Fascinating letter by a MikePeters, to the Will Hutton blog in the Guardian:

[Joe Chi Minh]

The underlying cause of this finacial crisis is the falling long term rate of profit around the world. Following WWII it was at 8%. By the 70's it had fallen to 3% and now its about 2%. The capitalist class has put off the inevitable by attacking working peoples unions and wages. Call it what you want "Thatcherism, "rogernomics", Bill Clintons attacks on the social wage. The cuts havn't been deep enough to turn the rate of profit around foir the capitalists. So for the last 20 or so years there has been an explosive growth in derivatives ($450 Trillion at last count) and other forms of pretend money that exists only on hard drives. Property bubbles etc fueled by middle class greed.

Its all going to come to tears sooner than later. The middle classes everywhere will be ruined first and lose the lot. Pension funds, life savings, equity in property - and thats before the real panic starts.

The next crash will be much worse than 1929 because the penetration of the capitalist market is throughout the 3rd world and also the people of the former soviet union etc are not protected.

The biggest banks in the world hold most of the derivatives. Morgan Stanley, etc, the home of old money. So this problem goes to the heart of capitalism.

The fall will be devastating to the billions of working people who will learn that capitalism and democracy are not the same thing. The middle classes will go mad as a prior post mentioned. Facism, attacks on immigrants, strong man regimes, yep - will see it all.

Working people will get a chance to sort this out. We no longer have the stalinist thugs pretending to be communists and misleading every political opportunity for working people from the late 1920's. Hitler would have never come to power with out the idiocy of stalin. Spain would have had a succesful revolution. The social democrats are politically bankrupt and are just todies for the filthy rich. We also have the cuban revolutionaries as a fantastic example of what working people can achieve when they hold state power.

Bring it on.

Link here: http://observer.guardian.co.uk/comment/story/0,,2170289,00.html

It's a good way down the page.

[Joe Chi Minh]

1. ....

It may all be logical inference, but I believe that Barbara Tuchman's saw about war being the unfolding of miscalculations holds good about the future of the world, generally. But not necessarily in negative terms.

[bemildred]

2. Hardt & Negri -- "Empire"

They are right of course, fiat money is fun. But nobody knows when things will get out of control, and it's much too late to arrange a soft-landing.

[Joe Chi Minh]

3. I read a description of what's been going on as a kind of pyramid-

selling scheme. It seems the perfect metaphor.

Another poster pointed out that we in the West have been living beyond our means for way too long, and the booming economies in the East are finally bringing the chickens home to roost. I found that thread fascinating. A lot of fascinating info from different individuals who seemed to know how many beans make five. (unfortunate metaphor, this time, for the world of high finance).

[bemildred]

4. It is an exponential growth system, as opposed to an equilibrium system.

You make profit on your capital, which becomes more capital, so you need more profit for the more capital you now have, and so on. Or else you have "declining returns". And in the true "investment" mode, you don't even do anything or make anything, you just "invest" your money and rake off the proceeds. Like the way things work in the equity markets or real estate these days. You buy a house and live in it ten years and miraculously it is worth multiples of what you paid for it. It's a great racket, but it's not sustainable over long periods, and it has little to do with increase in production or any concrete form of value. And it has been very like a succession of Ponzi schemes these last few dedades.

[bemildred]

5. It is worth observing that:

1.) The history of capitalism prior to the New Deal was one of boom and bust, expansion and collapse/depression. Overlaid on that was the growth of the industrial system, of course, but it has been long since proven that you can do that without the Ponzi schemes.

2.) That sort of "free market" capitalism is what our current leaders long to return to, because in a government regulated capitalist system, there is not much free money laying around.