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The economic crisis has entered its fifth year with no end in sight. Alongside the human suffering, we are witnessing a rebirth of radicalism around the world: never has the case for change been more pressing or justified. Carlisle Green Party had a branch policy discussion and seminar on these matters to seek to provide an explanation and point a way towards building an alternative.
The scale of the crisis
The world economy is in its worst crisis since the 1930s. In the first quarter of 2012 the Eurozone’s rate of growth was exactly 0%, and the UK entered its first double dip recession since the 1970s. In the US the rate of jobs growth is about 50% lower than is needed for the economy to recover to the pre-recessionary levels of 2007.
What is clear is that the crisis has been coupled with a spectacular failure of elites; from bankers and politicians to economists and the media we have seen how this crisis has unravelled through scandals and indecision.

A brief background to the crisis
In 2007 the US housing bubble burst. It turned out that millions of households had been encouraged to buy properties way above their ability to pay. As defaults avalanched, banks stopped lending to one another, and this triggered a credit crunch that seized the whole financial system. To prevent economic Armageddon, the G20 agreed to the largest public purchase of debt since World War II.

This transfer of banking debt into state debt also turned this into a political crisis. But to understand this we need to understand more about public debt. States have two means of raising the money to pay for things like armies, education, health services and so on. First they can tax people, goods and services, and second they can sell government bonds. Government bonds are like shares in that a government announces a bond offering on the market at a certain value, say £5bn. Investors who buy bonds lend the government money for a fixed period, say 10 years, and then receive their money back at the end of the period plus a small amount of interest.

The textbook assumption is that a cautious investor should buy bonds instead of playing the stock market, as governments have a guaranteed income stream through tax revenues, while companies can go bust.

When the G20 bailed out the banks this whole logic was turned on its head, with states going bust and banks staying solvent. This can be seen by tracing the cash balances of major corporations. Apple has seen its cash reserves rise from $15bn in 2007 to $81bn today. Combined with the cash balances of Google and Microsoft, these three corporations could pay off the entire Spanish and Greek debt. They are sitting on money because they do not want to risk losing it through investments that fail to make a profit.

If money were now invested in real things, they would be sold for less than the cost of the investment. In other words, the rate of profit would collapse and capital cannot afford to face this as a system.

The crisis is a capital strike
What this amounts to is a global capital strike. Capital is refusing to be put to work including refusing to buy government bonds. This is what lies at the heart of austerity and has three consequences. First there is widespread privatisation, second there are incomes policies that shrink wages, pensions and benefits and third there is currency devaluation.

This means that owners of capital are scanning the globe to find asset bases that can be privatised and living standards that can be squeezed into the coffers of corporations.

As long as markets operate independently, they can use the public debt to call the terms of any bailout. This means that from the point of view of ordinary people, the world debt problem cannot be resolved except through a write off.

Is there an alternative?
What is needed is a people’s version of the IMF that supports governments who seek to take assets into public ownership, equalise wealth through universal citizens’ incomes, and places limits on the ability of corporations to hold cash surpluses.

However, such an institution would be vulnerable to powerful interests manipulating it through centre-left politicians. What is really needed is an international grassroots movement.

In the UK the Green Party is primed to support this movement. It can expose the fallacies of the other parties and link the fight against Austerity to the wider anti-capitalist movement.
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