Economic crisis

On Sunday 7 September the most right wing Republican administration in the US for three quarters of a century carried out the takeover of the mortgage giants Freddie Mac and Fannie Mae. It was then what appeared to be the "greatest nationalisation in the history of humanity", as Nouriel Roubini, professor at New York University and former US government adviser, described it.

The world took a big step into even greater economic and geopolitical instability in the summer and early autumn of 2008. The credit crunch that started when the financial markets froze up in August 2007 shows every sign of becoming a global economic crisis. And the drive by the US to shore up its position as the hegemonic capitalist state has precipitated a potentially very dangerous confrontation with Moscow after the brief war between Russia and Georgia in August. Never has there been a greater need for a powerful anti-capitalist and anti-imperialist left.

Last month the greatest financial crisis since 1929 swept through the system. As Socialist Review went to press, some commentators were assuring us that "the worst is now over". Those are words we have heard many times since the crisis began in autumn last year.

The mainstream media ran out of superlatives as they struggled to keep up with the events that threatened the whole basis of the capitalist system. All reflected shock and disbelief that everything that seemed so solid had melted into air.

Every economic crisis in history has been met with similar incredulity and copious explanations as to why very specific conditions caused the "never ending" boom to bust.

According to a recent set of figures, which seem almost impossible to take in, these losses are caused largely by falls in the value of houses and shares. They begin to highlight the scale of the economic crisis which is upon us and which shows every sign of getting much worse before it gets better.

What a difference a year makes. The conventional wisdom at the beginning of last summer was that the economy was performing wonders. Graham Turner, Larry Elliott and Dan Atkinson were among a small minority of economists and commentators prepared to say the emperor had no clothes. Now everyone can see that they were right.

Where did it all go wrong for Gordon Brown? Was it his failure to call a general election last October? Was it the attempt to impose a pay freeze? Was it the vote in parliament to extend detention without trial to 42 days? Just one year into Brown's premiership a recent Gallup poll showed Labour's popularity at its lowest ebb of support since Gallup first asked people to declare their voting intention in 1943. The government is in a crisis that appears out of control and the central issue that is derailing Brown is the economic crisis.

There is little doubt that the US economy is already contracting.

The immediate problem is a pool of bad debt, so-called "toxic waste", clogging up financial markets. The waste is a consequence of the scramble to lend money during the property boom of recent years. Arcane financial innovations, which saw debt parcelled out and gambled on by banks, hedge funds and corporations, ensured that the contagion from dodgy mortgages went global.

Many mainstream economic commentators are comparing the current economic crisis to the one that hit Japan in the late 1980s, which saw the country stagnate for 15 years. How strong are the similarities?

There are some clear similarities. First, the bubble that is now bursting in the US economy is in property. That was the same in Japan. Much of the speculation that led to the crisis of the late 1980s in Japan was related to housing and commercial property.

Next we saw the further collapse of the Bear Stearns bank, and even the Financial Times declared that "there is a whiff of 1929 about this".

As the crisis gathered, Peloton managers informed investors that its flagship fund, supposedly worth £1 billion, was worthless and it did not know how much its remaining £800 million fund would have left after banks seized and sold its assets.