Archive for the ‘Credit Money’ Category

A return to austerity

July 25, 2021




On June 23, President Joseph Biden announced a bi-partisan deal between the Democrats and “moderate” Senate Republicans to pass a $953 billion infrastructure plan, which includes only $559 billion in new spending. This was a small fraction of Biden’s original promise to push for a $4 trillion infrastructure plan. Biden claims he still seeks to pass his original plan. But considering the GOP’s virtual veto power in the U.S. Congress, the plan seems as good as dead. It is worth noting that the $953 billion compromise contains none of the “green energy” proposals that were part of the original plan.

What the bipartisan deal does include is “asset-recycling,” which had also been central to Trump’s infrastructure plans. Under “asset-recycling,” the federal government borrows money at high interest rates from private for-profit companies that the federal government depends on to build infrastructure projects. As collateral on the loans, the companies take possession of roads, bridges, and other public works for the life of the loan — about 30 years.

The private companies then set up toll booths on previously public roads and bridges that the federal government has leased to them as collateral, in effect treating them as their private property until the loans are repaid with interest. The public is skinned twice, once through paying off the loans and the interest on the loans as taxpayers, and second through paying tolls on previously public roads and bridges. The government then uses the borrowed money to carry out other parts of the infrastructure plan.

The proposed “compromise” with the GOP on infrastructure is typical of Joseph Biden’s 50-year-long political career in the service of U.S. capital. The “compromise” is so reactionary that members of the “progressive” Justice Democrat faction of the Democratic Party in Congress threaten to vote against it.

Earlier this year, it was widely believed in progressive circles that the Biden administration was breaking with decades of neoliberal austerity policies and returning to full-blooded “Keynesianism” of the “golden years” of the 1950s and 1960s. The $4 trillion infrastructure plan was supposed to mark the definitive end of the neo-liberal policies that have dominated Washington’s policies since the “Volcker shock” under Carter and then the election of Ronald Reagan some 40 years ago.

Progressives were hoping that a massive “Keynesian” public works program would bring about a return of the kind of full-blooded capitalist prosperity not seen in decades. True, the Biden administration did restore half of the $600 a week in extra unemployment benefits the U.S. government under Donald Trump instituted in the spring (northern hemisphere) of 2020 but then allowed to run out after a few months. And this spring, the Biden administration mailed out $1,400 checks to all “legal” adult working-class and lower-middle-class U.S. residents. It also granted temporary tax relief to families raising young children.

Since it took office on Jan. 20, the Biden administration has been running down the U.S. government’s swollen checking account at the Federal Reserve Bank of New York. This has allowed the U.S. government to slow the rate at which it has been borrowing money, allowing long-term interest rates to dip in recent months.

Hence, a huge amount of purchasing power has been pumped into the U.S. and world capitalist economy in the opening months of the Biden administration. As a result, according to the U.S. Labor Department, total employment rose 850,000 in June. For the first time in months, this number met the expectation of economic pundits. But maintaining this economic momentum long enough to set off a sustained rise in the industrial cycle capable of restoring old-time capitalist prosperity is another matter entirely.

The U.S. capitalists claim they are facing a huge labor shortage even as employment remains millions below the level that prevailed in February 2020 just before COVID-19 hit with full force. However, the capitalists’ complaints about the “labor shortage” are having their effect on government policy in the U.S., at both the federal and state levels.

Republican state governments have already ended the expanded unemployment benefits, while the Democrat-run government of California has announced that people must now give evidence that they are actively seeking employment or lose benefits. This occurs even as COVID-19 cases are once again rising, especially among the unvaccinated or partially vaccinated. In September, the extended unemployment benefits are scheduled to run out entirely. There is virtually no chance in light of the alleged “labor shortage” being trumpeted by the media that the extra benefits will be extended.

Nor is there much chance in light of the “labor shortage” of any more stimulus checks. The mailing out of additional stimulus checks would encourage workers to hold out for wages and working conditions higher than the bosses are offering. The capitalists are therefore using their control over both the Democrats and the Republicans to make sure there are no more stimulus checks.

In addition, the U.S. Treasury is nearing the end of the rundown of its checking account at the New York Fed. As the account balance shrinks, either U.S. government borrowing will have to rise once again, which will renew upward pressure on interest rates, or government spending will have to fall, or some combination of the above. This means that U.S. fiscal policy will be a great deal less expansionary beginning in the second half of 2021 and beyond than it was in the first half of the year.

The drift back to the fiscal austerity typical of post-Volcker shock neo-liberalism almost certainly means that the rate of economic growth and with it the rise in employment will soon be slowing down.

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The Federal Reserve’s Open Market Committee Meets

June 27, 2021

On June 16, the U.S. Federal Reserve’s Open Market Committee concluded its two-day meeting and announced its decisions. The FOMC consists of the seven members of the Board of Governors, the head of the Federal Reserve Bank of New York, and (on a rotating basis) the heads of four of the 11 other Federal Reserve Banks that make up the Federal Reserve System. The four Federal Reserve Bank presidents serve one-year terms.

The only concrete decision announced was a rise in the interest rate Federal Reserve Banks pay on the deposits commercial banks keep with them, from 0.10% to 0.15% per year. This represents a very slight “tightening move.” However, as is usually the case, more attention was paid to the tone of the FOMC report than on any concrete decisions made.

Speculators in the gold market, commodities markets, bond market, and stock market hang on every phrase of Federal Reserve statements. The general reaction was that the FOMC indicated that it would move to “tighten” its stance sooner than had been expected. As a result, the price of stocks fell while the U.S. dollar rose sharply against gold.

The Fed’s leadership is nervous about the dollar’s recent weakness against gold and a surge in primary commodity as well as wholesale and consumer prices. Though the FOMC repeated its belief that the current surge in inflation will soon taper off, it no longer seems so sure. As I explained last month, Fed leaders cannot ignore the very real danger that dollar weakness and rising inflation could signal a return to “stagflation” over the next several years and the sharp rise in interest rates and deep recession that inevitably follow.

The Federal Reserve System’s leaders hope to guide the U.S. and world capitalist economies onto a path of a sustained rise in the global industrial cycle, which would normally be expected to last about nine years. They hope that the cyclical upturn will be stronger than the one that followed the Great Recession. But they have to reckon with the very real danger that the current apparent upturn in the worldwide industrial cycle will abort if the Fed allows the dollar to plunge against gold causing inflation and interest rates to rise.

This would make a deep global recession with soaring unemployment inevitable, perhaps before the end of Biden’s four-year term. Far worse from the viewpoint of U.S. imperialism, it would endanger the dollar system, which forms the foundation of the U.S. global empire.

Ultimately, the decisions of the Federal Reserve and its Open Market Committee are constrained by the economic laws that govern the circulation of money. This is why Pichit Likitkijsomboon’s article in Monthly Review critiquing what he calls the “anti-quantity theory of money” takes on special importance. Before we continue our examination of his critique, let’s take a brief look at the current economic situation.

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Putting monopoly super-profits over human lives

May 2, 2021

The 2020 recession was more than the usual cyclical downturn. There were, however, signs a cyclical recession was developing before the COVID-19 pandemic hit with full force in March 2020. Industrial production in most countries had already ceased to rise. The U.S. Federal Reserve System had already initiated an “easing” cycle in an attempt to contain the incipient downturn. That was the situation when it became impossible to deny that the COVID pandemic was rapidly spreading in the United States and around the world.

As the reality of the deadly global pandemic became widely known, the travel, hotel and hospitality industries came to a grinding halt. Many other industries were devastated. As people were forced to hunker down across the globe, both the production of surplus value and its realization were sharply curtailed. As sales of commodities plummeted, the velocity of circulation of the currency dropped drastically. This meant that a given quantity of currency generated far less monetarily effective demand than it would under normal recession conditions.

Eager to get both the production of surplus value and its realization back to normal, capitalist politicians, most notoriously former President Donald Trump, pushed for “reopening” the economy. Trump originally set a target of Easter 2020 for the reopening! So began a cycle of premature “re-openings,” followed by rising COVID cases, hospitalizations, and deaths to new highs leading to renewed, if ever more limited, shutdowns.

Among the countries that dealt with the pandemic the worst was the world’s richest country, the United States. In no other country in the world does the capitalist class have more unbridled power. Business pushed for the fastest reopening possible so that normal profit-making could resume. President Trump was more than willing to oblige since he had planned to pitch his reelection campaign around the theme that the U.S. was experiencing “the greatest economy ever.” Democrats and Republicans competed with one another on who could reopen their state and local economies fastest. As a result, the total number of official U.S. COVID-19 deaths now approaches 600,000. Worldwide, more than 3 million people and rising have died.

Brianna Griffith, writing in the online socialist publication Liberation News, reported: “India, South Africa and 80 other countries proposed a temporary waiver of the Trade-Related Aspects of International Property agreement on patents. The proposal was blocked in February by the United States, European Union, United Kingdom, Japan, and Australia. It is also opposed by the U.S. Chamber of Commerce, Pfizer, BioNTech, Moderna and Johnson & Johnson — key beneficiaries that stand to profit immensely from global suffering.”

So far, the Biden administration, just like its notorious predecessor, prefers to safeguard the monopoly super-profits of big pharmaceutical companies holding the patents on the lifesaving vaccines. The result is that less vaccine is being produced than would be the case without the state-enforced monopolistic profit protection for “Big Pharma,” and the vaccines being produced are selling at prices far above their prices of production.

The greater the price of a vaccine relative to its price of production, the harder it is for governments to find the money to purchase it and the greater the number of preventable deaths and serious illnesses. Naturally, the people of the most exploited countries and classes in the world are hit the hardest. (3) Therefore, safeguarding the patents of the drug companies begun under Trump and continuing under Biden is not just a policy of putting profits over people but rather putting super-profits above human lives.

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Commodity Money Versus Non-Commodity Money

April 4, 2021

On March 11, President Joseph Biden signed into law a $1.9 trillion package called the Coronavirus Relief bill. It provides for $300-a-week extra in unemployment insurance payments — only half the original $600 provided by the CARES Act passed last year — and only until Sept. 6. It also provides $25 billion for rental relief and utility assistance and $350 billion relief for hard-pressed state and local and Native American tribal governments.

The bill includes a one-time $1,400 payment for low- and middle-income Americans. Also, $20 billion will be spent on COVID-19 vaccinations. Democrats are especially proud of a provision that extends for a year a child tax credit that was part of the CARES Act. They claim this will reduce child poverty in the richest nation in the world by one-half. This tells you a lot about the nature of the U.S. tax system, which pushes many children of working-class families below the official federal poverty line while allowing billionaires like former President Trump as well as giant corporations like Apple to get away with paying virtually no taxes.

Progressives were hoping that the stimulus bill would have a provision raising the federal minimum wage to $15 an hour from the current $7.25. This was important because the bizarre and undemocratic rules that govern the U.S. Senate mean only a few bills can be passed through a process known as “budgetary reconciliation” with a simple majority vote. All other bills need the support of 60 senators. This means that given the composition of the current Senate, 50 Democrats and 50 Republicans with Democratic Vice President Kamala Harris casting the tie-breaking vote, the GOP has veto power over most other proposed legislation coming up this session.

For the minimum wage hike to have had any chance of passing in the current session, it would have been necessary to include it in the stimulus bill. President Biden gave lip service to the proposed minimum wage hike but failed to push it. This gave the green light to conservative Democrats to ally with the GOP to exclude the $15-an-hour minimum wage from the bill — effectively killing it. This is the exact outcome the capitalists wanted. Once again, the Democrats and Republicans working together delivered the goods for capital.

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The End of the Trump Era

December 13, 2020

Just as he promised he would, Donald Trump has refused to concede the U.S. presidential election to Joseph Biden. However, on Nov. 23, Emily Murphy, the Trump-appointed head of the General Services Administration, or GSA, finally allowed the Biden transition team to begin preparations for Biden’s assumption of the U.S. presidency on Jan. 20, 2021.

Between Nov. 3 and 23, Murphy had stubbornly refused to grant access to the Biden transition team on grounds that, in Ms. Murphy’s judgment, it wasn’t clear that Biden had won the election. Her decision to begin cooperating with Biden’s transition team was seen as a de facto admission by at least some in the Trump administration that Biden had won the election.

Widespread relief was felt in financial circles that a contested election outcome leading to widespread unrest in the streets, if not outright civil war, had been adverted. The stock market celebrated by rising to new all-time highs and the U.S. dollar rose against gold. However, Trump himself along with many if not most Republican politicians still refused to concede the election. Trump continued to claim that he had in fact won and that Biden and the Democrats had stolen the election through massive fraud.

In a normal U.S. presidential election, the losing candidate concedes the election and congratulates the winner within hours after the polls close on election day. If the election leads to a new president, the outgoing and incoming presidents and their aides work closely with one another until the transition is officially completed. Since the 1896 presidential election, when the losing “silver” Democrat William Jennings Bryan conceded to the victorious “gold” Republican William McKinley, the concession statement from the losing candidate has become an unwritten part of the U.S. Constitution.

This election year had unusual complications because of COVID-19, which made voting at traditional polling stations extremely dangerous. As a result, many voters voted by mail. This had the paradoxical effect of making voting easier for many voters. Perhaps of even greater importance, the racist and bigoted reelection campaign of far-right incumbent Donald Trump led to an extreme polarization of the U.S. electorate. Usually, the differences between the Democratic and Republican presidential candidates are obviously not very deep, if not virtually nonexistent. As a result, most voters, though they generally prefer one candidate to another, do not care that much whether their preferred candidate wins or loses.

But not this time. While Joseph Biden created even less excitement than the usual Democratic candidate, Donald Trump in contrast was either hated — the clear majority view in the U.S. and even more so in the world — or loved by his bigoted white racist supporters. The result was the largest turnout of voters for a U.S. presidential election in decades. As a consequence, the large number of mail-in ballots, combined with COVID-19, messed up the computer algorithms that since 1952 have enabled the networks to accurately call the election with only a minority of the votes counted.

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The Current Industrial Cycle (Pt 3)

October 25, 2020

A deepening political crisis

On Aug. 23, African-American Jacob Blake was shot in the back by police seven times in Kenosha, Wisconsin. Blake is expected to survive but is paralyzed from the waist down. This latest police outrage triggered a wave of demonstrations by the Black Lives Matter movement in Kenosha and elsewhere. Two days later, a Trump supporter and police wannabe named Kyle Rittenhouse shot to death two Black Lives Matter protesters with a rifle he was carrying. Rittenhouse, who lives in Illinois, is a member of a fascist militia group that came to Kenosha for the announced purpose of defending the property of business owners from Black Lives Matter protesters.

The cops were seen thanking the fascists and offering them water. After Rittenhouse killed the two protesters, he walked up to the cops with his hands up. However, the guardians of “law and order” refused to arrest him. He was finally arrested and charged with murder only after he returned to Illinois. U.S. President Donald Trump then weighed in. Trump defended the young fascist killer claiming that Rittenhouse faced certain death if he had not acted to defend himself. Trump also attacked the alleged violence of “left-wing” — Black Lives Matter — protesters but defended the violence of Rittenhouse and other murderous right-wing counter-protesters.

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The Current Industrial Cycle (Pt 1)

July 26, 2020

COVID-19 devastates the U.S.

It has now become clear that the COVID-19 pandemic has hit the U.S. harder than any other large nation — and most smaller ones. The U.S. ruling class and Trump administration have been particularly enraged by China’s ability to largely check the pandemic. China has had far fewer cases, hospitalizations, and deaths despite its far larger population. Though the U.S. has only about 4 percent of the population it has 25 percent of the world’s COVID-19 cases.

Both Trump and the U.S. ruling class as a whole, including Democratic presumptive nominee Joseph Biden, have stepped up their anti-China propaganda — often combined with old-fashioned red-baiting — on numerous fronts. In Trump’s case, the anti-China attacks have an openly racist character. He regularly refers to COVID-19 as the “Chinese flu” or the even more racist “Kung flu.” This is typical Trump.

Less commented on is the record of Vietnam. Vietnam acted early and effectively in controlling the pandemic, first reported in its northern neighbor late last year. According to the website Exemplars of Global Health, “Although Vietnam reported its first case of COVID-19 on January 23, 2020, it reported only a little more than 300 cases and zero deaths over the following four months.”

Exemplars reports that Vietnam’s “early success has been attributed to several key factors, including a well-developed public health system, a strong central government, and a proactive containment strategy based on comprehensive testing, tracing, and quarantining.” Not mentioned is the fact that none of the factors that have enabled Vietnam to deal so successfully with the COVID pandemic would have been possible without Vietnam’s successful struggle half a century ago against the attempt by U.S. imperialism to destroy it in the name of “fighting communist aggression.” The Southeast Asian country is still struggling with the effects of the infamous “Agent Orange” defoliation program and other effects of the brutal “American war,” as it is called in Vietnam.

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The Crisis (Pt 9)

June 15, 2020

After police murder of George Floyd, demonstrations and uprisings sweep U.S.

On June 1, a combined force of military police, park police, and Secret Service brutally cleared an area around the White House of peaceful demonstrators who had been protesting the May 25 murder by Minneapolis police officers of African-American George Floyd. To clear the crowd, these military-police forces used a low-flying helicopter, tear gas, and stun grenades. This was so that President Donald Trump could appear in front of a nearby church Bible in hand.

Trump, who had earlier been sheltering in a special bunker beneath the White House, threatened to invoke the Insurrection Act of 1807, which would permit him to order the military to suppress the massive wave of demonstrations and uprisings that have been sweeping the U.S. since the police murder of Floyd. Trump’s threat to use the military, if carried out, would be a major step towards a military-Bonapartist dictatorship.

Trump’s threats led to a wave of complaints by mostly Democratic politicians and warnings of some retired generals, including Trump’s former Secretary of “Defense” General James “Maddog” Mattis, not to use the military against peaceful demonstrators. Republican leaders, with a few exceptions, either supported Trump or maintained an icy silence.

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The Crisis (Pt 8)

June 7, 2020

The dollar system, gold and the U.S. empire

The current international monetary system is a system of “fiat currency” centered on the U.S. dollar. It is bound up with the financial, political, and military system unofficially called the U.S. empire. To maintain the empire, the U.S. spends about 10 times more on its annual “defense” budget than any other country. Therefore, when it comes to raw military power, especially firepower and the ability to project it around the globe, the U.S. is a military power second to none. Unlike in the pre-1945 world, no other imperialist power can even think of challenging the U.S. militarily.

The U.S. empire in its modern form — in contrast to the North American U.S. proper and the relatively small but growing colonial empire that the U.S. had been building since the Spanish-American War of 1898 — dates to the lopsided victory of the U.S. over Nazi Germany (1) and Imperial Japan in 1945. Thereafter, and this was confirmed in the Suez Crisis of 1956, [link to posts which discuss this] no other imperialist power can undertake a major military operation without U.S. approval.

This emerging situation enabled the U.S. at the Bretton Woods Conference — held in Bretton Woods, New Hampshire, in 1944 — to establish the U.S. dollar as the world currency and the U.S. Federal Reserve System as the world central bank. The dollar remains the world currency even though the U.S. dollar since 1971 has not been convertible into gold.

Originally, the U.S. built up a huge gold hoard by running balance of trade surpluses that were the result of the superior productivity of its industrial, extractive and agricultural enterprises. The size of the U.S. gold hoard was further increased in the 1930s when with a new European war looming, European capitalists moved much of their gold to the U.S. in exchange for U.S. dollars. Some European governments moved their gold reserves to the U.S. for safekeeping as well.

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The Crisis (Pt 5)

May 17, 2020

U.S. infection rates rise as states move to reopen

More and more U.S. states are moving to reopen non-essential businesses though there is no sign the COVID-19 epidemic is dying down. “Take the New York metropolitan area’s progress against the coronavirus out of the equation, Nicky Forster, Carla K. Johnson, and Mike Stobbe wrote May 4 in an Associated Press article, “and the numbers show the rest of the U.S. is moving in the wrong direction, with the known infection rate rising even as states move to lift their lockdowns. … ”

According to a leaked CDC document that appeared in The New York Times and Washington Post, the government projects that new COVID-19 cases will increase 225,000 a day by June, with deaths climbing to 3,000 per day. In early May, when this is being written, new cases are only 25,000 with deaths a mere 2,000. This despite all the social distancing and stay-at-home orders.

With President Trump leading the charge to reopen America for business, state and local governments are competing with one another for which one can lift the social distancing and stay-in-place orders the fastest. So far, these are the only policies that have slowed the pandemic in some areas.

In reality, the pandemic is still gaining momentum nationwide. Thanks to Trump and various state and local governments, the spread of COVID-19 in the U.S. could very well accelerate further in the coming months. A similar pattern is emerging in other capitalist countries. Of course, the growth of the pandemic in one country, particularly one as large as the U.S., is a threat to people of all other countries, since the virus does not respect national boundaries.

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