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The deepening capitalist crisis: From blood and dirt to

much worse
The recent fall of the Chinese and global stock markets are symptoms of a much deeper
capitalist crisis that first erupted in the 1970s. Indeed, this crisis has not been overcome, but
has rather given rise to speculative bubbles that often burst. This article, therefore, looks at
the reasons behind the Chinese stock markets crashing, along with looking at how states have
intervened again to try and shelter the ruling classes from the fallout.
It was long ago stated that capitalism came into the world dripping in blood and dirt, from
every pore, from head to toe. While it has demonstrated that it wont simply collapse under its
own weight, the recent goings-on around the current capitalist crisis have shown that with age
it has become even more hideous. Capitalism is now rank with massive state intervention
required to simply keep its rotting body moving: through states propping up the financial
sector and deepening the colossal attack on the working class.
Fallout from Chinese stock markets
The goings-on that have once again highlighted capitalisms depravity, are the turmoil
starting in China that has occurred over the last few weeks on stock markets; including the
underlying causes that led to it, and the actions that the ruling classes have taken since then to
try and end it, or at least alleviate it.
The recent volatility in world stock markets erupted in earnest in June 2015. In June, the
Chinese stock markets began a plunge that has frightened the ruling classes (capitalists, top
state officials and politicians) across the globe. This plunge has not yet ended, and so far the
Shanghai Stock Market has lost 40% of its value. In the wake of this, stock markets from New
York to London have reeled; leading to a roller coaster ride of uncertainty.
Speculators have also been withdrawing from stock, currency and bond markets in other parts
of Asia, Africa and Latin America. At the end of August 2015, in a single week, $ 2.5 billion
moved out of the bond markets of countries such as South Africa, Russia, Turkey and Brazil.
Numerous countries too have seen their currencies routed, as nervous speculators have
shifted money to areas and investments they have deemed as being safer in uncertain times.
This shift of speculative money from these markets is dangerous for such countries. The South
African state in particular relies on inflows of speculative money into its stock and bond
markets to cover its current account deficits. If this inflow of speculative money dries up, South
Africa would be in serious trouble. To try and prevent this possibility, the South African state
and the Reserve Bank have maintained one of the highest interest rates, in real terms, in the
States do the dirty work, again
In reaction to this turmoil, the ruling classes in many countries have used their control of
states to try and stabilise the system: highlighting once again that the notion of a selfregulating free market is a fallacy, that the elite dont believe or practice, but which they try
and sell to the working class.
The Chinese state alone has spent perhaps as much as $ 240 billion since June 2015 to stem
the bloodletting on the Shanghai Stock Market. It has also banned large companies from
selling stocks and it has launched criminal investigations into speculators that have been short-

selling. In an attempt to re-inflate the stock market bubble, though, the Chinese state has
lowered the reserve requirements for banks and slashed interest rates to make cheap money
available to speculators. This was done in the hope they would use this to buy shares again and
stabilise prices. It was also recently announced that the state was considering suspending
trading on Chinese stock markets at any signs of volatility. All of this has so far been to little
avail as stock prices have continued to decline they will eventually reach a bottom, but no
one knows for certain when (there have been days when the Chinese stock markets have risen
only to fall again, but they will eventually bottom out at some point).
It has not just been the Chinese state that has intervened in the wake of recent events, the US
state also rushed to try and ease the concerns of speculators over the last few weeks. It did
this by stating, in late August, that it would probably not raise interest rates yet. One of the
ways that the US state has been assisting speculators since 2007 is by keeping interest rates at
near zero. This has allowed banks, brokers, pension fund companies, hedge funds etc.
(speculators in other words) to borrow money cheaply to speculate on stock and bond markets
in Africa, Asia and Latin America, which have been offering high returns. In stating that it wont
probably raise interest rates yet (although speculation is once again growing, at the time of
writing, that it may), the US state was signalling it would continue to provide easy money to
Just symptoms
All of these recent convulsions are, however, just symptoms of much wider problems.
Capitalism has been mired in a global crisis since the 1970s based on over-production and
over-accumulation. Since the 1970s, productive sectors, like manufacturing, have been
stagnating with profit margins becoming slimmer and slimmer due to over-production. As a
result, the portion of investment into manufacturing since then has declined, as capital has
desperately sought out other outlets that offer better returns.
One of the few geographical places that seemed to have been immune to the global problem
of over-production and over-accumulation was China. Due to extremely low wages, violently
and ruthlessly kept in place by the Chinese state, the manufacturing sector in China
experienced a boom beginning in the 1980s. Many corporations from various parts of the
world also set up plants in the country or outsourced production to Chinese corporations.
By 2007, and in the wake of the global financial crisis, it became evident that China was not
immune, and that it too was experiencing a crisis of over-production and over-accumulation. In
2007, exports from China plunged and it became evident that China itself had excess
manufacturing capacity and a problem of capital over-accumulation at the time there was a
real threat that massive amounts of products would have no buyers and thousands of factories
would become idle. Two things, however, delayed the full impact of this at the time: there was
a shift by Chinese capitalists towards massive speculation on the stock markets and in real
estate leading to growth in the GDP and massive intervention by the Chinese state to
purchase products, commodities, and boost the Chinese stock markets.
A long history of state intervention
States are central to capitalism, which has been evident in the wake of 2007, and again around
recent events centred on China. The anarchist Peter Kropotkin long ago stated that: The
state... and capitalism are facts and conceptions which we cannot separate from each other. In
the course of history these institutions have developed, supporting and reinforcing each other.

They are connected with each other not as mere accidental coincidences. They are linked
together by the links of cause and effect, effect and cause. Indeed, in the context of modern
capitalism this relationship has been laid bare for all to see.
States, since the 1970s, have been intervening in very specific ways to try and create outlets
for capital in order for capitalism to overcome the crisis of over-production and overaccumulation. In the past states, including in countries such as the US, intervened through
heavily assisting corporations involved in manufacturing, including through subsidies. In China
until the late 1970s a form of state capitalism existed, with the state playing a direct role as a
capitalist through owning the means of production and directly exploiting workers. By the late
1970s, the intervention changed. As such, states still have intervened in the market, but only in
new ways.
One way states have been intervening in the market, since the 1970s, has been through
embarking on financial liberalisation. They have assisted capitalists by allowing and enabling
them to create new areas of investment, including through floating currencies, promoting the
growth of financial markets, and encouraging trade in opaque financial instruments such as
debt derivatives. In countries such as the US and South Africa states have also made it legal for
companies to buy back their own shares to inflate share prices. Other states, in the 1980s and
1990s, such as the Chinese state established stock markets for the first time (along with
encouraging the emergence of much larger private sectors and embarking on some
privatisation); thereby creating new outlets even if unstable for capitalists globally, who
were experiencing over-accumulation and needed to find some profitable outlets for their
capital beyond manufacturing.
It is, therefore, states as instruments of the ruling class that have helped in engineering the
explosion of the financial sector and speculation, including in China. Globally the financial
sector and speculation has become massive dwarfing productive sectors. For example, by
2014 the average daily speculation on currencies around the world had reached $ 5.5 trillion.
Even a relatively small country like South Africa which is ranked 33rd in the world in terms of
the size of its economy has come to experience massive trade in its currency. In fact, the
average daily trading volumes (mainly speculation) on the South African Rand has reached $ 60
billion meaning the size of the speculation on the Rand on any given day is almost 20% of the
countrys entire Gross Domestic Product (GDP).
The amount of speculation on stock markets has also exploded since the 1970s. Many,
including Wall Street, are now far larger than the GDP of the states they are situated in. In
recent years corporations in the US have been on a massive share buy-back spree to inflate
share prices since 2009 $ 2.3 trillion has been spent by US companies buying back their own
shares and thereby inflating the prices. It was and is states that make this possible through
their policies, laws and even actions such as bailouts.
This explosion of speculation, since the 1970s, has led to massive instability. Since financial
liberalisation began in the 1970s, there have been over 100 financial crises in different parts of
the world. The last major one being in 2007 and centred around US corporations that had run
up massive debt and speculated on debt only to find the debt they had speculated on was
largely worthless while the most recent one being the bursting of the Chinese stock market
bubble and the subsequent global fallout.
Of course when speculative bubbles have burst, states have spent billions and trillions bailing
out the rich. Indeed, when in deep trouble the ruling classes have always turned to their

instrument of rule, the state, to bail themselves out. In the wake of the 2007 financial crisis it
was estimated that the US state alone spent as much as $ 29 trillion bailing out speculators. In
countries like South Africa, the state has helped finance capital when they have got into
difficulty. In 2014, the South African state and the Reserve Bank spent $ 1.6 billion bailing out
African Bank. African Bank had been involved in massive unsecured lending, and when large
parts of this could not be paid back, the state stepped in to save the capitalists that owned the
company. For the people that had taken unsecured loans that African Bank fostered on them,
however, there was no relief: the state has enforced the repayment of these loans.
China too also has a history of assisting and bailing out corporations in specific ways. Its recent
spree to prop up the Shanghai Stock Market is nothing new. In 2007, when demand for goods
manufactured in the country declined, and it became clear China was suffering from a crisis of
over-production, the Chinese state spent $ 4 trillion (between 2008 and 2009) to create
demand for goods. Many of the projects to create this demand were absurd for example
building highways and bridges to nowhere and even a theme park in Tibet and were
undertaken with the sole purpose of assisting capital.
Over and above this, since 2007, cheap loans have been provided by the Chinese state to
corporations to undertake projects in the real estate sector and to speculate on the stock
markets. This contributed to private debt rising by more than 60% in China in the last five
years, with private debt now standing at 280% of the countrys GDP. All of this, however, only
bought time. The massive state intervention in 2008 and 2009 to try and curb the impact of
the crisis has now run out of steam meaning the crisis is returning in full force. The state may
choose again to try and delay the impact with massive spending, but even its capacity to do
this endlessly does not exist and will only make over-production worse in the short-term. It
has, therefore, become clear again that the problem of over-production and overaccumulation has not disappeared even in China, and it is this that is at the centre of the
current stock market crash.
Over-production and over-accumulation are still with us
Officially, the Chinese state has claimed that GDP in the country is still growing at 7% annually.
However, there is a widespread belief that this may be false, and that at best Chinas GDP is in
the region of 4%, with manufacturing actually declining. The July 2015 manufacturing
purchasing managers' index (PMI) in China showed that manufacturing is shrinking. Likewise, it
was announced that exports and imports had also declined year on year in August. In fact, it
was the 10th consecutive month that imports declined. This partially also means that the main
driving force of growth in China since 2007 has not really been a vibrant manufacturing sector
with ample demand for goods across the globe, but rather real estate and stock market
bubbles (along with massive Chinese state spending to boost demand for manufactured
goods), which are now bursting.
At least 19 sectors in China have been hit by falling prices since 2013 due to over-production,
including the steel, clothing, and ship-building sectors. In these sectors, prices have been cut to
the point of often being below the cost of production driving many companies into
bankruptcy. In 2013, the Chinese state ordered 1400 factories in these sectors to slash
production to try and address the problem. Along with this, the state has been stock-piling
certain commodities from the worst hit sectors, such as aluminium, to try and keep prices as
high as possible to prevent a collapse of these industries. Even all these measures have not
ended the problem. The problems of over-production and over-accumulation can be seen

most vividly in the hundreds of cement factories in China that have slashed production or are
lying idle.
The fallout goes far beyond stock, currency and bond markets
For countries that rely on exports of raw materials to China, like South Africa, the problem of
over-production and over-accumulation in that country, and likewise globally, is bad news
even beyond their stock, currency and bond markets. Since 2007, China has accounted for 40%
of growth globally without China the depth of the capitalist crisis would be even starker.
China also accounts for over 10% of the global trade in goods. The slow-down in
manufacturing in China is already beginning to hit other countries hard. South Korea which in
terms of the Asian supply chain is a major exporter to China saw its exports decline year on
year by 14.7% in August.
It is, therefore, also not an accident that South Africas economy shrunk by 1.3% in the second
quarter of 2015. Manufacturing and mining in particular have been adversely impacted on. It is
also not an accident that Chinese companies are dumping steel in countries such as South
Africa and thereby threatening steel companies based in South Africa as due to
overproduction Chinese companies are desperately looking to off-load steel even if that means
selling it at below cost elsewhere. Even tougher times, therefore, look like they are ahead for
China, the countries that export to it, and indeed the world (of course states and capitalists will
try and assuage the impacts of this by creating another bubble somewhere else).
Globally, the crisis of over-production and over-accumulation is still with us it has never been
overcome. Rather, states have created speculative outlets for capital, and capital has used this
to create bubbles over and over since the 1970s. When these periodically burst, the full brunt
of the crisis of capitalism becomes evident again, as has happened with the events around the
Chinese stock markets.
More lessons from the past
Like in past financial crises since the 1970s, no doubt the ruling classes are going to use what
has happened around the Chinese stock markets and the fallout to once again attack the
working class. Indeed, every financial/economic crisis since the global crisis of capitalism first
erupted in the 1970s has been used by the ruling classes to attack the working class.
One way to try and maintain profits under capitalism has always, and will always be, driving
down the cost of labour. Consequently, we are likely again to see attempts to retrench more
workers, drive down wages, drive up productivity, and cut any semblance of welfare even
further (welfare which was won by the working class through past struggles). Already in South
Africa, for example, the ruling class has been threatening to retrench hundreds of thousands of
workers in the steel and mining sectors. The South African President recently called on workers
to tighten their belts in the midst of the turmoil, and to be willing to accept compromises in
terms of their wages.
As with all of the past attacks, the new round of attacks by the ruling class will lead to greater
inequality, if they are not stopped by the working class. Already as a result of attacks since the
1970s wages in many countries have stagnated or dropped in real terms. In the US, for
instance, wages as a share of GDP are at their lowest levels in history. Likewise, in China wages
as a percentage of GDP have declined from over 56% in 1983 to 36.7% today. According to a
study by Arden Finn, of the University of Cape Town, 60% of African workers and 22% of white

workers in South Africa now earn so little that their wages are not enough to pull them out of
abject poverty. Unless combated, the current events globally and in China will see a worsening
of this situation. Indeed, the underbelly of the rotting, yet living, corpse that is capitalism is the
increased exploitation and oppression that the ruling class has unleashed on the working class.
Unless fought, what we have seen recently will be used as a pretext to make this worse.
The system needs to go
There needs to be a massive defensive struggle against the further attacks that will follow in
the wake of events in China and the fallout around it. A start already has been made. Massive
protests and strike waves in many countries, including China, have been taking place since
2007, especially against austerity. In the current climate, these have to be built on otherwise
the ruling classes will cut wages and welfare even further.
Nonetheless, at some point, such defensive struggles are going to have to be built into
conscious revolutionary struggles to rid the world of the rotting system that is capitalism. Thus,
while capitalism is a rank and vile system it will only be ended if the working class ends it. In
doing so, the working class too will have to rid themselves of the states that so blatantly and
ruthlessly prop modern capitalism up. Indeed, only when the working class has dismantled
capitalism and the states that keep it in place and replaced these with an economy based on
meeting all peoples needs and a society run by all through federated worker and community
assemblies and councils will the torture of the working class at the hands of the ruling class
be ended. Only then, will the wasteful use of resources to assist the richest people on Earth,
while billions of people are mired and driven further into poverty, be a thing of the past.

The crisis, quantitative easing and class war Shawn Hattingh

This article looks at how quantitative easing (QE) has been part of the bailouts for financial
corporations by states during the crisis, and how its tapering is likely to impact on the working
class in Brazil, South Africa, Turkey etc. In doing so it traces aspects of class war and
imperialism that have been heightened during the crisis and how these link up to the tapering
of QE.
Since 2009 the US state has been undertaking Quantitative Easing (QE), which has involved the
US state creating $ 85 billion a month, effectively electronically printing money out of thin air,
and linking this to the purchasing of paper assets like US government bonds and also more
importantly mortgaged backed securities from banks, hedge funds, private equity firms, and
asset management companies, which lost their value when the capitalist crisis hit hard in 2008.
Through this, these financial institutions and banks have been given up to $ 85 billion a month
for the last five years. Much of this money has been used by these corporations to increase
their speculative activity, including speculating on government bonds sold by the likes of the
South African, Brazilian, Argentinean, and Turkish states. Now the US state has been looking to
start tapering QE and speculators as a result are exiting these government bond markets. As
this article explores it will probably not be the ruling class (capitalists and top state officials)

that suffer the worst convulsions associated with tapering, although they may be affected, but
the working class in countries such as South Africa, Brazil, Indonesia, India, Argentina and
Turkey. This article examines why and how this could take place, how ruling classes from
different countries are trying to protect themselves; and why and how the working class will in
all likelihood be worst hit. In order to, however, understand how the class war around QE is
unfolding it is important first to look at the role states have played during the crisis, along with
the competition that exists between states.
Bailing out the rich, attacking the poor
The current crisis that first became openly evident in 2008 can be traced back to the 1970s
when on a global scale capitalism went into crisis due to over-production and overaccumulation. As a result, profit rates went into decline. To try and escape this, corporations
began speculating on an unprecedented scale and the financial sector globally grew rapidly
indeed, the profit rate within sectors like manufacturing has continued to decline over the last
four decades and it has only been speculation in the financial sector that has, to a degree,
masked this. This, however, never resolved the underlying crisis of over-production and overaccumulation, and periodically the speculative bubbles that have been created have burst.
When the bubble associated with speculation in household and corporate debt burst within
Europe and North America in 2008, states spent trillions of dollars bailing out the banks and
financial institutions that were involved in this. This has been done through taking on greater
state debt, cutting social spending, and increasing taxes on the working class and transferring
this money to the richest capitalists on earth.
Leading this charge, the US state has done everything in its power to protect and further the
interests of the US ruling class during the capitalist crisis, especially the section of that class
that owns financial corporations and banks. It has been estimated that since 2008 the US state
has spent well in excess of $ 14 trillion dollars on bailing out banks and other financial
institutions, for the benefit of the super rich capitalists that own them. This initially involved
the US Treasury swapping government bonds for the junk financial companies were holding
when the crisis hit, including securitised loans and derivatives that became worthless when the
underlying debt could not be paid. Added to this, the US state then pumped hundreds of
billions of dollars into stock and money markets to keep private companies afloat. Through
this, trillions of dollars were given over to the rich for them to use as they saw fit, with
absolutely no public involvement. The giant banks that were the main beneficiaries of these
bailouts then used this money to expand their power, partially through buying up smaller
banks that were not heavily involved in speculating on toxic assets. Once these financial
corporations were saved and back on their feet, they were then ensured profitability by the US
state feeding them money through amongst other things QE and zero percent loans. In the
process of handing out all of this money the US states debt spiralled from $ 9.6 trillion in late
2007 to over $ 17 trillion at present.
The aim though has not been to create jobs, help the working class or even to shore up
manufacturing in Europe and North America, but to assist the finance sector.
Of course, the top state officials and politicians that facilitated this in the US and parts of
Europe had their own interests at heart in doing so. Some are connected directly to financial
corporations, but beyond that they depend on capitalist exploitation and a functioning
capitalism and specifically in todays capitalism a thriving finance sector - to fund states and
their lavish lifestyles.

Smaller states, however, too followed the lead of the US state. The South African state, for
example, spent billions assisting South African corporations through tax breaks, modest
bailouts, grants, financial support and infrastructure projects during the present crisis. Coupled
to this, it also allowed South African corporations to extend the amount of capital they could
legally take out of the country in order to, amongst other things, entrench their exploitation of
workers and the poor across Africa and play stock markets to boost their bottom lines across
the globe.
Of course, states were doing all of this whilst cutting spending on education, healthcare,
housing and pensions for the working class gains that had been made by the working class
through decades of struggle against states and capitalism. Along with this, taxes on the
working class have been increased in many countries, especially in countries such as Greece.
While bailing out the rich and saving their own skins, states have also backed capitalists in their
drive to restore profit rates by supporting the retrenchments of millions of workers and the
lowering of wages in real terms. In South Africa while the state was following a policy of
corporate welfare 1 million workers lost their jobs. Through this, states have been playing a
key role in ensuring the working class pays for the crisis and becomes further impoverished,
and that wealth is transferred upwards during the crisis towards the rich. So while states
handed trillions of dollars to fellow members of the ruling class; they at the same time
attacked workers on an unprecedented scale driving them into greater poverty and
indebtedness to get them to bear the costs of the crisis. In fact, a no-holds-barred class war
has been waged by capitalists and top state officials (the ruling class) during the current crisis.
Consequently, the words of the libertarian communist/anarchist Errico Malatesta still hold true
as he argued the state is by its nature oppressive and plundering, and that it is in origin and
by its attitude, inevitably inclined to defend and strengthen the dominant class .
The battle between states
While an intensified class war from above has been waged against the working class in
countries in every continent during the crisis, there has also been heightened competition and
aggression between the ruling classes of different states and the imperialism that accompanies
this. The manner in which the crisis unfolded in Europe perhaps highlights this and also gives
an insight into inter-state rivalry associated with QE and its tapering - as will be discussed later.
When the crisis first broke in Europe, smaller states within Europe such as Greece, Spain, and
Portugal followed the lead of larger powers and bailed out banks. To do so, states such as
Portugal and Greece took on greater debt, largely financed by German, French and US banks.
In fact, US, German, and French banks and financial corporations used much of the money that
they were given by their respective states through bailouts, interest free loans and QE in order
to increase speculation and create new bubbles. Much of this money was used by these
financial corporations to play stock markets, speculate on derivatives, buy back their own
shares to inflate the prices, and to speculate on real estate. Importantly, however, they also
used the money from QE and interest free loans to speculate on the bond markets of the
Greek, Spanish, Italian and Portuguese states (and as will be discussed later also the bond
markets of states such as South Africa, Argentina, Turkey, and Brazil).
For many years, especially since they adopted the Euro, the Greek, Spanish, and Portuguese
states have often run large trade deficits. Indeed, when they adopted the Euro, because of its
high value, their exports became more expensive and declined. Along with trade and
investment liberalisation, this devastated manufacturing in these countries. They began to

import far more than they exported; notably from Germany but also China. To finance and
cover this trade deficit, and the often accompanying negative balance of payments and current
account deficits, these states needed to take on debt. They did so, like all states - including
South Africa, Brazil, India, Indonesia, Turkey, and Argentina - by selling government bonds to
speculators. In order to attract such speculators, high interest rates were offered on these
government bonds.
As the crisis hit hard in 2008, states such as Greece, Portugal, and Spain bailed out the banking
and financial sectors in their countries as these local companies had also been speculating on
household and corporate debt. As part of this, the states involved took on even greater debt,
including through the sale of further government bonds. By 2010 worries, especially amongst
rating agencies, surfaced that the Portuguese, Greek and Spanish states were going to have
problems servicing this debt. The banks and financial speculators that held this debt, notably
German, US and French financial corporations, through mainly bonds, were also spooked. In
the aftermath of this, and in particular the downgrading of the Greek government bonds to
junk, the International Monetary Fund (IMF) and European Central Bank (ECB) stepped in. The
IMF itself is controlled by the US state; while the ECB is effectively controlled by the German
state, and through these institutions a series bailouts were offered to the Portuguese, Greek
and Spanish states between 2010 and 2012.
In each case, it soon became evident that these bailouts were loans that would be made to
the Spanish, Greek and Portuguese states in order for them to continue to service their
existing debt, mainly in the form of bonds, being held by German, French and US corporations.
These bailouts, therefore, were for these corporations; and not the working class or even the
states in Spain, Greece, and Portugal. As a matter of fact, money from the bailouts flowed
almost directly to the banks and corporations that were holding Spanish, Greek, and
Portuguese government bonds.
In return for the so-called bailouts, the German, French and US state required the Spanish,
Greek and Portuguese states to undertake a major attack on the working class in those
countries. This included further trade and investment liberalisation and wholesale
privatisations. The main beneficiaries of this were German, French and US corporations who
snapped up some of the assets that were being privatised. Along with this, the US and German
states demanded an immediate attack on the Spanish, Portuguese, and Greek working class
through the cutting of social services, cutting wages and the lowering of welfare
(euphemistically called austerity measures) in order for this money to be diverted to paying
back the bailouts. Hence, the working class in these countries would pay for the bailouts for
German, US and French banks that held Spanish, Portuguese and Greek government bonds.
For the German ruling class this was particularly profitable. Not only did the German banks
benefit from the guarantee, through the bailouts, that the debt owed to them would be paid,
but they could also continue to export products to Spain, Greece and Portugal which would
not have been possible if these states had defaulted on their debt. The fact that continued
self-interest in trade with the likes of Greece was partly driving the German ruling classs
position can be seen in the fact that while demanding that the Greek state cut social spending,
no demands were made for it to cut its military spending. The central reason why is that the
Greek state is the largest purchaser of weapons from Germanys arms industry. Consequently,
the German state placed no brakes on the level of the Greek states military spending.

[Russian anarchist Mikhail] Bakunin described how such imperialist domination by powerful
states, for their own interests, is the order of the day under the state and capitalist system,
when he stated:
The supreme law of the State is self-preservation at any cost. And since all States, ever since
they came to exist upon the earth, have been condemned
to perpetual struggle a struggle against their populations, whom they oppress
and ruin, a struggle against all foreign States, every one of which can be strong
only if others are weak and since States cannot hold their own in this struggle
unless they constantly keep on augmenting their power against their own subjects
as well as against the neighbourhood States it follows that the supreme law of
the State is the augmentation of its power to the detriment of internal liberty and
external justice .
Imperialism and class
While the Greek, Spanish and Portuguese states were told, by the major imperialist powers, to
attack the working class, it would be a mistake to see the ruling classes of these countries as
mere victims. They may have been annoyed by being told what to do by the likes of the
German and US states, but their own material interests meant they were not going to resist
too strongly. Indeed, the Greek, Portuguese, and Spanish states could have opted to default on
the debt they owed to French, US and German banks and avoid or limit austerity by freeing up
the money that was being paid on existing debt already. That, however, would have meant
leaving the Eurozone, but it also would have meant hard times in the short term for the Greek,
Spanish and Portuguese ruling classes.
Powerful sectors of Greek, Spanish and Portuguese capital, those centered around the banks,
construction, tourism, and the shipping industries, instead of pushing for their states to
default, were conversely highly supportive of the Greek, Spanish and Portuguese states paying
the debt; and attacking the local working class to do so. This meant they would still have
access to capital as a class from France, Germany and the US. At a local level, it also meant
they would have access to cheaper labour associated with the impact of austerity and it
guaranteed they would not face the prospect of major tax increases to finance the state (once
states agreed to the terms of the bailouts they were free to continue to borrow to finance
their ongoing deficits). Coupled to this, the privatisation attached to the bailouts also offered
sections of the Greek, Spanish, and Portuguese ruling classes opportunities, either as new
owners or local partners in the newly privatised assets. The Greek, Spanish and Portuguese
capitalists, therefore, along with their allies in the state, were quite willing to shift the burden
of the terms of the bailouts onto the working class by cutting social services and following
privatisation. As such, these local ruling classes may been in some ways belittled by the
imperialist powers, who effectively set economic policies for the Greek, Spanish and
Portuguese states as part of the bailouts, but they also had a class interest in backing the
imperialist maneuvers by the likes of the German state, because the local working classes
would bear the brunt of the austerity; and they as the local ruling class could also benefit in
some ways.
QE, tapering and the lessons of the recent past
Like the Greek, Portuguese and Spanish states, the South African, Brazilian, Turkish and
Argentinean states have often run either large trade deficits, current account deficits or have
had negative balance of payments over the last few years. To cover this, like the Greek,

Portuguese, and Spanish states; the South African, Brazilian, Turkish and Argentinean states
have sold government bonds and have taken on greater debt. Along with this, they also have
come to rely on inflows into their stock markets to cover deficits.
One of the reasons why countries such as South Africa often suffer from large trade and
current account deficits is due to the liberalisation of the economy that has taken place since
the 1980s. In the case of South Africa due to trade liberalisation the manufacturing sector has
shrunk. Certain industries like textiles have declined and almost disappeared, often replaced
largely by greater imports from countries such as China. Under investment liberalisation and
exchange control liberalisation South Africa has also experienced massive outflows of capital.
This situation to a greater or lesser degree also exists in countries like Brazil, Argentina and
In a similar manner to Greece, Spain and Portugal, the government bond markets of the likes
of South Africa, Brazil, Argentina, India, Indonesia and Turkey have also been targeted by
speculators over recent years. When the current crisis first broke into the open in 2008, and
the US stock market fell and interest on US government bonds dropped to zero, US banks,
hedge funds, asset management companies and private equity firms looked for speculative
opportunities outside of the US to try and keep some semblance of profitability. In fact, they
looked towards the stock markets and government bond markets of countries such as South
Africa, Brazil, Turkey, Indonesia, and Argentina. The reason being, in order to cover ongoing
deficits, these states offered speculators very high interest rates on the government bonds
they were selling (in a similar manner to what Greece, Spain, Italy and Portugal were also
For US banks and other financial corporations, speculating on these government bond markets
was easy money. Since 2008 they have been able to use the money from the bailouts to do so.
More importantly, they could also use the $ 85 billion they were receiving each month since
2009 via QE, along with interest free loans from the US state, to buy South African, Brazilian,
Argentinean, Indonesian, Indian and Turkish government bonds. This was a very profitable
exercise. For example, US banks and other financial entities could use the money they received
from QE and interest free state loans to purchase South African bonds, which not only
guaranteed their capital, but a minimum of 6% interest as well. But it was not only US
companies that made large profits out of this speculative frenzy; local ruling classes also joined
in. In the case of South Africa, South African capitalists have benefitted from the speculation
on South Africas stock market and they too joined US corporations in speculating in
government bonds. This speculative frenzy, however, looks like it is coming to an end, but it
wont be US banks, hedge funds, private equity firms or asset management corporations, or
even the local ruling classes, that are worst impacted.
Tapering and the danger of the government bond bubble bursting
In fact, the speculative party in the government bond and stock markets of South Africa, Brazil,
Turkey, India and Argentina looks like it is ending largely because the US state has begun the
process of reducing QE. In other words, ending the supply of easy money that US corporations
were using to speculate on these government bond markets is meaning the bubble that was
created through this is starting to show very stark signs of bursting.
Indeed, QE keeps interest rates low in the US and this feeds into bubbles which at some
point will burst - in bond and stock markets both in the US, but importantly at this point in
time in other parts of the world. Added to this, keeping QE in place over a long term could lead

to rapidly rising inflation in the US as the money supply rapidly increases. Hence, the US state
feels that now that financial corporations have been returned to profitability there should be a
planned and careful tapering off of QE to try and limit problems associated with it for the US
state, US banks and US financial corporations. Linked to this, the US state now also wants to
try and draw capital back to its shores, including into its equity markets. The US state is,
therefore, choosing to taper off QE at a time when other states, such as Turkey, Brazil, South
Africa and Argentina, will feel the impact worst rather than itself or US companies. The ruling
classes in countries such as South Africa and Turkey are aware of this, and they are using their
own respective states to try and protect themselves. One of the few ways they can do so is to
use the state to transfer the pain to their own respective local working class the same
principle that was used during the crisis in Greece, Spain and Portugal.
The move to taper QE by the US state was first announced in 2012, but it only started doing so
in the last few months. In December 2013 it reduced QE to $75 billion a month, and in January
this year it reduced it by a further $10 billion. This, along with slower growth in places such as
China, caused a panic amongst financial corporations as they rightly feared the bond market
bubble they had been creating in countries such as Argentina, Turkey, Brazil and South Africa
would burst. They also feared that without money for nothing via QE the profits they have
been making would largely disappear and the full brunt of the crisis would become visible
As a result in late 2013 and early 2014, many financial corporations started selling the
government bonds of states such as South Africa, Brazil and Turkey that they had been
speculating on. They did this to move their money to assets that are seen as safe havens in
times of crises, such as US treasury bonds. This saw R 8.9 billion worth of the South African
states government bonds being sold off in January 2014 alone as money flowed back to the
US. Added to this, in the same month, over $ 12 billion was taken out of the stock markets of
countries like Brazil, India, Argentina and Turkey by speculators taking their profits and
heading somewhere else that was perceived as safer.
This caused a major problem for states such as South Africa, Argentina, Brazil and Turkey in
January 2014. With their bonds being sold off by speculators these states balance of payments
went into greater deficit and the value of their currencies fell sharply. The US state, however,
benefitted as money flowed into its bonds which are seen as safe havens because
speculators cant perceive the US state ever going bankrupt, and hence believe the US state
will always honour its government bonds.
The working class pays
To try and stop this, and stabilise their own position as local ruling classes and the position of
local capital, states such as Turkey and Brazil pushed up their interest rates to try and entice
speculators to return to their bond markets in January. Turkey even raised their interest rate in
January by almost 5%. The South African state and the South African Reserve Bank also
responded by raising the interest rate by 0.5% in late January. If the Rand continues to fall and
speculators continue to sell South African government bonds it is likely interest rates will be
raised even further. In effect, therefore, these states were and are attempting to lure
speculators back by offering them greater profits via higher interest rates - in order to try
and stabilise capitalism locally by avoiding their bond market bubbles bursting; and also to
ensure the financial stability of the state.

This, however, is likely to hit the working class hard. Due to the reality that in real terms wages
have not kept up with inflation, or have in some cases declined, since the 1970s, millions of
workers in Brazil, Turkey, Argentina, India etc. have taken on debt to try and maintain some
semblance of a decent lifestyle. In South Africa, due to low wages, millions of people from the
working class are also indebted to retailers, micro-lenders and banks. It has been estimated
that 10 million South Africans (out of a population of 52 million) have some form of credit
impairment, and the rise in interest rates is likely to make this worse. Indeed, part of the
demands for R 12 500 by mine workers in the 2012/13/14 strikes in South Africa were and are
fuelled by the need to service debt.
With the present, and perhaps future, hikes in interest rates, many more workers are, in all
likelihood, going to battle to service the debt they have and will face problems such as greater
repossessions, garnishee orders and debt collectors. Yet again we are seeing states, in places
such as Turkey, Brazil and South Africa intervene for the ultimate benefit of banks and financial
corporations but also for their own stability and in the process they are attacking the
working class through raising interest rates.
It has, however, not only been interest rates that have been used as a weapon against the
working class, but some states, such as Brazil, are increasing their austerity measures. This is
aimed at lowering the states budget deficit (which are in fact not large, but speculators like
investing in states with low budget deficits) and in the process they hope to use this to also
entice US speculators back into their government bond markets. As a matter of fact, the
Brazilian state recently announced it was cutting its budget by $ 18 billion. Likewise, the South
African state announced it would cap its budget increases to 2% a year, which is well below the
inflation rate meaning in real terms it will be spending less and less each year if inflation is
factored in. It has already said that this cap will mainly be for spending on social services and
welfare and not on incentives for business nor infrastructure to support business. Likewise in
Argentina the state has already begun to also cut state subsidies on some public services. In
some of the provinces (states) in Argentina pay cuts have also been announced for low ranking
state workers. Indeed, if the exodus from the government bond markets by speculators
continues, these states are likely to attack the working class even further, through cutting
spending even further on social and public services.
Only the working class and defend the working class
Of course there is hope. Recently huge struggles have been fought in countries such as Turkey,
Brazil and South Africa. These struggles are the only thing that can stop the attack the working
class has been under, including the attack by the local ruling classes of raising interest rates
and in some cases capping spending on social services. If the working class is to resist current
and future attacks, however, the recent struggles that have been seen in countries such as
Brazil, Turkey and South Africa will have to be broadened and deepened and clear perspectives
based on anti-capitalism, anti-imperialism, but also anti-local ruling classes and their states will have to be developed in the process. Indeed, if the government bond market crisis hits
even harder than it already has in countries such as South Africa, Brazil, Turkey, India,
Indonesia, and Argentina only the working class itself, through struggles, can defend itself
against further the attacks that will inevitably come from local ruling classes.