Departing Fed chairwoman
seeks to reassure markets while warning of debt crisis and social inequality
30
November 2017
Amid surging stock markets and warnings of a new financial bubble,
Federal Reserve Chairwoman Janet Yellen made her final appearance before
Congress on Wednesday.
In her testimony, Yellen sought to talk down fears that stock
markets are massively overvalued, saying that while asset prices “are high by
historical standards,” the risks “remain contained.”
But she combined these assurances with warnings about the federal
debt and social inequality, noting that productivity, economic growth and wages
remain depressed. Responding to a question about the impact of the Trump
administration’s planned tax cuts, Yellen declared, “I would simply say that I
am very worried about the sustainability of the US debt trajectory,” adding
that it “should be a very significant concern.”
All three major US stock indexes have recorded over 50 record
highs this year, while the Dow Jones Industrial Average has soared to more than
3.5 times its value since its post-crisis low point in March of 2009. The
massive amounts of money sloshing around the financial system have driven
speculation in obscure financial assets, including crypto-currencies such as
bitcoin, which has risen to $11,000, an eleven-fold increase this year alone.
The US Federal Reserve, over which Yellen has presided for the
past four years, has been central to the spectacular rise in the stock market
and growth of social inequality over the past three decades.
A key turning point came in October of 1987 when the Fed, under
the chairmanship of Alan Greenspan, responded to the stock market crash of
October 19—the largest one-day fall in history—by opening the financial spigots
to supply cheap money to the banks and financial markets.
A new policy, rooted in the mounting contradictions of US
capitalism, was initiated. Henceforth, the response of the Fed to the bursting
of one financial bubble would be the supply of ultra-cheap money to finance the
next one.
The crash of 1987 was followed by a surge in markets through the
mid-1990s, leading even Greenspan to comment in 1996 that Wall Street was
gripped by “irrational exuberance.” But the financial orgy continued, leading
to the Asian financial crisis of 1997–98, the devaluation of the Russian rouble
and the collapse of the US investment firm Long Term Capital Management in
1998. LTCM had to be bailed out by the New York Federal Reserve to prevent it
from bringing down the entire financial system.
Once again the response was to turn on the financial taps, which
led to the dot.com bubble of 2000–2001. When that burst, a new vehicle for
speculation was developed via the sub-prime mortgage market and the creation of
a plethora of new financial instruments, such as complex derivatives and
collateralised debt obligations.
The implosion of that financial house of cards in 2008-2009
did
not lead to measures to address the contradictions that
had produced it, but
rather to measures to further fuel
financial speculation. This was the essential
content of the
program of quantitative easing, initiated by Fed Chairman
Ben
Bernanke and continued under Yellen, in which the Fed
reduced interest rates to
historically record lows and
pumped trillions of dollars into US and global
financial markets.
The consequence has been an explosion of asset values combined
with the destruction of the social conditions of the working class and the
growth of social inequality to historically unprecedented levels. Three
billionaires in the US now hold as much wealth as the bottom half of American
population combined.
There is a causal connection between these two developments. While
financial speculation appears to create money out of money, in the final
analysis it represents a claim on real wealth extracted in the form of surplus
value from the working class. Consequently, in order to meet its insatiable
demands, finance capital demands that the wage and social payments to the broad
mass of the working population—a deduction from the wealth it can appropriate—be
driven ever lower.
This process is being sharply accelerated under the Trump
administration through its sweeping tax cut for the rich at the expense of the
majority of the population.
Yellen is being replaced by current Fed Governor Jerome Powell,
who combines Yellen’s support for easy money with support for the dismantling
of the modest restraints on Wall Street swindling imposed in the aftermath of
the September 2008 crash.
The relentless objective logic of financial parasitism, which
increasingly dominates not only the US, but the entire world capitalist
economy, can be seen in the present round of tax cuts. The most vociferous
proponents of the tax cut plan, rather than being concerned over its
implications for US government debt, welcome its effects because any budget
crisis will fuel the drive for further social spending cuts.
Yellen speaks for factions of the ruling elite that are most
conscious of the danger of the orgy of enrichment leading to an intensification
of class struggle.
In her remarks to Congress she made an elliptical reference to
this danger for the ruling class, pointing to “disturbing” trends in income
inequality. However, there is nothing in what Yellen or any other
representative of the ruling class proposes that can prevent it, because the
accumulation of fabulous wealth at one pole and the accumulation of poverty,
misery and degradation at the other is not at its root the outcome of policy
decisions that can now somehow be reversed. Rather, it is the malignant
outgrowth of a socio-economic order in terminal crisis.
The way out of this crisis is not through a futile attempt to
reform the profit system, but the struggle by the working class to overthrow it.
Workers face the task of fighting for political power in order to
seize the commanding heights of the economy—the major corporations and the
financial system—and place them under public ownership and democratic control
in order to utilise the vast wealth the working class itself has created to
meet social needs.
Nick Beams
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