OVER A single weekend last month, the global financial system came close to total collapse. A desperate US Federal Reserve intervened to stop the collapse of investment bank Bear Stearns, taking on a staggering $30 billion of Bear Stearns’ debts to engineer a buyout by JPMorgan.

The Federal Reserve then slashed interest rates to the bone, pumped $US400 billion into the finance sector and renewed an emergency line of credit to ailing banks.

Bear Stearns is the latest victim of the credit crisis that has swept global markets since August last year. The accumulation of bad debts on banks’ balance sheets means they are all terrified of lending money to each other, because no one knows whether more banks could collapse.

The credit crisis was triggered by the “bubble” in the US housing market, caused by the Federal Reserve encouraging banks to lend money to those who couldn’t repay the loans.

Such bubbles are the inevitable consequences of the functioning of the capitalist market, with its inbuilt boom-slump cycle.

As Marx argued 160 years ago, capitalism “a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells.”

Now economists and policymakers are worried about a serious US recession which might pull Australia down too. And ordinary people across the globe will be expected to pay for the crisis through sackings and cuts to our wages and living standards.

JAMES SUPPLE

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