"The Fed, as the central financial instrument of the corporate-financial elite, is concerned above all with preventing a surge in wages as the labor market tightens and workers feel themselves in a stronger position to resume their struggle for better wages and working conditions. The explosive growth of stock prices and corporate profits over the past several decades, and the record increase in the ratio of corporate profits to labor income over this period, have depended on a relentless offensive against the working class, carried out by the entire political establishment, Democratic no less than Republican."
Concerns grow over Fed interest rate policy
By
Nick Beams
4 July 2017
A
further fall in the US inflation rate announced last Friday is certain to fuel
growing concerns in financial circles about whether the Federal Reserve should
continue with its policy of tightening interest rates.
Following
a rise in the base rate in June, the Fed is set to lift rates again before the
end of the year and has laid out a policy for winding down its holdings--$4.5
trillion worth of government and corporate bonds largely accumulated through
its program of massive asset purchases following the financial crisis of 2008.
But
with inflation showing no sign of meeting the Fed’s target rate of around 2
percent, opposition is being voiced to further increases.
The
latest data shows that the core personal consumption expenditures index, which
excludes food and energy prices and is regarded by the Fed as its key price
metric, rose at an annual rate of 1.4 percent in May, down from 1.5 percent the
previous month and well below the 1.8 percent for February.
While
short-term interest rates have lifted, in the expectation that the Fed will
stick to its policy of rate rises, long-term bond rates, which tend to indicate
the views of investors on the longer term prospects for the economy, have been
falling.
This
has given rise to what is known as a “flattening of the yield curve,” in which
the short and long rates converge, possibly leading to an inversion of the
yield curve, with the long-term rate falling below the short-term yield. Such a
situation is regarded as a reliable indicator of recession. The last such
occurrence was at the end of 2007.
Last
week, Joachim Fels, an economic adviser for the $1.5 trillion global bond
trading firm Pimco, issued a note warning that, while the Fed was lifting rates
in order to have some ammunition to fight a future recession, “the risk is that
by raising rates too fast and too far, the Fed brings about exactly what it is
so afraid of--the next recession.”
He
wrote that the US economy was only “one major adverse shock away from a serious
deflationary scare,” and that there was a “substantial risk that the Fed’s
opportunistic tightening campaign is a hawkish mistake.”
In
an editorial comment last week, the Financial Times added its voice to
those disagreeing with the Fed’s present agenda. “As the Federal Reserve
marches on with its slow but steady campaign of increases in interest rates,
the bond markets are sending a warning about the risks of advancing further,”
it said, noting the flattening of the yield curve.
“One
by one, sound arguments for the Fed continuing its expected series of rate
rises are falling away. Real growth in the economy has been weaker than
expected of late. Core inflation, and inflation expectations, remain stubbornly
below the Fed’s target. And now a relatively reliable indicator of future
recession is sounding an increasingly strident warning siren.”
The
Fed’s rationale for pressing on with interest rate rises in order to return to
what is regarded as a more normal monetary policy is based on an economic model
known as the Phillips curve. First developed in 1958, this purports to show a relationship
between the unemployment rate and inflation. As unemployment falls, it argues,
the push for wage rises increases, leading to a lift in inflation.
The
Fed, as the central financial instrument of the corporate-financial elite, is
concerned above all with preventing a surge in wages as the labor market
tightens and workers feel themselves in a stronger position to resume their
struggle for better wages and working conditions. The explosive growth of stock
prices and corporate profits over the past several decades, and the record
increase in the ratio of corporate profits to labor income over this period,
have depended on a relentless offensive against the working class, carried out
by the entire political establishment, Democratic no less than Republican.
In
this, the trade unions have played the central role, artificially suppressing
the class struggle through their unbroken efforts to prevent strikes and
isolate and sabotage them when they break out, while maintaining the political domination
of the capitalist two-party system over the working class. To this point,
despite being widely despised by workers, the trade union apparatuses, acting
on behalf of the ruling class, have been able to continue to hold back the
working class, as reflected in the continued stagnation in wages.
However,
fears are mounting within ruling class circles that this long period of
suppressed class struggle is coming to an end, with signs of intense social
anger and political radicalization of working people increasing.
According
to the Phillips model, with the official US unemployment rate at the
historically low level of 4.3 percent, wages and inflation should now start to
rise and interest rates should be lifted, if only at a slow rate. The Fed
maintains that the absence of price increases is due to temporary factors and
therefore “looks through” the present data to what it regards as longer-term
processes that will eventually push up inflation.
But
this view ignores that the fact that what were regarded for a long period as
“normal” economic conditions and relations no longer exist. Price changes are,
to be sure, affected by temporary fluctuations--a fall in cell phone charges
has been cited as a cause of the most recent price slowdown--but the overall trend
is down.
Furthermore,
there has been no significant increase in wages, with pay levels continuing to
fall in real terms. As the International Monetary Fund noted in its most recent
assessment of the US economy, more than half of US households have a lower real
income today than they did in 2000.
And
the unemployment rate no longer signifies what it once did. This is because any
newly created jobs are increasingly low-paid, part-time, casual and contract
employment, not the full-time jobs which prevailed when the Phillips model was
developed in the midst of the post-war capitalist boom.
The
breakdown of the Phillips curve, on which the Fed seeks to base its decisions,
points to far-reaching changes in the very structure of the US economy.
In
analysing these changes, it must always be borne in mind that the driving force
of the capitalist economy is not the expansion of economic output as such, but
profit. And the mode of profit accumulation has undergone vast changes in
recent decades--a process that began with the rise of financialisation in the
1980s, accelerated in the 1990s, and then took a further leap in the wake of
the financial crisis of 2008.
Increasingly,
the profits of major corporations are no longer derived from direct investment
in productive activities, involving the employment of more workers, leading to
wage increases, but through the appropriation of wealth produced elsewhere.
This
takes place by two means: the siphoning off of wealth by financial means, and
the monopolisation of scientific advancements via the establishment of
so-called intellectual property rights by hi-tech firms such as Google, Apple
and others, and by giant pharmaceutical and bio-tech companies.
At
the heart of this process stand the banks, the investment funds and hedge
funds, which dominate the shareholdings of major corporations. It has been
calculated that whereas in 1990 the 10 biggest financial conglomerates
controlled 10 percent of US assets, they now control 75 percent.
These
financial behemoths do not directly produce surplus value--they appropriate it
from other areas of the economy in a form of parasitism.
And
just as in biology the parasite depends on the flow of life resources from the
host, so these corporations depend, in the final analysis, on the flow of surplus
value from other areas of the economy. Hence their very mode of
accumulation--in which money seems to simply beget money--results in an ever
more frenzied drive for the extraction of additional surplus value from the
areas of the economy on which they feed, through the lowering of wages, more
intensive exploitation and the destruction of previous working conditions.
The
restructuring of the US economy to meet these demands has shattered the
so-called Phillips curve and all other nostrums on which the Fed and other
major policy-making bodies based themselves.
But
even more significantly for the working class, it means that political
perspectives of the past, based on the possibility of some kind of reform of
the capitalist system, have been ground to dust. This poses the objective
necessity for a socialist program, starting with the struggle for political
power, the bringing of the “commanding heights” of the economy under public
ownership, and the complete reorganisation of economic relations to meet human
needs.
America’s Looming Economic Armageddon
– Can the Rich Get Even Richer During the Meltdown?
Haven’t they looted us into
bankruptcy?
On behalf of bankster-owned Barack Obama, Yellen vows to the rich and crony banksters that they will be protected and subsidized with no strings bailouts during the next looming economic meltdown around the corner from elections.
“In fact, these policies have
already produced financial and asset bubbles that are unsustainable, and there
are increasing signs of financial instability and crisis. There are growing
warnings that the spread of negative interest rates is leading to a new
financial meltdown even worse than the disaster that struck eight years ago.”
"The same period has
seen a massive growth of
social inequality, with income and wealth
concentrated
at the very top of American
society to an extent not seen since the
1920s."
Most
people think the United States is the nation most heavily in debt. But
if one looks at per capita values, the USA is far from the worst. The
worst now looks like it may be China.
According to the World Atlas, the United States does not even m...
July 4, 2017
China's Hidden Debt Bubble
Most
people think the United States is the nation most heavily in debt. But if one
looks at per capita values, the USA is far from the worst. The worst now looks
like it may be China.
According
to the World
Atlas, the United States does not even make the top 10. What is truly scary
is Japan, which has an incomprehensible 248%
debt to GDP ratio.
Some
other notable high debt to GDP ratios include that of the US at 105.8%, Jamaica
at 124.3%, Cape Verde at 119.3% and Bhutan at 115.7% (because of its reliance
on Indian financial assistance). Troubled European nations such as Cyprus,
Ireland, Belgium, Spain, and Portugal also have troubling ratios. -- Nomad
Capitalist
According
to Market
Realist, Greece, Italy, Portugal, France, and Spain are in worse shape than
America, with the UK and Belgium not far behind. Another chart shows that the
USA is not the worst in household
debt to GDP.
Now,
such data can change radically, and rapidly, per week. The point here is not to
say that the USA is not doing so badly. One could think of this as individuals
without a parachute in free fall from a height in the stratosphere, with the
highest one shouting to the lower one, “I am in better shape than you.”
Nor
is this to scold anyone. Rather, there is an ominous underreported tidal wave
about to occur.
Chinese
debt surpasses GDP by 300%.
Global
Debt Hits A New Record High Of $217 Trillion; 327% Of GDP –
Zero Hedge, June 29, 2017
Anyone
who has surveyed the Chinese scene knows that China has been building massive empty urban areas
with no one in them. There
was massive and reckless speculation, which is now starting to collapse. To get
a sense of the enormity of this, one need only see how much concrete was used.
China
used more cement between 2011 and 2013 than the U.S. used in the entire 20th
Century.
The
statistic seems incredible, but according to government and industry sources,
it appears accurate. -- Washington
Post, 2015
China
has “hidden” debt.
Rising
defaults in China are unearthing hidden debt at companies across the country.
Small
firms that can’t get loans by themselves have been winning banks over by
getting other companies to guarantee their borrowings. The companies making
those pledges exclude them from their balance sheets, leaving creditors in the
dark. Borrowers often extend the guarantees for each other, raising the risk
that failures could ricochet, at a time when increasing borrowing costs have already
added to strains. -- Bloomberg
This
is the Chinese version of the Fannie Mae Crisis. Only, this seems to be driven
by crony capitalism rather than bank corruption. Does it matter?
The
world economy is poised for a disaster of unparalleled proportions.
Why
The Next Recession Will Morph Into A Decades Long Depressionary Event... Or
Worse
But
the absence of a growing consumer base isn't just a US issue...this is a global
problem. The annual growth of the 0-64yr/old population of the combined OECD
nations (most the EU, US, Canada, Mexico, Chile, Japan, S. Korea, Australia /
New Zealand) plus China, Brazil, and Russia show the growth that has driven
nearly all economic growth has come to an end... and begins declining from here
on. –
Zero Hedge
Those
without a sense of history, think that depressions are short interruptions.
Depressions can last decades or even centuries. It would not be until 19th
century Europe that the average standard of living would start to equal Rome in
its heyday. This may be what we are looking at.
Moreover,
two new features have arisen which were never seen before in history. In the
past, during such debacles, there were places to flee. Until the Great
Depression of 1929, it was common practice to return to a relative's farm and
wait it out. What made the Great Depression so bad was that America was mostly
urban by 1929 and many people had no relative to lodge with. But urbanization
was not worldwide in 1929. It is now.
The
pace of urbanization has been remarkably swift. In 1950, only 30 percent of the
world’s people lived in cities. That has grown to 54 percent in 2014 -- NY
Times
If
a worldwide downturn occurs, over half the world's population may have no place
to wait it out.
The
second new feature is small families. Until the 20th century, it was common
practice to have large families to provide for one's old age. Youngsters were
what kept the economies growing and booming. That is gone. Europe is having a
population collapse. America is being kept afloat, but only with immigration.
China's one-child policy is blossoming to horrific consequences. Even
India is leveling off. It seems that the only places where population is
growing are in Islam,
Africa,
and
Israel. Israel is also blessed with a relatively low debt to GDP
ratio; making it one of the few nations with a growing population and low
debt.
Now
in 1929, some nations were affected differently. France was not as severely hit
by the Great
Depression, though it lasted a bit longer there. Argentina, which had an
export economy, was thoroughly destroyed by the Great Depression, when
countries closed their markets to Argentina grain. In reality, a good portion
of the political and economic disasters that have plagued Argentina over the
past century have stemmed from that Great Depression, where Argentina's
military and political leaders have used every ridiculous trick in the book to
regain the glory that was once theirs before 1929, when it had the 4th highest
GDP per capita on the planet.
This
time, there will be no place to flee -- not internally, not externally --
anywhere on the planet. The only exception may be that Jews may have an escape
to Israel. What it now looks like is that it may be Chinese, not American nor
European, debt which will take down the house of cards.
Anyone
who has studied history knows that debt at these levels usually ends with war
and revolution. The debt of from the French and Indian War had Britain taxing
America, which lead to the American Revolution. The debt from supporting the
American Revolution bankrupted France, which led to the world shattering French
Revolution. German debt after WWI contributed to the rise of Hitler, and so on.
The coming debacle will not be limited to a national crisis, nor a
civilizational crisis, but will provoke an absolutely total worldwide crisis.
One can foresee major governmental and cultural changes. In a drive to collect taxes, governments may go cashless so they can track all transactions, which will lead to a total abridgment of privacy and liberty. Count on it, health care will be pulled from the sickly and the poor. Who can afford it?
One can foresee major governmental and cultural changes. In a drive to collect taxes, governments may go cashless so they can track all transactions, which will lead to a total abridgment of privacy and liberty. Count on it, health care will be pulled from the sickly and the poor. Who can afford it?
I
do not think national governments will collapse – technology has given them a
degree of totalitarian options; but societies and civilizations will radically
change. A dark age may be coming.
What
is interesting is that this collapse may not be able to be laid at anyone's
feet – as it was formerly thought the U.S. would be to blame. The whole shebang
may collapse overnight, with everyone at fault.
Mike Konrad is the pen name of an American who wishes he had
availed himself more fully of the opportunity to learn Spanish in high school,
lo those many decades ago. He writes on the Arabs of South America at http://latinarabia.com. He also just started
a website about small computers at http://minireplacement.com.
No comments:
Post a Comment