Financial crises are presented in the media and elsewhere as being about numbers. But behind the economic and financial data are the interests of two irreconcilably opposed social classes—the working class, the mass of society, and the ruling corporate and financial oligarchy whose interests are defended by the state of which the Fed is a crucial component.
As 2008 demonstrated, what emerges from a financial crisis is a deepening class polarisation. That will certainly be the outcome of the mid-March events. A massive social confrontation, already developing long before the pandemic arrived on the scene, is looming in which the working class will be confronted with the necessity to fight for political power in order to take the levers of the economy and financial system into its own hands.
IMF Predicts Worst Recession Since Great Depression
4:45
WASHINGTON (AP) — The International Monetary Fund has sharply lowered its forecast for global growth this year because it envisions far more severe economic damage from the coronavirus than it did just two months ago.
The IMF predicts that the global economy will shrink 4.9 percent this year, significantly worse than the 3 percent drop it had estimated in its previous report in April. The IMF said that the global economic damage from the recession will be worse than from any other downturn since the Great Depression of the 1930s.
For the United States, it predicts that the nation’s gross domestic product — the value of all goods and services produced in the United States — will plummet 8 percent this year, even more than its April estimate of a 5.9 percent drop. That would be the worst such annual decline since the U.S. economy demobilized in the aftermath of World War II.
The IMF issued its bleaker forecasts Wednesday in an update to the World Economic Outlook it released in April. The update is generally in line with other recent major forecasts. Earlier this month, for example, the World Bank projected that the global economy would shrink 5.2 percent this year.
“This is the worst recession since the Great Depression,” Gita Gopinath, the IMF’s chief economist, told reporters at a briefing. “No country has been spared.”
The IMF noted that the pandemic was disproportionately hurting low-income households, “imperiling the significant progress made in reducing extreme poverty in the world since 1990.”
In recent years, the proportion of the world’s population living in extreme poverty — equivalent to less than $1.90 a day — had fallen below 10 percent from more than 35 percent in 1990. But the IMF said the COVID-19 crisis threatens to reverse this progress. It forecast that more than 90 percent of developing and emerging market economies will suffer declines in per-capita income growth this year.
For 2021, the IMF envisions a rebound in growth, so long as the viral pandemic doesn’t erupt in a second major wave. It expects the global economy to expand 5.4 percent next year, 0.4 percentage point less than it did in April.
For the United States, the IMF predicts growth of 4.5 percent next year, 0.2 percentage point weaker than in its April forecast. But that gain wouldn’t be enough to restore the U.S. economy to its level before the pandemic struck. The association of economists who officially date recessions in the United States determined that the economy entered a recession in February, with tens of millions of people thrown out of work from the shutdowns that were imposed to contain the virus.
The U.S. government has estimated that the nation’s GDP shrank at a 5 percent annual rate in the January-March quarter, and it is widely expected to plunge at a 30 percent rate or worse in the current April-June period.
In its updated forecast, the IMF downgraded growth for all major countries. For the 19 European nations that use the euro currency, it envisions a decline in growth this year of 10.2 percent — more than the 8 percent drop it predicted in April — followed by a rebound to growth of 6 percent in 2021.
In China, the world’s second-largest economy, growth this year is projected at 1 percent. India’s economy is expected to shrink 4.5 percent after a longer period of lockdown and a slower recovery than was envisioned in April.
In Latin America, where most countries are still struggling to contain infections, the two largest economies, Brazil and Mexico, are projected to shrink 9.1 percent and 10.5 percent, respectively.
A steep fall in oil prices has triggered deep recessions in oil-producing countries, with the Russian economy expected to contract 6.6 percent this year and Saudi Arabia’s 6.8 percent.
The IMF cautioned that downside risks to the forecast remain significant. It said the virus could surge back, forcing renewed shutdowns and possibly renewed turmoil in financial markets similar to what occurred in January through March. The IMF warned that such financial turbulence could tip vulnerable countries into debt crises that would further hamper efforts to recover.
Its updated forecast included a downside scenario that envisions a second major outbreak occurring in early 2021. Under this scenario, the global economy would contract again next year by 4.9 percent, it estimates.
Amazon CEO Jeff Bezos, who is rescinding a
$2-an-hour hazard pay increase for his warehouse workers at the end of the
month, led the pack, increasing his personal wealth by $34.6 billion since the
onset of the pandemic. Facebook CEO Mark Zuckerberg was close behind, adding
$25 billion to his fortune. Tesla CEO Elon Musk, who reopened his California
auto plant in defiance of state regulators and with the support of President
Trump, saw a 48 percent increase in his wealth to $36 billion in just eight
weeks as the stock market rebounded from its collapse. All told, the nation’s
620 billionaires now control $3.382 trillion, a 15 percent increase in two
months.
US unemployment claims approach 40 million
since March
22 May 2020
The United States Department of Labor reported on Thursday that
more than 2.4 million Americans applied for unemployment insurance last week,
bringing the total number of new claims to 38.6 million since mid-March, when
social distancing measures and statewide stay-at-home orders were first
implemented in an effort to slow the spread of the coronavirus.
Even with the push by the Trump administration since then to
reopen the economy and the easing of lockdown orders in all 50 states—despite a
continued rise in COVID-19 infections and deaths—the US marked its ninth
straight week in which more than 2 million workers filed for unemployment.
While this is down from the peak at the end of March when 6.8 million applied
for unemployment insurance, it still dwarfs the worst weeks of the Great
Recession in 2008.
It is expected that the official unemployment rate for May,
which is to be reported by the federal government in the first week of June,
will approach 20 percent, up from 14.7 percent last month. This is a
significant undercount, with millions of unemployed immigrants unable to apply
for benefits, and many other workers who are not currently looking for work and
therefore are not counted as unemployed.
Fortune magazine estimates
that real unemployment has already hit 22.5 percent, which is nearing the peak
of unemployment reached during the Great Depression in 1933, when the rate rose
above 25 percent. Millions more are expected to apply in the coming weeks,
pushing the numbers beyond those seen during the country’s worst economic
crisis.
But even these figures do not capture the extent of the crisis
now unfolding across the country. Millions have been blocked for weeks from
applying for unemployment compensation because of antiquated computer systems,
and a significant share of those who have applied have been denied any
payments. On top of this there are significant delays in processing applications
in multiple states, including Indiana, Missouri, Wyoming and Hawaii. Meanwhile,
Florida, which has some of the most stringent restrictions, has refused to
extend its paltry three-month limit on payments for the few who manage to
qualify.
Sparked by the pandemic, the greatest economic crisis since the
1930s is already having a devastating impact on the millions who have seen
their jobs suddenly disappear, while millions more will see wages, benefits and
hours dramatically curtailed whenever they are able to return to work.
Optimistic projections that the US economy would quickly bounce back once
stay-at-home orders were lifted are now becoming much gloomier.
A University of Chicago analysis from
earlier this month projects that 42 percent of lost jobs will be permanently
eliminated. At the current record number, this will mean a destruction of 16.2
million jobs, nearly double the number of jobs which were lost during the Great
Recession just over a decade ago.
“I hate to say it, but this is going to take longer and look
grimmer than we thought,” Nicholas Bloom, a Stanford University economist and
one of the co-authors of the study, told the New York Times.
A survey by the Census Bureau carried out at the end of April
and beginning of this month found that 47 percent of adults had lost employment
since March 13 or had someone in their household do so, and 39 percent expected
that they or someone else in the home would lose their job in the next month.
Nearly 11 percent reported that they had not paid their rent or mortgage on
time and more than 21 percent had slight or no confidence that they would do so
next month.
With millions missing their rent or mortgage payments, tens of
thousands of families will be thrown out on the street in the coming weeks and
months, leading to a dramatic rise in homelessness even as the coronavirus
continues to spread. While many states took steps in March to place a
moratorium on evictions, and eviction notices were unable to be filed due to
court closures, those measures are now expiring and courts are reopening.
The Oklahoma County Sheriff announced Tuesday via their Twitter
page that the department would resume enforcing evictions on May 26. Nearly 300
eviction cases were filed in Oklahoma City between Monday and Tuesday. This
process is being repeated in cities and counties across the country. Evictions
are also set to resume in Texas next week, where many families were ineligible
for aid due to the undocumented status of one or another parent. The CARES Act
provision, which blocks evictions from properties with federally subsidized
mortgages, expires on July 25; in Texas this only accounts for one-third of
homes.
Meanwhile, another wave of layoffs and furloughs is expected by
the Congressional Budget Office at the end of June, when the
multi-billion-dollar Payment Protection Program (PPP) expires. Sold as a
bailout which would help small businesses keep workers on their payroll in the course
of necessary shutdowns, the PPP was in fact a boondoggle for large
corporations, their subsidiaries and those with connections to the Trump
administration. Many small business owners have not seen any aid, and many do
not qualify for loan forgiveness.
Amid historic levels of social misery in the working class,
times have never been better for those at the heights of society, with
America’s billionaires adding $434 billion to their total net worth since state
lockdowns began. Financial markets have soared, underwritten by $80 billion per
day from the Federal Reserve.
Amazon CEO Jeff Bezos, who is rescinding a $2-an-hour hazard pay
increase for his warehouse workers at the end of the month, led the pack,
increasing his personal wealth by $34.6 billion since the onset of the
pandemic. Facebook CEO Mark Zuckerberg was close behind, adding $25 billion to
his fortune. Tesla CEO Elon Musk, who reopened his California auto plant in
defiance of state regulators and with the support of President Trump, saw a 48 percent
increase in his wealth to $36 billion in just eight weeks as the stock market
rebounded from its collapse. All told, the nation’s 620 billionaires now
control $3.382 trillion, a 15 percent increase in two months.
US unemployment
claims approach 40 million since March
22 May 2020
The United States Department of Labor reported on Thursday that
more than 2.4 million Americans applied for unemployment insurance last week,
bringing the total number of new claims to 38.6 million since mid-March, when social
distancing measures and statewide stay-at-home orders were first implemented in
an effort to slow the spread of the coronavirus.
Even with the push by the Trump administration since then to
reopen the economy and the easing of lockdown orders in all 50 states—despite a
continued rise in COVID-19 infections and deaths—the US marked its ninth
straight week in which more than 2 million workers filed for unemployment.
While this is down from the peak at the end of March when 6.8 million applied
for unemployment insurance, it still dwarfs the worst weeks of the Great
Recession in 2008.
It is expected that the official unemployment rate for May,
which is to be reported by the federal government in the first week of June,
will approach 20 percent, up from 14.7 percent last month. This is a
significant undercount, with millions of unemployed immigrants unable to apply
for benefits, and many other workers who are not currently looking for work and
therefore are not counted as unemployed.
Fortune magazine estimates
that real unemployment has already hit 22.5 percent, which is nearing the peak
of unemployment reached during the Great Depression in 1933, when the rate rose
above 25 percent. Millions more are expected to apply in the coming weeks,
pushing the numbers beyond those seen during the country’s worst economic
crisis.
But even these figures do not capture the extent of the crisis
now unfolding across the country. Millions have been blocked for weeks from
applying for unemployment compensation because of antiquated computer systems,
and a significant share of those who have applied have been denied any
payments. On top of this there are significant delays in processing
applications in multiple states, including Indiana, Missouri, Wyoming and
Hawaii. Meanwhile, Florida, which has some of the most stringent restrictions,
has refused to extend its paltry three-month limit on payments for the few who
manage to qualify.
Sparked by the pandemic, the greatest economic crisis since the
1930s is already having a devastating impact on the millions who have seen
their jobs suddenly disappear, while millions more will see wages, benefits and
hours dramatically curtailed whenever they are able to return to work.
Optimistic projections that the US economy would quickly bounce back once
stay-at-home orders were lifted are now becoming much gloomier.
A University of Chicago analysis from
earlier this month projects that 42 percent of lost jobs will be permanently
eliminated. At the current record number, this will mean a destruction of 16.2
million jobs, nearly double the number of jobs which were lost during the Great
Recession just over a decade ago.
“I hate to say it, but this is going to take longer and look
grimmer than we thought,” Nicholas Bloom, a Stanford University economist and
one of the co-authors of the study, told the New York Times.
A survey by the Census Bureau carried out at the end of April
and beginning of this month found that 47 percent of adults had lost employment
since March 13 or had someone in their household do so, and 39 percent expected
that they or someone else in the home would lose their job in the next month.
Nearly 11 percent reported that they had not paid their rent or mortgage on
time and more than 21 percent had slight or no confidence that they would do so
next month.
With millions missing their rent or mortgage payments, tens of
thousands of families will be thrown out on the street in the coming weeks and
months, leading to a dramatic rise in homelessness even as the coronavirus
continues to spread. While many states took steps in March to place a
moratorium on evictions, and eviction notices were unable to be filed due to
court closures, those measures are now expiring and courts are reopening.
The Oklahoma County Sheriff announced Tuesday via their Twitter
page that the department would resume enforcing evictions on May 26. Nearly 300
eviction cases were filed in Oklahoma City between Monday and Tuesday. This
process is being repeated in cities and counties across the country. Evictions
are also set to resume in Texas next week, where many families were ineligible
for aid due to the undocumented status of one or another parent. The CARES Act
provision, which blocks evictions from properties with federally subsidized
mortgages, expires on July 25; in Texas this only accounts for one-third of
homes.
Meanwhile, another wave of layoffs and furloughs is expected by
the Congressional Budget Office at the end of June, when the
multi-billion-dollar Payment Protection Program (PPP) expires. Sold as a
bailout which would help small businesses keep workers on their payroll in the
course of necessary shutdowns, the PPP was in fact a boondoggle for large
corporations, their subsidiaries and those with connections to the Trump
administration. Many small business owners have not seen any aid, and many do
not qualify for loan forgiveness.
Amid historic levels of social misery in the working class,
times have never been better for those at the heights of society, with
America’s billionaires adding $434 billion to their total net worth since state
lockdowns began. Financial markets have soared, underwritten by $80 billion per
day from the Federal Reserve.
Amazon CEO Jeff Bezos, who is rescinding a $2-an-hour hazard pay
increase for his warehouse workers at the end of the month, led the pack,
increasing his personal wealth by $34.6 billion since the onset of the
pandemic. Facebook CEO Mark Zuckerberg was close behind, adding $25 billion to
his fortune. Tesla CEO Elon Musk, who reopened his California auto plant in
defiance of state regulators and with the support of President Trump, saw a 48
percent increase in his wealth to $36 billion in just eight weeks as the stock
market rebounded from its collapse. All told, the nation’s 620 billionaires now
control $3.382 trillion, a 15 percent increase in two months.
Further details emerge on the extent of the mid-March financial crisis
By Nick
Beams
22 May 2020
An article in the Wall Street Journal (WSJ)
earlier this week provided further details on how close financial markets came
to a meltdown in the middle of March.
Entitled
“The Day Coronavirus Nearly Broke the Financial Markets,” the article recorded
how markets in financial assets, usually regarded as being almost as good as
cash, froze when “there were almost no buyers.”
“The
financial system has endured numerous credit crunches and market crashes, and
the memories of 1987 and 2008 crises set a high bar for marker dysfunction. But
long-time investors … say mid-March of this year was far more severe in a short
period. Moreover, the stresses to the financial system were broader than many
had seen,” it said.
In
testimony and interviews, US Federal Reserve chair Jerome Powell has been at
pains to emphasise that regulatory mechanisms and policies introduced after the
2008 crisis have strengthened the financial system.
In his
interview on the CBS “60 Minutes” program last Sunday, for instance, Powell
downplayed the threat of unemployment reaching levels not seen since the Great
Depression. In the 1930s, he said, the financial system had “really failed,”
but that today “our financial system is strong [and] has been able to withstand
this. And we spent ten years strengthening it after the last crisis. So that’s
a big difference.”
In his interview
on the CBS “60 Minutes” program last Sunday, for example, when asked about the
prospect of US unemployment rising to levels not seen since the Great
Depression, Powell stated that at that time the financial system “really
failed.”
He
claimed that in contrast to the 1930s, “Here, our financial system is strong
[and] has been able to withstand this. And we spent ten years strengthening it
after the last crisis. So that’s a big difference.”
In fact,
Powell’s reassurances are contradicted by the Fed’s own Financial Stability
Report issued last Friday. Focusing on the mid-March crisis, it noted: “While
the financial regulatory reforms adopted have substantially increased the
resilience of the financial sector, the financial system nonetheless amplified the
shock, and financial sector vulnerabilities are likely to be significant in the
near term.”
The
events in mid-March revealed what has actually taken place. While the Fed has
taken limited measures to try to curb some of the riskier activities of the banks
that sparked the 2008 crash, the dangers have simply been shifted to other
areas of the financial system.
The
speculation of the banks may have been curtailed somewhat, but it is now being
carried out by hedge funds and other financial operators. They are financed
with ultra-cheap money provided by the Fed through its low-interest rate regime
and market operations, such as quantitative easing and, more recently, its
massive interventions into the overnight repo market.
The WSJ
report, based on interviews with Wall Street operatives, provided some insights
into how the financial system “amplified” the shock of the pandemic.
Ronald
O’Hanley, CEO of the investor services and banking holding company State
Street, recounted the situation that confronted him on the morning of Monday,
March 16. On Sunday evening, before markets opened, the Fed had announced it
was cutting its base rate to zero and was planning to buy $700 billion in
bonds, but with no effect.
According
to the report, a senior deputy told O’Hanley that “corporate treasurers and
pension managers, panicked by the growing economic damage from the COVID-19
pandemic, were pulling billions of dollars from certain money-market funds.
This was forcing the funds to try to sell some of the bonds they held. But
there were almost no buyers. Everybody was suddenly desperate for cash.”
The
article noted that rather than take comfort from the Fed’s extraordinary Sunday
evening actions, “many companies, governments, bankers and investors viewed the
decision as reason to prepare for the worst possible outcome from the
coronavirus pandemic.” The result was that a “downdraft in bonds was now a
rout.”
It
extended into what had been regarded as the most secure areas of the financial
system.
The WSJ
article continued: “Companies and pension managers have long-relied on
money-market funds that invest in short-term corporate and municipal debt
holdings considered safe and liquid enough to be classified as ‘cash
equivalents.’ … But that Monday, investors no longer believed certain money
funds were cash-like at all. As they pulled their money out, managers struggled
to sell bonds to meet redemptions.”
So severe
was the crisis that Prudential, one of the largest insurance companies in the
world, was “also struggling with normally safe securities.”
The
article provided a striking example of how, when a fundamentally dysfunctional
and rotting system seeks to undertake a reform, it generally only exacerbates
its underlying crisis. This phenomenon has been long-known in the field of
politics, but the events of mid-March show it applies in finance as well.
On the
Monday morning when the crisis broke, Vikram Rao, the head of the debt-trading
desk at the investment firm Capital Group, contacted senior bank executives for
an explanation as to why they were not trading and was met with the same
answer.
“There
was no room to buy bonds and other assets and still remain in compliance with
tougher guidelines imposed by regulators after the previous financial crisis.
In other words, capital rules intended to make the financial system safer were,
at least in this instance, draining liquidity from the markets,” the WSJ report
stated.
The
crisis had a major impact on investors who had leveraged their activities with
large amounts of debt—one of the chief means of accumulating financial profit
in a low-interest rate regime.
According
to the WSJ article: “The slump in mortgage bonds was so vast it crushed a group
of investors that had borrowed from banks to juice their returns: real-estate
investment funds.”
The Fed’s
actions, have, at least temporarily, quelled the storm. But it has only done so
by essentially becoming the backstop for all areas of the financial
market—Treasury bonds, municipal debt, credit card and student loan debt, the
repo market and corporate bonds, including those that have fallen from
investment-grade to junk status.
And, as
Powell made clear in his “60 Minutes” interview, the Fed plans to go even
further if it considers that to be necessary.
“Well,
there’s a lot more we can do,” he said. “I will say that we’re not out of
ammunition by a long shot. No, there’s really no limit to what we can do with
these lending programs that we have. So there’s a lot more we can do to support
the economy, and we’re committed to doing everything we can as long as we need
to.”
The claim
the Fed is supporting the “economy” is a fiction. It functions not for the
economy of millions of working people, but as the agency of Wall Street, ready
to pull out all stops so that the siphoning of wealth to the financial
oligarchy, which it has already promoted, can continue.
An
indication of what “more” could involve is provided in the minutes of the Fed’s
April 28–29 meeting.
There was
a discussion on whether the Fed should organise its purchases of Treasury
securities to cap the yield on short and medium-term bonds. This is a policy
employed by the Bank of Japan that has also recently been adopted by the
Reserve Bank of Australia.
No
immediate decision was reached, but the issue is certain to be raised again.
Over the next few months, the US Treasury will issue new bonds to finance the
operation of the CARES Act that has provided trillions of dollars to prop up
corporations while providing only limited relief to workers.
By
itself, the issuing of new debt would lead to a fall in the prices of bonds
because of the increase in their supply, leading to a rise of their yields (the
two move in opposite directions) and promoting a general rise in interest
rates—something the Fed wants to avoid at all costs in the interests of Wall
Street.
The only
way the Fed can counter this upward pressure is to intervene in the market to
buy bonds, thereby keeping their yield down. This would formalise what is
already de facto taking place, where one arm of the capitalist state, the US
Treasury, issues debt while another arm, the Fed, buys it.
This
would further heighten the mountain of fictitious capital which, as the events
of mid-March so graphically revealed, has no intrinsic value and is worth
essentially zero.
The
ruling class cannot restore stability to the financial system by the endless
creation of still more money at the press of a computer button. Real value must
be pumped into financial assets through the further intensification of the
exploitation of the working class and a deepening evisceration of social
programs.
Financial
crises are presented in the media and elsewhere as being about numbers. But
behind the economic and financial data are the interests of two irreconcilably
opposed social classes—the working class, the mass of society, and the ruling
corporate and financial oligarchy whose interests are defended by the state of
which the Fed is a crucial component.
As 2008
demonstrated, what emerges from a financial crisis is a deepening class
polarisation. That will certainly be the outcome of the mid-March events. A
massive social confrontation, already developing long before the pandemic
arrived on the scene, is looming in which the working class will be confronted
with the necessity to fight for political power in order to take the levers of
the economy and financial system into its own hands.
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