To working people it is painfully clear that we’re still in the midst of a serious economic crisis. High unemployment, foreclosures and the downward pressure on wages and benefits for those who still have a job are just some of the indicators. But America’s corporate and political elite aren’t quite sure. Like hyenas, they have tasted blood and they want more. For Wall Street investors and the large banks, the past year has shown a return to mega-profits driven by speculation and the huge bailout in taxpayer money they received in 2009.
According to a recent article by Bernie Sanders, independent Senator from Vermont:
“We have learned that the $700 billion Wall Street bailout signed into law by President George W. Bush turned out to be pocket change compared to the trillions and trillions of dollars in near-zero interest loans and other financial arrangements the Federal Reserve doled out to every major financial institution in this country. Among those are Goldman Sachs, which received nearly $600 billion; Morgan Stanley, which received nearly $2 trillion; Citigroup, which received $1.8 trillion; Bear Stearns, which received nearly $1 trillion, and Merrill Lynch, which received some $1.5 trillion in short term loans from the Fed.
We also learned that the Fed's multi-trillion bailout was not limited to Wall Street and big banks, but that some of the largest corporations in this country also received a very substantial bailout.
Among those are General Electric, McDonald's, Caterpillar, Harley Davidson, Toyota and Verizon.” (Huffington Post 2/12/10)
This has created a number of questions for Washington’s corporate politicians about what to do next to improve the economy. On the one hand, politicians of both parties have to at least pay lip-service to the economic hardship faced by the mass of the electorate—otherwise they might get voted out of office, as many were in the midterm elections in November. On the other hand, the vast majority of their campaign funds and perks come from America’s large corporations, funneled through an army of lobbyists who wine and dine, play golf and lavish untold favors and riches on the “elected” representatives.
With regard to economic policy, there’s been some half-hearted talk by Obama, someDemocrats, and neo-Keynesian commentators like Paul Krugman and Stiglitz, for a renewed stimulus package including investment in infrastructure, green technology, etc. But most of this has been just that—talk. The Democrats, as a corporate party simply do not have the political will to even seriously propose such a large project. Meanwhile, Republicans are dead-set on blocking even minimal Democratic legislation and whipping up racist, nationalist, anti-immigrant hysteria while sounding the alarm about the “fiscal deficit” caused by the intrusion of “big government” into the economy (i.e. the previous stimulus package).
In the context of this sham debate, the current legislative agenda seems to categorically exclude even some Democrats’ timid suggestions about a new stimulus plan while including a series of attacks on workers’ living standards through more cuts, especially on the city and state government levels.
At the same time, all is not well with the economy, even from the rulers’ perspective. Corporate heads and their political yes-men in Washington recognize that the current “recovery” is fragile at best and that, barring a new round of bank bailouts or large-scale public investment, something must be done to prevent the onset of a new serious crisis - or worse a deflationary cycle - and shore up the position of American corporations.
Essentially, when faced with an actual or potential squeeze on profits, any national ruling class will try to either A) take more from its own domestic workers, or B) externalize the damage to its foreign competitors, or C) both. While the American ruling class has been doing the first since at least the mid-1970s (with an extra flurry of activity since 2008), recent moves by the Federal Reserve—encouraged by the Obama administration—are now aimed at doing the second. This is what the newest round of “quantitative easing”—or “QE2”—represents.
But what exactly is “quantitative easing?” This language is meant to confuse more than to explain. Essentially, it means putting more money into circulation. On November 3rd, Fed Chairman Ben Bernanke announced the agency’s plan to buy $600 billion in long-term Treasury securities plus making $250 to $300 billion of additional reinvestment purchases before mid-2011. While printing more bills would be one way of putting more money into circulation, buying back existing debt is another and has almost exactly the same effect.
The goal of this program is to counteract potential deflation stemming from the current lack of investment and low level of lending. Deflation, although it might seem good at first—my dollar may be worth more tomorrow than it is today—inevitably leads to a spiral of reduction in demand, prices, profits and employment.
But inflation leads to a devaluation of wages and savings in real terms, and more rapidly with a higher rate of inflation. The current target rate of inflation proposed by the Fed is 4 percent annually, double the roughly 2 percent normal rate. Combined with what one journalist calls “a massive new structural downshift in wages” (Roger Bybee, In These Times 11/24/10) since the start of the recession, this most recent move by the Fed effectively functions as a gigantic redistribution of wealth in favor of the big business and Wall Street!
In other words, quantitative easing as a policy helps accomplish the main tactic of the ruling class when faced with falling profits: take more from the workers. And viewed through the lens of policy, the Fed’s move can also be seen as a back-door bailout, They are effectively injecting almost $900 billion into the financial casino, but without all the hassle of legislation and voting by members of Congress.
The second tactic—unloading the effects of the US banking crisis on other counties—is also helped along by the policy of quantitative easing. If the U.S. dollar declines in value relative to other world currencies, American goods become comparatively cheaper, thus increasing exports. At the same time, since the dollar is the world’s reserve currency, its effective devaluation through inflation would also devalue the reserve currency holdings (including US bonds) of many countries, China first among them.
Due to the structural changes often called “globalization,” the U.S. has developed a huge trade imbalance with China, as well as a large overhang of government debt. The U.S. elite are acutely aware of this and uncomfortable with the rising challenge of China and other nations (such as Russia, Brazil and India) to American economic and political hegemony. This uneasy relationship explains the recent (unsuccessful) attempts of the Obama administration to convince or coerce the Chinese regime into revaluing its currency, the Yuan, upward. And the currently escalating military threats being traded between North and South Korea—and China and the U.S. in response—can be seen as a further and potentially more sinister expression of the underlying conflict between the two large powers.
QE2 and the reaction it has received from foreign powers (e.g. China and the EU) represent an opening skirmish in what could become a trade war, whereby the “free market” ideology of the neoliberal period is openly abandoned in favor of protectionist measures such as high import tariffs, strict quotas on foreign goods, capital controls or some combination of the above. In the context of a highly integrated world economy—much more so than in the 1930s—such an escalation of protectionism or trade war could ultimately result in an even more disastrous collapse of productive capacity, jobs and living standards than it did during the early years of the Great Depression.
To many, the idea of a new industrial development in the US sounds like a good plan. Clearly, there is an immediate and dire need for investment in infrastructure and green technology such as solar power, wind power and a massive expansion of public transportation. A recent New York Times article described these nascent industries as “job machines just waiting for ignition” (11/28/10). But when asked about potential growth in these industries, a mainstream economist from Roubini Global Economics responded that: “Investments like that are risky and they won’t pay off for a number of years and probably even longer. Those kinds of projects will need public incentives,” i.e. large-scale public investment.
What this shows is that capitalism cannot take the U.S. economy forward into the next stage of technological innovation and job creation simply because short-term profits cannot be made in sufficient quantity to encourage investment. The New Deal of the 1930s was only implemented due to massive and potentially revolutionary pressure from the labor movement. It was implemented to shore up the long-term interests of U.S. capitalism as a system, and since that system was left intact, it allowed for the wholesale rolling back of all the gains working people made during that period, which we’ve witnessed since the mid-1970s.
Quantitative easing represents nothing good for working people. It is both a direct attempt to transfer even more wealth from workers to the corporate accounts and big banks, and a prelude to a potentially devastating international trade war, which could easily translate into outright military proxy wars, as is now threatened between North and South Korea.
The U.S. ruling class, after advocating 30 years of outsourcing, deindustrialization, uncontrolled financial expansion and consumer-led growth, has suddenly realized they have a massive trade deficit and attendant power imbalance with a rising China, and are erratically trying to change course. What is painfully obvious is that the corporate aristocracy and their political stooges in Washington have no plan for how to take society forward.
Meanwhile, the technology that could create millions of good jobs and save the planet from environmental destruction is just waiting to be invested in. What we need is an independent political force of workers and youth to implement a democratic socialist plan for the public good, not for private profits.