THE SOVEREIGN DEBT CRISIS AND MONOPOLY CAPITALISM(2011)
By Edberto M. Villegas
Chairman, IBON Philippines
The financial crisis of US capitalism has currently re-asserted itself after a temporary lull in 2010. The seeming recovery of US business in 2010 was due to huge bale-outs by the US government of big banks and corporations on the brink of bankruptcies, caused by the Wall Street crash of 2008, which has been called the Greater Depression compared to the Great Depression of 1929.The present financial meltdown developing into a graver economic crisis, which has already devastated hundreds of millions of ordinary people since 2008, was intensified by the downgrading of the US economy by Standard and Poor(S&P), a leading international credit rater of countries. The US economy was rated down by S&P from the highest AAA to AA+, a one notch decline and the first in US history. This has further caused widespread panic in the bourses of the world, from Europe, the Middle East and Asia, with the European financial market already suffering a 37% decrease since February 2011. Investors worldwide, because of their wide exposures in the US market, have begun unloading their stocks once again, afraid of a continuing plunge of Wall Street assets.
The downgrade of the US economy by S&P was primarily because of the possibility of the US defaulting by July, 2011, from its sovereign debt, amounting to $14.27 trillion, which has pushed the US Federal government, after acrimonious debates and haggling among its political leaders (the Republicans and the Democrats) to further raise the USdebt ceiling by another $2.1 trillion. This rise in the debt ceiling will thus enable the US Federal government to borrow again from all sources. This was approved in the US Congress in the last week of June and gave the US a temporary relief from default. But this increase by $4 trillion will be compensated by budget cuts, mostly targeting social services and affecting poor and middle class Americans. The US budget reduction would be $100 billion by the end of 2012, costing a further 700,000 loss of jobs. Present unemployment in the US has now reached a high 9.2 % and it isestimated that over the next decade, 1.6 millions of Americans per year will be out of work as a result of continuing budget slashes by the Federal Government. The financial stimulus packages of President Obama, costing $4 trillion, which salvaged corporate America from the crisis of 2008, has now to be repaid and it is the low and middle-income Americans who are made to carry the burden yet again. Because of the massive stimulus packages of Obama for mega business, the US Federal government experienced a budget deficit of $1.29 trillion in 2010, which is a high 8.5% of US GDP. This budget deficit has also been aggravated by the costs of funding the wars in Iraq and Afghanistan, which amount to $1.24 trillion since 2001. Further, the US has spent a total of $896 million in its intervention with NATO in Libya to oust its leader, Colonel Moammar Gadaffi, who threatened in 2009 the nationalization of the oil assets of Western companies in that country.
Sovereign Debt Crisis in Europe
In the Euro zone countries, composed of 17 members who use the euro as their common currency, the sovereign debt crisis continues unabated since it erupted in 2010. Greece, Portugal and Ireland have been bailed out by the leading members of the Eurozone nations, Germany, Italy, and France. Greece due to a near default of its huge debt, 146% of GDP, has obtained a 110 billion euro (1 euro = $1.4) bail-out from the other Euro-zone nations and is currently requesting for another loan of 50 billion euro. The Greek government in order to pay for its sovereign debt has issued high-yielding ten years bonds at 15.3% interest to attract foreign investors. With this too high yield, Fitch & Moody’s(other credit raters of countries)have downgraded Greek bonds to junk status. This downgrading to junk status of sovereign bonds is also true of Ireland which obtained a 85 billion euro loan last November, 2010, and Portugal with a 78 billion euro bail-out. Both of these countries have suffered high government deficits like Greece with Ireland deficit at 32.4% of GDP and Portugal, 9.1% of GDP. (The acceptable government deficit set by the 1992 Maastricht treaty of the European Union of 27 member countries should be not more than 3% of GDP).
The sovereign debt crises of Greece, Ireland and Portugal are merely offshoots of the stock market crash of 2008. In Greece, a leading culprit was the bank Morgan Stanley, which because of its deep hold on the Greek government managed to manipulate the yields of Greek bonds, causing a tumble of the Greek economy as a repercussion of the global financial collapse in 2008. The Greek government also bailed out a number of private banks in 2009. It is to be noted that the Greek government is at present conducting a belated investigation on the activities of Morgan Stanley, which may be more for show if anything. In Portugal, a major cause of its current problem was the extensive speculations by fund managers in its stock market, which also got battered by the spread of the capitalist financial fiasco of 2008. In the case of Ireland, its national debt was caused primarily by government bail-outs of six large private banks doing business on its shores which were heavily involved in the property bubble of global finance capital which burst in 2008.
The European Union has established the European Financial Stabilization Mechanism(EFSM), aiming to raise 750 billion euro(almost a trillion dollars), to come to the aid of those members near defaulting their sovereign debts. This amount will be raised by the other Eurozone countries through selling sovereign bonds to investors, particularly capitalist corporations, which will increase their respective national debts as well like a domino effect. France, which was also hit by the financial crisis of 2008 because of its tie-up with Wall Street, is griping about its contribution to the bail-out fund of the EFSM as its growth rate is moving at a snail pace, estimated to be around only 0.7% for the third quarter of 2011. It is predicted that the growth rates of the major Western capitalist countries, the US, Germany, Great Britain and France will be very bleak in 2011 and they may experience another possible recession. To make matter worse, France and Italy are likewise on the verge of defaulting their debts due to the former heavy spending($288 million by July 10, 2011) to support the war campaign of NATO against Libya and the latter’s huge public debt(112% of GDP) caused by massive bail outs of Italian banks in 2009.(Accepted debt to GDP ratio by the Maastricht treaty must not exceed 60%)It is to be noted that France has oil companies in Libya which Gaddafi threatened to nationalize in a speech at Georgetown University, US, last January, 2009. France has also a high government deficit at 7% of GDP and may be downgraded to AA+ status from its AAA like the US. And Germany is not far behind with its public debt at 83.2 % of GDP. To stem off defaults, Italy and also Spain(with a high 9.2% government deficit, see graph below) have increased interest rates on their sovereign bonds to attract foreign investors as their economies are perceived by the latter as risky to do business in. In 2008, Spain went through a major housing market bust due to the activities of speculators in its stock market as also what happened in Ireland which led to the Spanish government incurring a high budget deficit caused by its bailing-out of private banks affected by the plunge of stock values.
The Burden passed to the People again
It is to the ordinary masses that the capitalist governments will transfer the honoring of their sovereigns debts primarily to capitalist banks through more strict austerity measures. As in the US, to be able to pay off their ballooning debts, Greece, Portugal, Spain and France have embarked on extensive fiscal austerity measures, basically lowering social services, hitting pensions, educational subsidies, reducing government workforces, and raising taxes, further impoverishing the poor and middleclasses. These policies have been carried out based on the recommendations of the IMF,which is widely participating in the bale outs of Euro zone countries.
Huge demonstrations by the masses with casualties already and mostly composed ofthe lower and middle classes, coming from government workers,students,
professionals and ordinary housewives, have wracked the cities of Athens, Lisbon, Barcelona, and Paris, protesting their government cutbacks on social services and the increase of taxes to save big business. The huge sums received by the governments of Greece, Portugal and Ireland, will be paid as usual to big financial institutions, both local and foreign doing business on their shores. In England, a demonstration in the city of Tote ham in the second week of August has morphed into widespread rioting and even looting that has engulfed London, Manchester, Liverpool, Birmingham and Nottingham. The rioting and looting have been carried out by economically marginalized sectors, primarily the unemployed youth, ethnic groups and even impoverished professionals, including parents, whose livelihoods have adversely declined due to the continuing economic crisis of capitalism. To attribute the rioting and looting to a culture of violence, gang mentality, and parent neglect of misbehaving children, as the British parliament, led by Conservative Prime Minister David Cameroon, has done is a simplistic evaluation of the situation. The causes of the problem now enveloping England are its bailing outs of mega banks, particularly the 37 billion pounds infusion into The Royal Bank of Scotland, Lloyds TSB and HBOS in 2008 and its costs of financing wars(England’s contribution to NATOLibyan campaign, aside from its involvement in Afghanistan, to protect its oil interest ,British Petroleum, was 260 million pounds by August, 2011). To support its massive spending, the British government has likewise adopted extensive austerity measures through reductions in pensions and public jobs, privatization of government corporations, including state universities, causing tuition fee increases, wage freezes and other such similar policies, causing widespread unemployment and poverty among its citizenry. Unemployment, for instance, averages 9% in Europe, with 10% in Great Britain and 16% in Greece. 23 million workers in the European Union have lost their jobs due to the ongoing global economic turmoil since 2008. The “broken England” of Prime Minster Cameroon more accurately means that it is capitalism through the help of their governments that has broken the lives of the general populace.
The Bane of Finance Capital (Monopoly Capitalism)
The economic fundamental abided by capitalist countries, which considers deregulation in the markets as sacrosanct, is in fact a rationalization of the economic dominance of a few. To trust the so-called free market, notably the stock markets of the world,to swing back to equilibrium is to rely on the strong sense of social responsibility of private business, basically monopoly capitalism(the integration of industrial and finance capital)to take measures to create new jobs for the people from the funds they borrowed and even received as grants from their governments. This assumption is greatly misplaced since the primary goal of private business is to make as much profits in the shortest possible time. They did not primarily invest the bail-outs from their governments into the productive sectors, industry, agriculture and some forms of service, but had instead channeled them back into the stock markets to earn interests and dividends, higher than they would have acquired from sales. As we have witnessed in many instances in the history of capitalism from the Great Depression of 1929, the Stock Market crashes of 1982, 1987, 2001, and 2008, the drive to accumulate greater profits in the financial markets than in the productive sectors of the economy through dividends and interests has led only to one bubble economy after another, which inevitably burst. To trust on the so-called free market of the capitalists to recover in time by itself is to forget that the basic drive of each capitalist is to beat his/her competitors by cutting on the latter’s turf and to be no. 1 in his/her line of business. In short, it is greed that is being camouflaged by the theory of free enterprise of the capitalists, with all the mathematical incantations of their academic theoreticians, so apart from proper social planning to create jobs for the people and to improve their livelihoods. The social framework of capitalism is biased for the profit-motivated individual and the call of “free market” both in the financial and economic sectors is just simply a mythical slogan to justify the squeezing of more profits from society.
In the first place, there is already occurring a crisis of overproduction in the real economy, the productive sector, and the calculating capitalist will thereby avoid increasing his/her inventories. For instance, as early as 1997 there was already an overcapacity of 22.4 million automobiles worldwide. In the telecommunication industry, between 1998 and 2001, there was also a growing overproduction of fiber optic cables as telecom companies went public. These overcapacities resulted in the so-called dot-com market collapse of 2001, which was precipitated by a plunge of the stocks of telecom companies in Wall Street. Overproduction was also experienced in other manufacturing industries: textiles, steel, ships, aircraft, chemicals and drugs. Since a capitalist will never pay a wage or salary to their employees equivalent to the values of their outputs, as the surplus that the latter create constitute the capitalist’s potential profits, overproduction will inevitably ensue. The purchasing power of the proletariat of the world, blue and white collar workers, the latter including scientists, professors, singers, etc., who constitute the majority consumers in the world market, will thus never balance with the values of the goods and services they produce, resulting in recurring overproduction in the marketplaces of the capitalists. Indeed, the logic of capitalism or at the present stage monopoly capitalism is to create overproduction and bubble economies. The capitalists attempt to counteract the tendency of a decreasing rate of profit due to unsold goods and aggravated by competition from his/her rivals either through destroying his/her products(wars, deliberate destruction as in throwing goods into the river) or a turn into speculative investment in the stock market.The latter option only inflates the worth of the real economy creating a bubble economy. Before the Great Market Crash in Wall Street in 2008, the financial capital, notably exemplified in the stock markets, of the world was bloated sixteen-fold from $12 trillion in 1980 to an estimated $190 trillion in 2007, over a third which were in the US. The value of global financial assets in 2006 was equivalent to 350% of GDP of the real economy of the world.
The capitalist governments coming to the rescue of big business will just repeat the vicious cycle of one economic crisis after another. It may lead to the capitalist governments, particularly the US, printing more monies to pay off its debts, further bloating the economy from its real worth, causing a massive bubble economy. Even China which has submerged itself in the capitalist economy since the 1980’s is also creating a bubble economy in its stock market while the majority of its people are mired in poverty, earning meager wages in firms put up by the comprador bourgeoisie in alliance with foreign capital in so-called free trade zones. It is to be remembered that when Germany in the 1920 to the 1930’s was made to pay off its imposed huge reparation obligations to the victorious Allies in the First World War and when the German people had no more capacity to pay, the Weimar republic had to print monies by the millions causing a bubble economy, a mammoth inflation of the reichmark, which became so devalued to the extent of 1 million reichmarks being equivalent to one US dollar. This gave rise to the social turmoil in Germany erupting in the Second World War. In the case of the euro, the European Central Bank may resort to printing more liquid money to bail out Eurozone members in dangers of defaulting from their debts, which will spark inflation, hitting more critically the general populace.
Keeping the present ailing and moribund capitalist system alive on a lifelline by constantly pumping monies into itthrough squeezing more surplus value from the people or causing the artificial rise of the prices of commodities and stocks or printing more monies, have their limits after all. The endurance and patience of the people have also their limits, when finally they realize the irrationality and injustice of their situation. It is they who are made to pay for the wrongdoings of capitalism as millions of them starve and lost their dignities when rendered jobless and homeless as the vicious economic crisis of their tormentors intensify. Yet, finally, millions of the world people are catching a glimpse of the roots of their daily miseries as thousands of them have began going into the streets protesting their unfortunate fate.
Indeed the life of capitalism can no longer be sustained. The values of their stocks have become very erratic, huffing and puffing to rise up again at the same time causing more bankruptcies among ordinary investors, who have been beguiled by promises of quick profits in the stock markets. Capitalist governments in their various G7 and G20 conferences and emergency meetings have tried almost every trick in the books to enable their corporate mentors to recover from the economic crisis, from extensive austerity measures, to the Federal Reserve Bank of the US reducing interest rate to almost zero, to the establishment of the European Financial Stabilization Mechanism(EFSM), the European Financial StabilityFacility(EFSF) and the European Treasury by the European Union. All of these measures have been inadequate, however, as stock values continue to deteriorate that even monopoly capitalism is losing their confidence in their political protectors and is asking for more extensive measures, which will surely cause greater miseries among the masses.
The way forward to save humankind is becoming clearer and clearer as the crisis continues and will surely descend once more on the world with greater impacts if ever capitalist governments could come out with some temporary solution to the ills of capitalism. The path that is becoming clear is that the capitalist order must give way to a system where the values created by the people of the world through their productive labor must not be appropriated by a few, the capitalist owners of the means of production, but must revert to the people themselves. This therefore calls for a change in the ownership of the means of production and the expropriations of capitalist property, particularly those of the monopoly capitalists.
The suffering people of the world cannot trust on their present governments who by all sorts of economic ties are the guardians of monopoly capitalism. The people of the world must rely on their own organizations which may have seen the way forward of dismantling the irrational economic and political structures of their societies. The true value of the products of labor, based on the average length of time they are produced and which are becoming more abundant through advances in technology, must be maintained in order for the people to enjoy the fruits of their work. The true value of commodities must not be left to the whims of individuals, who are motivated to make colossal profits and who manipulate price increases departing from their true values through all sorts of methods like hoarding, destruction of goods, deceptions and all other shenanigans occurring in the stock market of the capitalists. In this regard, an enlightened people must abolish the stock market, which has been invented by the capitalist to hoodwink the ordinary investors.
By the impoverished majority masses of the world agreeing on a common method to distribute the goods that they produce in a manner that will redound to the development of each can we finally surpass this era of a defunct capitalist system of ownership. Only by this way can the common good be served through a collective and properly-planned production and distribution of the products of labor. Only in this way can science, technology and the arts truly advance the welfare of humankind.
US Treasury: CO Roll Call
National Priorities Project, Internet and Reuters – Our World Now, March 22, 2011, internet.
 The Euro zone member countries are: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.
From Council of Foreign Relations, Internet.
 European Sovereign Debt Crisis – Wikipedia, Internet
 The European Union is composed of 27 member countries: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK.
 This is a prediction of Stanley Morgan, cited by the BBC, on Aug. 18, 2011.
 France International News, Internet
Ibid., Council of Foreign Relations.
English news cn, Internet.
 Quoted from the Wall Street Journal, Aug. 5, 1998, A-1 and The Economist, July 20-26, 2002, 59, from the article “Challenging the Conventional Wisdom on the Causes and Cures of the Current Economic Crisis”, by Pa0-yu Ching, Institute of Political Economy Journal, July 2010, pp. 10-11.
 See Karl Marx “Theories of Surplus Value”, Part I, where he discusses how surplus value is extracted from the labor of service workers, such as singers and teachers.
From data of IBON Foundation, Philippines.
The date posted here is due to our website rebuild, it does not reflect the original date this article was posted. This article was originally posted in Yonip in Oct 2nd 2011