Amid a
slowing global economy, the Fed has manifestly failed in its attempt to
“normalize” monetary policy. Instead, it is once again opening the
money spigot to ensure that the wealth of America’s financial oligarchy is protected,
while corporations ramp up their attack on workers’ jobs, pay, and
benefits.
"The Federal
Reserve is a key mechanism for perpetuating this whole filthy system, in which
"Wall Street rules."
Wall Street rules
The Federal Reserve sent a clear message to Wall Street on
Friday: It will not allow the longest bull market in American history to end.
The message was received loud and clear, and the Dow rose by more than 700
points.
Fed Pumps $75 Billion
Into Financial System Again
Harry
Benson/Express/Getty Images
19 Sep 201934
2:27
The Federal Reserve Bank of New
York once again stepped into the money market to supply additional liquidity on
Thursday morning.
The N.Y. Fed injected $75
billion into the market for overnight repurchase agreements, known as repos.
The Fed had intervened in the market on Tuesday and Wednesday after interest
rates spiked higher at the start of the week.
The repo market is at the
center of the U.S. financial system but it is little understood even by most
people working in finance.
Big Wall Street banks borrow
cash to finance their securities portfolios by selling securities and promising
to buy them back the following day. The cash comes from investors with lots of
dollars looking to make a little extra interest, such as money-market funds and
government-sponsored housing agencies such as Fannie Mae, Freddie Mac, and the
Federal Home Loan bank. Typically, the interest rate on repos falls within the
Fed’s target range for the fed funds rate, the rate banks pay to borrow
reserves from each other.
Here’s how it works. Traders at
the big Wall Street firms put in bids to borrow cash overnight and cash
investors accept bids, typically striking deals by 10 a.m. The bids are
promises to pay an interest rate and a pledge to post securities as collateral.
After the market closes at the end of the day, the securities get allocated to
the cash investors. The following day, at 8:30 in the morning, the repos get
unwound. The cash investors get their cash back and the Wall Street banks get
their securities back. Then it starts all over again.
Why do the big Wall Street banks
fund themselves this way? It’s really just a more intense version of the basic
model of banking: borrow short-term, lend long-term, and make your profit on
the difference between the rates. In this case, however, the big banks are
borrowing the cash overnight and using it to buy longer-term bonds paying
higher rates of interest. If collateralizing a loan with securities that were
purchased with the loan sounds strange just remember that this is not really
that much different than how a car loan or a mortgage is collateralized.
The Fed’s Secured
Funding Overnight Rate
Usually, the repo process is
nearly seamless. Most of the previous day’s trades just get rolled over into
the next day’s repos, with a slight tinkering of the rates and slight shifts in
the collateral. But this week has been unusual.
At the start of the week, the
repo rate unexpectedly jumped higher, indicating that there was a shortage of
dollars compared with demand. On Tuesday, the Fed stepped into the market by
supplying $53 billion of cash in exchange for securities. On Wednesday, the Fed
supplied $75 billion of cash–and said it had bids for an additional $5 billion
of repos. On Thursday, the Fed supplied $75 billion again and said this time
the facility was oversubscribed by nearly $9 billion.
As GM tries to cut health
benefits for workers on strike, Federal Reserve prepares more handouts to Wall
Street
Forty-six thousand US
autoworkers went on strike this week to fight efforts by GM to cut their
healthcare benefits, based on the claim that workers’ healthcare plans are
“unaffordable” for the multi-billion-dollar corporation.
Other US and international
companies, together with the banks that control them, are looking to GM to set
a benchmark for reducing labour costs to offset the impact of a slowing global
economy.
Workers, in other words,
will have to pay for a mounting global economic crisis, as they did after the
2008 financial crash, when pay cuts ensured a decade of record profits for
corporations and banks.
But the Federal Reserve is
taking exactly the opposite attitude to Wall Street, providing billions of
dollars in free cash to ensure that the looming global economic downturn does
not affect corporate bottom lines.
A striking GM worker (left) A stock market trader (right)
[Credit: Associated Press]
On Wednesday, the US central
bank cut its benchmark federal funds rate, reducing the borrowing cost for
banks and major corporations that are already posting record profits.
Perhaps even more
importantly, the Federal Reserve Bank of New York made two emergency injections
of $75 billion into financial markets, in the first such actions since the 2008
financial crisis. The Fed is on track to make a third emergency intervention on
Thursday.
This week’s events have made
clear that the trillions in free money given to the banks after the 2008
financial crisis were only a down payment.
The Financial Times wrote that the
move is “a step towards more QE.” This is a reference to the “quantitative
easing” programs that, over the decade following the global financial crisis,
saw the printing of $4 trillion by the US central bank and its infusion into
the financial system.
That was in addition to the
nearly $7 trillion of “emergency lending” by the Federal Reserve and treasury
to the financial system, which was used to prop up over $30 trillion in
financial assets after the 2008 crash.
Commentators drew
far-reaching implications from this week’s developments. “How significant is
this? Extraordinarily…The Fed [lost] control of monetary policy,” the Financial Times quoted
one US banker as saying.
The fact is a decade of
massively expansionary monetary policy has distorted elements of the economy in
profound ways. It raises the prospect that the next economic crisis will throw
into question, not just the survival of the financial system, but the stability
of the dollar and solvency of the government.
However, the Fed’s only
answer to the mounting crisis is to throw more money at the banks.
The Fed’s actions this week
sent a clear message to Wall Street that more money is on tap. “After the New
York Fed’s temporary injections of money into the financial system, many in the
market think a lasting solution will require the central bank to start
expanding its balance sheet once more,” the Financial Times wrote.
The article concluded, “The
resumption of quantitative easing… appears closer than many think.”
But even the extraordinary
actions of the Federal Reserve this week were too little for US President
Donald Trump, who wanted an even bigger rate cut.
In response to this week’s
announcement, Trump tweeted, “Jay Powell and the Federal Reserve Fail Again. No
‘guts,’ no sense, no vision! A terrible communicator!”
The real estate conman
turned president has repeatedly and consistently demanded that the US central
bank explicitly pump up the value of the stock market.
“If the Fed would cut, we
would have one of the biggest Stock Market increases in a long time,” Trump
tweeted in August. Left unsaid is the fact that rising stock market prices overwhelmingly
benefit the super-rich, who hold the vast majority of financial assets.
Amid a
slowing global economy, the Fed has manifestly failed in its attempt to
“normalize” monetary policy. Instead, it is once again opening the
money spigot to ensure that the wealth of America’s financial oligarchy
is protected, while corporations ramp up their attack on workers’
jobs, pay, and benefits.
$2,198,468,000,000:
Federal Spending Hit 10-Year High Through March; Taxes Hit 5-Year Low
(Getty Images/Ron Sachs-Pool)
( CNSNews.com) - The
federal government spent $2,198,468,000,000 in the first six months of fiscal
2019 (October through March), which is the most it has spent in the first six
months of any fiscal year in the last decade, according to the Monthly Treasury Statements .
The last time the government spent more in the
October-through-March period was in fiscal 2009, when it spent
$2,326,360,180,000 in constant March 2019 dollars.
Fiscal
2009 was the fiscal year that began with President George W. Bush signing a
$700-billion law to bailout the banking industry in October 2008 and then saw
President Barack Obama sign a $787-billion stimulus law in February 2009.
At the same time that the Treasury was spending the most it
has spent in ten years, it was also taking in less in tax revenue than it has
in the past five years.
In the October-through-March period, the Treasury collected
$1,507,293,000,000 in total taxes. The last time it collected less than that in
the first six months of any fiscal year was fiscal 2014, when it collected
$1,420,897,880,000 in constant March 2019 dollars.
The difference in the federal taxes taken in and the
spending going out resulted in a federal deficit of $691,174,000,000 for the
first six months of the fiscal year.
During those six months, the Department of Health and Human
Services spent the most money of any federal agency with outlays of $583.491
billion. The Social Security Administration was second, spending $540.426
billion. The Department of Defense was third, spending $325.518 billion.
Interest on Treasury securities was third, coming in at $259.687 for the
six-month period.
Both individual and corporation income taxes were down in
the first six months of this fiscal year compared to last year. In the first
six months of fiscal 2018, the Treasury collected $736,274,000,000 in
individual income taxes (in constant March 2019 dollars). In the first six
months of this fiscal year, it collected $723,828,000,000.
In the first six months of fiscal 2018, the Treasury
collected $80,071,070,000 in corporation income taxes (in constant March 2019
dollars). In the first six months of this fiscal year, it collected
$67,987,000,000.
(Historical budget numbers in this story were adjusted to
March 2019 dollars using the Bureau of Labor Statistics inflation calculator.)
(Table 3 from the Monthly
Treasury Statement , seen below, summarizing federal
receipts and outlaws for the past month and for the fiscal year to date and
compares it to the previous fiscal year.)
After Lehman's Collapse: A Decade of Delay
Now that the 2018 midterms are over, folks can address the elephant in
the room. If one tuned into Fox Business midday on January 7, one heard
legendary corporate raider Carl Icahn dilate on the dimensions of the
pachyderm, which he pegged at $250 trillion. That’s the size of worldwide debt.
But can that be right -- it’s more than eleven times the official U.S.
federal government’s debt? And in case you didn’t notice, it is a quarter of
one quadrillion bucks. Pretty soon we’ll be talking real money.
Icahn’s $250T quotation for worldwide debt came out last year. On
September 13, Bloomberg ran “ $250 Trillion in Debt: the World’s Post-Lehman Legacy ” by Brian Chappatta, who draws off data from the Institute of International Finance ’s July 9 “Global Debt Monitor,” (to read IIF reports, one must sign up).
Chappatta wonders how the world’s central bankers can “even pretend to know how
to reverse what they’ve done over the past decade”:
[Central banks] kept interest rates
at or below zero for an extended period […] and used bond-buying programs to
further suppress sovereign yields, punishing savers and promoting consumption
and risk-taking. Global debt has ballooned over the past two decades: from $84
trillion at the turn of the century, to $173 trillion at the time of the 2008
financial crisis, to $250 trillion a decade after Lehman Brothers Holdings
Inc.’s collapse.
Chappatta breaks global debt down into four categories: financial
corporations, nonfinancial corporations, households, and governments. In every
category, global nominal debt rose from 2008 to 2018, with the debt of
governments hitting $67T. In the important
debt-as-a-percentage-of-gross-domestic-product measurement, three of the
categories rose while only financial corporations fell, “leaving their
debt-to-GDP ratio as low as it has been in recent memory.” Global banks seem to
be “healthier and more resilient to another shock.” After reporting on
worldwide debt, Chappatta then looks at U.S. debt.
What’s interesting about debt in America is that as a percentage of GDP,
households and financial corporations have sharply reduced their debt. It is
only government in America that has seen a sharp debt-to-GDP uptick, and it was
quoted at more than 100 percent of GDP. That’s rather higher than for all
government debt worldwide.
Besides the massive racking up of debt over the last decade there’s
something else that should concern us: the massive creation of new money. One
of the ways money is created is when central banks engage in the “bond-buying
programs” that Chappatta refers to. We call such programs “quantitative
easing.” When the Federal Reserve buys assets, like treasuries and
mortgage-backed securities, it needs money. So the Fed just creates the
money ex nihilo .
Since the U.S. isn’t the only nation that has been busy buying bonds and
creating money, one might wonder just how much money there is in the world. In
June of 2017,HowMuch put out “ Putting the World’s Money into Perspective ,” which is a nice little graphic that puts the category “All Money” at
$83.6T.
In November of 2017, MarketWatch ran “ Here’s all the money in the world, in one chart ” by Sue Chang, who in her short intro to the chart has some interesting
things to say about global money, including cryptocurrencies. She writes of
“narrow money” and “ broad money ” and pegs the latter at $90.4T, (or what Sen. Everett Dirksen would call
“ real money ”.) If you want to examine Chang’s
chart more closely, I’ve “excised” it here for your convenience; don’t
miss the notes on the right margin. (Because its depth is 13,895 pixels, you
might want to just save the chart to your computer rather than print it off.)
So, in addition to an historic run-up in debt, there’s been a monster
amount of new money created. Chappatta calls it the “grandest central-bank
experiment in history.” His use of “experiment” is apropos, as one wonders
whether the world’s central bankers and their economists really know what
they’ve been doing.
One ray of hope might just be President Trump’s choice of Jerome Powell
as Chairman of the Federal Reserve, (Trump has such good instincts about
people). One can get a sense of the man from his January talk with David
Rubenstein at the Economic Club of Washington, D.C. ( video and transcript ). It’s refreshing that Mr. Powell
disdains the “Fed speak” used by his predecessors.
Chappatta’s article is quite worth reading, and it’s not very long. The
charts are user-friendly, although animated ones are a bit “creative.” The last
section, “China Charges Forward,” is especially worthwhile.
This is the post-Lehman legacy. To
pull the global economy back from the brink, governments borrowed heavily from
the future. That either portends pain ahead, through austerity measures or tax
increases, or it signals that central-bank meddling will become a permanent
fixture of 21st century financial markets.
Given those alternatives, let’s try a little austerity. But
austerity would entail spending cuts, and Congress has a poor history in that
regard. In fact, since fiscal 2007, the year before the financial crisis, total
federal spending has gone from $2.72T a year to more than $4T. While austere
citizens deleverage and get their fiscal affairs in order, Congress shamefully
borrows and spends like never before.
Congress’ solutions are to bail out, prop up, and do
whatever it takes to avoid reforming what it has created. So they farm out
their responsibilities to the Federal Reserve. Indeed, in the July 17, 2012
meeting of the Senate Banking Committee (go to the 53:50 point of this C-SPAN video ), Chuck Schumer told Federal Reserve Chairman Ben Bernanke
the following:
So given the political realities, Mr. Chairman,
particularly in this election year, I'm afraid the Fed is the only game in
town. And I would urge you to take whatever actions you think would be most
helpful in supporting a stronger economic recovery… So get to work, Mr.
Chairman. (Chuckles.)
So the Fed is “the only game in town” because there are only monetary
solutions for the economy, right? There aren’t any fiscal solutions, as they
would involve Congress, and Congress is busy running for re-election, right?
Sounds like you’re abdicating your responsibilities, Chuck.
The
last decade has been an exercise in delay. Congress has avoided doing the difficult
and unpopular things that would help avoid future financial collapses. If
Congress were serious about balancing the budget, then social programs would be
on the chopping block, because that’s where the real money goes.
"The Federal
Reserve is a key mechanism for perpetuating this whole filthy system, in which
"Wall Street rules."
Wall Street rules
The Federal Reserve
sent a clear message to Wall Street on Friday: It will not allow the longest
bull market in American history to end. The message was received loud and
clear, and the Dow rose by more than 700 points.
Responding to Thursday’s market selloff following a dismal
report from Apple and signs of a manufacturing slowdown in both China and the
US, the Fed declared it was “listening” to the markets and would scrap its
plans to raise interest rates.
Speaking at a conference in Atlanta, where he was flanked by his
predecessors Ben Bernanke and Janet Yellen, both of whom had worked to reflate
the stock market bubble after the 2008 financial crash, Chairman Jerome Powell
signaled that the Fed would back off from its two projected rate increases for
2019.
“We’re listening sensitively to the messages markets are
sending,” he said, adding that the central bank would be “patient” in imposing
further rate increases. To underline the point, he declared, “If we ever came
to the conclusion that any aspect of our plans” was causing a problem, “we
wouldn’t hesitate to change it.”
This extraordinary pledge to Wall Street followed the 660 point
plunge in the Dow Jones Industrial Average on Thursday, capping off the worst
two-day start for a new trading year since the collapse of the dot.com bubble.
William McChesney Martin, the Fed chairman from 1951 to 1970,
famously said that his job was “to take away the punch bowl just as the party
gets going.” Now the task of the Fed chairman is to ply the wealthy revelers
with tequila shots as soon as they start to sober up.
Powell’s remarks were particularly striking given that they
followed the release Friday of the most upbeat jobs report in over a year, with
figures, including the highest year-on-year wage growth since the 2008 crisis,
universally lauded as “stellar.”
While US financial markets have endured the worst
December since the Great Depression, amid mounting fears of a
looming
recession and a new financial crisis, analysts have
been quick to point out that there are no “hard” signs of a
recession in the United States.
Both the Dow and the S&P 500 indexes have fallen more than
15 percent from their recent highs, while the tech-heavy NASDAQ has entered
bear market territory, usually defined as a drop of 20 percent from recent
highs.
The markets, Powell admitted, are “well ahead of the data.” But
it is the markets, not the “data,” that Powell is listening to.
Since World War II, bear markets have occurred, on average,
every five-and-a-half years. But if the present trend continues, the Dow will
reach 10 years without a bear market in March, despite the recent losses.
Now the Fed has stepped in effectively to pledge that it
will
allocate whatever resources are needed to ensure that no
substantial market correction takes place. But this
means only that when the correction does come, as it
inevitably must, it will be all the more severe and the Fed will
have all the less power to stop it.
From the standpoint of the history of the institution, the Fed’s
current more or less explicit role as backstop for the stock market is a
relatively new development. Founded in 1913, the Federal Reserve legally has
had the “dual mandate” of ensuring both maximum employment and price stability
since the late 1970s. Fed officials have traditionally denied being influenced
in policy decisions by a desire to drive up the stock market.
Federal Reserve Chairman Paul Volcker, appointed by Democratic
President Jimmy Carter in 1979, deliberately engineered an economic recession
by driving the benchmark federal funds interest rate above 20 percent. His
highly conscious aim, in the name of combating inflation, was to quash a wages
movement of US workers by triggering plant closures and driving up
unemployment.
The actions of the Fed under Volcker set the stage for a vast
upward redistribution of wealth, facilitated on one hand by the trade unions’
suppression of the class struggle and on the other by a relentless and dizzying
rise on the stock market.
Volcker’s recession, together with the Reagan administration’s
crushing of the 1981 PATCO air traffic controllers’ strike, ushered in decades
of mass layoffs, deindustrialization and wage and benefit concessions, leading
labor’s share of total national income to fall year after year.
These were also decades of financial deregulation, leading to
the savings and loan crisis of the late 1980s, the dot.com bubble of 1999-2000,
and, worst of all, the 2008 financial crisis.
In each of these crises, the Federal Reserve carried out what
became known as the “Greenspan put,” (later the “Bernanke put”)—an implicit
guarantee to backstop the financial markets, prompting investors to take ever
greater risks.
In 2008, this resulted in the most sweeping and systemic
financial crisis since the Great Depression, prompting Fed Chairman
Bernanke,
New York Fed President Tim Geithner and Treasury Secretary
Henry Paulson (the former CEO of Goldman Sachs) to orchestrate the
largest
bank bailout in human history.
Since that time, the Federal Reserve has carried out its most
accommodative monetary policy ever, keeping interest rates at or near zero
percent for six years. It supplemented this boondoggle for the financial elite
with its multi-trillion-dollar “quantitative easing” money-printing program.
The effect can be seen in the ever more staggering wealth of the
financial oligarchy, which has consistently enjoyed investment returns of
between 10 and 20 percent every year since the financial crisis, even as the
incomes of workers have stagnated or fallen.
American capitalist society is hooked on the toxic growth of
social inequality created by the stock market bubble. This, in turn, fosters
the political framework not just for the decadent lifestyles of the financial
oligarchs, each of whom owns, on average, a half-dozen mansions around the
world, a private jet and a super-yacht, but also for the broader periphery of
the affluent upper-middle class, which provides the oligarchs with political
legitimacy and support. These elite social layers determine American political
life, from which the broad mass of working people is effectively excluded.
In this intensifying crisis, the working class must assert its
independent interests with the same determination and ruthlessness as evinced
by the ruling class. It must answer the bourgeoisie’s social counterrevolution
with the program of socialist revolution.
Trump and the GOP created a fake
economic boom on our collective credit card: The equivalent of
maxing out your credit cards and saying look how good I'm doing right
now.
*
Trump criticized Dimon in 2013 for supposedly contributing
to the country’s economic downturn. “I’m not Jamie Dimon, who pays $13
billion to settle a case and then pays $11 billion to settle a case
and who I think is the worst banker in the United States,” he told
reporters.
*
"One of the premier institutions
of big business, JP Morgan Chase, issued an internal report on
the eve of the 10th anniversary of the 2008 crash, which warned that
another “great liquidity crisis” was possible, and that a
government bailout on the scale of that effected by Bush and Obama
will produce social unrest, “in light of the potential impact
of central bank actions in driving inequality between
asset owners and labor."
*
"Overall,
the reaction to the decision points to the underlying fragility of
financial markets, which have become a house of cards as a result of the
massive inflows of money from the Fed and other central banks, and are now
extremely susceptible to even a small tightening in financial
conditions."
*
"It
is significant that what the Financial
Times described as a “tsunami of money”—estimated to reach $1
trillion for the year—has failed to prevent what could be the worst year for
stock markets since the global financial crisis."
*
"A decade ago, as the financial
crisis raged, America’s banks were in ruins. Lehman Brothers, the storied
158-year-old investment house, collapsed into bankruptcy in mid-September
2008. Six months earlier, Bear Stearns, its competitor, had required a
government-engineered rescue to avert the same outcome. By October, two of
the nation’s largest commercial banks, Citigroup and Bank of America,
needed their own government-tailored bailouts to escape failure. Smaller
but still-sizable banks, such as Washington Mutual and IndyMac,
died."
*
The
GOP said the "Tax Cuts and Jobs Act" would reduce deficits and
supercharge the economy (and stocks and wages). The White House says
things are working as planned, but one year on--the numbers mostly
suggest otherwise.
Repo
Madness: Fed Announces a Third Day of Emergency Funding
Spencer Platt/Getty Images
18 Sep 201922
3:08
The Federal Reserve Bank of New
York announced Wednesday afternoon that it
would once again intervene in the repo market on Thursday, its third
consecutive day of supplying tens of billions of dollars to hold down interest
rates in the short term funding market.
The repo market is at the center of the U.S. financial system
but it is little understood even by most people working in finance.
Big Wall Street banks borrow cash to finance their securities
portfolios by selling securities and promising to buy them back the following
day. The cash comes from investors with lots of dollars looking to make a
little extra interest, such as money-market funds and government-sponsored
housing agencies such as Fannie Mae, Freddie Mac, and the Federal Home Loan
bank. Typically, the interest rate on repos falls within the Fed’s target range
for the fed funds rate, the rate banks pay to borrow reserves from each other.
Here’s how it works. Traders at the big Wall Street firms put in
bids to borrow cash overnight and cash investors accept bids, typically
striking deals by 10 a.m. The bids are promises to pay an interest rate and a
pledge to post securities as collateral. After the market closes at the end of
the day, the securities get allocated to the cash investors. The following day,
at 8:30 in the morning, the repos get unwound. The cash investors get their
cash back and the Wall Street banks get their securities back. Then it starts
all over again.
Why do the big Wall Street banks fund themselves this way? It’s
really just a more intense version of the basic model of banking: borrow
short-term, lend long-term, and make your profit on the difference between the
rates. In this case, however, the big banks are borrowing the cash overnight
and using it to buy longer-term bonds paying higher rates of interest. If
collateralizing a loan with securities that were purchased with the loan sounds
strange just remember that this is not really that much different than how a
car loan or a mortgage is collateralized.
Usually, the repo process is nearly seamless. Most of the
previous day’s trades just get rolled over into the next day’s repos, with a
slight tinkering of the rates and slight shifts in the collateral. But
this week has been unusual.
At the start of the week, the repo rate unexpectedly jumped
higher, indicating that there was a shortage of dollars compared with demand.
On Tuesday, the Fed stepped into the market by supplying $53 billion of cash in
exchange for securities. On Wednesday, the Fed supplied $75 billion of cash–and
said it had bids for an additional $5 billion of repos.
On Wednesday afternoon, the New York Fed announced that it would
once again supply cash to the repo market on Thursday morning.
It’s not clear what has caused the cash crunch. On Monday,
several investors pointed to developments in Saudi Arabia and the due date for
corporate tax payments causing an unusual surge in demand for cash. But the
stress has continued even as those events have receded.
Fed chair Jerome Powell was
asked about the crunch at his press conference Wednesday but offered little by
way of explanation. So the mystery continues alongside the New York Fed’s
emergency funding.
As global economy enters synchronised
slowdown US Federal Reserve starts
“quantitative easing forever”
Two actions by US financial authorities this week indicate that
the United States will respond to a looming downturn in the global economy by
providing, once again, unlimited amounts of cash to financial markets.
On Wednesday, the Federal Reserve began an operation, lasting at
least six months, to purchase around $60 billion of Treasury bills a month in
response to sharp spikes in interest rates in overnight markets. The following
day, in a separate action, the New York Federal Reserve injected $104.15
billion into financial markets to boost liquidity.
Federal Reserve Building on Constitution Avenue in Washington
[Credit: AP Photo/J. Scott Applewhite, file]
Together with the Fed’s decisions to twice cut interest rates,
with the prospect of another cut at the end of this month, these moves make
clear that, in conditions characterised by the International Monetary Fund as a
“synchronised” global slowdown, any efforts to “normalize” monetary policy are
well and truly over.
The European Central Bank has reversed its plan to end financial
asset purchases and lowered its base interest rate further into negative
territory, while the Bank of Japan continues to be the virtual sole purchaser
of government debt and a major buyer of corporate shares.
In other words, the policy of the world’s major central banks,
acting on behalf of a global financial oligarchy, is quantitative easing ad infinitum .
After the crash of 2008, the Fed and other central banks handed
out trillions of dollars to the banks and finance houses whose actions had
precipitated the crisis. This money did not go into the real economy but passed
straight into the coffers of the financial oligarchs. Now, more unlimited cash
is to be made available to the financial elites as they seek to slash the wages
and conditions of workers.
The historic crisis of the global capitalist economy driving
this program is exemplified in reports issued by the IMF for its semi-annual
meeting Washington this week.
The most significant feature of the IMF’s World Economic Outlook report,
which charts global growth, was not the cutting of growth projections for this
year and the next, important as that was. It was the analysis that no
significant upturn for the “big four” economies—the US, Japan, the eurozone and
China—could be expected for the next five years.
At the end of 2017 and leading into 2018, the IMF and other
global institutions were pointing to an upturn in global growth. This was taken
as an indication that, at last, after the passage of almost a decade, the world
economy was finally experiencing something of a revival.
The upturn proved to be remarkably short-lived. By the middle of
2018, the trend had turned down—a situation that has continued into 2019. As
the latest IMF report makes clear, ongoing stagnation, with the increasing
threat of outright recession, is now the “new normal.”
At the same time, the so-called “unconventional monetary
policies” of the world’s major central banks—the lowering of interest rates to
record historical lows and the pumping of trillions of dollars into the global
financial system through the purchase of government bonds and other financial
assets—have created the conditions for a new financial crisis, potentially even
more devastating than that of 2008.
The rationale for these policies was that they would eventually
bring about an economic expansion after the deepest recession since the 1930s.
The resumption of economic growth would then see a return to a more “normal”
monetary policy.
Nothing of the sort has taken place. Instead, the financial
system has become so dependent upon and addicted to the endless supply of cheap
money that even the slightest move to reduce it threatens to set off a crisis.
“Unconventional monetary policies” and the ongoing economic
stagnation now operate in a vicious circle. Falling growth has meant that
instead of inducing investors to place the money made available to them in the
real economy, they have channelled it into ever riskier financial assets in
order to expand their capital. However, such assets are the most likely to
experience a collapse in any significant economic downturn, the signs of which
are becoming increasingly apparent.
Such a prospect was set out in the IMF’s Global Financial Stability report
produced for this week’s meeting.
“In a material economic slowdown scenario, half as severe as the
global financial crisis,” it said, “corporate debt-at-risk [debt owed by firms
that are unable to cover their interest payments with their earnings] could
rise to $19 trillion—or nearly 40 percent of total corporate debt in major
economies—above crisis levels.”
The report noted that very low rates were prompting investors to
search for yield by taking on “riskier and more illiquid assets to generate
targeted returns.” The result is that “vulnerabilities among nonbank financial
institutions are now elevated in 80 percent of economies with systemically
important financial sectors”—a share similar to that “at the height of the global
financial crisis.”
The crucial questions for the working class the world over are:
what are the implications of this new stage in the capitalist breakdown and how
must it respond?
The answers are to be found through an examination of the
political economy of the past decade.
While the policies of the central banks after 2008 appeared to
create wealth out of thin air, all financial assets are, in the final analysis,
a claim on the surplus value extracted from the labour of the working class the
world over in the process of capitalist production.
This is why the processes of quantitative easing—starting with
the bailout of the banks and financial houses in 2008-9 and the vast expansion
of financial assets that followed—have been accompanied by a restructuring of
class relations.
In the US, the bailout of the auto companies GM and Chrysler in
2009 by the Obama administration, and supported to the hilt by the UAW
bureaucracy, which was a major financial beneficiary, was the start of an
offensive against wages and conditions across the board.
In Britain, the austerity drive initiated by the Labour
government and continued under the Tories has resulted in the biggest attacks
on wages and social conditions going back 200 years. In every country, the
working class has experienced stagnant and falling real wages and the
destruction of social conditions.
At the same time, social inequality has risen to historically
unprecedented levels. Such conditions are incompatible with the maintenance of
democratic rights. Accordingly, the vast transfer of wealth to the heights of
society over the past decade has seen the development of ever more
authoritarian forms of rule and the promotion by the highest levels of the
state of ultraright-wing and fascist forces, of which the Trump presidency is
only one expression.
Today, amid a deepening breakdown of their entire economic
order, marked by deepening trade and military conflicts, and bereft of any
program to alleviate it, the ruling classes are confronted with a rising tide
of class struggle.
They have only one policy—the escalation to new heights of all
the attacks they have carried out over the past decade.
Once again, the US auto industry is at the centre of this
offensive. The central drive of General Motors, acting on behalf of Wall
Street, is to establish new levels of even more intense exploitation in line
with the methods developed by Amazon and firms in the so-called “gig” economy.
But after decades of suppression at the hands of the trade
unions and social-democratic parties, the international working class is
striving to break free of the straitjacket to which it has been confined and to
assert its own independent interests.
The development of this movement depends above all on the
recognition by workers that what they confront is not a series of problems that
can be resolved by patchwork reforms, but the decay and crisis of an entire
socioeconomic order, and that the way forward lies in the fight for political
power on the basis of a program for the reconstruction of society on socialist
foundations.
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