CRISIS WITHOUT CURE: A Marxist analysis of the impending stock market crash

This week, the collapse of Tricolour and First Brand sent a ripple of fear through the capitals of the world. From giddy boasts that the ‘bull’ market would never come down, capitalists are now reckoning with the fact that there is a gigantic bubble in the world economy, which threatens to pop. 

But the bubble – which they are powerless to fix – is symptomatic of a much deeper crisis. Capitalism has reached its limits. For years, they have used bailouts to delay the day of reckoning. Now they are crushed under a mountain of debt, which threatens an avalanche of bankruptcies. 

With economies around the world sliding into recession, with overproduction, endless political instability, tariffs, and inter-imperialist competition, it is only a matter of time before the crash arrives. When it does, it will have devastating implications for the entire world economic system. 

Most of all, as Francesco Merli and Hamid Alizadeh explain in this week's episode of Against the Stream, it will be a recipe for class struggle, as the capitalists and bankers try to force workers to pay the bill.

Against the Stream is the current affairs podcast of the Revolutionary Communist International. It airs weekly on YouTube on Thursdays at 6 p.m. London time.

Reading list

The Big Crash: Are we really heading for another 1929? – Telegraph

Gita Gopinath on the crash that could torch $35trn of wealth – The Economist

What the stock market bubble can tell us about the state of the US economy – Niklas Albin Svensson

Zombies: Ranks of world’s most debt-hobbled companies are soaring, and not all will survive – AP

Transcript

Hamid

The financial market crash of 2008 set in motion the deepest recession since 1929. 

What followed was a decade and a half of crisis, austerity and social and political turmoil as never seen before since the end of World War Two. 

Never again, said the capitalist class back then. 

But capitalism is an anarchic system which cannot be controlled by any individual or group of individuals. 

And well, here we are again. 

Over the past few weeks, the collapse of two American companies have set in motion fears of a new major financial crash on the horizon. 

The head of the IMF has been out saying that the private lending market keeps her awake at night. 

The head of JP Morgan has said that when you see one cockroach, there's usually more. 

These are some of the top strategists of the capitalist world, and what they're reflecting is a system which is clogged up at every level. 

A polycrisis is emerging throughout the system at every level. 

The difference between today and 2008 is that the capitalist class has used all of the tools at their disposal, and today stand completely exposed in front of this huge looming crisis.

The consequence? An explosion of the class struggle everywhere as the rich try to unload their crisis onto the shoulders of the workers and poor. 

My name is Hamid Alizadeh, this is Against the Stream, and I'm here today with Francesco Merli. 

Back again, it's been a while.

Now, Francesco, let's look at the facts. What's happened here? We're dealing with the collapse of two medium sized companies. One of them, First Brand has 26,000 workers. What happened?

Francesco

Well, they filed for bankruptcy. But the thing is that these companies are not necessarily so relevant as to provoke a crash. 

But they highlight a situation that is widespread on the US market, and that is a repetition and an expansion of a bubble that is similar to the 2008 crisis, the subprime mortgage crisis, and it is linked to shadow banking in the United States. 

So all this excess capital, these profits, this liquidity that has been unleashed into the system in order to counter balance the impact of previous crises is now accumulating, is now inflating a bubble at that level. 

Hamid

Yeah, well why don't we lay out the facts of the case. 

Two companies: one is Tricolor, which was a company that gave loans for people to buy cars. 

Actually they had a chain of used car dealerships, but they don't really make money off of the used cars, but what they made money off was lending the money to very poor people on little or no income or little legal income to sell them cars. 

The other one was a car parts maker first, the First Brand group, which I think is the more interesting case study.

This is a company that's set up in 2013 and initially they were just making one specific car part. I can't remember exactly which one it is now. 

But then they went on a kind of shopping spree. 

As, as you said, the financial markets were flooded with credit following the 2008 crisis, the lowering of the interest rates, you saw this phenomenon of companies that just existed on the basis of buying up new companies. 

So they would buy a company, they would take up a loan to buy a company, the general value of the company would go up, and then they would, on the basis of that value, take up new debt to buy new companies. 

In the end, they bought 23 companies over the course of bit more than decade, and established a kind of a monopoly on non-brand spare parts.

They had around $6 billion of debt from traditional financial bodies like banks, basically.

So this was $6 billion of good loans, we can say. 

But what has emerged in the past period is that they had another five and a half billion dollars, at least, of debt in what you call, correctly, the shadowbanking sector. 

Private banking or private lending, we say. Private credit sector. 

Which is non banks that give out very creative types of loans.

The loans that this particular company was creatively engaging in, was based on their transactions. As in, if they sold something... 

Normally, you know, you sell something to another company, you get the money 30 days or more later. 

Now, in that period, you can go to a financial institution and take up a loan on the basis that, 'Look, these guys are going to pay me in 30 days. Lend me the money now until they get it.' 

And you do the other way around as well, which is that, for instance, these guys paying their suppliers would take up a loan to pay them later. 

So they would say, 'Look, we're going to pay our suppliers in three months instead of 30 days. Lend us the money.' 

So everyone is happy. The buyers pay later. The sellers get the money earlier.

You can do that, you know, in one transaction, if you just kind of filling the gap between money coming in and going out. 

But what happened here is that you had at least five and a half billion dollars worth of debt, essentially doubling the amount of debt that the company held while the actual value of the company was a fraction of all of this.

Eleven and a half billion in debt, that is what they know of so far. Whereas the actual value was probably a fraction of this.

Francesco

Yeah, yeah. And what makes everyone nervous is that no one knows exactly what the situation is. 

And in fact, whether this company is a cockroach, an isolated cockroach, or there are a lot more cockroaches. 

And the assumption that a lot of strategists of capital internationally are making is that there is a lot more of this because of the situation that has been created on the financial markets.

Hamid

Yes, well, the head of the IMF, I got a name here. What's her name? 

Francesco

Kristalina Georgieva.

Hamid

There you go. You said it better than me.

She said recently that the private banking sector is keeping her awake at night. 

These kind of people normally don't say this. 

Normally they're out trying to calm things down. 

But she said, this is from the Guardian, "There's a significant shift in financing, from the banking sector to the non banking sector."

"'Non-bank financial institutions are not regulated as closely as the banking sector,' she points out, meaning that the world could end up in a difficult place if private credit sector continues to grow significantly and the global economy then weakened." 

Now then she goes on to explain, "The fund is concerned," this is the IMF, "that banks are increasingly lending to private credit funds because these loans often deliver higher returns on equity than traditional commercial and industrial lending banks thanks to the lower capital requirements allowed by their collateral structure."

What is this? This is technical speech. 

But what happened was, before 2008 we saw a massive lending spree. 

This was back when you walked into a bank and you couldn't walk out of it without a credit card thrown into your face basically.

Francesco

Or a mortgage.

Hamid

Or a mortgage. 

There was a massive increase in credit. Highly unregulated. 

And obviously, the more risk you could take, the more money you could you could make. 

There was a there was a credit bonanza and a money making bonanza on the basis of that.

That was the spark of the of the 2008 crash.

In the West in particular, but throughout the world, following that crash, you had a series of regulations which made sure that finance, banks in particular, had a certain amount of money in the bank in relation to how much they could lend out.

So they set a certain limit to what they could lend, and the creativity with which they could they could lend money, the interest rates they could charge, and so on. 

But obviously, what we're seeing here is the market always finds a way around it. 

And then what's happened is that you set up a company that's just not a bank. 

You don't take deposits, so you're not under the same regulation, you're not under the same scrutiny.

It's not a total Wild West, but it's almost a total Wild West, and no one really knows what's going on.

What they're saying now is exactly what they said during the subprime mortgage crisis. 

They would lend money to these people who didn't have the income or future prospects of an income to buy a house, because housing prices were going up...

Francesco

They were willingly issuing bad loans. 

Hamid

They would divide up these bad loans and then they would sell them on the market, so that no one would end up with the total risk of of those things, because they were bundled up with good loans.

And it was fine until it wasn't. 

Now you have the same thing just with companies.

Although, I mean, here you have with Tricolour, it was actually subprime loans on cars. 

But you have this phenomenon with private lending which is lending out to all these companies, where there's no transparency over how much they're indebted, what they're owing to who, and so on, and then you sell it off to the world market. 

Francesco

Yeah and the problem is that, yeah, this world is not confined to a bubble that is external to the banking system, and the banking system is always going to be hit at the end of this. 

There was research by the IMF that revealed recently that American and European banks have lent the equivalent of $4.5 trillion to private credit firms. 

So $4.5 trillion of course, it's a fraction of the amount of loans that banks globally issue, but it is becoming quite a large amount which is impossible for anyone to control. 

Hamid

I think, is about three or 4% of world GDP, which is quite a significant amount.

Now we have talked about this before.

In 2008 world capitalism was faced with a severe crisis. A crisis of overproduction.

Which, even at that time, had been postponed for a certain amount of time by the issuing of debt, by bubbles, you know, by creating bubbles in the housing market and derivatives of that, such as the subprime market and other lending markets.

And you saw a crash, which we saw the Lehman Brothers, a major financial institution, collapse. 

There was a complete freeze of credits all over the world. No one wanted to lend to each other, because no one knew whether they would get the money back, how many toxic assets the others had.

And the world economy was at a precipice of a major collapse.

The way that they came out of that was by issuing more debt, by lowering interest rates to almost zero for years and years.

The government's stepping in to... 

Francesco

Bail out the system.

Hamid

To bail out the system. To bail out the banks, to bail out the companies that were going under. All of this toxic debt was bought up by the governments.

You see a crisis in a capitalist system – this is what the bourgeois themselves will tell you – It serves a purpose. 

It clears away unprofitable companies. It clears away overproduction at a huge cost for the working class. 

But from the point of view of capitalism, that's the function within the system. You get into a crisis, you sweep away the unproductive parts, and then you end up with a core of productive parts. 

Of course, you're still preparing bigger crises in the future. 

But the way that they overcame this crisis was not by clearing out the infectious pus, so to say, but by keeping it on life support. 

Francesco

Yeah, in fact, what they did was to socialise all the losses and allow the capitalists to continue from then, as if nothing happened. 

No one in the capitalist class paid the consequences. The bankers, the financial tycoons, they all got richer out of this. 

Hamid

Someone was saying back then, capitalism is socialism for the poor and free market for the... 

Sorry, socialism for the rich and free market for the poor. Which is exactly what it was. 

As you know, they talk about, 'Oh, free enterprise and private property being the driver of innovation and the state stifling development. '

But when it came to it, the state stepped in to save the capitalists, to save big business, to save the banks. And who was left with the bill? That was the working class. 

Francesco

Yeah, because the bailout meant a steep increase in public debt everywhere. 

And then we had a decade or more of austerity in order to pay back this additional debt. 

So they socialised what the capitalists had lost, their losses, so that they wouldn't have to pay the bill, and they passed it onto the working class everywhere. 

Hamid

So, so it's not true that the capitalists... you know, they are rich because they take all the risk.

Actually, the risk is taken by the working class, whereas the super rich take home all the profit. 

Francesco

And in fact, I think every crisis ever since has one characteristic. 

Always the public, always the state, always the central banks, always authorities that are financed by tax revenue collected from working people, steps in in order to save the capitalists from any crisis.

Hamid

Yeah, now, a part of the consequences of this was the creation of what we call zombie companies. 

Zombie companies are companies that have so much debt,  basically the debt and the interest payments outstrip their profits, so that the only way that they can survive is by relying on these cheap debts.

Now Associated Press did a study of zombie companies last June. 

And they said that they found out that the number of zombie companies have risen to nearly 7000 publicly traded companies around the world. 

2000 in the United States alone. These are public, so these are on some sort of a stock market.

First of all, the majority of these are not the major companies, but it's 7000 companies, which is around 20% of all listed companies. 

It's quite, quite a large percent. 

They account for 130 million workers in. Let me just see. 

This is in in kind of Anglo Saxon, kind of countries. 

Australia, Canada, Japan, South Korea and United Kingdom and the US. 

So this is a small faction of the most advanced countries. 

And in these countries, 130 million workers are employed by these companies.

So this is a significant chunk. I think we can easily say that Tricolour and First Brand were more or less zombie companies.

Now here's what they say. They link it back to this 2008 as well. 

They say "Credit rating agencies and economies warned about the dangers of companies piling on debt for years as interest rates fell, but got a big push when central banks around the world cut benchmark rates to near zero in the 2009 financial crisis, and then again in 2021 during the pandemic."

Now it says "Many zombie companies lack deep cash reserves, and the interest they pay on many of their loans is variable, not fixed, so higher rates are hurting them right now. 

This was like last year, and we've seen higher rates,

Most dangerously, zombie debt was often not used to expand, hire or invest in technology but on buying back their own stock.

This is an interesting thing, because the capitalists say, 'Oh, we need to save these companies, and we're going to give them this cheap debt so as to stimulate growth, stimulate investment.' 

But actually what these guys find – this is the bourgeois analysing their own facts and figures. We could have told them this, but this is what they find – "is that this zombie debt was not used to expand, hire, invest, but on buying back their own stock."

"These so called repurchases allow companies to retire their own shares or take them off the market as a way to make up for new shares, often created to boost pay and retention packages for CEOs and other top executives."

So what happens is you give a bonus to your CEO and a top executive in the form of a cheap share, and then you take up a loan in your company to buy back shares, in general to push up the price of those those shares.

That becomes a business model. 

Of course, it's not just related to the CEOs and the top executives. It's also related to the stockholders. 

The problem is that all of these buybacks leave these companies with even less cash. 

So it becomes like a Ponzi scheme of taking up loans, buying their own stock, using whatever cash they have as well, push up the stock prices, take a loan in the stock prices, buying their own... 

Which is basically what First Brand did and which is what a huge number of these people do. 

This was extended... This is not just a thing for small and zombie companies. It says "companies had a chance to cut their debt after the then President Donald Trump's 2017 tax overhaul slashed corporate rates and allowed repatriation of profits overseas."

So they gave them an incentive to bring back their money and pay less taxes in order to bring down the debt. 

That's not what happened.

"Most of the windfall, however, was spent on buybacks." 

"Over the next two years, US companies spent a record $1.3 trillion repurchasing and retiring their own stock, a 50% jump from the prior two years."

So every time they throw money at it, every time they throw taxes... 

Francesco

...it just goes to inflate the bubble even further. 

I think all these things are difficult for normal people, ordinary people, to comprehend, really. The scale of this swindle that is ongoing.

But why is this happening? I think this is the important question we must ask. 

And the reason for this, which can take many different forms and will transform itself all the time, and has been transforming all the time to avoid find a way out of regulations, to find a new venue to increase super profits and so on. 

The underlying problem is that the world capitalist system is facing a protracted crisis of overproduction.

And the capitalists don't find it convenient to invest. They don't want to create more productive capacity.

In fact, the productive capacity in the world, the utilisation of this capacity, is lower than it used to be. 

For example, during the boom of the 60s it used to be around 87%. Now it's 10 points lower, 77%.

So what's the point? You have a lot of free money. You have a lot of capital that is just looking for venue for investment, and it doesn't go into productive investment, it goes into any sorts of speculation. 

Hamid

Yeah, you see, we always told that there's a thing called neoliberalism, which is all about deregulation. It is all about this...

There's like, a form of capitalism which is particularly bad and destructive and greedy. 

But the point that Marx makes... 

Actually Fred Weston, another co host who's a regular here, he made the point this morning that Marx makes the point in Capital that capital, as such, is an organism, which needs to expand. 

That is what capital does. 

And where it can expand fastest and easiest, with the least amount of risk, that's where it will go to. 

And as you say, we have a major crisis of overproduction, which has been bubbling away for years actually. 

Francesco

You can see that in car production and sales. You can see that in steel, in everything that is fundamental. 

Hamid

Yeah and that means what? We have factories which can produce far more than ordinary working people can buy.

And bringing out new factory lines is not profitable, in particular, when the companies that are making those cars, for example, they are making a lot of profit because they built the factories years ago. 

They control the market. There's no new entrants onto the market, although now there is from China.

But the amount of money that it would take to reinvest and upgrade and, how do you say, raise the level of production onto more advanced level, compared to the return that you get is much, much less than you would from speculation. 

And here's the thing. 

You know, we have a very good article by another co-host, Niklas Albin Svensson, called 'What the stock market bubble can tell us about the state of the US economy'.

And here, he talks about the price over earnings ratio of the major American companies. 

This is no longer the small and medium time. This is major. This is alphabet. This is Tesla.

They are valued at hundreds of times more than what they're actually selling.

Company like Tesla or Nvidia, several 100 times. Palantir, which is an AI company, its value is 700 times more than the actual profit that it turns out every year.

Which means that you buy a stock from that you're not going to make your money from, from the future profits.

No matter how much they increase it, the market is not big enough for them to increase profit that much.

Back in the days, you used to buy a stock, and what you got from it was the earnings. 

So they would divide up the profit every year. Some of it would go back into the company. Some of it would go to the shareholders. 

And on the basis of that, you would buy your share. 'So okay, this is how much they're going to pay me. This looks like a company that's going to be making a lot of money, making a lot of profits, so I'm going to invest in it.' 

Today, that's no longer the case, because the way that companies transfer money to their shareholders, is not primarily via shareholder dividends, but by share buybacks.

Which means you're not buying the future revenue and profit of the company, you're buying the future stock price of the company. 

Francesco

Yes, it's a betting scheme. In fact, and what is happening is that the US stock market has become the recipient of investments from all over the world because of this rise in stock market value. 

What we're talking about is companies like the ones you mentioned that have increased their stock market value, their stocks have risen in price enormously. 

And so all the capital that is idle worldwide is going into the United States and this is supporting this bubble. It's developing. It's inflating it even more. 

And the problem is, how long can this last? How long can this last? 

And what will be the consequences of a crash in the US stock market? 

So we're back to the same problem that capitalism has been facing over and over again, which brings us back to 1929. 

What will be the consequences of crash in the stock market? 

Hamid

Yeah, well, let's look at what the capitalists say. 

There's been quite a few warnings coming out over the past week.

Gita Gopinath

 has written in The Economist. She is the former chief economist of the IMF. 

She's a professor in Harvard, and she's written this article called 'Gita Gopinath on the crash that could torch $35trn of wealth'. 

She starts "The American stock markets has seesawed lately amid a flare up in trade tensions, but remains near is all time high." 

This is the warning sign number one. Major trade tensions all over the world. There's a trade war going on with China.

And the stock market is booming like never before.

"The search, fueled by enthusiasm around artificial intelligence, has drawn comparison to the exuberance of the late 90s that culminated in the dotcom crash of 2000."

"Though technological innovation is undeniably reshaping industries and increasing productivity, investors have good reasons to worry that the current rally may be setting the stage for another painful market correction."

Francesco

Yeah, it's funny how they use this type of terminology. 

Market correction is the equivalent of a crash. 

That's what she's talking about. 

Hamid

You see, economists normally don't say this kind of things, but the fact that... Here's the next sentence that she says:

"The consequence of such a crash, however, could be far more severe and global in scope than those felt a quarter of a century ago. At the heart of this concern is the sheer scale of exposure." This is what you were referring to, "both domestic and international to American equities." 

"Over the past decade and a half, American households have significantly increased their holdings in the stock market. Everyone is now buying stocks." 

Everyone I talk with, my friends...

Francesco

That is a sign that the bubble is about to burst.

Hamid

"Encouraged by strong returns and the dominance of American tech firms, foreign investors, particularly from Europe, have, for the same reasons, poured capital into American stocks while simultaneously benefiting from the dollar strength."

"This growing interconnectedness means that any sharp downturn in American markets will reverberate around the world." 

Francesco

Yeah, and in which way will that reverberation happen?

It will affect the consumer market in the United States, because today, families are investing their money into the stock exchange. 

There are people who are basically even lending money in order to invest more in the stock exchange. 

Not just the big companies, but even the ordinary guy, the drugstore guy, who has a bit of savings, and he's using these savings and putting this money into the stock exchange in order to be part of this, you know, 'wealth creation', as they call it. 

And in fact, this is just a bubble.

So any 'correction', as they say, or crash in the stock market will affect these people. 

And then there is the international angle to it, because pension funds, hedge funds, everyone with money on an international level that is floating around, are putting this money into the stock markets in the United States. 

So a crash in the stock market in the United States will have global consequences, as it always had, and this time even probably more than usual.

And it's interesting to see in this article, Gita Gopinath is trying to estimate what kind of impact that could have, putting some numbers to it. 

And she comes up with the following estimate, which is basically a correction that could wipe out over $20 trillion in wealth for American households. 

This is 70% of American GDP.

We're talking about the stock of wealth. So whatever you know the families have, their savings, their properties, whatever they have, the equivalent of 70% of one year of production of the United States economy that's what is going to be wiped out according to Gita. 

And that's for the United States. And then there is the impact on the rest of the world.

And she estimates that about 20% of the rest of the world's GDP equivalent will be wiped out by a crisis under the present circumstances, that's why they're getting so nervous. 

Hamid

Yeah, it's quite interesting because, I was listening to a podcast by Wall Street Journal this morning. 

And their line was, 'Yeah, everything is fine, yeah. Lots of people are saying... But you know, at the end of the day, it's not as bad as it as it looks.' 

And there was another one, which is an online magazine called Market Watch, which is similar. Kind of stock brokers. 

They were quoting, how to say, the psychological negative bias of humans. You know, we always tend to be over worried about things. 

In other words, what they're saying is, keep buying. Keep buying. 

And that is the the crazy thing about this.

There is another very interesting article in The Telegraph which is called... 

This is from the 11th of October, before these two companies crashed, I think.

It's called 'The Big Crash: Are we really heading for another 1929?'

 and it makes a lot of the same points as the Gita Gopinath article, but I just want to say, the ending of that article, it says:

"For now, Fear Of Missing Out continues to drive the headlong dash into the artificial intelligence boom."

"Everyone knows is out of control. But as Chuck Prince, the former executive of Citigroup, said, just ahead of the 2008 financial crash, as long as the music is playing, you've got to get up and dance."

"That is the great intrinsic curiosity of finance, that despite all the lessons of history, it never knows when to stop." 

"Eternally condemned to a cycle of boom and bust, It invariably pushes the envelope of excess until the whole house of cards collapses on itself."

There is one thing that they don't notice here, though, is that the bankers don't pay!

I mean, a few of them might lose a little bit of money, but they have means of ways to getting out of this. 

The people who are paying, this is what they used to, is the working class. 

The government steps in and saves them. 

Francesco

Yeah, it will be indirect, if it's through government bailout like it was before, or directly, by losing money that is your bank deposits, your savings, whatever you have in these hedge funds for your pensions...

Hamid

And driving this boom again, to come back to the initial discussion we had, this bubble on the stock market, is not just dormant capital, cash that's just lying around, but it's also a boom in lending and in private sector lending, which is driving a huge part of this. 

What did you call it?

Margin debt.

Which is companies taking up loans to buy shares. 

Francesco

Yeah, margin debt. That's an indication of this situation where a bubble is overheating and it's reaching the point where it's dragging everyone in, everyone wants to be part of it because of the high returns promised on previous experience, let's say. 

But they don't realise that by being drawn in, the bubble is reaching its end. 

It cannot draw in what is not there. 

So once it becomes global and so extensive, then that's a sign that we're close to that. 

No one knows how long it takes for the bubble to burst, but there are some indications that it is about to burst, and one of these is this margin debt. 

Margin debt among investors has increased in the last five months by 32%.

And that's something that those who are a bit more sober and trying to understand what is going on are pointing out. 

It's that in the past, when we had this sudden increase in margin debt – that I repeat, is essentially a loan taken out by an investor from a broker to buy stocks. 

So he's not buying these stocks with his own money, he's getting a loan in order to then buy stocks, betting on the future price of these stock. So betting on the possibility of making a profit out of it. 

Hamid

So basically, you go to the casino. You want to bet on red. You don't have any money. 

You have $100. Then you take a loan from the casino for $1,000.

Francesco

Put all of it on red.

Hamid

If you win, obviously you make a ton of money. 

Francesco

Yeah, if black comes out, you end up losing your money and having a debt with the casino owners, which is not nice. 

Hamid

Which is exactly what also happened in the run up to the 2008 crisis, where they were leveraging, as in, why invest just the million dollars you have when you can take $10 million of debt against it and invest that.

Obviously, when it goes well, as long as the market is booming, everyone is winning.

Money is flowing. 

But all things have a limit, and debt certainly has a limit. It has to be paid back.

And that's where we're heading.

One of the things in Gita Gopinath's article. Maybe we should read what she says.

There were certain things which have been fueling this, this debt boom, which is again fueling the speculative bubble. 

One of those has been the strength of the dollar. 

The dollar used to be a safe haven. It was incredibly strong. 

The American Central Bank or the American state could basically issue infinite amount of, almost, debt. This is what they said. 

Because people always want to buy dollars. People always want to buy dollar debts.

Because, you know, this is the strongest reserve currency in the world, and even if they just print it, it won't lose value, at least not significantly.

But we are seeing that the dollar has been declining, more than 10% since the beginning of the year.

On the one hand, caused by the tariff wars, the instability, the political instability.

Francesco

Yeah, that's reality kicking in again. It's not just an insulated bubble that has no relation with reality. 

There is a relation with the reality. It's very distorted, but eventually there is this link with the real world situation, which is one of increased instability. 

It's the growing burden of debt globally that is creating a situation where the states, the governments, the central banks, every big actor in the system, is limited in the options of what they can do. 

They cannot just expand this indefinitely. 

And if they do expand them, which is always the case with crisis, when they have to face a crisis, that's what they do. 

But there will be a lot of consequences, that in the past they can kind of got away with. 

But today, if they repeat that again, the consequences will be a lot more severe. 

Hamid

Yeah, yes, because this is what all of these different articles say, all of these commentators say, is that back then, you had a relatively stable political system.

Where do you see a stable political system today?

You had a world economy which was completely interconnected and interdependent. China was growing.

America and China, even though there were in competition, they were mutually benefiting from, from the growth of the world market. World Trade was booming.

Today, there's a massive trade war going on, and none of them have an interest in stepping into help each other. 

In fact, the article in The Telegraph quotes Gordon Brown as saving the world economy by bringing all the major capitalist powers together and intervening. 

Francesco

Yeah, try that now. 

Hamid

Then you have massive government debt, which is now, in the most advanced capitalist countries, more than 100 percent of GDP. 

Francesco

More than the historical peak, almost.

Hamid

Interest rates are rising.

At this time, they also want to increase defense spending dramatically by trillions of dollars.

And how can they intervene to... What are they capable of doing? What are they capable of carrying out?

Francesco

I think we're talking about like, if nothing is happening and there's not going to be a crisis in the stock market in the United States, which, of course, when it happens, will create completely different scenario. 

But even if it doesn't happen, this is continuing to develop. What you were describing is not going to be resolved. 

And the problem is, all these things have come up all together. 

There is nothing that is stopping any aspect of the crisis from evolving. 

So we have, for example, the consequences of the 2008 bailout was austerity. 

The state was taking over debt, and then they tried to recover by cutting the budgets, social spending especially, and presenting the bill to the working class everywhere. 

That's the case in Europe. It was the case in Spain, in Greece, in Italy, in the UK, in everywhere. 

And that policy failed from the point of view of the ruling class, because they didn't manage to get the debt under control. 

The debt has been increasing ever since, so there's no way out of that. 

But it has provoked political instability, because, of course, there is a reaction to this. 

The consequence is a leap in consciousness. 

People are thinking about, what is society giving us? 

What is the future for us? 

Capitalism is not delivering from the point of view of the fundamentals of life for people, even in the most advanced capitalist countries like the United States or European Union, Japan and even those that where the growth is more concentrated like China or India. 

It doesn't really have an impact on the conditions of life of the working class.

Hamid

Yes, I mean, they're talking about a profit boom, stock market boom, the economy is going better than before. 

Everything is growing and everything is getting better every day. 

But actually, if you look at the real society, everything is falling apart. 

One is living standards, but the underlying structure of society is falling apart. 

And this is the damning, how do you say, condemnation of capitalism, that it is incapable of developing the means of production. 

That's what all of this really reflects, that the system as a whole has reached a place where it's not capable of developing the means of production.

We talked last week about rare earths. 

Europe and America are now finding that China sits on the full supply chain of rare earths. 

Francesco

They're complaining that China is now weaponising this in the trade war. 

Hamid

But I think rare earth is quite an interesting thing, because here is, this is something that the capitalists themselves claim they need, right? 

And here you see the anarchic nature of capitalism as a system. 

The capitalist class say 'we need to have a rare earth infrastructure, which means we need to have mining, we need to have separation, we need to have refining, we need to have smelting.' 

I'm not a minerals expert. Maybe I'm mixing up some of these things. 

But as far as I understand, these are kind of the main parts of the production cycle, and China sits on the majority of these. 

Francesco

Yeah, they have virtual monopoly over that, about 90%. 

Hamid

If America, for instance, was to reach independence from China in these fields, it would require tens if not hundreds of billions of dollars worth of investment, into technologies, into production capacity, into all sorts of things, into educating the new layers of the working class for a market that nominally, is just $5 billion per year. 

So this would take years for the individual capitalists to make back in terms of profit. 

Obviously, society could benefit from productive investment, but they have no interest in doing it.

Even from their own point of view.  No one has an interest in doing this. 

Why do that if you can just put your money in AI. You just start writing a software which has very little upfront investment, and you can get much, much higher return.

This we see throughout the economy. All of infrastructure, roads, sewage water. In Britain, we've had this. 

Thames Water, energy. 

It's falling apart, it's dilapidated, it's old, it's decrepit.

Francesco

And international conflict and rising frictions between the different imperialist blocks are also playing a role in disrupting all this. 

Hamid

Yeah, and so that all of this give less incentive for the capitalist class to invest. 

And every time they make some sort of a measure, they throw money at them, they have tax released, it doesn't go into this, because why would they invest? 

Those installations which exist are already making tons of money, and new installations is not very profitable. 

So you have a system in a total crisis. And the addition of this huge amount of credit is actually adding to that, is exacerbating that, because it's creating like a massive suckling hole for the bourgeois to sit and leech off while society is going down.

That is a system at a complete dead end, that cannot develop. 

And everything they tell us that 'This is the best of all worlds'. 'This is how we get innovation.' It's complete lies. 

And as you said, what we're going to see now is what? 

Who is going to pay the price of this crisis? 

Although I have another question first. 

A lot of talk is now about a crash. 

What would a crash mean? If there was a real crash?

Francesco

Well, it would mean...

There are two options there. 

One is for governments, states to intervene like they did before, by expanding again the debt. Taking over all the losses. 

That's what they've been doing, consistently, ever since 2008.

In 2008 they allowed the collapse of Lehman Brothers, but then they regretted it, because that was like provoking a domino effect on the financial system that would knock out basically the whole establishment of the financial system.

So they intervened. They bailed out the banks, they bailed out the financial institutions. They bailed out the insurance companies. 

They made they made public the losses provoked by the capitalists. 

Then we had other instances of this, like, for example, the way the ruling classes intervened in 2020 with the pandemic, which was unleashing enormous amounts of public money in order to contain the contradictions provoked by the pandemic. 

And that's one thing that is always in the back of the minds of the capitalists. 

They fear the consequences of this crisis. 

It's not so much about losing money, but it is the stability of society. 

It's that their rule is being questioned, that the Emperor, who has no clothes in reality, seen for what it is. And it is naked.

And that's what happened in 2008. 

People were seeing the shortfall of the system. They saw what it was in reality.

And this has been repeating over and over again. 

What I see as a perspective for a market crash will have enormous consequence, from the point of view of the impact on people's life, whether directly or indirectly, through the intervention of the state, meaning more contradictions, which eventually will lead to an explosive explosion of inflation. 

That's that's the outcome of all that. 

Or by a direct attack on the on the living conditions of hundreds of millions of people. 

These are the two possible outcomes from this.

Hamid

Yes, because the capitalists face two enemies.

One is the crash itself, which is their main concern. They don't really care about anything else. They want to save their own skin.

The other is a working class. 

And, these crashes often are compared with 1929.

1929, the crash of 1929, and the Great Depression, which was 10 years of depression, basically, which followed, started a period of intense class struggle.

There is a difference between then and today, which is that the working class back then was a minority of the world's population. 

But today, the working class is the vast majority. 

That is people who don't own anything. That is the definition of a worker, is someone who doesn't own anything and who is forced to sell his labour power in order to live. 

That category has now... It's been expanded and massively... both in the industrial working class and other layers who have been proletarianized, who previously would have been middle class. 

You have a huge working class, which, if provoked, would be unstoppable. 

The capitalist class in the 20s and 30s had a base amongst the peasantry, amongst the petit bourgeois, which they could whip up. 

Basically, there was a basis for mass fascist movements which don't exist today. There's no such thing today.

What you have today is an incredibly strong working class.

An incredibly discredited ruling class, which is hated by everyone. 

And therefore, if the workers are provoked with a shock like that, you would see revolutions everywhere.

Francesco

After the shock is absorbed, of course, because the initial, actual impact of the shock may be paralysing for the organised reaction by the working class. 

But as soon as people start realizing what will happen...

Hamid

But I think what we also see is, because they fear...

We see this in France now. They cannot form a government that will carry out the austerity budget, because they know what's going to happen to that party. 

That's just the beginning of things. 

They need to cut about 40 to 60 billion euros per year. That's just the start. 

Interest rates will go higher up. New loans will have to be refinanced on higher interest rates than before.

And they are afraid of it. 

And if you add the consequence of a crash or the bailing out of huge companies worth trillions of dollars, no one wants to do that. 

So I was reading the Financial Times today and one of the commenters were saying, inflation is starting to look increasingly inviting, which means what? 

Francesco

They want to inflate out of their debts. 

Hamid

Which means, yes, exactly. By printing money, undermining the value of the money, raising inflation, you wouldn't face the head on, clash with the workers. 

No political entity would take responsibility for that.

And you would devalue the price of your debt. 

But obviously that wouldn't take away instability, because inflation would what? 

Would raise the cost of living. Would put enormous pressures on the working class. Would destroy business environment as well, because you can't do business with high inflation. 

So I think what we're seeing is two prospects.

One is taking the crash head on. 

And we're not saying this is going to happen now, but there's definitely warning signs that there's enough infectious pus there for something like that to happen. 

But you could have a situation where the ruling class trundles along, as it has so far, at the cost of this debt burden growing, to a certain extent, massive inflation, massive instability. 

And the bigger and bigger parts of the resources of society being gobbled up by interest rates, by other things.

And a slow decline which would not change anything in the sense that it would be equally unstable, equally deep crisis. Maybe even prolonged. 

At a certain stage, you could see crashes. 

But basically building up on the contradictions with new contradictions, and then grinding the economy to the to a halt. 

Francesco

Yeah. I think this is the least likely scenario, because of the fractures in international relations. 

It's very unlikely that the capitalist class on a global scale will be able to agree on a common policy on how to face this. 

So what is happening is actually that because of the policies of the Trump administration, which is 'Make America Great Again' at the expense of the rest of the world, these contradictions are becoming more and more explosive and less controllable as, you know, the situation was before.

Now, all This is getting out of the hands of even the most powerful government on the planet, which is the US government. 

Hamid

Yeah. What is the alternative? 

Francesco

Well, the alternative is that the crisis will take place, will unleash. 

And we are entering a period of revolution and counter revolution. We already are in it. 

If you look at the what is happening around the world, even in a situation where supposedly growth is still taking place, where there is still kind of positive economic environment. 

You see in a number of countries that the contradictions have reached a breaking point, and this is provoking revolutionary movements. 

We've seen this in Madagascar. 

We've seen this in dozens of countries in the last few months.

And of course, these are more the periphery of global capitalism, of imperialism so far, but it is affecting also the core countries more and more.

See Europe, for example, or the United States themselves. 

All these contradictions are dynamite built in the foundation of capitalism.

Hamid

Yeah. And the point is this, for our listeners out there who might not be familiar with communist, Marxist ideas.

The point is, the paradox that capitalism presents us with is...

Yes, we talk about overproduction, over capacity. There is too much productive capacity. 

There's too many factories, too many machines, too much technology, which can't find a market to sell its goods. 

And so you have this, on the one hand, this huge amount of wealth or potential productive capacity, and on the other hand, you have unemployment rising, poverty rising, cost of living going up. 

Whereas, why is this machinery? Why is all this technology not used to sort these things out? 

The infrastructure is falling apart. Communications, transport, roads, schools, healthcare. 

Francesco

Everything would require a change in in the system, how it's run. 

That's what is being posed by this crisis that we're facing. 

It's the end of the ability of capitalism as a historical system, a mode of production, to bring forward society to a next level.

Capitalism has played, historically, an enormous role in developing the productive forces. 

They are incapable of doing that, and it has reached its limits, and it can only be resolved by a revolutionary change, by the overthrowing of this system, starting from, of course, the counters that are dominating the world capitalist system. 

The United States, the European countries. 

That's where, at the end of the day, the decisive struggle will take place, in terms of a struggle between revolution and the defense of the status quo and counter revolution. 

Hamid

Yeah, we have a system where production is social, which means that everyone in society participates in the running of society, everyone, bar a tiny group of parasites, of course, right at the top. 

But ordinary working class people, even middle class people, they're the ones who make the society run.

People make the electricity come into our sockets, and build our houses.

Francesco

Transport system. 

Hamid

Nothing can work without the kind permission of the working class, which is a huge social force, which makes up the majority of society. 

It's this collective labour, the collective labour of the working class, that runs the society. 

But the profits of this system is private. 

Production is social. Losses are social. Profits are private and concentrated in the hands of a tiny minority of people. 

That's what creates these dislocations within the system, and those people have no interest in how society works. 

They don't care. They live well, where they live. They have no interest in a functioning society. 

Their primary interest is... 

Francesco

Preserving their power. 

Hamid

Preserving their power and increasing their profits. 

That is the logic of capital. 

In fact, it's the capital that's even running those people. 

Because say, one of them decides tomorrow, 'I don't like this. This is unfair. We should change this.' 

He's going to be out competed by whoever is willing to take the bigger risk and take over and be more ruthless.

That is the problem of capitalism. You cannot control it. 

It is run at the top by a tiny group of people who compete against one another. That's an important element in this. 

And whose sole interest is maximising their own profits. If they cannot maximise their profits, they're going to go out in competition. 

And therefore, you end up with this kind of strange situation. 

Huge amounts of the resources of humanity, that humanity creates, goes into these black holes of speculative bubbles and debt and debt repayment and interest payments, which the vast majority of people don't have anything to do with.

And so the solution is a general overhaul. That's what say. 

The revolt of the masses, the revolt of the working class, that we're beginning to see on a world scale is a revolt of the productive forces, if anything, of the forces of production against these relations.

Francesco

The property of the capitalists must be expropriated. That's the only way out. 

But of course, it will not be done by bourgeois governments, by capitalist governments. 

These resources, these productive forces, must be used and put together in a plan of production which would resolve the needs of the mass of the population for the first time. 

Not in a blind way, but in a conscious way. 

This economic planning is needed, but capitalism is incapable of providing anything like that. 

And therefore the task in front of us is that of worldwide socialist revolution in the sense of expropriating the capitalists, putting the productive forces the economy into a plan which is discussed democratically by the majority of the people, those who are contributing to developing the productive forces to work and produce what is needed and make a leap for society that we haven't seen ever. 

We already are in a world of plenty potentially, but capitalism is increasingly undermining the possibility for humanity to live a decent life, the possibility of developing our lives to the full. 

Hamid

Yes, I think those are perfect words to end this episode with. 

Thank you very much Francesco, and thank you very much for all of you guys tuning in. 

Don't forget to share, like and subscribe to our show on different channels and send it to your friends, families, whoever you think could be interested. 

Against the Stream, we'll be back again next Thursday, 6pm London time. Thank you very much.