From the US to Europe to Japan there is a panic in the echelons of power. The strategists of capitalism are frantically trying to avert a US default, collapse of the Euro and bankruptcy of Japan. The dangers are real and grave. The most serious newspaper of finance capital, The Financial Times, wrote the following on July 15, 2011: “A week ago last Thursday, global equity markets were sitting pretty secure in the expectation of good US employment figures and some breathing space in the European sovereign debt saga. Now, that confidence has disappeared. In its place, investors see contagion gripping the eurozone, renewed weakness in the American economy and the looming possibility that the issuer of the world’s reserve currency will default in little more than two weeks. It is hardly the backdrop to the holiday season that policymakers wanted.” A temporary accord may be reached between the Republicans and the White House to avert an immediate default but the fundamental crisis will remain. The next default situation will come back with a vengeance. The root of all this ferment is the impasse of capitalism on a world scale due to the contradiction between the nation state and private ownership of the means of production. The raising of interest rates by the European Union (EU) in a slump is a short-term desperate attempt to save the euro. Increases in public spending in these deficit-ridden economies will not solve the problem but further aggravate the crisis. This is reflected in the nervousness of investors in the world’s stock exchanges. They are desperately worried about the default of Greece. Greece will still have a debt of 160 percent of GDP even after the new bailout. It is mainly the German and the French banks that are the most exposed to a Greek default. Greece cannot pay off its debt even if it carries out the draconian austerity measures demanded of it. If Greece goes down, or rather when Greece goes down, it will drag down Germany and other European economies with it. After all, these economies are inextricably linked. And if the euro goes down, there will not be enough money to bail out Ireland, Portugal, Spain and Italy. After all the Italian economy is six times the size of the Greek economy. There is no way that Italy could be bailed out even with all the present reserves in Europe. There is already a growing opposition to the bailouts in Germany and this could lead to the fall of the Merkel government. Twenty years ago the German bourgeoisie wanted to do by economic means what Hitler wanted to achieve through military means, i.e. achieve economic and political hegemony over Europe. But now they are in a mess. The measures being taken to stabilise the economic equilibrium will destroy the political and social equilibrium of Europe. With the present integration of the world economy, the crisis of the euro will become the crisis of the dollar. That is why the Americans are so worried about the unfolding crisis in Europe. There is the danger of a downward spiral taking place. There are already seven million less jobs in the US than in 2007. Youth unemployment has crossed 24 percent and is worse amongst the Latinos and African-Americans. For the first time student debt in the US is bigger than the credit card debt. Eighty-five percent of those who graduated this year will have to move back to their parents’ homes. The cuts in social spending may be as high as $ 4 trillion. This will disrupt the entire social fabric of the US and completely undermine the ‘American Dream’. Japan, which was considered as a model in the past and still remains a key economy, has a debt-GDP ratio of 225 percent — the highest in the world. There has been a steep rise in unemployment leading to political and social unrest. The austerity measures have further reduced levels of investment and the growth rate has fallen dramatically compared to the past. Economic growth in Japan has gone from 8 to 10 percent in the period between 1956-70 to less than one percent in the last decade. This once “economic miracle” of capitalism has also proved to be a mirage. Japan has 8 percent of the share of the world GDP, the same as that of China, while the combined share of Europe and the US is 52 percent. Any talk of either Japan or China rescuing world capitalism is out of the question. In any case, the Chinese economy is slowing down. Their economy is faced with similar contradictions as those of Japan in the past, prior to the property crash of 1989. Easy credit, speculation in housing, and excessive reliance on exports to economies in severe stress and recession are creating bubbles that will burst sooner or later. China is a totalitarian regime that combines repression with the worst features of Keynesian capitalist economics. It is perhaps the only country that spends more on internal security than on foreign defence. Totalitarian regimes lack those safety valves that have been created in western ‘democracies’. With rising unemployment and social discontent, China can explode without warning. It only managed to survive the worst features of the 2008-9 economic slump by carrying out a programme of massive state spending on infrastructure, but this measure has also exhausted itself. In 1997, China played a role in averting a major economic crash of the world capitalist economy by propping up South Asia. But today, with just 8 percent of world GDP, it cannot make up for a crash in the EU, the US and Japan. The right-wing reactionary US politician Newt Gingrich recently said that the 2012 elections will be the most important since 1860 when Abraham Lincoln was elected as the president. That election soon led to the historic American Civil War. With the drastic cuts and the unprecedented crisis of capitalism on a world scale, violent upheavals are on the cards. There are already wars and conflicts raging around the world. The next period will be one of an epoch of social revolutions in one country after another. This unprecedented situation is a complete refutation of those politicians and intellectuals who slavishly ape and prostrate themselves before the economic and political models of the west. How can this system, which has entered into such a catastrophic phase in its most developed countries, salvage a society like Pakistan where capitalism exists in its most rotten and brutal condition? The writer is the editor of Asian Marxist Review and International Secretary of Pakistan Trade Union Defence Campaign. He can be reached at ptudc@hotmail.com