Financial Crisis

Financial Crisis 

a profound disruption in the system of state finances. Such crises are typical for a majority of the present-day imperialist states and above all for the United States and Great Britain.

A financial crisis is manifested in a chronic budget deficit, which causes inflation and impairs state credit and the tax system. Such crises are the inevitable result of the growth of militarism and the unceasing arms race. The chronic budget deficit is also related to the expenditures of the state budget for regulating the capitalist business cycle. The growth of the budget deficit causes an enormous increase in the state debt, and payment of the interest on the state debt in turn burdens the budget and increases its deficit. The threat of inflation implicit in budget deficits undermines state credit. The banks, corporations, and insurance companies buy up new state bonds as long as there are no indications of inflation and the level of the discount rate is not increased. Tightness in the state budget and state credit inevitably entails an increase in taxes, which leads to a reduction in real wages and a worsening of the living conditions of the working masses, thus undermining one of the income sources of the state budget. The excessive tax burden limits any further rise in the state debt. The development of these processes can lead to the bankruptcy of an imperialist state.

A. B. EIDEL’NANT