However much “liquidity” is supplied to banks or however much they are “recapitalized” or however low the bank rate falls, unless banks think that the capitalist firms they lend most of their money to, directly or indirectly, are going to make a profit in which they can share they’re not going to lend. As they say, you can bring a horse to water but you can’t make it drink.
Because of the way it had been financed the initial overproduction in the US housing sector led to a worldwide credit crunch which burst the housing bubble in other countries too. This has led to workers with mortgages having less to spend and to construction and building supplies workers being laid off and having less to spend too, which is having a knock-on effect on other industries and services which has still not yet worked its way through. As a result capitalist entreprises are reluctant to invest at the same level as before because they don’t think they could sell all they produced at a profit.
Governments are desperately rushing around trying to think of ways of restoring “business confidence” but basically have no idea whether the measures they are proposing will work. They are just hoping they will. They are now adopting the very same measures which they adopted to try to get out of the slump of the mid-1970s (ie trying to spend their way out) and which they knew failed and which they abandoned, and in fact reversed, to try to deal with the slump of the 1980s. Then, the policy was to cut State spending not to increase it, as is now being proposed again.
So, both increasing and decreasing State spending have been tried to deal with slumps, and both have failed. Not surprisingly, because it’s not governments that control the way the capitalist economy works. The government can’t doing anything to prevent the coming slump nor, when it comes, to help recovery. Basically it will just have to sit it out and wait for capitalism to go through its normal cycle while trying not to do anything to make things worse. Governments don’t control the economy as they claim (and as many believe); they can only react to what the capitalist economy throws at them and navigate by sight while keeping their fingers crossed.
Capitalism will not collapse or breakdown of its own accord. It has to be consciously done to death by political action by the class of wage and salary workers. Until the working class are moved to do this capitalism will continue to stagger from boom to slump and back again.
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