Six months ago the United States was already deep in a financial crisis. Yet, the conditions now are several orders of magnitude worse and are affecting the entire world.
We are clearly in the midst of one of the great crises in the history of capitalism. More than a mere financial panic, what is taking place is a major devaluation of capital of still undetermined dimensions.
Karl Marx explained that capital was invariably over-extended in a boom and that in the crisis that followed a part of that capital was devalued, enabling the rest to return to profitability and to the process of accumulation and expansion.
However, we are now to some extent in uncharted territory: a phase of monopoly finance capital that is in many ways unprecedented.
Even at the time of the Great Depression of the 1930s, economist John Maynard Keynes explained that after a crisis, modern capitalism might return to profitability without a return to full employment, full utilisation of existing capacity and strong growth.
Our experience of the last half-century has shown that capitalism at its core was able to avoid stagnation only by vast military expenditures and, when that proved insufficient, by an enormous inflation of asset values and speculation, i.e. "financialisation".
This growth, multiplied by the boom psychology on the way up (the "wealth effect"), turned out to also have a contracting multiplier effect on the way down.
These factors help to explain why the economic crisis in the real economy is so severe at present, and why there is no chance of an immediate restarting of the growth process.
Many people first woke up to the seriousness of the crisis only on September 18, when US Secretary of Treasury Henry Paulson told Congress that the US financial sector was within days of a complete meltdown and that a US$700 billion bailout for the banks was urgently needed.
Since then (and even before) vast amounts of government dollars have been poured into the financial structure, including direct injection of capital into major banks and partial nationalisations. The financial exposure of the US government alone in the entire crisis has exceeded $5 trillion, according to the October 18 New York Times.
Yet, still there is little sign of the crisis abating. Insolvency is spreading through the economy from consumers to banks, to non-financial firms, back to consumers, in a vicious cycle.
The fact that the economy in recent decades was being lifted mainly by financialisation makes the problem all the more severe.
The entire world economy is now affected. Already one European economy — Iceland — has experienced a meltdown, requiring rescue from outside. Some have called Iceland the "canary in the coalmine".
Over the neoliberal epoch, the US and its European allies have forced upon the entire globe a model of the free flow of capital across borders. The result today is the free flow of catastrophe.
Only by the imposition, first, of capital controls and the establishment, second, of non-market based "South-South" cooperation can "emerging" economies avoid becoming the worst victims of the crash.
In these dire economic circumstances we should, of course, be careful not to fall into an exaggerated frame of mind. It is important to remember that a breakdown of capitalism as a whole will not occur by mere economics alone.
Given time to work things out on its own terms, the system will no doubt recover — though a full recovery could be many years away, if possible at all.
The real issue is to what extent the world's population is willing to wait for this crisis to be resolved on capitalist terms, so that the whole irrational process of exploitation and boom and bust can gain steam again — or whether they shall decide to insert themselves into the process to say: "Enough!".
It is this political insertion from below that the powerful most fear. From their Olympian position at the top of the system, they know better than anyone that the conditions exist for the global renewal of socialism.
Capitalism has reached its limits as a progressive force and its famous "creative destruction" has turned into a destructive creativity in which both the world's people and the planet are now in jeopardy.
Indeed, for the world's population and the earth taken a whole there is today no real alternative — to socialism.
[John Bellamy Foster is editor of Monthly Review. This first appeared at MRzine.]