Palestine

To avoid any misunderstandings of what I am going to say here, I am a Jewish American who despises all forms of anti-Semitism. Like most Jews whose parents, grandparents, and great-grandparents came from Europe, I lost relatives in the Holocaust. I never knew them because they died in the gas chambers before I was born. I can also say that since childhood, I have never believed in the truth of the Jewish religion or any other religion.

As a child, I became fascinated with Charles Darwin’s theory of evolution, a fascination that’s never ceased. Since childhood, I have been an unconscious dialectical materialist and then a conscious dialectical materialist from early adulthood onward. I have never understood those trends in Western Marxism that reject the dialectic of nature and “diamat” (dialectical materialism), as the more I study the natural sciences, such as biology, physics, chemistry, and meteorology, the more I find materialist dialects everywhere.

I want to make crystal clear to Mr. Biden and Mr. Netanyahu that if you insist on carrying out genocide in Gaza or anywhere else in Palestine, you won’t do it in my name! Palestine will be free, from the river to the sea!

Corporate Joe on the Picket Line

Over the last month, the news in the U.S. (the world’s leading imperialist power) was dominated by three main stories. The first is the strikes against the Big Three automakers by the United Auto Workers (UAW). The second is the continued struggle of the Party of Order against the presidential candidacy of Donald Trump. As of early October 2023, Trump appears to have built a sizeable lead in the Republican primary, with all the other candidates fading fast. The third story was confined mainly to the financial pages but is of particular interest to the readers of this blog. That story is the crash of the U.S. government bond market.

A government bond crash gets much less attention than a stock market crash, though it’s really more important. A stock market crash lowers interest rates. Unless a recession is already underway — like the famous 1929 stock market crash — a crash that relaxes the money market and lowers interest can postpone a recession. This happened in the crash of October 1987, when it lowered interest rates and prolonged the ongoing economic expansion by several years.

While a government bond crash doesn’t prevent the federal government from continuing to borrow money (increasing the cost to the taxpayer), it does increase the interest rate that both businesses and consumers have to pay. For example, housing construction had been slumping but began to recover last summer as mortgage rates began to decline. This raised hopes for a “soft landing” of the U.S. and the world economy. But now mortgage interest rates are rising to their highest levels since before the 2007-09 crisis, and housing starts renewed their decline.

Law and Bonapartism in U.S. Politics

I’m pausing my critical review of Anwar Shaikh this month. Instead, I’ll devote this post to examining the current economic and political situation as it appears from the belly of the beast.

The economic contradictions of the capitalist system are coming to a head. This happens just before a universal crisis of general commodity overproduction. It’s particularly marked this time due to the frenzied character of the COVID aftermath boom. We’re seeing the contradiction between the capitalist system’s drive to continuously expand production and the limits on production imposed by the market’s ability to absorb commodities at a profit.

The Federal Reserve System is trying to slow the U.S. economy to a sustainable pace without sending it into a politically damaging recession. It says it wants less hiring and a slower expansion of production to fight inflation. Inflation is seen to be the result of too little commodity production relative to demand. How does reducing the number of people employed and slowing the production rate reduce inflation? Shouldn’t the answer be to produce more and employ more?

Whip of Hunger, part 2

As May drew toward its end, the media was full of reports that the world economy was teetering on the edge of catastrophe. If the media is to be believed, the threat came not from the unsold commodities that accumulated due to the COVID aftermath boom. Rather, they said that unless the Democrats and Republicans reached a last-minute agreement to raise the debt limit, the government will be forced into default as the Treasury runs out of money.

In last month’s post, I declared that this crisis was fake. Sure enough, “at the last minute,” the crisis was averted. On Saturday, June 3, President Biden signed the compromise agreement allowing the government to keep borrowing into 2025. The compromise bill sailed through the House of Representatives with 314 voting yes and 117 voting no. In the Senate, the vote was 63-to-36. No small portion of that borrowed money will go to servicing federal government debt, the bulk of which is owned by wealthy capitalists.

Karl Marx on the national debt

Karl Marx wrote:

“The only part of the so-called national wealth that actually enters into the collective possessions of modern peoples is their national debt. Hence, as a necessary consequence, the modern doctrine that a nation becomes the richer the more deeply it is in debt. Public credit becomes the credo of capital. And with the rise of national debt-making, want of faith in the national debt takes the place of the blasphemy against the Holy Ghost, which may not be forgiven.” (Capital, Volume 1, Chapter 31, Genesis of the Industrial Capitalist)

The Phony Crisis, the Real Crisis, and the Whip of Hunger

U.S. law prevents the federal government from allowing its debt to rise beyond a specific limit. As of May 2023, the limit is $31.4 trillion though this will be raised in the coming weeks. If either or both houses of Congress don’t, the federal government will be forced to reduce expenditures and forced into default. Finance capital won’t allow that.

On January 19, 2023, the day the legal limit was reached, the debt ceiling was not raised because of various technical loopholes in the law, but they are not unlimited. This is not the first time for this kind of artificial government debt crisis, which has become a regular feature of U.S. politics since the Obama administration. Treasury Secretary Janet Yellen estimates that the legal wiggle room (technical loopholes) will be exhausted by June 1, 2023. So while an over-the-weekend theatrical default is possible, the chance of an extended default is less likely than the Vatican announcing its conversion to Judaism or Islam.

Is the federal debt crisis just for show? Not at all. A bill will be passed within the next few weeks, raising the current $31.4 trillion debt limit. To become law, the bill must be passed by both houses of Congress and signed by the President. The Democrats narrowly control the Senate, but the House of Representatives has a slim Republican majority. The House already passed a bill to raise the debt limit, but it contains provisions cutting the budget. Of course, cutting the war budget is off the table — instead, the GOP wants to gut social programs. The most important provision is to attach work requirements to Medicaid and food stamps benefits, as well as measures to promote the production of more fossil fuels. They also want Biden’s limited student debt forgiveness canceled.

Trump Charged

On April 4 in New York City, former President Donald Trump was arraigned in court on 34 felony charges brought by the State of New York — not the Federal Government. He became the first president to be charged with crimes — felonies — after leaving office. In the United States, arraignment is when the charges are read, detailing the laws allegedly violated. Then, the defendant enters a plea, guilty or not guilty (Trump pleaded not guilty). He was released without bail and promptly flew on his private jet to his luxurious home — one of many — at the Mar-a-Lago resort in Palm Beach, Florida, near Miami.

Even if Trump is found guilty by a jury — which wouldn’t be until 2024 at the earliest — he would not be barred under law from again running for or serving as president. Eugene Debs, the Socialist Party presidential candidate, ran from his prison cell in 1920. Trump is the opposite of Debs in terms of the class he represents, in morality, and in almost every other way. It’s hard to imagine the 2024 Republican nominee running from prison! Nobody expects Trump to serve a minute in prison even if convicted of every count and all appeals fail. The point of the charges isn’t to put him in prison but to keep him out of the White House.

Many liberal and progressive observers delighted to see Trump charged are dubious that these charges will stick. The charges of falsifying business records are misdemeanors under New York State law, not felonies. In the Clinton impeachment of 1998, the underlying crime involved an affair with someone, not his wife. Bill Clinton had an affair with young aide Monica Lewinsky. From a purely moral standpoint, Clinton’s affair with the young aide was worse than Trump’s affair with porn star Stormy Daniels who is well-versed in the ways of the world.

The New Banking Crisis

On Wednesday, March 8, California-based Silvergate Bank announced it was voluntarily winding up operations. The same day, Silicon Valley Bank, the favorite bank of the area’s companies and venture capitalists, announced it was selling off its portfolio of government bonds to raise cash. This triggered a run on the bank, forcing the Federal Deposit Insurance Corporation (FDIC) to shut it down on March 10. On Sunday, March 14, the FDIC announced it was shutting down New York-based Signature Bank. Both Silvergate and Signature were commercial banks heavily involved in lending to cryptocurrency companies. Problems leading to their collapse can be traced back to the collapse of Sam Bankman-Fried’s FTX cryptocurrency exchange last year.

Under U.S. law, bank deposits are insured up to $250,000. The idea is to insure small and medium-sized deposits. They wasted little time announcing that all deposits would be fully redeemed. The sound (or not-so-sound) commercial banks will be asked to cough up the money to make up for the massive losses FDIC will incur by paying off large capitalist deposit owners who weren’t supposed to be insured.

The FDIC hopes to stave off a general collapse of the currency system, which is based on using bank deposits as currency instead of traditional dollar bills and coins. If the bank deposits as currency were to collapse, it would lead to an economic crisis worse than the bank runs of 1931-33. Those marked the transformation of the recession that began in 1929 into the Great Depression. In bygone years, in capitalist countries, spending money mainly meant using coins and some paper banknotes redeemable in gold (or silver) at the government treasury or the central bank. At this earlier stage of capitalist development, extreme monetary crises in the form of bank runs did not threaten the purchasing power of the basic currency.

Where is the U.S. Economy Going?

In January, the U.S. Labor Department estimated that the non-farming sector of the economy created 517,000 new jobs on a seasonally adjusted basis. Reading the fine print, you see these new jobs exist only on the statistician’s worksheet. The estimate is that on a non-seasonally adjusted basis, the economy lost 2.5 million jobs. Just before the holidays, additional workers are hired to meet the extra demand and are laid off at the season’s end.

The variations are taken into account and smoothed over to reveal the underlying trend. This year, they figured about 3 million workers would be laid off. But these are estimates. Since only 2.5 million were let go on a seasonally adjusted basis, the economy created about half a million additional jobs. But how to make the seasonal adjustment is a complex subject. We are still in the aftermath of a collapse in the hotel and restaurant industries caused by COVID-19. Employment numbers tanked when people stopped traveling and eating out and have yet to return to pre-pandemic levels. Perhaps fewer workers than usual were hired this holiday season, so fewer workers were laid off when it ended.

Another factor was the unusually mild weather that occurred over the country in January. With little snow on the East Coast and Midwest, major storms were limited mainly to California. Wind-driven rain ravaged most of the state, except for higher elevations in the thinly populated Sierra Nevada and Cascade mountain ranges. The economy was disrupted less by winter storms than usual. Weather is not accounted for in making seasonal adjustments.

The Economic Outlook for 2023

As the new year begins, there is cautious optimism on Wall Street that the Federal Reserve will continue to moderate or perhaps reverse its moves to raise the federal funds rate. The Fed’s policies of increasing the rate target have led to expectations that a recession with rising unemployment will develop. What is the federal funds rate, and what is its relationship to the chances of a 2023 recession?

Federal law requires that commercial banks keep a certain amount of ready cash on hand either in the form of legal tender currency — paper money and coins — or deposits in one of twelve district Federal Reserve Banks making up the Federal Reserve System. The federal funds rate is the interest rate on loans commercial banks make to other commercial banks overnight.

When a bank is short of legally required cash reserves, it borrows from other banks that have a surplus over the legally required minimum. The money market is said to be tightening when the rate is rising. When the rate is declining, the money market is said to be easing. A tightening market precedes a recession, while an easing market points to an economic recovery. The Open Market Committee of the Federal Reserve System (today headed by Chairman Jerome Powell) — through the Federal Reserve Bank of New York — sets a target range for this interest rate, called “fed funds.” The fed funds target is currently between 4.25% and 4.50%.

2022: COVID aftermath boom, overproduction, crypto downfall

The final two months of 2022 were full of events promising to lead to even more important ones in 2023. Here’s a list of some of the most important.

1. Railroad workers

What may be the most significant event of November-December 2022 was the Biden administration’s decision, backed by Congressional Democrats and Republicans, to force a contract on railroad workers without meeting their basic demand for sick days! This might be tolerable if workers never got sick. However, rail bosses and their government servants denied sick days despite the continuing global COVID-19 pandemic that’s taken more than a million lives in the U.S. and continues claiming victims here and around the world daily. Forcing workers to work sick spreads disease. This refusal of the railroad bosses and government is dangerous and potentially deadly to people beyond the railroad industry.

The great labor upsurge of the 1930s, represented by the Congress of Industrial Organizations (CIO), established industrial unions in basic industry outside the Jim Crow South, but the upsurge bypassed the railroad industry. Since rail’s origin, the government hasn’t recognized their right to strike. Since then, rail workers have been hobbled by weak craft unions. The need to organize along industrial lines — where all workers in an industry belong to a single union regardless of craft — was realized long ago by conservative craft unionist Eugene Debs. In the 1890s, he came to this conclusion not by reading books but through his daily experience as a rail worker and union leader.