AMERICA'S SMOKE AND MIRRORS ECONOMY - FEDS REMIND WALL STREET AND THE RICH THAT THEY ARE THEIR DEVOTED SERVANTS

Fed signals it will bow to Wall Street’s demands

11 July 2019

The chairman of the US Federal Reserve, Jerome Powell, faced a problem when he came to deliver his semi-annual report to Congress on Wednesday and outline the central bank’s monetary policy and its views on the state of the economy.

On the one hand, he had to give a clear indication that the Fed would meet the demands of the stock markets and their spokesman, President Trump, for interest rate cuts, possibly starting at its next policy meeting at the end of this month. On the other, he had to maintain the official fiction that the Fed acts independently, concealing the reality that it is the direct instrument of Wall Street and the financial oligarchy.

Accordingly, Powell began his testimony by noting that Congress has given the Fed an “important degree of independence” so that it could pursue its goals “based on objective analysis and data.”

Then, both in his prepared testimony and in response to questions from members of the House of Representatives Financial Services Committee, he proceeded to emphasise data that he said supported the demands of the financial markets—a pattern that will continue today when he speaks to the corresponding body of the Senate.

Powell said the “bottom line” was the uncertainties about global growth and trade that “continue to weigh on the outlook.” He also pointed to weaker readings on inflation, suggesting that inflation rates below the Fed target of two percent could be more persistent than previously anticipated. This was a significant change from previous language, in which the Fed said continued low inflation was due to “transitory” factors. Powell said low inflation “strengthened the case for a somewhat more accommodative policy.”

He also pointed to the agreement between Trump and Chinese President Xi Jinping to resume trade talks as “constructive,” but said it did not remove the “uncertainty that we see as weighing on the outlook.”

Rounding out a presentation calculated to provide justification for Wall Street’s insatiable demand for cheaper money to finance its parasitic activities, Powell pointed out that business investment has “slowed notably” and that overall growth of the US economy in the second quarter “appears to have moderated.”

In the lead-up to Powell’s testimony, the markets had been concerned that the June jobs report, which showed that employment numbers had increased by 224,000 for the month, had weakened the case for a rate cut. He went out of his way to give assurance that it had not.

Asked whether the report had changed the Fed’s outlook, Powell eschewed the usual obfuscations of Fedspeak and replied that the “straight answer” was “no.”

Powell’s testimony was warmly welcomed by Wall Street. During the course of the day’s trading, the S&P 500 index went over the 3,000 level, marking a 50 percent increase from the 2,000 level reached in 2014, before falling back marginally, while other indexes finished close to the record highs they reached last week.

The official line of the Fed is that a more accommodative monetary policy is necessary to provide a boost to the economy. This is a lie from start to finish. Any cut in interest rates, like the much-touted tax cuts the Trump administration claimed would boost the creation of well-paying jobs, will do nothing to lift investment and expand the real economy.

Rather, they will help finance the ever greater accumulation of wealth at the heights of society, placing more money in the hands of the financial oligarchy and providing cheap funds for job-destroying mergers and acquisitions and share buy-backs that boost the value of Wall Street stock.

Far from facilitating economic expansion, the 

process of ever-greater wealth creation at the 

top is accompanied by a major restructuring 

of key sections of industry—particularly the 

auto industry—involving the destruction of 

tens of thousands of jobs in order to boost 

profits.

At the same time, vital services are being cut. Teachers and others demanding an increase in their wages and increased spending to meet the worsening conditions they confront are continually being told there is “no money.”

There is a profound objective connection between these two processes. There is “no money” because all the economic and financial agencies of the capitalist state operate as institutionalised mechanisms for siphoning up the wealth produced by the labour of the working class. This process of wealth extraction is being intensified to meet Wall Street’s demands.

While the stock market appears to be a kind of financial heaven, where money, provided at ultra-low interest rates, seems to simply beget more money, it does, in the final analysis, rest on the surplus value extracted from the working class. Thus, the process of financial accumulation is necessarily accompanied by the development of new methods for increasing this exploitation and cutting social services, which constitute a drain on the surplus value available for appropriation in the form of profit by finance capital.

These processes are not merely the outcome of the policies of the Trump administration, which can be corrected by reforms to the operation of the financial system and the underlying economy. Trump is simply the personification of a process going back decades.

This month marks the 75th anniversary of the Bretton Woods conference of 1944, which played a key role in laying the foundations of the post-World War II capitalist order. The post-war boom, which it helped establish, provided rising profits, the expansion of the productive forces of society and rising living standards for the working class, both in the US and other major capitalist economies.

It appeared that the contradictions that had torn apart the capitalist economy in the first half of the 20th century, with devastating consequences for the mass of the world’s population, had been overcome, and that it was possible for the working class to advance its interests within the framework of the profit system.

But this was an illusion, which began to be exposed in a relatively short period. In August of 1971, the US sought to unilaterally extricate itself from the mounting economic problems it confronted by abrogating the Bretton Woods monetary agreement with the removal of the gold backing from the US dollar, which had been at its foundation.

“America First” did not begin with Trump, but was initiated almost 50 years ago. Since then, the entire economic post-war order has disintegrated at an accelerating rate and is now in tatters. Trade war, of the kind that led in the 1930s to the outbreak of World War II in 1939, has replaced international obligations and agreements. The global financial system, as was so graphically revealed in the meltdown of 2008, has been completely destabilised.

All the financial and economic instruments of the state, above all the Fed, are dedicated to the sole goal of enriching the financial oligarchy, no matter what the consequences.

But the deepening economic breakdown and the growth of social inequality to historically unprecedented levels are bringing an international resurgence of the class struggle. While only in its initial stage, this movement will advance in the coming period. The crucial issue is that it be armed with a socialist perspective.

The so-called reforms advocated by various “left” tendencies, such as those operating in the Democratic Party and the Corbyn-led Labour party in Britain, are not only completely inadequate, they are aimed at trapping the working class within the present order.

The key question for the rising movement of the working class is the formulation and development of a program and perspective aimed at the conquest of political power as the necessary first step in ending the depredations of the capitalist profit system.

As contract talks set to begin

GM throws down gauntlet to autoworkers

General Motors wants a new labor agreement that will allow it to sharply expand the number of low-paid contract workers and impose much higher out-of-pocket health care costs on its 52,000 hourly workers in the US. This was revealed by the industry publication Automotive News, which posted an article Wednesday titled “GM pushes for more temp workers as UAW talks loom.”

Negotiations between the United Auto Workers union and the Big Three automakers are set to begin next month for 155,000 GM, Ford and Fiat Chrysler workers.

Citing unnamed corporate insiders “familiar with the automaker’s thinking,” Automotive News writes, “GM is looking for more factories to adopt agreements like the one used by its electric-car plant in Orion, Mich. There, workers employed by a subsidiary called GM Subsystems LLC, pay staff in the plant less money for jobs such as handling parts and materials before they go to the assembly line. Four of GM’s 33 US plants have such contracts now.

“If GM can hire more temporary workers who are paid less and aren’t on the same health care plan, the automaker argues that it can offer job security for its unionized employees. GM would also like to find ways to reduce its roughly $900 million annual health care bill for union employees, including by getting greater contributions from workers, the people said.”

The publication notes that GM’s Japanese-owned rivals Toyota, Honda and Nissan “staff their plants with about 20 percent temporary workers." It continues: "In comparison, about 7 percent of GM’s staff are temps.” This suggests that GM wants to at least triple the number of these highly exploited workers.

Previous reports have indicated that GM, Ford and Fiat Chrysler are determined to slash health care costs, particularly with the 40 percent tax on so-called “Cadillac" health care benefits, part of Obama's misnamed Affordable Care Act, going into effect in 2022. As Forbes complained earlier this year, “The UAW 's extremely generous health plans are the last vestige of the quasi-socialism that dominated the US auto industry for 100 years.”

Under pressure from Wall Street, the automakers are carrying out a global restructuring to push profit margins even higher. The repeated concessions handed over by the UAW have led to a 25 percent fall in autoworkers’ real wages since 2002. Meanwhile, the auto companies have recorded a decade of record profits, and GM has spent $25 billion over the last five years on stock buybacks and dividend payments to its investors.

The demands for another round of deep concessions confirm the warnings of the WSWS Autoworker Newsletter.

In a call to action for autoworkers, the WSWS declared, “The auto bosses plan to use the threat of unemployment to blackmail workers into accepting more concessions this summer. Their aim is to further transform autoworkers into a cheap, highly exploited and disposable workforce in order to maximize the returns to their wealthy shareholders.”

The Automotive News claims the UAW “is still steaming over the carmaker’s plans to close four US factories” and has “little interest in obliging” GM. “That sets up a hot summer of negotiations with the UAW as the two try to hash out a new labor deal in the coming months.”

In fact, the UAW is completely on board with the auto corporations and their Wall Street investors. The “new labor deal” has already been written. The upcoming talks are not “negotiations” but a conspiracy between the auto executives and their paid servants in the UAW to discuss how to ram through another pro-company contract past resistant workers.

In an article posted last November, the Automotive News acknowledged that the UAW welcomed the plant closing announcement as a means of beating back autoworkers’ demands to overturn decades of UAW-backed concessions now that GM and other automakers are making billions in profits.

GM’s announcement, the publication wrote, “could actually be a blessing in disguise for UAW leaders, who are fighting an internal battle with members following a federal corruption scandal." It continued: "If union leaders can save one, maybe two plants, they could be seen as heroes instead of company pawns, a view of several recent UAW leaders painted by federal prosecutors.”

Any deal to keep a factory open, the industry publication said, “will come at a huge cost to workers." The article explained: "If any of the plants are saved, union members should read the fine print in the contract. Expect GM to demand untraditional employment practices such as an increase in temporary, subcontracted or outsourced workers.”

In mid-2018, UAW Vice President for GM Cindy Estrada, with the support of the leadership of UAW Local 5960 at the Lake Orion, Michigan plant, signed a secret Memorandum of Understanding (MOU) giving GM a green light to hire low-paid subcontractors to replace 150 regular GM employees in the materials department earning full pay and benefits. Employed by GM Subsystems LLC, a wholly owned GM subsidiary, the contract workers, who pay UAW dues, started at $15 an hour, about half of the pay for senior, tier-one workers.

The UAW signed a similar “Competitive Operating Agreement” at the Lordstown, Ohio assembly plant. Far from saving the factory, the massive concession paved the way for the layoff of 3,000 workers and closure of the 50-year-old plant in March. The UAW also approved the outsourcing of work to GM Subsystems at the Detroit-Hamtramck plant, which is scheduled to be shut in January 2020.

“GM has hired new, cheaper workers to replace higher-paid ones,” said a Lake Orion worker who lost her job at the plant after eight years. “This is BS. All these contract workers should be rolled over to traditional jobs, but instead they are kicking others out. I was fired because of car problems and having to care for a sick family member. One day I had to wait for a tow truck for my car, and I arrived late. I was fired and I learned later that there were lot more workers they fired. The UAW didn’t say a thing. My committeeman refused to answer my calls.

“The companies are making huge profits and workers are making the minimum wage. We’re busting our asses and building cars. If we came together, we could shut the industry down, but the UAW doesn’t want us to come out on strike. They say if you don’t come to work, you’ll be fired.”

A fightback is possible, but workers will need their own organizations. The WSWS Autoworker Newsletter urges workers in every factory to organize rank-and-file factory committees to organize opposition. The first step is for workers to draw up a list of demands for the contract fight that is based on what workers and their families need, not what the corporations and the UAW say is affordable.

A network of rank-and-file organizations in the factories will unite all autoworkers—first- and second-tier, full-time and part-time, young, old and retired—and mobilize the collective power of workers.

Lines of communication between all factories, and between GM, Ford and Fiat Chrysler workers, must be established in order to prepare a national strike to shut down the auto industry. An appeal must be made to workers in Mexico, Canada and around the world to carry out joint action against the global attack on autoworkers.

Jeff, a veteran GM worker who has already gone through plant closures in Pontiac and Detroit, said, “Workers aren’t going to go for health care cuts. There is no way we are going to vote ‘yes’ on that. The UAW is telling us to save our money for a long strike. But in 2015, the union was stuffing the ballot boxes to get the contract passed. They’ve been taking bribes from the companies for a long time.

“Nobody had heard about the Mexican workers going on strike in Matamoros, but I read about it in the Autoworker Newsletter. Workers are fed up there. They can’t even afford to buy a home and the government in Mexico and other countries are all bought off by the American government.

“In the US, people are starting to fight too. College kids are coming out saying why should I get student loan debts when I’m getting a $15 an hour job when I get out? Teachers are marching in Lansing for better pay and conditions. They’re coming after everything, and its time the rank and file stand up.”

Powell Signals Fed Will Cut Rates, Support U.S. Economy Against Damage from Trade War

Drew Angerer/Getty Images

JOHN CARNEY

10 Jul 2019335

3:05

President Trump has a new, if reluctant, ally in the trade war with China: the Federal Reserve.

Federal Reserve Chairman Jerome Powell said on Wednesday that it was appropriate for the Fed to cut rates if concerns about trade and tariffs were slowing the economy.

In his testimony to the House Financial Services committee, Powell strongly signaled that the Fed would likely lower interest rates in the months ahead in part because trade disputes and a slowing global economy have created clouds of “uncertainty” that are weighing on the U.S. economy.

“Economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy. Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit,” Powell said.

There have been some economists on Wall Street and elsewhere who have urged the Fed to resist cutting rates, arguing that this would only “enable” what they view as the Trump administration’s belligerence on Trade. But as clearly demonstrated by Powell’s testimony Wednesday, the Fed is not joining the #resistance.

Many Fed officials undoubtedly believe that Trump’s tariffs disputes are counter-productive or too heavy-handed when it comes to resolving trade disputes with China and other nations. But the Fed does not have a role in setting trade policy, which is the responsibility of Congress and the president. So it is left in a reactive stance, forced by its legal mandate to adopt policies that promote growth and price stability even when the elected branches take courses it finds unwise.

This is hardly a new problem for the Fed. During the financial crisis and the Great Recession, Fed officials signaled a number of times that the government’s fiscal policy was too tight. Barack Obama had hiked taxes and lawmakers on Capitol Hill had resisted pressure for additional spending, resulting in a fiscal policy that many on the Fed viewed as extending America’s economic woes. But the Fed “enabled” the tax hikes and spending deals by keeping rates low and engaging in a massive bond-buying program.

Markets were already counting on the Federal Reserve to further enable Trump’s trade policies by cutting rates at the end of July. After Powell’s testimony, market measures showed an increased likelihood. of the Fed cutting rates fifty basis points–a half percentage point–although the odds still favor just a twenty-five basis point cut.

President Trump is likely pleased with Powell’s testimony on Wednesday as it signaled the Fed would likely be adopting the easing policy he has been calling for for months.

“They devalue their currency. They have for years,” Trump lamented a month ago. “It’s put them at a tremendous competitive advantage, and we don’t have that advantage because we have a Fed that doesn’t lower interest rates.”

Powell also reiterated his belief that he cannot be removed by President Trump, saying he intends to serve his full four-year term as chairman. Although several administration officials have said the president is not considering removing Powell, the idea remains an obsession with the president’s critics and came up several times in the hearing.

By the end of the month, both that concern and Trump’s complaints are likely to be rendered moot.