Archive for the ‘Token Money’ Category

Political and Economic Crises (Pt 11)

September 15, 2019

Trump versus the Fed

On Sept. 3, the U.S. Institute of Supply Management reported that its widely watched index, based on a survey of industrial purchasing managers, had dropped to 49.1 percent. Any number below 50 indicates a declining trend in U.S. industrial production. The index has not been so low since September 2009, when the U.S. industrial economy was near the trough of the Great Recession.

The ISM reports: “Falling orders among foreign clients dragged on overall new business growth and producer confidence. The degree of optimism about the year ahead hit a fresh seven-year series low amid growing business uncertainty. As such, employment was broadly unchanged and spare capacity was used to clear backlogs of work.”

This is just the latest in a series of reports indicating that the U.S. and world capitalist economies are on the brink of recession. The Trump White House and the electoral wing of the Republican Party fear that Trump will face the reelection in November 2020 amidst full-scale recession conditions, dramatically reducing Trump’s chances of winning a second term.

Trump has responded by stepping up his public attacks on Jerome Powell, the conservative Republican banker Trump himself nominated to head the Federal Reserve System. In the wake of the annual August meeting of bankers at Jackson Hole, Wyoming, Trump declared Jerome Powell to be worse for the U.S. economy than even Chinese President Xi Jinping.

Trump is pursuing two aims here. First, he hopes that the Federal Reserve and its Open Market Committee will lower its target for federal funds and flood the banking system with newly created U.S. dollar reserves that will at least postpone the arrival of a full recession and mass cyclical unemployment until after November 2020. If this happens, Trump will be able to run as a “prosperity president.” Experience shows that U.S. presidents have a tough time winning second terms when they have to run for reelection near the low point of the industrial cycle.

Secondly, if a recession does arrive by election day, Trump wants to be able to point to a scapegoat — in this case, the Federal Reserve Board and the “international financial elites” out to destroy his nationalist “Make American Great Again” policies.

Jerome Powell, for his part, has promised that he will act “as appropriate” to keep the expansion going. The key words here are “as appropriate.” Powell is indicating to the markets that he will not jeopardize the dollar and the dollar system in an attempt to “keep the expansion going” like Trump is demanding. Somewhat reassured, investors caused the dollar price of gold to fall after Powell’s remarks, while interest rates on government bonds have rebounded.

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Political and Economic Crises (Pt 7)

May 26, 2019

April 30 Venezuela coup fails as trade war with China intensifies

On April 30, the Trump administration backed by the “Party of Order” launched a major new attempt to overthrow the democratically elected government of Venezuelan President Nicolas Maduro. Juan Guaidó, claiming he had major military support, announced that “Operation Freedom” – the coup – had entered its final stage. The hope of Trump, Mike Pence, John Bolton, and Eliot Abrams, supported by Democrat Speaker of the House Nancy Pelosi and Senate Minority Leader Charles Schumer, was that the Maduro government would be overthrown by May Day – the international workers’ holiday.

The hope of Trump and the Democrats was that Trump-appointed Juan Guaidó – perhaps on May Day itself – would be installed as the puppet “interim president.” The counterrevolutionary victory would then be ratified in a hastily organized election in which the overthrown Chavistas would be banned from participating, thus guaranteeing a victory for the pro-imperialist reactionaries.

Instead, the coup never got off the ground, and the Chavistas staged one of the largest May Day demonstrations in years, completely dwarfing the small, dispirited actions held by the Guaidó forces. Of course, the events of April 30-May 1 were only a battle – but an important one. A battle has been won but the war continues. The Trump administration still indicates that if all else fails it reserves the right to pass from economic and political war to a full-scale military invasion.

If the coup had succeeded, Trump, who has promised to banish socialism forever, would have celebrated what to him – and his class – would have been a major victory. When Trump uses the term socialism – a term of many meanings – he is not using it in the sense Lenin used it in his classic work “State and Revolution.”

In that work, Lenin defined socialism as the first stage of the future communist society. In this stage, private ownership of the means of production and with it the division of society into classes, along with commodity-money relations of production, have already died out.

But Lenin explained that socialism, while a form of communism, is an imperfect communism because people will still be paid, at least in part, according to their work rather than according to their needs, as would be the case in the higher form of communist society.

Trump, in contrast to Lenin, means by “socialism” the policies advocated by modern European social-democratic parties. These parties advocate a capitalist society with laws that limit the workday to 40 hours or less so workers have time to participate in politics; the right of workers to organize into unions and political parties and establish a mass workers’ press; and recognition of housing and education as rights along with social guarantees such as unemployment insurance, social security, and the right to medical care regardless of income and the ability to pay.

These things, even when taken together and fully realized, are still very far from Lenin’s definition of socialism. Under social-democratic “socialism,” society remains divided into a class of capitalist buyers of labor power and workers who sell their labor power and through their unpaid or surplus labor produce surplus value. The U.S. has achieved less of the elements of “socialism” in the modern social-democratic sense than virtually any other advanced capitalist country.

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Political and Economic Crises (Pt 6)

April 21, 2019

Storm over the Federal Reserve System

U.S. President Donald Trump has indicated that he will nominate right-wing economic commentator Stephen Moore and businessman Herman Cain to fill two vacancies on the
Federal Reserve System’s Board of Governors – called the Federal Reserve Board for short. If confirmed, both Moore and Cain would serve for 14 years. While Trump’s other nominees to the “Fed” have been conventional conservative Republicans, Moore and especially Cain have been strongly attacked in the media and by economists and some Republicans for being completely unqualified.

Of the two, Cain has drawn the most opposition from within the Republican Party. As of this writing, his confirmation by the U.S. Senate looks unlikely. Republican Senators Mitt Romney (who ran against Obama for president in 2012), Lisa Murkowski, Cory Gardner, and Kevin Cramer have all indicated that they are leaning against voting to confirm Cain. If all them vote no, Cain’s nomination will fail unless he can win over some Democratic senators.

Cain – one of the few African-Americans Trump has nominated for high office – throughout his business career has expressed opposition to even elementary labor rights. In 2016, he briefly ran for president as a Republican on a platform of reforming the federal tax system in an extremely regressive way going beyond Trump’s own tax cut for the rich. Cain was then forced to withdraw from the presidential campaign when several women came forward alleging that he had sexually assaulted them. For Donald Trump, this was not a disqualification but it might be for some U.S. senators who have to face re-election.

Cain has not indicated that he supports inflationary monetary policies. On the contrary, he has said that he would like to see a return to the gold standard. For taking this stand, he has been ridiculed by liberals and progressives as well as mainstream economists. However, Cain does have actual central bank experience having served as head of the Federal Reserve Bank of Kansas City, one of 12 regional banks that make up the Federal Reserve System.

Capitalist opponents of Cain’s nomination – Cain has been a strong supporter of Trump – fear that Cain would do Donald Trump’s bidding on the Fed’s Open Market Committee (1). With the 2020 presidential election approaching, it is widely suspected that Cain would push for an “easy” monetary policy and cuts to the Fed’s target for the federal funds rate in a bid to stave off the looming recession until after the November 2020 election. Not only would such a policy put the dollar-centered international monetary system in danger in the short run, it would also erode the Federal Reserve System’s independence over the long run.

Trump’s other prospective nominee, Stephen Moore, has drawn much criticism from mainstream media and professional economists but so far less from Senate Republicans. Like most of Trump’s nominees for high positions, Moore is white. He is not even a professional economist. Although majoring in economics in college, he does not hold a PhD. Unlike Cain, Moore has never directed either a business enterprise – Cain in addition to serving as head the Federal Reserve Bank of Kansas City was also head of the Godfather Pizza Chain. However, like Cain, Moore has been accused of mistreating women. This raises the question whether Cain’s race could be a factor in the apparent lack of opposition to Moore on the part of Senate Republicans.

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Political and Economic Crises (Pt 2)

December 23, 2018

As boom slows, political instability rises in the imperialist countries

As 2018 winds down, political instability is sweeping the Western imperialist countries – both the United States and Western Europe. In the United States, as part of a plea bargain with federal prosecutors, Michael Cohen, Trump’s former lawyer and “fixer,” pleaded guilty to violating with “Individual 1” U.S. campaign finance laws. Cohen faces three years in prison.

It is no secret that “Individual 1” is one Donald J. Trump, the current president of the United States. According to Cohen’s plea, Trump directed Cohen to break U.S. campaign finance laws in order to pay “hush money” to porn star Stormy Daniels and “Playboy playmate” Karen McDougall. Trump paid the hush money because he didn’t want the headlines of his extramarital affairs to dominate the news in the weeks leading up to the U.S. presidential election.

Since these payments violated federal election law, it is clear that Trump committed felonies. These felonies, it should be pointed out, are not connected with the so-called Mueller probe into whether Trump, other members of the Trump family, or other associates violated U.S. laws as part of their alleged collusion with Russia in the 2016 elections. That is a separate matter. So far, Mueller and his prosecutors have not presented concrete evidence of law-breaking on the part of Trump in this matter, though there continues to be much speculation about this possibility in the media.

Theoretically, Trump can now be impeached because he committed felonies, which meets the U.S. constitutional standard for impeachment for “high crimes and misdemeanors.” Some Democrats have suggested that in light of these facts impeachment proceedings against Trump in the House of Representatives should now commence. However, there is also a general feeling that crimes centered on sexual affairs are not sufficient grounds to remove a president from office. After all, who in Washington has not had an affair or two or more? While the Democrats will have a majority in the U.S. House of Representatives beginning in January, they would need a large number of Republican votes in the Senate to reach the two-thirds’ majority necessary to remove Trump from office.

The Republicans are reluctant to remove Trump on impeachment charges. If they do vote to remove him, they will likely lose Trump’s white racist “base,” which continues to adore him. The “Trump base” will be furious if their adored leader is removed over what is essentially a sex scandal. Can Trump – and this is a concern for those ruling-class circles of the “Party of Order” who do not like Trump – be removed from office without splitting the Republican Party in such a way that its continued existence as one of the two “major parties” in the two-party system would be in question?

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Modern Money (Pt 3)

August 26, 2018

In this post, I contrast the analysis of foreign trade found in Professor L. Randall Wray’s book “Modern Money Theory” to the analysis of foreign trade that logically emerges from Marx’s theory of commodities, money and capital.

From trade war to war?

The August 10 on-line edition of the British rag The Express has a headline blaring, “China Fires SIX WARNINGS to US Navy in South China Sea.” When Chinese air force planes demanded the U.S. aircraft leave the area, the U.S. pilots arrogantly answered, according to The Express, “I am a sovereign immune United States naval aircraft conducting lawful military activities beyond the national airspace of any coastal state.” Notice, this occurred in the South China Sea near China and not anywhere near the U.S.

Now, if this was an isolated incident, it might not mean much. But the incident occurred against the background of the growing trade war between the U.S. and China. The Trump administration has made it clear that it is determined to reduce China’s share of the world market, especially but not only the U.S. part. If Trump’s policies are successful, it will bring China’s era of rapid development of capitalism to an end. Though China has made amazing progress and now has the highest level of industrial production in the world, it has about four times the population of the U.S. To reach a level of development equivalent to the U.S., China would need to have about four times the industrial and agricultural production of the U.S.

Another weakness of Chinese industry is that Chinese factories are dependent on high-tech components manufactured in South Korea, Taiwan and the United States. In addition, patents for these components are owned by Silicon Valley and British companies. Recent sanctions imposed by the Trump White House against the Chinese mobile phone manufacturer ZTE for allegedly violating U.S. sanctions against Iran and North Korea threatened to destroy the company because its phones depend on high-tech components that are not manufactured in China. Later, the Trump administration backed down amidst rumors that ZTE had to pay a bribe to Trump personally. The fact that a major Chinese company can be shut down at will by a U.S. president shows just how vulnerable Chinese industry is.

The productivity of labor in China, whether in industry or agriculture, is still far lower than that of the U.S. While wages have been rising in China, they are still far lower than the wages of U.S. workers or workers in the other imperialist countries. This means that industrial capitalists in China are far more likely to choose “labor-intensive” as opposed to “capital-intensive” methods of production. Or to use the more precise terminology of Marx, the organic composition of capital of Chinese industrial enterprises is much lower than those in the United States and other imperialist countries.

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Modern Money (Pt 2)

July 29, 2018

Political madness sweeps Washington

As of mid-July, the U.S. media and bourgeois politics appear to be swept by a wave of political madness, both on the side of supporters of President Trump and his “liberal-establishment” opponents. Trump calls the “mainstream” organs of the U.S. media such as The New York Times and Washington Post enemies of the people. This heated rhetoric is more reminiscent of the “reigns of terror” associated with certain stages of the French and Russian revolutions than the more normal polite discourse of U.S. Democratic and Republican Party politicians.

The “establishment media” counter Trump’s charge by claiming that Trump is working for “team Russia” rather than “team USA.” The Democrats are now engaged in a debate whether they should charge the president with “treason” because he failed to denounce President Putin at the mid-July summit meeting in Helsinki, Finland, for “Russian intervention” in the 2016 election.

The problem for the Democrats is that if Trump is actually guilty of treason, they – being the great patriots they are – should move to impeach him in the House of Representatives. Treason, after all, is an impeachable offense. However, up to now the Democratic leadership, both in the House and the Senate, opposes impeachment.

Behind the heated rhetoric – false and demagogic on both sides – is a growing conflict. That is the conflict between the need for the further development of a society where production is carried out by the socialized labor of the workers of the entire world, on one side, and the continued rule of capital over production and the nation state, on the other.

Trump and his supporters in the ruling class believe that U.S. imperialism can no longer afford the costs of the U.S. empire in its current form. They demand a major re-division of the markets of the world in favor of U.S. capitalists at the expense of capitalists of U.S. “allies” in Europe and Asia, as well as the People’s Republic of China. If this is not achieved in the near future, the Trumpists believe, the U.S. world empire will crumble.

Under current arrangements, the U.S. guarantees the European imperialists – above all, Germany – access to world markets and raw materials. Meanwhile, the Trumpists complain, Germany and other European imperialist powers are “freeloading” on the costs of the “defense” of the U.S. empire, which as a result fall disproportionately on the U.S.

Trump therefore wants to restructure the empire so that the European and Japanese satellites of the U.S. get a smaller share of the global market while paying more for the empire’s defense against the exploited and oppressed peoples of the world. And he wants this achieved now! Not surprisingly, German Chancellor Angela Merkel prefers the status quo, which indeed has turned out quite nicely for the German capitalists that Merkel serves.

The Chinese leaders, in order achieve their goal of a moderately developed China by mid-century, need a much larger share of the world market than China has at present. To put things in perspective, Germany with a population of a little more than 80 million, has about the same share of world trade as China with a population of over 1 billion. If Trump achieves his goal, China will be locked into a situation of permanent underdevelopment.

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Modern Money

July 1, 2018

By the time of the U.S. presidential election in November 2020, historical experience and the condition of global money markets suggest that the current global economic boom will probably have run its course. While the latest government economic figures show the current boom continuing in the United States and Europe, serious crises have already hit the currencies of Argentina and Turkey.

The dollar after a period of weakness has begun rising against the euro and other currencies and against gold. This sudden dollar strength is not only the result of rising U.S. interest rates. Trump’s threat to impose high tariffs on a whole range of commodities starting on July 6 has set off a flight into the dollar due to its role as the international means of payment. We have seen many such flights into the dollar over the years whenever a crisis threatens, whether political, military or economic.

If no compromise is reached by July 6 and Trump’s tariffs – and the retaliatory tariffs of competing nations – go into effect, it is possible that some commodity sales will fall through, which could trigger an international credit crisis. If severe enough, such a crisis would quickly throw the global capitalist economy into recession. This is all the more likely given the very late stage in the current industrial cycle, which has made the global credit system increasingly fragile even in the absence of a trade war. Whatever happens in the short run, Trump’s economic nationalist “America First” policies are undermining the entire world order that has prevailed since 1945. But that is the subject for another post.

Because capitalist economic crises tend to manifest themselves first in the spheres of currency and then credit, many reformers have sought cures for crises through reforms to the currency and credit systems. This creates the illusion in the minds of middle-class reformers, who stand between the two main class camps of modern society, the capitalist class and the working class, that the contradictions of capitalist society can be overcome through reforming the credit/monetary system. The U.S., in particular, has produced numerous monetary reform movements.

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The Current U.S. Economic Boom in Historical Perspective (Pt 1)

April 1, 2018

U.S capitalism has been in decline for decades. Within that long-term trend, U.S. capitalism continues to experience cyclical booms. During its dramatic rise between 1865 and 1929, the U.S. economy experienced three major financial panics—1873, 1893 and 1907—along with numerous lesser recessions. However, the increase of the number of workers employed in manufacturing—which represents the core of capitalist production and the core of the working class—that occurred during the industrial booms of that era was greater than the declines that occurred during recessions. In the years 1945-1979, though the number of workers in manufacturing began to decline relative to overall employment—a symptom of capitalist decay—that number continued to grow in absolute terms.

However, since the recession 1979-82, known as “the Volcker shock,” the pattern has reversed. The U.S. economy has continued to experience cyclical booms—defined as periods of above-average business activity in terms of industrial production, manufacturing, and overall employment and trade—as well as recessions. But the rise in manufacturing employment during booms—if any—has been far less than the declines during recessions. Therefore, the year 1979, which marks the beginning of the Volcker shock recession, represents the most important turning point—not excepting 1929—in the history of U.S. capitalism.

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Three Books on Marxist Political Economy (Pt 10)

September 10, 2017

History of interest rates

A chart showing the history of interest rates over the last few centuries shows an interesting pattern — low hills and valleys with a generally downward tendency. During and immediately after World War I, interest rates form what looks like a low mountain range. Then with the arrival of the Great Depression of the 1930s, rates sink into a deep valley. Unlike during World War I, interest rates remain near Depression lows during World War II but start to rise slowly with some wiggles through the end of the 1960s.

But during the 1970s, interest rates suddenly spike upward, without precedent in the history of capitalist production. It is as though after riding through gently rolling country for several hundred years of capitalist history, you suddenly run into the Himalaya mountain range. Then, beginning in the early 1980s, interest rates start to fall into a deep valley, reaching all-time lows in the wake of the 2007-09 Great Recession. Clearly something dramatic occurred in the last half of the 20th century.

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Three Books on Marxist Political Economy (Pt 9)

August 14, 2017

Last month, we saw that Shaikh’s view of “modern money” as “pure fiat money” is essentially the same as the “MELT” theory of money. MELT stands for the monetary expression of labor time.

The MELT theory of value, money and price recognizes that embodied labor is the essence of value. To that extent, MELT is in agreement with both Ricardian and Marxist theories of value. However, advocates of MELT do not understand that value must have a value form where the value of a commodity is measured by the use value of another commodity.

Supporters of MELT claim that since the end of the gold standard capitalism has operated without a money commodity. Accordingly, prices of individual commodities can be above or below their values relative to the mass of commodities as a whole. However, by definition the prices of commodities taken as a whole can never be above or below their value.

Instead of the autocracy of gold, MELT value theory sees a democratic republic of commodities where, as far as the functions of money are concerned, one commodity is just as good as another. Under MELT’s democracy of commodities, all commodities are money and therefore no individual commodity is money.

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