History of global finance crisis is not over

[These is a translation of an article published by economist and Kerala's finance minister T.M Thomas Issac]

Fukuyama’s “History is over” is the favorite quote for the neo-liberal ideologists. The (in)famous quote is the summary of capitalists understanding that the history of hitherto society is over and Capitalist society is the final society. CPI [M]’s madras Congress has ruled out these kind of arguments and pointed out. “Even though World socialism has faced temporary set back, the character of the capitalist society has not changed. The contradictions will sharpen and it will face crisis frequently. With out a socialist revolution and formation of a socialist society, this can not be resolved. Our period of history will be marked as of socialist revolutions and class struggles for implementing such a society”.

“History” is marching ahead as Marx envisioned. Presence or absence of USSR does not matter; the crisis of capitalist society is natural and unavoidable. Marx analyzed and detailed the reason of this crisis.

Capitalist society will develop at rapid rate but the buying capacity of people will not grow at that rate and in fact it is taking downward trajectory, resulting abundance of commodities in the market which is further directing to crisis.
Let us assume, the production of commodity is for 100 crore, Owners will invest the capital and workers will invest their work for the production of commodity. Who has to buy the finished commodity? The finished commodities are bought by the workers and owners [people are categorized in two for analysis; owners and workers... this is true, even though subclasses are there in each of above two classes]. If the production has been incremented to 200 crore by further investment of capital and overtime work, what will be the result? For sure, the subsequent incrimination of wage can not happen at the rate of the improvement of production. So the unsold abundant commodity in the market is unavoidable. So question will rise, what about buying the abundant commodity by the capitalists. But the capitalists or owners are buying the commodities for investing and further improvement of the profit. If they feel, this will not improve the profit; they will stop buying, resulting in abundance of commodity.
So how can we overcome this crisis situation? One possible solution is investing money in the speculative share market for incrementing the price of land, share and all the speculative commodities resulting in grand profit. Another solution advocated is crediting more and more loans. Even though the wage and buying capacity has been gone down, the commodities can be sold out by giving more and more loans to them; so the global capitalist society is moving forward through the bridge of debits and loans. If the bridge collapses, it will fall in to the irrecoverable deep depths of crisis. This is what exactly happened in recent crisis.

Contemporary capitalist system is marked by the complete dominance of finance capital. What is finance capital? It is the capital, taking the profits with out direct investment on the production of commodities by speculative and complicated dealing at the finance arena. Share market, bond market, oil, ore, gold, coffee, tea, grain, speculative trade of foreign exchange currency, speculative trade of real estate, future trade... as time rolling on, finance capital is creating more and more space or improving its realm of speculative business. It reached to a point that no exact trading of commodities are happening at the market. The trading is happening depending upon the index of price. This is called as ‘derivatives trade’. The investment of money is impeccable in above said sectors. The situation is grown up to a level that the government agencies do not have control over the finance capital. Due to the implementation of globalization, the global finance capital is defying the national boundaries and flying through one market to other speculative markets. The development of technology and peculiarity of the system made it easy to transfer money across the boundaries. It developed to a state that even the strong USA do not have any dominance over the finance capital of their country. So if the speculative circus is broken at any stage, the whole system will come under the danger of crisis or meltdown and it would be tough to rescue and will reflect across the world. Even though the system is able to overcome temporarily, it is quite evident and will break at another stage.

So in summary, the wealth of capitalist system is based upon the over blown in bubbles of loans and debts. Every one forgets the dark phase of crisis due to the opium of wealth. It will be reminded when it reaches at the crisis phase, and at that phase, time will be very less for a rescue work. The system is built on a peculiarity. Everybody is forced to give more and more loans. At any phase, a tendency of returning loan amount or asking loan back, this card-fort will be broken….The depth of destruction is directly depended upon the amount of loan and debit bubble. If the given loans are bigger, the impact of destruction will be also bigger.

This can happen any of the speculative sectors as described earlier.[ Share market, bond market, oil, ore, gold, coffee, tea, grain, etc] Now in USA, this melt down happened at the real estate sector. In India, 90% of people are constructing houses themselves. But in USA and other developed states, this is a business. The capitalists buy land and construct houses and sell at the market. This provides a marvelous opportunity for speculative businesses. The land is limited; one can not create new land, resulting in rise in the price of land and houses. While taking upward trajectory, if we are buying the land, it can be sold out higher price and can earn more profits. Brokers identify the land which has potential of high price and buy, and sell at higher price. Besides this, it is also going through ‘future market’ also. The broker gives advance money on the agreement of full payment later date. What he will do? He will sell this to another person in the market. If the second person is also a broker, he will again sell it in the market, and this will go through a series of phases resulting in unprecedented incrimination of price of the land. All the brokers will gain huge profits. [These tendencies are seen in India also in recent times]. In USA, this happened at an unimaginable magnitude. There real estate capitalists have given huge amount as loan for constructing houses at the bail of real estate. If the buyer does not having the money to buy the houses then? Not a problem, they can earn loans from the banks at the bail of the future house. The banks are ready to give loans on the security of the [speculated] high price of land and houses. The future trade [as described earlier] of the security [land and house], again will improve the price. So a card-fort of loan and debts are constructing up and the height and breadth is unimaginable. This is a cycle, and while going this in upward trajectory, the risk of destruction of the card-fort is also impending.

For example; if the real estates have constructed houses more than the need of the society, it can result in a feeling in the market that, the price of real estate can go down. This feeling is more than enough for destructing the above said loan& debts card-fort. Customer or buyer will postpones the buying of houses as the price is going down. This will again destruct the price of the houses as the demand is very less. Once the price is going down, the speculative business men will be in hurry for moving to safe zone. They will try to sell the securities and real estates before further destruction of price. This will result in steep destruction of price of the real estates. Now besides the speculative business people, banks are also under danger as Banks have given loans for the business. The loan security is land and houses [real estates], when the price was high. Since, the price is depreciating rapidly, the security do not have any price or validity.

Let us see above process in simpler way for understanding. In our country, we take loans on the security of gold. Now the price of gold is 9000 for ounce, and bank will be giving the loan up to 7200 [80%]. If the price of gold is depreciated to 1000, then what will happen? Nobody will come for taking back the security by paying the higher loan amount [7200]. Banks loan on gold will become nonreturnable debt.

When depreciation of price for real estates occurred, exactly this happened in USA. The banks who have given loan [the magnitude is beyond our imagination...] in huge amounts in the real estate sectors, non returnable debts are spiraling up as described in the above example. So in market, nobody will be ready for buying the shares of those banks and will come forward for sell of the shares of those banks. This will result in depreciation of share values of those banks. Who ever depositing the money and who ever have given loans to those banks will rush for taking back the deposit and loans. Banks are working based on the trust. If the costumers trust is gone, the fates of banks are pretty clear. The failure of banks will create panic in the market. Price of share will drop, profits of capitalists will go down, their interest for investment will go down, and the cyclic nature of all these events will result in unprecedented crisis of the capitalism and economic stress.