caused fundamentally by the fall of the average rate of profit is accompanied by a real or potential overproduction of commodities (surplus capacity of production). This leads to the capital currently accumulated on the basis of new profits no longer being invested productively, at least a good part of it. This additional capital rushes into property and the stock market both for speculative ends and to be used for raiding operatons for mergers. Hence the crazy spiral of prices in these two areas. Hence the no less inevitable crush.
Will it be a'limited' recession or a very serious depression? Up to now only the weakest link in the chain has snapped - the Stock Exchange. But three other lınks are threalened: the brokers and the banks which look enormous losses in October; the countries (not only those in the Third World) threatened with state bankruptcy, and the international monetary system shaken by the dollar's fall in value. What happens in the coming wecks and months in these three domains will determine the scope of the 1988 recession.
Financial 'operalors' like the richest Australian capilalst Holmes U Courl have suffered losses of hundreds of millions of dollars and have been bailed out by ever bigger bank loans Some big Canadian banks have had enormous losses following their commitment to underwrite the British Petroleum share offer. The privatisation share price had been set at 330 pence bul the stock market crash brought the price of BP shares down 20 to 25% below this price. A few big Amencan stockbrokers are in the same bout.
The market economy has just suffered a terrible blow. The International
Herald Tribune , in its 26 October 1987 edition, asked the following question on Is front page: "The whole future depends on one question: will the uncontrollable market torces push the world into & terrible crisis or will the intelligent and coordinuted inferventon of governments succeed in avoiding it?" What a contession from one of the main bourgeois newspapers after ten years neo-hberal gennflection at the allar of the market's virtues! The serious' bourgeois press in Germany and the USA is really scared. It is an immense defeat for the international right wing.
On the other hand it is an enormous ideological victory for the workers'
movement. Lam not talking about a remobilsation That can lake some time. But the crash is a major turn of which the effects will be felt in coming years. These will not be any more immediate than those of the 1929 crash. The European work ing class only remobilsed in 1934-35.
QUESTION I: Did the continual rise of the stock market in recent years mean that the capitalist economy was going well? Does the present slide mean that there is no reason for it to improve?
The stock market is the antoipated and amplified reflection of the real move. ment of the cconomy. Il poits to what is going to happen in production, employ ment and prices with a ceram delay. When one explans the nse in share prices you haveto make a distinction belween what is a consequence of an improvement in lhe economic perspectives (the anticipation of bigger dividends) and what is a consequence of a shift of investment influx of capital, an increased demand on the stock markets.
If the amount of capilal flowing into the stock marketis suddenly doubled while the supply of stocks and shares does not increase in the same proportion thenatis easy to foresee that shard prices will rise. Just as for any other commodity the laws of supply and demand operale.
With the rising share index of recent years you theretore have to distinguish belween, on the one hand, the effect ofa real economic recovery during the three or four years after the 1980-82 recession and, on the other hand, the impact of a massive inflow of capital onto the stock markets. The second factor stimulated a purely speculative ase in the share index. It was no longer d case of anterpatıng a real movement in the economy but pure speculation. So a serious stock market crash was on the cards.
QUESTION 2. Is it true that investment in the financial sector practically replaced productive investment and resulted in this big surge of capital onto the stock market?
The improvement in the economie conjuncture, the recovery between 1982 and 1986 had not been accompanied by d proportional expansion in productive investment. This recovery, we must emphasise, is a nonnal expression of the
business cycle. There is no such thing as a permanent tall in the markets or an ongoing recession for a ten year period There are always alternating peakö und troughs. Bul this businesse cycle must be understood al the present lime within the framework of the long depression of the capitalist oconomy underway since the beginming of the 19705.
Protits have nisen considerably these last four years. In part it is the result of the limited but real quins the bourgeoisic has made against working people in a period of austenly. For example in France the wage freeze introduced by Jac ques Delors in 1982, is one of the first causes of the nise in company profits But this mass of rising profits has not been invested in the productive apparats. A German study has shown that the proportion of profits invested productively from 1982 to 1986 was only 50% of that dunng the 1975 79 period Thatcher's attacks on British working people have meant soaring profits but manufactring output is So there has been a deluge of capital pouring on only now reaching 1979 levels.
do the slock markets.
The causes of this authentic 'investment alnke' can be discussed. The french this Communist Party basıcally thinks the bosses are themselves causing smashing of the economy. It soems to think that the bosses are somehow using bad managemenl crileria Like the British Labour Party leadership the French CP suys it is necessary to replace this faulty management with an 'olliciont one. This is absurd. It is notus who are going to teach the bosses how to do their job, which is to make profit. They know perfectly well where to make it The choice of finan cial investmentis duein our opinion lo the overequipment which already exists in all the big dynamic sectors of the previous period: iron and steel, mining, shipbuildıng, cars, aerospace, consumer durables, engineering, and the construcfion industry. In all these sectors there is a clear overcapacity on a world scale in relation lo realisable (solvent) demand. Nobody 1s going to waste time investing tens of billions of dollars in sectors which cannot sell what they are already producing It should be noled that now sectors with the importance and substanco that would permit buyu investment have not developed. One sector thal does come to .. then we would have a market, d colossal demand and a boom that could well rival tho 1950s and 1960s. But this demand is not forthcoming. It is a figinent of the imagination. The robot manufacturers themselves - who have their feet on the ground and base themselves on their order books, langible things reckon on a rate of replacement of johs by robots of 5 to 6% over the next fitteen to twenty years. Wo are a long way from the mythology put over in the media. Such d perspective rules out investment of hundreds of billions of dollars ... it is out of the question Another example of mystitication is that of the personal computer market If each household bought one, just like buymg a television, producing a demand nt threetofour hundred mulbon compulers worldwide, then once again we would be lalking about a sector with a long lorm expansionary dynamic. But once aqamn it is pie in the sky. In real life we are at 15 to 20% of that figure and no more
Nothing like enough to relaunch investment on a big scale.
The capitalsts thereforo had enormous surpluses of hquid capitar availahle stock murket speculation, raw in protitable areas and they placed them materals speculation and property. Speculation in commodities came unstuck wilh the depression that slarled at the beginning of the 1970s which sall under pins The present cycles of recovenes and recessions. Demand was not there. The withdrew. Commodity prices did not surge ahead as in the other 1wo deulers dicas property and the slock market As for property all the great capitals have been the theatres for huge speculation. In Tokyo, Japan, a room costs as much do a whole flat in Paris. In Los Angeles, 15% of the big buildıngs belong lo foreign property owners. The explosivo riso in the stock markets caine nexl QUESTION 3. Why does Wall Street play such a particular role in this general context?
The enormous US debet, is debt, has bad one consequence Japanese and European capital has flowed into the USA to cover that debt There aren't a hundred and one ways of placing moncy in that country. You can buy what is called цилы liquidity holdings, American Treasury bonds which are practically Ike dollars. But this only works lor a while Forcign capitalists do not see the funny side of putting more and more money into a dollar which is deprecialing merg and more They are not looking to lose money, since that is more or less what buy ing a dollar losing its value adds up to.
Theretore foreign capilal coming into the USA incrcasingly began to be placen in areas other than liquidity or quasi liquidity holdings. Once again there are not a hundred and one other investment outlets. There are shares, property and companies The lapanese and Europeans who are experienced in this matter because the USA did it to them after 1945, first looked at tactories Not amall ones but the high lechnology ones, even arms factones such as Fairchilds. Needless to say Washington said no thank you. No way was Japanese capıtalem going to del their hands on the key arms and tugh-technology factones.
Sothe bulk of foreign capital in the USA went into the share markel and pro perly. The Los Angeles example given above speaks volumes here. A large part ofthe rise in the Dow Jones Index in New York on the last two years has been due lo massive buying by toreign capital. Thists the beart of the matter, the ongn of Black Monday. What got the downward movement qoug belore the 19 October was the wilhdrawal of foreign capital, especially Japanese. Why? Il is quile sim ple, they had smell trouble They were expecting balance of payments and infla hon figures that indicated an unpromising future.
The phonomenon of toreign capital withdrawal on Wall Street had a
snowballıg effect on other exchanges around the world With everything speed thanks lo lhe computers. Marx would have had a hearty laugh about ed up.
this. Here to the absurd loqe of capilal pushed to its limits, a compules which calculates and imposes buyıng or selling on the dealers aulomatically according lo minimal, marqual price movements up or down. But all this merely amphlied the movement. What would have taken a few works was over in a tew days. That's all Following thestock market crash and the consequent enormous fall in value ospeculative capital we are presently socing a imbal phase of recomposition and restructuring of big monopoly capital. The importance of classic finance capital (invested to a large extentin industry) has begun to be reasserled at the expense of the weight of Hoating' finance capital. But this process in only bernming, un the USA, Japan and Great Britain, given the leadership crisis of the bourgeoisie has deepened. Nobody has sutticient cloul to dictate a clear lne. Divergent ser toral interests will mean a hesitant, unclear and confused line' reinforcing the bourgeoisies (and the speculalors) uncertainty about what is really going to happen QUESTION 4. If we believe the capitalist media and governments millions of people have become small shareholders. Has the tinsel glitter of popular capitalism. Thatcher style had anything to do with the crash? I do not have all the preciso figures on the British situation But the numbers of working class shareholders have been very exageruled We know more or less the extent of popular saving in West Germany, The USA and Japan. Suvings are hrst of all invested in Buildıng Societies lor mortgages to buy a flat or home and notin some sort of share market for working people. In West Germany savings are aboul 2000 marks a year per employed household. Obviously the proportion ethis put into shares smore than dero, but lel's be sonous Given the volume of speculative movements we are talking about, avolving hundreds of bılhone of dollars, the mass of working class charcholderses quite marqual, negligible in tact. A very tiny percentage...
as much ds the whole Third World, half the human about 1100 bilhon dollars Forall the impenalist countries race, has borrowed over these last twenty year the loss rises to 1600 billion dollars which is equivalent to 80%6 of the US budget detent (a country with 225 milhon mhabitants). Working class or 'popular savingü and invostment for all those countries probably adds up to 50 or 60 bıllon dollars. So it really does not ropresent very much.
Itis especially the better-off layers of the working class who have boon at tected by lhe stock market lever and have been hit by the present lall in share
values - well paid office workers, umversily leachers, engmeers, mddle and lugher rankıg civil servants, the bberal professions.
Over the last years behind the mystification of'people's capitalism' there has been a classical phenomenon of periods of economic upturn which has been accentuated by a large-scale bourgeois ideological offensive - razmattaz and hscal handouts …. The ruling class has wanted to attract antons camp a sector of the more prosperous muddle layers (both traditional and modern). Privalisation has been a deliberate, political, anti trade union and anti working class operation to try and bring a number of workers down the same road Fitteen days betore the crash Mrs. Thatcher rather imprudently hailed a . She proclaimed the 'teal English revolution': For the first time, 'lamous victory'
she said there are more people who are shareholders than are members of trade unions.' Fifleen days laler quile a lot of small shareholders doubtlessly wished they were no longer.
This question of popular shareholders as theretore important from the deological and pollcal pont of view of view. No questron aboul it. Ral it i neglıgıble from The econome pont of view QUESTION 5. What is the link between the functionning of the stock markets and the role of money, currencies, the franc, dollar, deutschmark and pound? How can statements by treasury supremos like Baker, Stoltenberg. Greenspan or Lawson make the indexes fall?
There are two copects lolhe anower. One is internal to the United States, the other is international Thesecond is more important than the first and we will deal with it in a minute. It is the first time that the internationalisation of capital, which isone of the major features of 'Late capitabsm appears mn such an exhaordinary way on the financial, stock market scene.
First the internal mechanisms in the USA. The bnk between the stock markel phenomenon and monetary systems is derived from the rules of basic arithmetic Share prices on the Stock Exchange lists an academic definition ate the capitalisation of dividends at current cutesof interest Pul more simply ifa sham yields 100 pencelin dividend and the rate of interest is 10°, then the share will be quoted al 1000 pence all other things bend equal. This means each time interest lites go up share prices fall.
Inversely cach hme interest tales go down share prices go up Evidently as interest rates have been qoing up smce the middle ofthe year the stock market m dexes had to dechne.
Since the beginning of the year inlerest rates went up by about 35 in the USA. In general they went up from 7.59 to more than 10%0. Inevitably Iis had to cause a fall in share indexes. All these movoments are gasi mechanical. They
are not immediale as there as always a certain delay If this mechamsm does not work, if speculation goes against the grain then share prices will contnue to use alatime when the average rule of interest is also rismg. The nse in share prices will necessarily bring about a lowering of yields made on the exchange. This is as straightforward as the two times table. The same amount of money placed on the stock exchange will yield less than titis put inlo a interest bearing bank account. Inveslors'
stock murkel, cold their shares and took out debentures or bonds from the banks. The result is to reestablish the mechanism Selling on the stock exchange brings the index down. Yields therefore increase until a new equnhbruin is achieved. In broad terms this is how the fall in share prices went made the USA. But where all this gets more complicated is that there is now an inlernational monelary aspect lo this stock market mechamson.
QUESTION 6. So the International dimension of the crash is the extent to which the US debt is covered by foreign capital?
The United States now has a permanent, suctural balance of payments delicit Everybody accepts thises gong to last up to the year 2000. The USA 1s mcurring more and more debt lo loreign creditors. This debt is increasing at the rate of 150 to 200 bıllon dollars a year When the balance of paymentsis in deficit means the country concorned is spending more overscas by importing than it receives mn foreign currency from its exporb. The US debt already represents around 2000 bilhon dollars, twice thr Third World debt. This debat has to be covered, if foreign capitalists were not ready to underwntest with then capilal and currencies then the United States would no longer be able lo meet then foreign obligations or pay for their iports and would be reduced lo the rank of Poland or Penn.
In practice this means foreign capilalsts are ready lo accopt dollars in payment tor the debt the USA owes them. But theso dollars are less and less in cash. They are exchanged against Treasury bond or government stock. But the more the US dehot mounts up the more the dollar depreciates agast other currencies and the more one can only attract foreign capital to the USA by rausing unterest rates and mcluding an insuranco bonus against this depreciation. But the more interest rates climb then the more share prices are likely lo lall Here we are at the beart of the problems. When we are talking about budget deficits, balance of payments deficits, interest rates as we have been doing we are no longer dealing with the slock exchange. The stock exchange is only an epiphenomenon of all that Now we are talking about the real economy. Here wo aren the world of production tigures, competlive capucity, competitive or noncompetitive prices, global demand, employment and purchasing power ... we do back at what is happenng in the real world, and not what is happening in the world of paper money, speculators. We are in the world of factories, everyday
markels, households, workers, capilalists, shopkeepers. Its significant that in the American auto industry, blagnahon, indeed a dechne in sales predates the stock market crash So we can grasp the senousness of the crisis. Whatever Reagan did this was inevitable. The contradictions we have bullined cannot be resolved. QUESTION 7. So it is beneath the quicksand of the financial markets that we must look for the bedrock of the real economy?
We can illustrate this thesis by showing thereal mechanisin underway mn the Umted States and worldwide over the last eighteen months Furthernore wo have followed thus evolution step by stepan the analyses we have published in International Viewpoint. I do nol think we got wrong. We kept our feet firmly on the ground and our heads were not in the clouds like some of our entics say they are. But in any case we owe all that ossontially lo Mark.
The 1980-82 recession was very serious. A lot of people bad been surprised byils depth. Al the end of the recession unemployment had gone well beyond 30 million in the imperialist countries lo reach the present levels of 40 million. 11 you take into account all those who are working part time but would hke to work full time then according to the ILO (International Labour Orgamsation) you have 100 mulhon people affected by unemployment in the world's richest countries. Contrary to all its declarations and monetarist bluster the Reagan ad rustration at that hme took a 'heroic' decision and caried out done hundred per cent neo Keynesian pobcy. What a paradox! These sworn conservatives have been The most Keynesian of all American governments up to now! They copped the 1980 82 conjunctural recession through enormons deticit spending the ABC of Koynes' theory. Reagan and his acolytes increased global demand and money supply by deficit spending.
Obviously the distribution of this spending and deficit is quite specific to Reagan and the conservatives. He reduced social spending and savagely cut in frastructure expenditure. This has been a real catastrophe for the USA... Today tochnicians explain that half the bridges could collapse because of lack of maintenance and repaire for ten to fifteen years. I is quite crazy. In New York, given the reduction is no longer i single overall underground' map of the capital. This means when there is a yas leak or burst water main digging has to be done by quesswork if the accident is to be repaired, just lıke at the begıning of the century. Of course while social spending has been cut overal demand has expanded due especially to military spending QUESTION 8. Hasn't the US budget deficit. while stimulating the recovery of the world economy, unlcashed an infernal logic?
The deficit has swollen at a time when there has been a shift in lho relative
economic strenąth of the difterent impenalst powers. 'Thıs problem bas not been understood in the USA, except by the sharpest operalors and Reagan obviously does not fall inlo the lutler category.
The competitive capacies of the US impenahst bourgeorsie have declined relatıve touts compehtors. Hence the growiną debeılı machne goods in the Us balance of payments. We are not lalking here of the lower end of the market e Brazıhan shoes, French wine or Ilahan pasla bul electronic machines, machine lools, ele.
The US shar of wörld exports foll betwcon 1981 to 1986 trom 20%% to 13.8%. Il has been d disastor lor the USA. The supplementary market created by the American budget deficit has nearly exclusively sucked in imports. 'This has pro. duced a simulating ettect on the rest ot the capitahst economy. It has perinitted the expansion of Japanese, West German, South Korean, Bruzilian, Taiwanese and other European countnes' exports.
The US budget delicit has therefor arlannched the world economy by transforminq itself into a US balance ot payments defet. Some people will roort, well all the same Reaqan creaed eught million new jobs You can't arque that everylhıną wenl through the expansion of forcign imports But we know the type oljobs that bas been creded. Calbraith, the economist has a striking tormula 1o desonbe il: "The jobs crculed by Roogon are people sellmą hamburgers to cach other "That is abviously not the way Amerıcan industry is going to reeslablsh its position in relation to its compehtors.
But now there lis an internal logie to tis particular mechanism. A universal demand has gone up trom governmenlal and bourgeois circles (especially in "end the US budget deficit And end it right now!" But it they inmediately end the budget delicit then it will trigger oft an enormous recession mn the United Statex Atla time whon the stock marketisin dechne it would bring about large seale deflation. This resembles, hke two peds in a pod, the policy followed in 1929. This policy was carned out in the Hoover period in the USA and under Brunng mn Germany, with the results we all know. It this is done we are tulking 259 to 30% unemployed However inversely, if they do not end the debe, i they want to avoid reces son at all costs betorethe US elechonathey will produce similarly disastrous con secuences. There tsalrendy Slo mfluhon in the USA, considerably higher than ın Japan ör Wesl Germany. Injecting enormous extra volumes of money as has been donein recent dayslo gel inlerest rales down can only spark off inflation agaın. It inflahon flares up again then inlerst rates will have to elimh steeply. In that eventuahty, US competitiveness, compared to Japan and Europe, will be further croded and the balande of payments dehat will be be grealer. Then inlerest rates would have to be pegged even higher to altract foreign capilal lo the USA And there we have snowballıng ınflahon душ.
That's the real dilcima. There is no solution Whatever they do recession is
mevitable. Frankly there is no colution within the framework of the system one does not bicak with the rules of the game, if the mechanisms of the capitalist system are not rejected.
QUESTION 9. Won't capitalism got out of its mess by holding back US growth and getting lapan and West Germany to take over the job of stimulating a recovery - as certain commentators are suggesting?
Let's getone point clear straight away: thereas no world capitalst superstale which could dictate such a way torward. Hence such a scenano is very unlikely. There 1s no hegemome country which conld imposest. Each imperialst power is looking after is own corner (and will continue to). The interests of cach dre not identical Capitalism is privato property. This means compehtion. In a penod of ensis this signitics everyone tor themselves and save what you can. Pure loqie teaches governmentsatis a shortsighted polcy. But practicess dominated by unmediate interests and not pure reason. Pure reason would mean somebody would have to pay for the dishes broken by somebody cise. But these capitalists are not ready to do that The Japanese, despite clains to the contrary, have considerably increased domestic demand, unke the West Germans. West German impenals has been vaccinated agaınst any infiationary temptations by the two lerrifying experiences of the 19205 and the Second World War. It is an obsession of lho Gennan capitahsts to malamn sound money. They would only resign themselves lo infla hond their blood was pouring oul of ten wounds! For the moment they have suf lored only d fow scratches Therefore they will not accept the imposition of mcasures producing any sort of inflationary pressuree Bulın lapan, lor a senes of reasons domeste demand has been considerably expanded. What happoned then? Exactly threate dam to USA All This influx of capital ponred into stock market and property speculation. Even the big banks have incurred large debtsin this process. This has led too pertectly grotesque rising market. Theress no other way of dehming it. The end of it all will be interesting (we have already seen it in Hong Kong).
Soilisa mechanical illusion lo think an expansion in domestic money supply will be automalically translated into a proportional expansion of the masses' pur chasmy power thereby sucking in imports and stimulating the world economy. QUESTION 10. So the Japanese myth is unmasked with the free fall on the Tokyo stock exchange?
Let us look more closely al the lapanese case asat is very illummating. On paper the Tapanese were the big winners in inter imperialist competition Japan is
as the model of the compolitive sociely in recent years.
technological and fnancial success is particularly renowned. Within the space of about two years the majority of the top ten banke in the world had become lapanese In the epoch of 'late' capitalsm, lapan had seemed lo install the ideal society from the point of view of the ruling class the famous 'dual society' with a working class cut two. All casual, temporary work, all subcontracting work was lett without social security cover or minimum wage standards. This comprists 35% to 40% ofthe workforce. With labour productivity equal or higher than the European worker's, the casual' Japanese worker has a standard of living two times less. The avorage spending power in Japan is 25% less than in Europe The consequences are immediate. If you pump up money supply you will not increase the demand of half the population. It cannot afford to buy. It remains outade the circuit. This moncy goes comewhere else and everybody knows where. Shopkeepers of stores are not going to buy commodities they cannot sell, industnalists are not going to produce commodities they cannol sell lo the wholesalers, stores and shopkeepers ... A good parl of profits are therefore redirected into speculation or certainly, in the case of Japan, exporten. All this process bas produced a real movement which is called zailech a industral trusts is of financial growing proportion of profits, even of the bıg ongın. This has fostered a surge of speculation. We know the resl... QUESTION 11. Has the stock market crash accelerated the fall of the dollar? Undemably, donly through the direct effect of the growth in money supply and the momentary fall in interest rates, used by IS Federal Reserve chiel, Greenspan, lo slop the fall in the Dow Jones Index on Wall Street. Theories of an American 'plot' to restore the balance of payments through a free lall of the dollar are infantile. A free fall in the dollar would devalme US assets in relation to their compehlors assets It would facilitate huge purchases of these assets by loreign competitors, modity the inter-impenalet relationship of forces to the detriment of the USA, make necessary imports more expensive (particularly raw materials hke only and gel milation surging again. The real problem hes elsewhere.
On the one hand the imperialist contral banks and finance capital in Hurope and Asa (not only Tapan bot also the neh ol-exportng countries) have ac cumulated enormous dollar holdings - hundreds of bilhons. They are in the classic and agonising sitation of the ultra ach credilor facing a very big debtor who is on the point of bankruptcy. Suppose the dollas nosedives. Then losses would then amount to a hundred billion dollars for each of the main croditor groups (Tapan: Sands Arabia, the Arab Emirates, Kuwait and Brunci; and Westein Europe). To avoid such a steep fall massive quantities of dollars lens ol millions - haveto be bought once again. As the expression goes "throwing good money after bad"
On the other hand the very nature of this agonising dilemma sels in motion another mechanism which nobody controls Speculators on the currency markets expect the continued fall of the dollar. They are speculating on this fall. By doing so they further amplity the movement and rsk producing from one moment to the next a plummeting fall which the intervention of central banks will no longer be able to halt. Hence the serious risk of a collapse of the whole international monetary system.
QUESTION 12. What are the effects of the stock market crash on the debt and poverty of the "Third World'?
In the short dorm the effects are contradictory. To the exlent that the stock market crash accontuates the dollar's fall it relieves the servicing of the debt (pay ment of current interest) to the extent that these so-called Third World countries keep up their exports to the USA and especially to Japan and Western Europe. For the same volume of exports they will get more dollars. The same comment applies to the (temporary) fall in interest rates.
However in the medum term the effects are negative, especially it recession hats the USA. Already the mere expectancy of this recessions producing a fallın raw materal prices and therefore a reduction in the export income of Third World countries. Above all the Amenican recession will cause a decline mn US iports coming from the Third World and it is likely that these countries balance ol payments will go into thered resulting in their inability to pay even the servicing of the debt that they had previously paid thanks to the 'boom' of their exports. We might add here that the enormous flight of capital from the Third World's rulıng classes to the USA has been to a large extent invested on the stock market. This capilal is now devalued along with that of other sharcholders. QUESTION 13. 1988, 1989? Is the recession now inevitable?
The fundamental logic of argument is the following The world has floated towards expansion оп an ocean of debts. Indebtedness has reached such a stage that it can no longer be added to. To avoid the recession up to now a deht of seven to eight thousand bılhon dollars has been run up. It is impossible to pump this up significantly further. Or else interest rates will rise to such a level that they will swallow up all surplus value.
You can expand eredit when you are at 3 to 4% interest rates and 8% prolit. But if you still have 8% profit and 12% interest rates it is no longer possible. It is bound to dry up. Capitalists can longer continue to make money by going into debt.
The stock exchanges have only anticipated the real swing of the pendulum, that of the sales of the produchon of jobs the recession. The drama of specula tion for the speculators has been that the stock market operators had the right in
stinct but too late. By reacting in an over precipitate manner, too late, they have considerably increased their costs and losses.
There is an apparently irrational element in all that which is part and parcel of the very nature of capital. All capitalsts act in function of their egoistic in terests. Contrary to what the naive hiberals believe, if cach person pursues lheir private interests, this in no way produces Ihe best results or the ideal equilibrium for society, not even for the bourgevis class itselt. But they have no choice. They cannot act agaıst their own interests.
The internationalisation of capital and the tmancal markots, now established for the first time, is only the roflection of the emergence of multinational compames which produce in many countres. This gave the crash its gigantic propor hons. It has had immediate consequences for production. It one of these great companies as a result of the crush loses its way and qoes bankrupt, this will immediately mean massive redundancies and factory shutdowns spreading from country to country. Thus is a genuine risk.
To slunmarise. The cham broke at its weakest link - the stock markets. The links now respectively under strain are the big stockbrokers; a few big banks; a low states - not only in the "Third World - the dollar; some big multinationals threatened with bankruptcy; and the social security system undermined everywhere by the luck of financial resources. The threats hanging over jobs, spending power and social spending are therefore very precisem the framework of the coming recession.