Fear of working class upsurge triggers plunge in financial markets
3 February 2018
Increasing
volatility on US and world stock markets erupted Friday in a steep decline in
stock prices, led by a 665-point drop in the Dow Jones Industrial Average. The
2.54 percent fall in the Dow, the biggest single-day decline since June 2016,
was accompanied by similar drops in the other US stock indexes and a broad
sell-off on European markets, topped by a 1.68 percent decline in the German
DAX index.
With
Friday’s plunge, the major US indexes posted their worst weekly performance in
two years. The financial press tied the stock sell-off to rising interest rates
on US government bonds and the jobs report for January, released on Friday,
which showed a 0.9 percent year-on-year increase in average wages, the biggest
rise since 2009.
It remains
to be seen whether Friday’s sell-off is the beginning of the implosion of asset
bubbles about which a growing chorus of economists has warned. But whatever the
immediate fate of the markets, there are many indications that the increased
volatility marks an inflection point in the world economic and political crisis
of capitalism.
It takes
place amidst a confluence of factors, at the center of which are clear signs of
a resurgence of working class struggle on an international scale. The American
ruling class reacted with alarm to the modest increase in wages in January
because it is seen to be connected to a growth of working class militancy and a
determination to win back what has been taken away in wages, jobs and living
standards over the past four decades.
The US jobs
report came in the midst of a resurgence of working class resistance across
Europe. Hundreds of thousands of German industrial workers are striking to
reverse decades of austerity and mounting social inequality in the biggest
labor action in that country in 15 years.
The militant
mood of the workers is making it more difficult for the trade union leaders to
impose a sellout. Moreover, the strike is threatening to undercut negotiations
between the union-backed Social Democrats and the conservative parties aimed at
installing the most right-wing, militaristic government since the fall of
Hitler’s Third Reich.
The German
strikes follow mass protests in Greece against the Syriza government, strikes
by autoworkers in Eastern Europe, rail strikes in Britain and mass working
class protests in Iran and Tunisia.
The uptick
in US wages is a major factor driving a sudden and rapid increase in interest
rates, which threatens to undercut the entire basis of the stock market boom
and obscene enrichment of the corporate-financial elite, particularly since the
Wall Street crash of 2008. The yield on the benchmark 10-year US Treasury bond
rose to 2.85 percent, the highest point in four years. Government bond rates
are also rising in Europe.
The New York Times wrote, “The immediate catalyst
[of the fall] was the jobs report, which showed the strong United States
economy might finally be translating into rising wages for American workers—a
sign that higher inflation could be around the corner.”
Financial Times columnist
John Authers commented: “The shark is growing more visible. For years now, the
possibility of a sharp upward shift in bond yields, and a return to inflation
psychology, has been by far the most menacing risk for markets. As in Stephen
Spielberg’s classic Jaws, the menace is always there, under the
surface, but largely only hinted at and unseen. When the behemoth finally comes
into view, it is terrifying…”
Other
factors driving the crisis in the markets include:
* Mounting
geo-political and economic tensions, with a looming threat of war and trade
war, driven by the Trump administration’s “America First” agenda of economic
nationalism and militarism.
* Political
instability within the US, Germany, the UK, France and other major powers. The
American ruling elite is locked in internal political warfare, which threatens
to bring down the Trump administration; Germany has yet to form a new
government nearly five months after its national election; Britain’s ruling
elite and its major parties are hopelessly divided over Brexit, and the country
is headed by a government seen to be a lame duck.
* A massive
overhang of government and corporate debt. An end to low rates threatens to
plunge corporations and entire countries that have relied on the availability
of limitless and cheap credit into bankruptcy.
Since 2009,
the US government and the Federal Reserve have effectively guaranteed an
unlimited supply of virtually free money to the banks, hedge funds and big
investors. They have done so by keeping interest rates at super-low levels and
pumping cash into the financial markets by means of the money-printing
operation dubbed “quantitative easing.” With the major imperialist governments
and central banks in Europe and Asia following the US lead, trillions of
dollars of worthless assets have been shifted from the balance sheets of the
banks to the state ledgers.
This vast
operation to rescue the global financial oligarchy from the consequences of its
own criminal actions and ensure its further enrichment has been carried out on
the backs of the working class. Austerity, wage-cutting and speedup have been
used to drive down the living standards and social conditions of the masses. In
the US, this has been the policy of Democratic no less than Republican
administrations.
The past ten
years have seen an intensification of a social counterrevolution underway for
decades. The intensity and effectiveness of this ruling class offensive has
been reflected in the steady rise in stock prices since the Reagan
administration.
This process
depended on the suppression of the class struggle. The ruling class relied on
the trade unions to undermine working class opposition, block strikes, and
isolate and betray them when they broke out. The fever chart of rising stock
prices, accordingly, is in inverse proportion to the decline and virtual
disappearance of strikes in the United States over this period.
But the
ability of the ruling class to count on the unions to police the workers is
breaking down. In the United States, the United Auto Workers union is
completely exposed and discredited by a corruption scandal involving company
bribes to union officials in return for the imposition of concessions contracts
on the workers.
As the World Socialist Web Site stressed at the
beginning of the year, 2018 will be marked above all by a rise in social
tensions and a revival of working class struggle on an international scale.
The long
historical cycle dominated by the artificial suppression of the class struggle
is coming to an end. A new period, which will see a counteroffensive by the
working class to win back all that it has lost and more, has opened up.
Barry Grey
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