On the evening of July 28 (2019) in Gilroy, California, a 19-year-old white gunman, Santino William Legan, fired into a crowd of people attending the annual Garlic Festival. Legan was the racist grandson of a former county supervisor. He succeeded in killing three people, two of them children, before he himself went down in a hail of police gunfire — or, in another version, shot himself in the mouth after being wounded by police gunfire.
The following Saturday in El Paso, Texas, another young white male racist, 21-year-old Patrick Crusius, fired into a crowd at a local Walmart. Crusius killed 22 people and wounded dozens more before he was captured by police. Only a few hours later, a 29-year-old white gunman, Connor Betts, opened fire outside a bar in Dayton, Ohio. Before he was killed by police gunfire, Betts killed nine people, mostly African-American but also his own sister. In high school, Betts had expressed vicious misogynistic views.
Of the three white gunmen, the most “articulate” — and the only one to survive — is Patrick Crusius. He is the author of a racist manifesto that, echoing Donald Trump and other right-wing politicians, blamed white unemployment on — in addition to automation and corporations — the “Hispanic invasion” of Texas.
In his manifesto, Crusius hailed the March 15 massacre earlier this year by white racist gunmen of 51 Muslims at two mosques in Christchurch, New Zealand.
Texas was originally a Mexican state, though — like other Mexican territories under the 1824 Constitution — one that enjoyed considerable autonomy. After Mexico under General Antonio López de Santa Anna moved in 1835-36 to suspend the 1824 Constitution and centralize the country, slave-owning white settlers who had emigrated from the U.S. South rebelled, fearing that Mexico’s abolition of slavery in 1829 would be enforced on them. In 1845, Texas was admitted to the U.S. as a slave state. Then, in 1861, Texas joined the rebellion against the United States after Abraham Lincoln was elected president on a platform of opposing the creation of any new slave states.
Crusius’s “program” to fight unemployment — among “white people” — is chillingly simple. He hopes that as more white gunmen kill Hispanic and other “brown” men, women, children, and infants, Hispanic people will get the message and leave the U.S. to white European-Americans such as himself. He claims he has nothing against Hispanic people, rather it is a matter of “them” — non-European-Americans — and “us” — white European-Americans. Instead of a class struggle of all workers against the capitalist exploiters, who are the real cause of the lack of decent jobs, Crusius advocates a race struggle in which workers of different races fight each other for the jobs that remain after automation and corporate job cuts. U.S. workers have been taught to think in those terms, as opposed to class terms, by Democratic and Republican politicians and the capitalist media for generations.
Trump and the Republicans blame the Internet, violent video games, and mental illness. No doubt, the individuals who carried out these attacks have serious mental problems. However, the vast majority of people who suffer from mental illnesses ranging from anxiety to depression and schizophrenia do not engage in violence and murder. To imply otherwise is a slander on people who suffer from mental illness. In addition, Trump and the Republicans — who are still trying to “repeal Obamacare” through the courts after they failed to do so in Congress — have to bear a good deal of responsibility for the failure of the U.S. medical system to provide decent medical care for people suffering mental as well as physical illnesses. So do the corporate Democrats, the majority of whom still oppose the socialization of health insurance that exists in virtually all other developed capitalist countries.
It is true that most young people, whether or not they suffer from mental illness, do not engage in such murderous acts. This is true even when, thanks to the current economic system, they face a life of working miserable jobs — if they are lucky enough to avoid complete unemployment. Even those who are swayed by the arguments of economic and political white nationalists don’t resort to mass murder. In the U.S., where the political workers’ movement has always been limited at best, and in Europe with the decline of the old workers’ movement, especially since 1989, a whole generation of young white workers have often only heard the race-against-race arguments such as those advanced by Crusius in his manifesto.
Still, even under these conditions, they don’t pick up guns and fire into crowds of people to kill as many as possible. But though individual mental problems play a role when massacre follows massacre, there is something more at work than individual mental problems of frustrated young white men.
Let’s follow the chain of events that preceded the latest mass murders. Friction has been growing between the Democratic leadership represented by House Speaker Nancy Pelosi and four newly elected Democratic congresswomen who represent the left flank of the Democratic Party. The four, nicknamed “the Squad,” are Rashida Tlaib of Michigan, Ilhan Omar of Minnesota, Alexandria Ocasio-Cortez of New York, and Ayanna Pressley of Massachusetts. In general, the Squad has largely stayed within the limits set by Democratic leaders — called “corporate Democrats” by the progressives.
The friction between the Squad and the corporate Dems finally boiled over in the wake of the shocking revelations of conditions in the concentration camps where refugees fleeing the unbearable conditions that U.S. imperialism has created in Central America under successive Republican and Democratic administrations are being held. When Pelosi “reached across the aisle” to vote for a “bipartisan” bill to finance the border patrol, whose officers act as guards at these concentration camps, that was a step too far for the members of the Squad, who refused to vote for the bill.
This caused angry Pelosi to tweet: “All these people have their public whatever and their Twitter world. But they didn’t have any following.” Of course, Tlaib, Omar, Ocasio-Cortez, and Pressley do have a growing following among the Black and Brown people, who within a few decades will constitute the majority of the U.S. population — and already do in the largest by population U.S. state, California, and among a growing number of progressive whites as well.
To avoid misunderstandings, I don’t count myself among the political supporters of the Squad, though I do defend them against the vicious racist attacks of Trump and his ilk, as well as the attacks of the Democratic leadership. And if I were in Congress, I would have certainly voted with them against financing the concentration camps. However, as long as the Squad stays within the Democratic Party, they remain within the boundaries of bourgeois politics (1). Here I refer to the current level of consciousness that prevails among the growing number of young — and some not so young — progressive U.S. people who, however, have not yet learned to approach politics in class terms.
Pelosi’s attack on the Squad provided an opening that racist-in-chief Donald Trump promptly pounced on. On July 14, Trump tweeted: “So interesting to see ‘Progressive’ Democrat Congresswomen, who originally came from countries whose governments are a complete and total catastrophe, the worst, most corrupt and inept anywhere in the world (if they even have a functioning government at all), loudly and viciously telling the people of the United States, the greatest and most powerful Nation [Trump’s capitalization — SW] on earth, how our government is to be run. … These places need your help badly, you can’t leave fast enough.”
The racism — as well as the classic great-power chauvinism, which leads to racism — speaks for itself. These tweets go far beyond the dog-whistling racism that GOP politicians from Barry Goldwater onward have specialized in since the realignment of the Democratic and Republican parties occurred in the 1960s. Then, three days later, in a hate-soaked Trump rally in North Carolina, the mob broke out with the chant “Send her back.” Trump, jutting out his chin in the classic Mussolini style he often employs, reveled in the racist chants of the reactionary crowd.
Top Republican leaders were getting a little nervous about the consequences of Trump’s increasingly open — as opposed to dog-whistling — racism. Dog-whistling racism is fine with the current GOP leadership, but open racism in a country that in a few decades will be majority “Black and Brown” is a step too far. They convinced Trump the following day to announce that he disagreed with the “Send her back” chant. Trump claimed that he tried to stop the chant but was unable to do so. However, videos of the rally, widely available on-line, show that Trump did no such thing. The following day, as is typical of Trump, he took back his criticism.
The “Party of Order” media finally began to call Trump’s racism by its right name — namely racism. House Speaker Pelosi sponsored a resolution in the Democratic House censoring the president for his open racism. The resolution passed on a party-line vote with only four Republicans breaking with their party leadership and voting to censor Trump. The resolution, however, is toothless and carries no penalties.
Trump’s racism fully revealed
Trump’s claim that the Squad is made up not of “real Americans” but rather foreigners who have immigrated to the U.S. has been made before. For example, in “Mein Kampf” Hitler explained that German Jews were not real Germans but rather foreigners whose ancestors had emigrated to Germany as merchants after the fall of the Roman Empire. This is more or less true as far as it goes. Hitler, however, ignored the fact that during the thousand years that Jews lived in Germany they were thoroughly absorbed into German society through both cultural assimilation and intermarriage and had become virtually indistinguishable from other Germans.
There are many important differences between the position of Jews in pre-Nazi Germany and people of color under attack in the U.S. today. The most important difference is that the German Jews were overwhelmingly middle class — and some were members of the capitalist class. The people in the cross-hairs of Trump’s racist attacks are overwhelmingly working class. However, we must also remember that pre-Nazi Germany — unlike present-day Germany — was virtually entirely white and the Jews were only a “racial minority” though they too were “white.”
In pre-Nazi Germany as well in other European countries, a debate raged between the “left” — ranging from liberals to working-class revolutionaries — and the right. The “left” held that German Jews were German in every sense, differing only in their religion, while the right held that Jews could never be true Germans no matter what their religious views were (2) and no matter how long they and their ancestors had lived in Germany.
Hitler’s views on the Jews as expressed in “Mein Kampf” — leaving aside his obsession with the issue — were widely shared by Germans and Europeans in general who were to the right of the Social Democracy.
Trump in his tweets uses the same logic in attacking the members of the Squad that Hitler and other German right-wingers in their time used against German Jews. Only one of the four members of the Squad is an actual immigrant, Congresswoman Omar of Minnesota. Congresswoman Omar was born in Mogadishu, Somalia, in October 1982. After spending four years in a refugee camp in Kenya, she emigrated with her family to the U.S. in 1992. Admittedly, this is quite a contrast to Trump, who was born into a wealthy capitalist family and had every advantage that money and political influence could obtain from his birth onward. The future congresswoman became a U.S. citizen in 2000 — otherwise, she would not be eligible to serve in Congress — and was elected in November 2018 on the Farmer-Labor Party ticket, as the Democratic Party calls itself in Minnesota. (3)
How ‘American’ is the Squad?
We have seen that Congresswoman Omar is indeed an immigrant born in Somalia. What about the other three members of the Squad? Congresswomen Tlaib was born in Detroit, Michigan, in 1976 of Palestinian immigrants. So she is a “native-born American” and has been a U.S. citizen from birth. The only people who can claim to be more “native” than Congresswoman Tlaib are Native Americans. Her parents are Palestinian immigrants, who were forced to leave their homeland due to the Zionist colonization of Palestine. That colonization would itself have been impossible without the support of the U.S. and Britain — and the fierce persecution of the Jews in pre-revolutionary Russia, post-World I Poland, and other eastern European countries, above all in Nazi Germany. Congresswomen Talib’s parents are the direct victims of colonialist Zionist racism and the indirect victims of anti-Semitic racism that created the Zionist movement in the first place. They were to finally find refuge in the United States, where their daughter was born.
Congresswoman Ocasio-Cortez, widely known as AOC, was born in 1989 in the Bronx, a borough (4) of New York City. Ironically, the Bronx is the same borough where Trump’s father, Fred, who Trump recently confused with his grandfather, was born. AOC is, therefore, like Congresswoman Tlaib, a native-born citizen of the USA. True, her parents were born in Puerto Rico, which the U.S. considers to be a part of the U.S., so just like their daughter, they are also under U.S. law native-born citizens of the USA. (5)
Congresswoman Pressley, who represents a district in Massachusetts, was elected on the Democratic ticket in the November 2018 election. She was born in 1974 in Cincinnati, Ohio, and raised in Chicago. She is, therefore, a native-born citizen of the USA. As an African-American, her ancestors were kidnapped in Africa — exactly when and where we don’t know — and “emigrated” to the U.S. — or what was to become the U.S. — with the legal status of commodities, part of the trans-Atlantic slave trade. They — unlike many other such victims — somehow managed to survive the “middle passage” and were forced to perform slave labor for their masters upon their arrival, exact dates unknown.
As a native-born U.S. citizen, Congresswoman Pressley was elected to Congress from Massachusetts in November 2018 on the Democratic ticket. But to Trump, this doesn’t matter. The only “true Americans” in Trump’s racist view are white European-Americans. You can be a true American even if you are an immigrant — like Trump’s current wife Melania, who was born in Slovenia — as long as you are of white European birth or ancestry.
But if you are not of that birth or ancestry, you can never, according to the views expressed in Trump’s tweets, be a real American. At best, you are a guest who can be tolerated as long as you shut up and respect the “real Americans.” Otherwise, you should go back to “wherever your ancestors came from.”
Trump’s racism compared to the racism of earlier US presidents
Trump is not the first U.S. president to express racist views. It has just been revealed that Ronald Reagan called Africans “monkeys” in 1971 in a personal chat with then-President Richard Nixon, who himself expressed many racist views in private. Franklin Roosevelt, the leader of the “New Deal” and favorite of progressives today, once said words to the effect that America is a Protestant country and that Jews and Catholics — there was no question of Muslims in those days — were here on “sufferance.” That is, if you were not in FDR’s view a white Protestant (6), you were a guest of the “true Americans” — like Roosevelt, who was a member of a wealthy white family — who could be tolerated as long as you behaved like a good guest. Otherwise, you could go back to wherever you came from.
But Roosevelt’s racist views, as well as those of Nixon and Reagan were expressed in private conversations, reflecting their personal bigotry — though both Nixon and Reagan were masters of modern Republican “dog-whistling” racism. If Franklin Roosevelt’s remarks had become public at the time, the Roosevelt administration would have been shaken to its foundations, since the Jewish and Catholic (Irish, Italian and Polish American) votes were crucial to Roosevelt’s political machine.
What is true is that in public Roosevelt never said a word against the openly racist Jim Crow Democrats. His wife, Eleanor — considered well to the left of her husband — did cautiously criticize the open in-your-face racism of the Jim Crow Democrats. And it is no accident that it was Japanese-Americans who were thrown into concentration camps — men, women, children, and infants. But FDR left the open racist agitation to others, like his Jim Crow Democratic allies in the U.S South.
Similar views were expressed by other U.S. presidents, including Abraham Lincoln, not to speak of Thomas Jefferson and Trump’s favorite U.S. president — besides himself — Andrew Jackson, who was perhaps the most racist president of all.
As we go back in time, the more blatant this racism becomes. In colonial America, with its genocidal wars against the Native Americans and its African slavery, racism among the white population was simply taken for granted. Nor did the Revolutionary War for Independence change this. Indeed, the Declaration of Independence, authored primarily by Jefferson but approved by the Continental Congress, the supreme organ of the anti-British insurrection, refers to Native Americans as “savages.”
Like all other phenomena, both social and natural, racism evolves. Great events such as the Abolition Movement, the war against the slave-owning rebels of 1861-65, the great October Revolution and the rise of the Soviet Union with its five-year plans, the struggles for labor rights in the 1930s, the great Chinese Revolution of 1949, and the Civil Rights Movement followed by the Black Power Movement, to name just a few, have dealt blows to U.S. racism.
But other events, such as economic depressions that increase competition among workers (7) for jobs or reactionary developments in other countries such as the coming to power of fascism in Germany in 1933 or the victory of counterrevolution in the Soviet Union and eastern Europe between 1985 and 1991 have reinforced it. Except for Barack Obama, U.S. presidents have been white men of western — not even eastern — European ancestry. Indeed, except for John F. Kennedy, the U.S. has never even had a white Catholic president. There have been no Jewish or Muslim presidents.
Before the realignment of the Democratic and Republican parties, after World War II, both the Republican — and its predecessors the Federalist and Whig parties — and the Democratic Party were racist but in different ways. The Democrats and their predecessors such as Thomas Jefferson’s Democratic-Republicans — confusingly sometimes called “Republicans” — represented the interests of the Southern-based slave-owning class.
While slavery also existed in the North until the 1830s, slavery there involved personal service and was not deeply rooted in the mode of production as was the case in the South with its plantation slavery. Originally involving the cultivation of tobacco, Southern slavery entered a new phase with the invention of the cotton gin and the rise of “King Cotton.” The slave-owning South was the main provider of cotton to the textile industry in early 19th-century Britain, which fueled the industrial revolution.
The ancestors of the traditional Republican Party — the Federalist Party of John Adams and Alexander Hamilton and the Whig Party, which succeeded the Federalist Party — posed as the defenders of descendants of the English settlers who had formed the core of the emerging “white nation” against non-English whites.
In the mid-19th century, the main group of “ethnic whites” targeted by the ancestral Republicans were Irish immigrants fleeing the 1846 potato famine in Ireland. The Democrats appealed to these same Irish workers because African-Americans, aside from Irish workers in mid-19th-century America, were paid the lowest wages for the hardest work. Therefore, if the slaves were freed, the Democrats told Irish-American workers, they would flood the labor market and drive the wages of Irish immigrants even lower or throw them out of their jobs altogether. In a nutshell, unless chattel slavery continued in the South, the Democrats warned, Irish-American workers would sink to the level of the “free blacks” in the North. The racist trend among Irish-Americans was further reinforced because the police were largely recruited from Irish-Americans.
The Whigs — forerunners of the Republicans — warned “Anglo” workers, who generally held the more skilled and better-paid jobs, that cheap Irish labor would drive their wages lower and drive them out of employment altogether unless Irish immigration was halted. Vote for us, the Whigs whispered into the ears of the “Anglo-Saxon” workers, and we will make sure that “no Irish need apply” signs will remain up. If Irish immigration was allowed to continue, the Whigs warned, the workers of “solid American stock” would sink to the level of the Irish workers. Both parties, however, were united in their support of Native-American genocide.
After the war of the slave-owners’ rebellion — the Civil War — the Democrats claimed to represent the white working class against the threat of cheap labor from at least the formerly freed slaves by doing all they could to deny all but the least desirable jobs to African-Americans. The Republicans continued to pose as the defenders of the skilled “Anglo-Saxon” workers against not only Irish-Americans but also new waves of European white immigrant workers arriving from southern and eastern Europe — Italians, Poles, Czechs, Russians, and Jews.
Both parties targeted Chinese workers. Indeed, there once existed a “labor party” in California organized around the demand to ban Chinese immigrants to protect American white workers from the “yellow peril.” In post-Gold Rush California, it was the Chinese workers who had the lowest paid and least desirable jobs. This shows that not all “labor parties,” even if they are based on the trade unions, are steps toward class-conscious socialist working-class politics.
Trump, who has been both a Republican and Democrat, bases himself on the racist traditions of both Democrats and Republicans and their predecessors. Today, conflicts between “Anglo” and “ethnic white workers who have become increasingly intermarried over the decades have declined relative to the conflicts between white workers in general and Black workers — African-Americans — who continue to be, as they have throughout U.S. and pre-U.S. colonial history, the chief victims of U.S. racism, and Brown workers — largely immigrants from Latin America, who can also include Middle Eastern immigrants.
Today, however, the agents of capital are stirring up conflicts between “Latinx,” African-Americans, and even immigrants arriving from Africa. American racism is therefore constantly evolving. The one fixed element is that it is the capitalist class that benefits from and encourages “ethnic conflict” to keep the working class divided and impotent. We see the same thing today in Europe, especially with the decline of the old international communist movement and the increasing presence of “brown and black” people in the present-day European working class.
Trump’s racism, though firmly rooted in American racist traditions, has a different character than the racism of other U.S. presidents. Trump increasingly uses open racism — not the mere dog-whistling variety Goldwater, Nixon, the two Bushes used. To understand the impact of Trump’s racism and the danger it represents, you have to understand the role that the president plays within the U.S. political system.
A special role
Within the U.S. political system, the president occupies a special role. He — and so far it has only been he — is viewed as something more than the head of government and chief of state established in the U.S. Constitution. Lacking a monarchy on one side and a prime minister on the other, Americans are trained to view the president as the representative of the entire nation, much like Britons are trained to view the king or queen as father or mother of the entire nation but with the further feature that the president is expected to “govern” directly and not play the merely symbolic role British monarchs now play.
Other presidents, even when they took concrete racist actions, such as Democrat Wilson extending Jim Crow to the federal government, or Democratic President Roosevelt throwing Japanese-Americans into concentration camps during World War II, were cautious in engaging in openly racist agitation in public. Not so with Trump. This even though Trump is yet to take “official” racist actions in any way comparable to Democrat Wilson or Democrat Franklin Roosevelt.
Fifty-five years after the end of legally sanctioned Jim Crow, racism and racist attitudes among the white population as a whole is gradually declining as the older, more racist part of the white population dies off and is replaced by newer generations of white people that reflect changes in attitudes that emerged as a result of the struggles of the Civil Rights and Black Power movements and the end of legal Jim Crow.
However, President Trump’s racist agitation through his tweets and rallies is helping to create a new wave of 21st-century racism that is not only not identical to the racism of the past but potentially far more dangerous. Trump is using the “bully pulpit” of the presidency, to use an expression coined by early 20th-century Republican President Theodore Roosevelt, to say to the most backward parts of the U.S. white Christian population that it is okay to be a racist bigot because after all the president is a racist bigot.
Trump continues to use the bully pulpit of the presidency to spread his racist message, and the body count is steadily rising with Gilroy, EL Paso, and Dayton only the latest examples. When these appalling events occur, Trump makes a routine denunciation of racism — written in elegant English as opposed to the “vulgar dialect” he normally employs — that would be considered routine coming from any other post-World War II president. He then almost immediately returns, though at first perhaps cautiously, to his increasingly overt racist rhetoric until another mass killing occurs and the cycle is repeated.
Of course, no individual racist massacre can be directly attributed to Trump. Trump hasn’t organized any of them and he doesn’t actually support them. Indeed, he denounces them and extends his condolences to their victims. But while no specific racist massacre can be attributed directly to Trump’s racist speeches, just like no specific heatwave or hurricane can be specifically attributed to global warming, Trump’s emergence as the “racist in chief” has made such incidents far more likely. As Trump’s racist agitation continues, the body count steadily mounts.
The response of the Democrats to the crisis caused by the Gilroy, El Paso and Dayton killings
As we have seen, the Democratic Party itself is no stranger to racism. The Democrat establishment seems to be determined to nominate Joseph Biden, the former senator from the “border state” (8) of Delaware and vice president under Barack Obama. Biden has a long record as a “mild,” “dog-whistling” racist. He strongly opposed court-ordered busing programs in the 1970s that were designed to end the de facto segregation in schools that is still very much with us today, as opposed to the legal segregation that prevailed until the 1960s in the U.S. South. Biden has not only not apologized for his dog-whistling racism of the 1970s but still defends his 1970s position. This itself is a racist dog whistle.
The top Democratic leadership pushing Biden’s candidacy figures, however, that given a choice between the extreme, increasingly open racism of Trump and Biden’s classic border state now you see it now you don’t dog-whistling racism, African-Americans, Latinx, and anti-racist whites will feel forced to vote for Biden as the “lesser evil.” After all, wasn’t Biden vice president under the U.S.’s first and only African-American president, Barack Obama? So he can’t be that much of a racist.
Biden is just enough of a mild dog-whistling racist, the corporate Democrats argue, needed to win back some moderately racist “Reagan Democrats” to the Democratic Party. This will be especially true, the thinking goes, if the U.S. enters a recession — or experiences serious pre-recession inflation — during the 2020 election that could turn Reagan Democrats back toward the Democratic Party.
Not least, of course, Biden has a solid “corporatist” record. He is also a hardliner when it comes to defending the interests of the U.S. world empire. With Biden in the White House, the Party of Order will be back in full control of U.S. foreign policy and will be able to begin to undo the damage Trump has done to the U.S. empire.
However, with the Democratic Party dependent on the votes of African Americans, Latinx and other “Brown voters,” as well as progressive whites as never before, Biden may not be viable. The Democrats may, after all, have to nominate a non-white or a woman candidate — or both — who like Obama did can project a progressive image — not hard to do relative to Trump — while being reliably “corporatist,” as the progressives put it.
The Democratic establishment — the Party of Order Democrats — however, are determined to prevent the nomination of Bernie Sanders. Sanders, if he became president, would not be able to do anything anti-capitalist or anti-imperialist whatever his private views may be — but he might help popularize the demand for “Medicare for all.” This demand is something virtually all capitalists oppose for reasons that we have discussed.
The Democrats, from conservative Joseph Biden on the right to Bernie Sanders on the left, say they are opposed to Trump’s racism. But they do not demand that Trump resign nor are they suggesting Trump be impeached over his racist agitation. Though racist agitation is defended under the First Amendment of the U.S. Constitution, this doesn’t mean that Trump cannot be tried in the House and removed in the Senate for racist agitation. The U.S. Constitution states that the president can be impeached and removed because of “high crimes and misdemeanors.”
In the 18th century, “misdemeanors” did not mean minor crimes punishable by a year or less in jail, like shoplifting goods valued under $2,000, petty theft — as opposed to grand theft, a felony, stealing goods worth over $2,000. Misdemeanors meant conduct considered unbecoming of presidents in their role as the personification of the entire nation even if such conduct was not actually illegal — a high crime. Using the “bully pulpit” of the presidency for racist agitation should in the early 21st century be considered a misdemeanor in this sense. (9)
True, if Trump were impeached and removed for this “misdemeanor,” he could not be convicted in a court of law for this because the Bill of Rights protects freedom of speech. However, while all U.S. residents have the right to engage in “free speech,” nobody has the right to be president. By refusing to even consider removing Trump from office for turning the presidency into a bully pulpit for racism, the Democrats are saying that while we deplore Trump’s open racist agitation, it is not on the same level as his alleged “collusion” with Russia or his failure to cooperate with the Robert Mueller investigation into his alleged collusion with the Russians.
To sum up what Democrats from Sanders to Biden are saying: Collusion with the Russians, or lying about it to a special counsel and former FBI director, is serious business deserving of Trump’s removal from office. But using the presidency as a platform for racist agitation with its rising body count, though unpleasant and worthy of condemnation and censor, does not justify removal from office.
The perils of gun control
While divided on whether Trump should be impeached over his alleged collusion with the Russians during the 2016 election or lying about his alleged collusion to Mueller, Democrats from Bernie Sanders on the “left” to Joseph Biden on the “right”
are united about pushing gun control as the solution to the wave of racist mass killings. Progressives, by and large, have gone along with this and many are enthusiastic about it. Military-grade weapons such as assault rifles designed for large-scale combat in the hands of deranged racist killers is indeed frightening and a source of physical danger to all of us.
But there is an assumption that underlies these gun-control demands: Police both local, state and federal such as the FBI are made up of honest men and women who are neutral in the class struggle and can be relied on to end political violence. Let’s give them the tools they need — for example, background checks on everybody who wants to buy a gun. Seems reasonable. After all, this shouldn’t inconvenience the great majority of us who have no plans to engage in a mass shooting.
But how are the police supposed to collect this information? Well, presumably the way they always have, such as planting informers in political organizations plus using the vastly expanded possibilities for surveillance that modern computers, communications, and computerized databases provide.
In order to provide the proper background checks, the police — again local, state but above all federal such as the FBI — will need to have records of the web-browsing habits of everybody who is a citizen, a resident legal or illegal, or even a potential visitor to the U.S. to make sure that they do not hold what the cops consider “radical, extremist political or religious views.”
You never know, the cops warn, who the next terrorist might be. Perhaps it is a person who attended a meeting of what the cops consider a radical political or religious organization — for example, an anti-war committee or an organization to combat racism. Faced with an upsurge of “domestic terrorism,” don’t we all have to make sacrifices when it comes to traditional personal freedoms?
The trend toward Bonapartism
If the police were made up of well-meaning people, it might seem reasonable to make some sacrifices in regards to personal freedoms. But the theory, practice, and history of many countries, not least the U.S., show that the police are far from neutral. Police are recruited from soldiers who are those most enthusiastic for imperialist wars and overwhelmingly have far-right political views.
When a New York administrative judge recently ordered the firing of Daniel Pantaleo from the police force after Pantaleo had choked Eric Garner to death in Staten Island for the “crime” of selling a cigarette a few years ago, the entire New York Police Department and its “union” were up in arms in defense of the killer cop. Are these the kind of people we want to rely on to defend ourselves from individual racist killers?
Well, that was just the local New York police. But is the FBI better? The fact that its headquarters in Washington, D.C., still bears the name of the sinister racist and red hunter J. Edgar Hoover is not encouraging. There are no reports of FBI agents insisting that the individual their national headquarters is named after be changed because Hoover gives their organization a bad name.
The on-line network The Young Turks reports that the FBI is indeed interested in the growing problem of domestic terrorism that has marked the Trump years. That sounds promising. But what does the FBI consider the main terrorist threat to be? Why “Black identity extremism.” This despite the fact that there has been virtually no terrorism of any kind by African-Americans for years. So the spirit of J. Edgar Hoover is very much alive in today’s FBI.
Though the experience of relying on the police to guard us against racist terror is very rich in our country — the USA — we shouldn’t forget the experience of other countries. In the German state of Bavaria in the 1920s, the state police — in American terminology the Red Squad — was headed by a professional police officer named Heinrich Muller. His job was to defend democracy by keeping an eye on the extremists of the left such as the Communists and extremist of the right such as the Nazis. His dedication to the defense of German democracy from extremism did not prevent him from becoming head of the Gestapo in Nazi Germany.
And here we see the real role of the Democratic Party. Instead of urging the tens of millions of potential victims of racism, especially the increasingly “Brown-Black” U.S. working class, to organize to defend themselves against the growing racist terror encouraged by Trump, the Democrats are encouraging people to place their confidence in the racist police — the Daniel Pantaleos, the J. Edgar Hoovers, and Heinrich “Gestapo” Mullers.
The lessons of history
If we look at the history of pre-Nazi Germany, we see a long-term trend of decreasing anti-Semitism. Jews won legal emancipation, the votes of the anti-Semitism parties declined as German capitalism captured ever more of a rapidly expanding world market, and the votes of the Marxist German Social Democratic Party rose as the ranks of the German industrial working class grew. But then came a lost world war, ending in a revolution betrayed by the Social Democratic Party. This was followed by a series of unprecedented economic crises. These included the hyper-inflation of 1923 and the super-crisis of 1929-32, which hit indebted Germany with devastating force.
Under conditions of deep economic crisis, soaring unemployment, and a frustrated revolution, a racist demagogue named Adolf Hitler won a growing hearing among a large section of the increasingly frustrated middle-class youth. Why engage in individual terrorist acts when you could instead attend a meeting of the National Socialist Party and join the storm-trooper militia?
Hitler also won support among older conservative Germans alarmed by what they saw as growing toleration of Communists, homosexuals and Jews in high positions in business and politics where they would never have been tolerated before. The horrors of the Third Reich soon followed.
Donald Trump, despite his racist demagoguery, is not a Hitler and will not become one. He lacks any true counterpart to the so-called National Socialist Party with huge militia forces that waged civil war against the Communists, Social Democrats, and anybody else in Germany who opposed their reactionary politics. Fascism is not a racist president plus the actions of a few “lone-wolf” gunmen acting on their own to shoot down African-Americans, Latinx, Muslims, Jews, or anybody else they do not approve of, terrifying as that is.
Rather, fascism was class warfare waged in the streets and factories. It was large middle-class militias in Italy, Germany and other countries that waged civil war on a mass basis against workers’ organization on behalf of the monopoly capitalists. If you look at old news clips that can be found on the Internet of the rallies staged by Hitler and Mussolini, you will find that disgusting as Trump’s racist rallies are, they are pale imitations of the real thing.
Other big stories of the last month
Before real fascism can come to the United States, the U.S. will have to pass through a series of deep economic, social, military and political crises. This brings us to the other big stories of the last month. These are the meeting of the Open Market Committee of the Federal Reserve System and a new intensification of the trade war between the United States and the People’s Republic of China after the latest “trade truce” broke down.
Trump has just announced that he is imposing a 10 percent tariff on all Chinese imports not covered by earlier tariffs, though he later backed down a bit announcing that tariffs would be postponed until December 15 so as not to endanger the crucial Christmas shopping season. In addition, the White House is saying that it will not grant U.S. companies any new licenses to trade with Huawei.
The U.S. Treasury has also declared China a “currency manipulator” for allegedly devaluing its currency against the dollar and is complaining that China has halted all imports of U.S. agricultural products. The limited agreements reached in the meetings between Trump and Chinese President Xi appear to be toast. As tariffs and other trade barriers are put in place, downward pressure is exerted on an already slowing world economy.
The FOMC to the rescue?
Only July 30 and 31, the Open Market Committee of the Federal Reserve Board held its regularly scheduled meeting. Its made two major decisions. One was to lower its target for the federal funds rate by 0.25 percent — 25 basis points in market lingo. The other decision was to end the shrinkage of its balance sheet — that is, to end its shrinkage of the actual quantity of Federal Reserve System-created dollars (10) that it began in October 2015 starting August 1 (2019) as opposed to its previous plan to do so beginning in September. The U.S. dollar monetary base, which has also been shrinking since October 2015, should now resume its growth.
The Open Market Committee also indicated that it would gradually shift its portfolio away from mortgage-backed securities toward the more traditionally held government securities. Powell indicated he sees the federal funds target rate cut, not as the start of an “easing cycle” such as occurs once a full-scale recession hits but rather as a kind of “adjustment” that may be soon be followed by a new rate hike if the economic data warrants it.
While FOMC decisions on changing the target for the federal funds rate do not generally create much controversy in the financial press, this one has been an exception. Many economists claimed the move to cut the target rate was premature because there is no data clearly indicating that a recession has begun.
On the other hand, the Fed’s actions unfold against a solid wave of attacks on the Federal Reserve System and on its Trump-nominated chair, Jerome Powell, by Trump himself, as well as economists and economic writers allied with the Trump administration. The problem for Trump is that despite being the “most pro-business” president in history, who pushed through a huge tax cut for the corporations and the rich that supposedly would super-charge the economy, the U.S. economy has simply not “taken off.”
Instead, the extremely slow recovery that began under Obama has continued to creep along. The recovery has been especially slow in light of the severity of the crisis that preceded it and extremely slow compared to the recovery from the super-crisis of 1929-33 and recession of 1937-38 during the Great Depression. Despite the media’s insistence on painting the U.S. economy in glowing terms, industrial production has been stagnant in recent months both in the U.S. and around the globe. U.S. industrial production has actually declined slightly this year dipping again in July, while excess industrial capacity has also been slowly growing. During the current industrial cycle, industrial capacity utilization has yet to hit 80 percent.
Generally, past experience has been that an 85 percent capacity utilization rate is required to set off the surge of industrial investment necessary for rapid capitalist economic growth. After a recession, a combination of plant closings and rising demand reduce the quantity of productive capacity and unemployed that the industrial capitalists keep idle. As excess capacity shrinks, capitalist industry has an increasingly difficult time keeping up with demand at existing prices. The industrial capitalists take advantage of the situation by increasing prices, which in turn swells both the mass and rate of profit. The boom continues until a “credit crunch” — caused by growing overproduction — brings the process to a screeching halt.
This process, called by economists the accelerator effect, has been occurring ever more weakly in recent industrial cycles. This has especially been the case in the imperialist countries facing “de-industrialization” but has affected many developing countries as well. It is the current era — especially since the 2007-09 crisis — that has been an era of “secular stagnation.” The term secular stagnation was coined in the wake of the sharp but brief Roosevelt recession of 1937-38. Indeed, most of the decline that occurred during this recession was confined to the last quarter of 1937. The capitalist media has been covering up the long-term stagnation in economic growth by focusing on one statistic, the estimate of unemployment calculated by the U.S. Labor Department.
This figure is at a 50-year low, giving the impression that the U.S. at least has experienced the strongest boom in the last 50 years. If unemployment were really at a 50-year low, there would be no secular stagnation. Often the journalists — or perhaps it is their editors — go even further, replacing the “lowest unemployment rate in 50 years” with “record low unemployment.” Instead of “speaking truth to power” and telling the truth about the Labor Department’s misleading unemployment rate calculations, the capitalist media tend to go beyond what the U.S. Labor Department claims.
In a “healthy” capitalist economy, short-term cyclical unemployment is quickly reabsorbed once the recession gives way to recovery. However, in today’s sick capitalism, only a portion of the unemployment “created” by the recession is reabsorbed during the following recovery. Instead, a portion of the unemployed remains jobless. However, facing no real prospect of finding work, a section of the working class idled by the last recession stops looking for work. Government statisticians, under constant pressure to develop ways of making unemployment appear low by the government controlled by the capitalist class, which desires high unemployment, then report “low unemployment” because only those actively looking for work are counted as unemployed.
However, the rise in long-term unemployment — or what in the 19th century was called the “surplus population” — shows up in a long-term decline in the portion of the population that is actively working or seeking work, or as the government statisticians put it are “marginally attached to the workforce.” The statisticians do this because capitalist employers, who the government serves, have an interest in the Labor Department reporting as low an unemployment rate as it can get away with.
The bosses do not want the government to act as a competitor with them as buyers of labor power. If the government created jobs for the long-term unemployed, it would strengthen the position of the sellers of the commodity labor power at the expense of the buyers of labor power. Since the bosses control both the government and the media, they prevent the media from “speaking truth to power” and reporting the true size of the surplus population. Instead, they have the media they own — and buy advertisement space from — prattle on about “record low unemployment.”
This brings us to another cause of the low official unemployment rate, the economic and political weakness of the organized workers’ movement, which itself is partially a product of the long-term growth of the size of the surplus population. In an earlier era, if the U.S. Labor Department and its counterparts in other capitalist countries issued such misleading numbers, they would come under pressure from the unions and workers’ political parties to withdraw the dishonest figures and issue figures that reflect the true situation. Today, however, the greatly weakened unions largely take the figures reported by the capitalist media for good coin, and the latter even goad the government statisticians to find ways to report even lower unemployment — if they can get away it.
The anti-Trump media does occasionally point out that “though the unemployment is at the lowest in 50 years” other figures like GDP growth — a problematic method of measuring economic growth — is nowhere near record levels but rather reflects the ongoing “secular stagnation.”
Trump, therefore, has good reason to be nervous about his re-election prospects, though the false picture of any economy presented by the capitalist media, including the anti-Trump media, which has focused on the low unemployment rate created by government statisticians, has doubtless boosted his approval level somewhat. Still, his approval level remains well below 50 percent. Trump lost the popular vote in 2016 to the extremely unpopular Hillary Clinton by almost 3 million votes. And people are not unaware, through their day-to-day struggles trying to find and keep relatively good jobs in terms of pay and working conditions, that the economy is not doing nearly as well as the media, not to say Trump, keep claiming it is.
The Federal Reserve System and its Open Market Committee are well aware that continuing stubborn, very slow growth — the slowest in the history of modern capitalism — is destabilizing the relationship between the classes, with a growing part of the working class drawing the conclusion that they have no stake in the continued existence of the capitalist system even if for the time being, they do not know how to get rid of it. The “secular stagnation” is de-stabilizing the relationship between the imperialist and “developing” countries, as well.
It is also destabilizing relations between the imperialist countries themselves. This is what is behind the current trade war and Trump’s attacks against the European countries — above all Germany — for their trade practices. The continuing trade war is not so much the cause of slow economic growth as it is the result of it. If capitalist growth doesn’t soon improve, the current trade wars will keep tearing apart the “order” that emerged after World War II and the Cold War.
The crisis of 2008 compared to those of the 19th century Marx observed
Let’s compare the last major general crisis — the crisis of 2007-09 — with the crises that Marx studied in Volume III of “Capital” and throughout his writings. This will give us valuable insights into how the world capitalist economy has been evolving and where it may go next.
The Federal Reserve System — the world’s de facto central bank — is supposed to be able to control demand through its monetary policy with the occasional assistance of government fiscal policy. During the Great Recession, the Federal Reserve System engaged in, to use lay persons’ terminology, a money-printing binge — politely called “quantitative easing” by the media. Under normal circumstances, such a binge would have led to a massive surge of inflation followed by soaring interest rates. But conditions were anything but normal starting in the North American fall of 2008.
The panic of 2008, which brought the entire global banking system to the point of collapse, led to an unparalleled demand for U.S. dollars as a means of payment. In “Capital,” Marx writes that the English Bank Act of 1844, which rigidly tied the quantity of Bank of England notes to the quantity of gold in the Bank’s vaults, greatly increased demand for those notes — currency — during a crisis. The reason was that the public knew that when a crisis broke out and the demand for Bank of England notes rose, the quantity of those notes could not be increased until gold flowed in from abroad swelling the Bank of England’s gold reserve.
Until the gold arrived, depositors fearful that their banks would run out of Bank of England Notes would descend on the banks to withdraw their money before the supply of notes was exhausted. With huge lines of depositors gathered in front of their offices, the commercial banks would call in their loans and refuse to grant new loans as they desperately scrambled to raise cash to pay off their depositors. For the commercial banks, this was a matter of life and death, because if they were unable to meet the demands of their depositors for banknotes, they would be forced into bankruptcy and liquidation. The genius of the Bank Act of 1844 was that it enabled a British banking system that included a central bank to function like a banking system without a central bank. (11)
The U.S. banking system was considered the worst in the world because it had no central bank at all. When a gold outflow hit the U.S. economy, long lines would quickly form in front of the banks and credit would dry up completely, paralyzing the economy. This would continue until gold finally arrived from abroad. Though the long-term rate of growth of U.S. capitalism was higher than in Europe, its cyclical crises were considerably worse. The reason was that that the Bank Act provided an escape hatch by allowing the Act to be temporarily suspended in a crisis. The Bank Act was suspended three times, first during the crises of 1847, second during the crisis of 1857, and finally during the crisis of 1866. After the crisis of 1866, it became clear that the Bank Act would always be suspended in a crisis so it never had to be suspended again.
During the successive crises of 1847, 1857 and 1866, the increased demand for means of payment was for Bank of England Notes, not gold. There was little concern among the banking public that Bank of England notes — the British pound — would be devalued against gold even if additional bank notes not backed by gold were issued during the crisis. The credibility of the Bank of England notes — chief means of payment of the time — was never shaken during the time of Marx and Engels. The reason was that once the crisis had passed the Bank Act would be reinstated and any extra banknotes created during the crisis would be destroyed. The public was not concerned about a brief excess of banknotes relative to the gold in the Bank of England vaults during a crisis.
Therefore as soon as it was announced that the Bank Act was suspended, the panicky demand for Bank of England notes quickly subsided because depositors were once again assured that their money was safe in the banking system. Only in 1857, and then only briefly, were any additional banknotes actually issued. In the other two crises, those of 1847 and 1866, the mere knowledge that additional Bank of England notes would be issued if necessary was sufficient to break the crisis. There was no “run on gold” during any of these crises. Let’s compare this to the most recent crisis.
During the crisis of 2008, the Fed, whose leaders were keen students of the experience of 19th-century British central bankers, was able to take advantage of the increase in the demand for dollars — as opposed to gold — as a means of payment, just like their 19th-century predecessors were. In the fourth quarter of 2008, when the crisis was at its peak, payments were being demanded not in gold, but U.S. dollars. As a result, the Federal Reserve System was able to create a huge amount of extra dollars that under any other circumstance would have led to a major drop in the gold value of the dollar, dollar-devaluation inflation, and soaring interest rates. But not in 2008.
As the crisis broke out in full force in September 2008, creditors demanded immediate repayment in U.S. dollars when under normal circumstances they would have been more than willing to wait and collect interest on extended loans or “roll over” the debt. Then, after the immediate crisis subsided, capitalists all over the world were eager to build up their cash reserves — disproportionately in U.S. dollars. Therefore, in the post-crisis period, the dollar’s role as a means of hoarding, or means of protection against a new crisis, came to the fore.
The willingness of the Federal Reserve System to increase the quantity of Federal Reserve-created dollars at annual rates of growth of thousands of percent at the peak of the crisis during the fourth quarter of 2008 meant that long lines did not form in front of U.S. banks as they did during 19th-century crises, the U.S. crisis of 1907, and worst of all the super-crisis of 1931-33. If such lines had formed, money in the form of Federal Reserve Notes would have flowed out the banking system into the mattresses of panic-stricken bank deposit owners.
In today’s credit card-driven economy, the results would have been far more devastating than even 1931-33. The Federal Reserve System was able to avoid a classic “run on the banks” and a 1970s-style “run on gold” because the Fed waited until the panic broke out in September 2008 before launching its money-printing spree.
As a result, for seven years the Federal Reserve System was able to issue dollars at rates far above the long-term increase in the quantity of mined and refined gold bullion in the world — though considerably lower than during the crisis proper — without a 1970s “run into gold.” Under the extraordinary conditions created by the crisis itself, the Fed was able to continue to flood the banking system with newly created dollars, which drove interest rates to all-time lows without a new inflationary outbreak. As the quantity of money increased, its velocity of circulation declined as idle money piled up in the banks.
The other side of the coin was that the unprecedented fiscal and especially monetary “stimulation” designed to jump-start a major new economic expansion proved to be remarkably ineffective. The reason was that businesses shaken by the experience of the crisis, which many barely survived as we noted above, were eager to build up their cash reserves against a new crisis. As a result, capitalist expanded reproduction (M-C…P…C’-M’) has proceeded much more sluggishly than the historic norm for modern capitalism — secular stagnation.
However, this situation cannot go on forever. In the long run — and this is true whether the Federal Reserve leaders understand this or not — the dollar will eventually depreciate first against gold and then all other commodities if its rate of growth — measured in terms of the talismanic sign dollar — is faster than the global quantity of refined and mined gold bullion, measured in units of weight, rises. The Fed, therefore, indicated that it would eventually “normalize” its monetary policy by destroying some of the extra dollars created during the crisis.
To safeguard the role of the U.S. dollar in the world monetary system — absolutely necessary if the U.S. world empire is to continue — requires the post-2008 U.S dollar, though worth less in terms of gold than before the crisis, will not be worth that much less. Then the Fed hopes that over a period of decades dollar commodity prices will gradually rise at a rate of around 2 percent a year, which the Fed believes is most consistent with long-term capitalist prosperity.
Economic stagnation lengthens the industrial cycle
As we have seen, the stronger than normal demand for U.S. dollars in the post-crisis years partially to pay off debts resulting from bailouts and other debts has so far prevented a return of a normal rate of economic growth. As a result, the development of overproduction has been slower to develop than it has been in a typical capitalist industrial cycle. However, the price of this “happy development” has been prolonged secular stagnation — longer than that of the 1930s — that has progressively increased the intensity of competition among workers. This has increased the rate of surplus value, another “happy result” for the capitalists. This has led to a rise in the rate of profit to the extent that the values of commodities are fully realized, which, however, has been harder to accomplish than in the past due to the slow rate of economic growth.
Competition has also increased between individual business enterprises and capitalist nation-states. The result has been an accelerated centralization of wealth in the hands of a few billionaires, the further weakening of the trade unions, and rising economic and political nationalism.
Monetary normalization begins to unravel
The Fed finally, beginning in October 2015, started destroying some of the extra dollars it had created. This is the modern counterpart to the Bank of England destroying the extra notes it created during the crisis of 1857. Between October 2015 and July 2019, the total quantity of Federal Reserve System-created dollars fell by almost 20 percent. During the last part of 2018, the Federal Reserve Board accelerated the rate at which it was destroying the dollars it had previously created. Then things began to go seriously wrong.
A highly unusual December sell-off hit the U.S. stock market in December 2018. Reports circulated that, fearing a 2019-20 recession, Trump had inquired whether he had a legal right to fire Federal Reserve System chief Jerome Powell, a Republican who Trump himself had nominated to succeed Democrat Janet Yellen, who Trump decided not to reappoint for a second term.
Powell responded to the “mini-crisis” on Wall Street by indicating that further increases in the target for the federal funds rate were off the table and the contraction in the U.S. dollar-denominated monetary base would slow and then end completely by September 2019, much earlier than had been expected. This meant that a large portion of extra dollars that were created by the Federal Reserve System during and after the crisis would not be destroyed after all. The stock market quickly recovered but overall economic growth began to stall. Industrial production around the world, including in the U.S., stalled out for the first time since the 2014-16 global “mini-recession.” Could this new global “mini-recession” develop into a full-scale world recession? Concerns that this will indeed happen have been mounting.
Now the Fed has indicated that as of August 1 (2019) the contraction of the monetary base is at an end. Since the quantity of gold bullion in the world has continued to grow — indeed production levels have been at record levels throughout the post-crisis period while the quantity of Federal System-created dollars has contracted, the dollar price of gold should have dropped sharply since October 2015. But this has not been the case. The dollar price of gold has recently been trading well above $1,400 and recently spiked to above $1,500 compared to around $1,250 when the contraction of the quantity of Federal Reserve System-created dollars began.
While during the time of Marx and Engels the credit soundness of the notes of the Bank of England was not shaken, the same cannot be said of their modern successor — Federal Reserve Notes. Why has the dollar price of gold failed to drop sharply since 2015 when the quantity of dollars created by the Federal Reserve has contracted by around 20 percent?
It is possible within limits and for a period of time because the dollar price of gold reflects not only the current ratio between the quantity of gold — actually the quantity of gold being offered for sale — on one side and the quantity of dollars — strictly the quantity of dollars used to purchase gold bullion, on the other. Though the gold is purchased with dollars created by commercial banks — not the U.S. Federal Reserve System — the ability of the commercial banks to create dollars ultimately rests on their dollar reserves and these reserves consist of dollars created by the Federal Reserve System. We will examine more closely on how changes in the quantity of gold on one side and the quantity of dollars on the other affect the dollar price of gold next month.
For this month, we limit ourselves to the observation that speculators in the dollar price of gold take into account not only the current ratio between the bullion being offered on the market in exchange for dollars but also the future evolution of the ratio between the quantity of bullion being offered on the market and the quantity of U.S. dollars. This is where the speculative element comes in. The most important variables are the total quantity of Federal Reserve System-created dollars, which the Fed does control, and the total quantity of gold bullion — money material — which it does not control.
With the quantity of Federal Reserve System-created dollars rising fourfold between September 2008 and October 2015, we can assume that the quantity of bank reserves rose even more as dollar prices remained largely unchanged and the global economy expanded only sluggishly interrupted by many local recessions and the general mini-recession of 2014-2016.
The evolution of the world economy since October 2015
Since October 2015, the quantity of Federal Reserve-created dollars has contracted by around 20 percent, putting downward pressure on global bank reserves. Then, at the end of 2017, the Republican-controlled Congress passed a huge, highly regressive tax cut that was originally scheduled to go into effect in 2019 but then at the last moment was pushed forward to go into effect in 2018.
The combination of a rising rate of federal borrowing as a result of a sharp drop in government tax revenues combined with an accelerating rate of decline of the quantity of Federal Reserve System-created dollars produced a growing credit squeeze — though not, or not yet, a full-scale credit crisis. Just before the Republican tax cut was passed, the rate of interest on 10-year government bonds was 2.36 percent. After the tax cut was passed, the rate of the 10 years finally peaked at over 3.2 percent on October 6, 2018.
As a result of the rise in interest rates, the stimulus effect of the Republican tax cut that Trump was counting on to ensure his reelection in 2020 was largely neutralized. Furious, Trump has blamed the Federal Reserve, though the huge tax cut that he insisted on pushing through Congress — his only significant legislative “achievement” — has contributed to the current economic slowdown. Now a combination of a global economic slowdown intensified but not caused by Trump’s trade war, and the total quantity of Federal Reserve Notes due to once again increase along with a flight into the safety of U.S. government bonds has again lowered long-term interest rates.
As a result, within a little more than a week of the meeting of the Open Market Committee, the rate of interest on long-term government bonds had dropped to 1.670 percent, considerably lower than it was on the eve of the Republican tax cut in December 2018. The hope of the Fed and the Republicans is that this fall in long-term interest rates along with the cut in the Federal Reserve System’s target for the federal funds rate and some short-term interest rates falling as well means the credit squeeze will end without a full-scale recession. Trump will then be able to run for re-election as a prosperity president. However, Trump fears that this will prove to be too little too late and is stepping up his pressure on the Federal Reserve System for a much deeper cut in its target for federal funds.
This is doing nothing to increase the credibility of the Federal Reserve System on which the U.S. dollar’s continued role as the world’s currency — and the continued existence of the U.S. empire — depends. We are not only in the critical phase of the economic cycle, which occurs about every 10 years, but we may also be approaching a critical phase in the entire world political situation.
Recent movements of the dollar price of gold
Normally, the credit squeeze that has been developing, especially since the Republican tax cut was rammed through Congress in December 2017, should lower the dollar price of gold. Higher rates of return on government bonds should have lured some of the hoarders to sell their gold, which yields no interest to its owners — no surplus value — in favor of securities yielding a higher return. But during the recent interest rate spike, in part engineered by the Fed and in part the result of the Republican tax cut, the price of gold hardly budged. Gold speculators have been betting that as soon as the credit squeeze caused economic growth to slow down, the Fed would once again begin expanding the quantity of Federal Reserve-created dollars in a bid to “keep the expansion going.” We have now arrived at this point.
Under increasing attack by the White House for the economy not taking off like a rocket, Powell has recently taken to making 1970s-style promises that the Fed would provide the funds necessary to “keep the expansion going.” This has done nothing to increase confidence in the dollar. Central bankers in Europe have gone even further, hinting that they will cut interest rates “below zero” to stave off recession. However, money capitalists reason that if the interest rates are “below zero” — that is, when they cannot appropriate surplus value, why not hold money in the form of gold bullion instead. The result is that while the dollar has been rising against other currencies such as the euro, it has been falling against gold.
However, exactly because the rates of interest are so low, the dollar is weak against gold. The gold speculators suspect that, partly because of the pressure from Trump, Powell has cut interest rates “too soon” — that is, before the kind of credit squeeze combined with a full-scale recession boosts the demand for the dollar as means of payment. As a result, they have pushed the dollar price of gold to above $1,500 in early August. If the initial speculations of the gold speculators prove correct and the dollar price of gold — with the inevitable market corrections — continues to climb at a rapid rate, and the Federal Reserve System doesn’t quickly reverse course, a new surge of currency-devaluation inflation will sweep the world forcing up interest rates, which would lead within a year or two to a much deeper global recession than would otherwise occur.
If the rise in the dollar price of gold were to sharply accelerate, causing the dollar prices of primary commodities to rise sharply as well, the Federal Reserve System may be forced to dramatically reverse course and raise its target federal funds rate sharply, making a 2020 recession a certainty — or perhaps a desperate Trump actually will attempt to fire Powell. In that case, the political crisis caused by the Trump presidency will magnify an economic crisis, which will then feed back on the political crisis.
To be continued.
1 U.S. Eugene Debs (1855-1926) as a young trade unionist was a member of the then very racist Democratic Party. As long as Debs was a Democrat, he remained well within the boundaries of U.S. bourgeois politics. This did not prevent him later on as a result of his experience in the class struggle from breaking with the Democratic Party and becoming the founder and leader of the U.S. Socialist Party. If one or more of the members of the Squad makes a clean break with the Democratic Party and joins the effort to organize a party that represents the wage earners as opposed to the capitalist Democratic Party, they will like Debs become the political representatives of the working class. It is not a matter of individuals but class. (back)
2 By the early 20th century, many Jews had converted to Christianity, much like Marx’s father, or had become atheists like Marx himself. However, since the Nazis and the German and other European right-wingers justified anti-Semitism on racial as opposed to religious grounds, Christian and atheistic “Jews” were classified as Jewish alongside people who were actual believers in the Jewish religion. (back)
3 The Minnesota Farmer-Labor Party was a two-class party that attempted to combine the interests of working farmers and wage workers against the ruling capitalist class. It played a leading role in Minnesota politics during the 1920s and 1930s, electing many of its members to office. However, in 1944 it merged with the Democratic Party, forming the present-day Democratic Farmer-Labor Party. This merger effectively dissolved the Farmer-Labor Party into the Democratic Party. (back)
4 New York City is unique among U.S. cities having been divided into five boroughs, Manhattan, Brooklyn, Queens, the Bronx, and Staten Island. (back)
5 Puerto Rico is officially a “commonwealth” but not a U.S. state. Puerto Ricans have no representation in the U.S. Congress — only observers — and no representation in the Electoral College, which elects the U.S. president. However, when they move to a U.S. state, Puerto Ricans are entitled to all the rights of U.S. citizenship, including representation in Congress and the Electoral College that they are denied on the island. In the last month, a huge movement erupted in Puerto Rico that forced the governor of the island to resign when racist and homophobic comments he made were revealed. Demonstrators carried Puerto Rican flags with virtually no U.S. flags in sight, indicating a widespread desire for independence from the U.S.
The population of Puerto Rico is of mixed Spanish, Native and African ancestry and is therefore not considered white. This fits a pattern in U.S. history where only white colonies — called territories — became full U.S. states, while non-white colonies remained territories or commonwealths but not states with representation in Congress and the Electoral College — for example, the U.S. Virgin Islands and Guam.
Ironically, another example of this racist pattern is Washington, D.C. D.C. stands for the District — not the state — of Columbia, the actual capital of the United States. The population of Washington is predominately non-white — in this case, African-American. Since they don’t live in an actual state, the largely African-American residents of the city of Washington proper have no representation in Congress — only observers — though they recently gained representation in the Electoral College. (back)
6 Even Hitler would not have been white enough to be a “true American” if he had emigrated to the U.S., according to FDR’s exacting standards of “whiteness,” because Hitler was a not a Protestant but German Catholic. (back)
7 The labor market, where the sellers of labor power compete with one another for jobs offered by the capitalist class, is perhaps the most fundamental generator of racism. This is why racism will never be rooted out once and for all until capitalism and its central institution, the labor market, is abolished once and for all. (back)
8 States located just south of the Mason-Dixon line in the eastern United States that combine features of both Southern and Northern states are called “border states.” Before the Civil War, border states such as Delaware and Maryland, where summers were not quite long enough to grow cotton, specialized in the business of raising African-Americans for use as slave labor farther south. To safeguard this infamous industry, slavery had to remain legal in the “border states” even as it was being abolished in the true Northern states. When the war of the slaveholders’ rebellion broke out (to give the U.S. Civil War its true name), these states remained within the union even as they continued to maintain legal slavery. After the Civil War, these states had their own version of Jim Crow laws, and “racial attitudes” among the whites often resembled those of Southern states. (back)
9 Trump has credibly been accused of sexual assault and even outright rape, which are “high crimes” in the sense of felonies punishable by more than a year in prison. Though many and maybe all of Trump’s sexual crimes are felonies under state but not federal law, and even if the statute of limitations has expired in many of these cases, there is no reason why Trump couldn’t be impeached and removed from office. The statute of limitations would only prevent him from being tried in a court of law for the sex crimes he committed before he was removed from office. (back)
10 Dollars that are directly created by the Federal Reserve System should not be confused with the credit money dollars created by commercial banks through their loans and discounts. (back)
11 Some right-wing “libertarian” economists on the fringes of the Republican Party — for example, Texas Congressman and amateur economist Ron Paul — urge a return to such a system today, which they call “free banking.” The chief demand they raise is the abolition of the Federal Reserve System. If the U.S. were to actually abandon central banking under today’s conditions, the result would be catastrophic. (back)