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%.

The Dollar System Shows its Fangs

On October 5, an article by Shawgi Tell appeared in the online publication “Dissident Voice” titled “The Rich and their Media Offer No Solutions to Economic Problems.”

Tell writes: “False choices, bad options, and mixed messages abound. Week after week, one news source claims that everything is great while another says that the economic forecast looks gloomy for the next decade. Economic concepts like inflation, interest rates, costs, prices, and unemployment are rendered in the most tortured manner over and over again, with different representatives of the rich constantly making unscientific and confusing claims about what is ‘the real problem’ and how to ‘get us back on track.’”

Anybody trying to make sense of what is happening in the economy by reading the analysis in the media will be hopelessly confused. For example, we are told the Labor Department reported that 263,000 jobs were created in September. While reported as fact, this figure is only an estimate. The media indicates that job creation slowed last month from the month before but not enough to prevent the stock market from falling sharply on the day the unemployment figures came out. Wall Street knows that under current circumstances, as long as employment continues to rise, so will interest rates.

Fighting Bonapartism by Bonapartist Methods

On August 8, former U.S. President Donald Trump announced that the FBI was searching his luxurious palace-like mansion in Mar-a-Lago in Palm Beach, Florida. Trump wasn’t in Mar-a-Lago. He was in his Trump Tower residence high above Manhattan in New York City, another one of his many residences. Trump claimed he observed the FBI search live on close circuit TV. The FBI raid was ordered by U.S. Attorney-General Merrick Garland. President Joseph Biden claimed he didn’t know about the raid in advance.

The search warrant, soon made public with redactions, is a legal document U.S. police agencies — in this case, the FBI — need for a legal search without the approval of the person who is being searched. According to U.S. law, to obtain a search warrant, the police agency conducting the search must convince a judge — in this case, a federal judge — that there is probable cause of a crime. The alleged crimes being investigated center on Trump’s possession of secret documents with various degrees of classification. Documents with high degrees of classification are documents whose contents are hidden from the American people and everybody else, except for certain high-ranking government officials, for “national security” reasons.

The classified documents allegedly stored at Mar-a-Lago without authorization might include military secrets (including those of nuclear weapons), as well as information, if made public, embarrassing to powerful people. They are supposed to be stored in highly secure government buildings — it’s a crime to hold them in a private residence or other unsecured location. Only Trump and a handful of government officials know what’s in them.

The Fed Meets and Congress Investigates January 6

In June 2022, the news in the United States was dominated by two stories. One was the decision of the Federal Reserve System to raise its target for the federal funds rate by 0.75%. The new rate range is between 1.50% and 1.75%. The second story broke the same week: The congressional hearings into the events of January 6, 2021. On that date, a right-wing mob, supported and inspired by President Donald Trump, broke into the U.S. Capitol. It was an attempt to force Congress to reverse the 2020 presidential election results. Is there a connection between these two? Yes, even if it isn’t a direct one.

Let’s begin with the Federal Reserve story. For most people, Federal Reserve operations are a mystery. The federal funds rate is the interest rate charged on overnight loans that U.S. commercial banks make to one another. The law, as well as financial prudence, require commercial banks to maintain a certain minimum of ready money to cover their deposit liabilities. Many are surprised to learn that under the fractional reserve system, commercial banks maintain only enough cash on hand to redeem a small portion of the money the public has on deposit. If all depositors were to try to withdraw all their money at the same time, every bank would fail. The reason? Most of the money on deposit does not represent actual cash in the form of legal tender — bills and coins — but is imaginary money created by the banks themselves through their loans and discounts. To prevent collapse, a minimal cash amount backs up deposit liabilities.

Commercial banks are for-profit enterprises. To maximize profits, cash on hand is kept to a minimum as it earns no interest. To put it in more scientific terms: The cash commercial banks must keep on hand to redeem deposits does not entitle the bank’s shareholders to a portion of the unpaid labor — surplus value — performed by the working class.

Economic Prospects

Three factors shape the current global economic conjuncture.

The first is the sluggish but long rise in the capitalist global industrial cycle following the world economic crisis of 2007-09. This rise continued until February 2020.

The second factor is the worldwide COVID-19 pandemic that shut down large parts of the global economy and world trade in 2020. This sent unemployment rates into double digits. The West’s capitalist governments increasingly treat COVID-19 as endemic rather than a pandemic. Shutdowns are over and even mask-wearing is becoming a thing of the past. But the virus continues. On-and-off shutdowns continue in the world’s leading manufacturing nation: China.

The third factor is the global economic and financial war launched by the U.S. world empire against Russia. This war was formally launched in response to the Russo-Ukrainian war, ongoing since the U.S.-supported right-wing Euromaidan coup in 2014. It entered a new stage with Moscow’s launching of a special military operation on Feb. 24, 2022. The war had already taken about 15,000 people’s lives before the military operation began. Fighting was limited in recent years, but in the weeks leading up to Feb. 24 Kiev stepped up shelling the Donbass. All indications are Washington encouraged its puppet Euromaidan government to launch an offensive to crush the ethnically Russian People’s Republics of Lugansk and Donetsk.