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?

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.

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.

Afghanistan – Past, Present and Future, a Marxist Analysis

On Aug. 30, the last U.S. and other NATO troops after a 20-year shooting war against the Afghani people withdrew from Afghanistan in defeat. On Aug. 15, even before the last U.S.-NATO troops had left, the Taliban entered Kabul as the “president” of Afghanistan, U.S. puppet Ashraf Ghani, fled the country.

It wasn’t only Ghani who fled. What was on paper the extremely formidable apparatus of the Afghan state including a heavily armed standing army of 300,000 soldiers and a massive police force melted over 11 days into thin air. As Taliban fighters drove into Kabul, there were no police on the streets. The only security was the armed Taliban. As these astonishing events unfolded, the U.S. military seized and maintained control of the Kabul airport as panic-stricken supporters of the U.S. occupation, and other Afghans who have no desire to live under the rule of the Taliban fled to the airport. In one incident, Afghans fleeing the Taliban desperately held on to a U.S. plane. Showing the real attitude of U.S. imperialism to those who do its bidding, the plane took off anyway with the Afghans dropping to their deaths.

Many more Afghans celebrated both the end of decades of disastrous war and the fact that another empire — the most powerful of them all — had been defeated by the people of Afghanistan. At least momentarily, Afghanistan is more united than at any time in its history. President Biden claimed a few weeks earlier — pointing to the 300,000-strong Afghan army compared to the 75,000-strong Taliban — that the U.S. withdrawal would not end like the U.S. war against Vietnam had on April 30, 1975.

In fact, the speed of the collapse of the U.S. puppet government dwarfed anything that had happened in Vietnam. In Vietnam, the puppet government had held on for about two years after the last U.S. troops withdrew. In Afghanistan, the puppet government vanished several weeks before the last U.S. troops could be flown out — to the astonishment of the U.S. government, the world, and even it seems the Taliban itself.

Biden, ‘Sanctions’, Blockades, and Imperialism

“Sanctions” used by U.S. imperialism against governments it seeks to overthrow, and part of its policy of enforcing and extending its world domination, are acts of economic warfare. The demonstrations in Cuba that erupted on July 11 against the Cuban government around the slogan “Patria Y Vida” — country and life — illustrate this fact.

Background to the counterrevolutionary demonstrations

Since 1960, Cuba has been blockaded by the United States. According to Wikipedia, in April 1960, Deputy Assistant Secretary of State for Inter-American Affairs Lester D. Mallory wrote to his superior Roy Rubottom that the “only foreseeable means of alienating internal support is through disenchantment and disaffection based on economic dissatisfaction and hardship.” The aim would be to deny “money and supplies to Cuba, to decrease monetary and real wages, to bring about hunger, desperation and overthrow of government.” This not only describes perfectly the policy adopted by the Eisenhower administration in 1960 but also Biden’s policy toward Cuba today.

Until the end of the 1980s, Cuba’s membership in the socialist bloc led by the USSR greatly mitigated the effects of the economic blockade. However, the counter-revolution that matured under Mikhail Gorbachev in the USSR not only destroyed the USSR as a socialist federation of Soviet Socialist Republics, it also destroyed what had been the socialist economy under construction as well. The wave of counterrevolution unleashed by Gorbachev’s policies engulfed all of Eastern Europe as well as the USSR. This capitalist counterrevolution had dire effects on the struggle of the working class, the peasantry, and oppressed people not only in the former socialist bloc but throughout the world.

The Soviet Union had been more than simply another trading partner for Cuba. The relationship between Cuba, the Soviet Union, the German Democratic Republic, and the other socialist countries in Eastern Europe contained elements of the planned international socialist economy of the future. All this had been lost by the time Mikhail Gorbachev “resigned” as president of the Soviet Union in December 1991.

A return to austerity

On June 23, President Joseph Biden announced a bi-partisan deal between the Democrats and “moderate” Senate Republicans to pass a $953 billion infrastructure plan, which includes only $559 billion in new spending. This was a small fraction of Biden’s original promise to push for a $4 trillion infrastructure plan. Biden claims he still seeks to pass his original plan. But considering the GOP’s virtual veto power in the U.S. Congress, the plan seems as good as dead. It is worth noting that the $953 billion compromise contains none of the “green energy” proposals that were part of the original plan.

What the bipartisan deal does include is “asset-recycling,” which had also been central to Trump’s infrastructure plans. Under “asset-recycling,” the federal government borrows money at high interest rates from private for-profit companies that the federal government depends on to build infrastructure projects. As collateral on the loans, the companies take possession of roads, bridges, and other public works for the life of the loan — about 30 years.

The private companies then set up toll booths on previously public roads and bridges that the federal government has leased to them as collateral, in effect treating them as their private property until the loans are repaid with interest. The public is skinned twice, once through paying off the loans and the interest on the loans as taxpayers, and second through paying tolls on previously public roads and bridges. The government then uses the borrowed money to carry out other parts of the infrastructure plan.

The proposed “compromise” with the GOP on infrastructure is typical of Joseph Biden’s 50-year-long political career in the service of U.S. capital. The “compromise” is so reactionary that members of the “progressive” Justice Democrat faction of the Democratic Party in Congress threaten to vote against it.

Earlier this year, it was widely believed in progressive circles that the Biden administration was breaking with decades of neoliberal austerity policies and returning to full-blooded “Keynesianism” of the “golden years” of the 1950s and 1960s. The $4 trillion infrastructure plan was supposed to mark the definitive end of the neo-liberal policies that have dominated Washington’s policies since the “Volcker shock” under Carter and then the election of Ronald Reagan some 40 years ago.

Progressives were hoping that a massive “Keynesian” public works program would bring about a return of the kind of full-blooded capitalist prosperity not seen in decades. True, the Biden administration did restore half of the $600 a week in extra unemployment benefits the U.S. government under Donald Trump instituted in the spring (northern hemisphere) of 2020 but then allowed to run out after a few months. And this spring, the Biden administration mailed out $1,400 checks to all “legal” adult working-class and lower-middle-class U.S. residents. It also granted temporary tax relief to families raising young children.

Since it took office on Jan. 20, the Biden administration has been running down the U.S. government’s swollen checking account at the Federal Reserve Bank of New York. This has allowed the U.S. government to slow the rate at which it has been borrowing money, allowing long-term interest rates to dip in recent months.

Hence, a huge amount of purchasing power has been pumped into the U.S. and world capitalist economy in the opening months of the Biden administration. As a result, according to the U.S. Labor Department, total employment rose 850,000 in June. For the first time in months, this number met the expectation of economic pundits. But maintaining this economic momentum long enough to set off a sustained rise in the industrial cycle capable of restoring old-time capitalist prosperity is another matter entirely.

The U.S. capitalists claim they are facing a huge labor shortage even as employment remains millions below the level that prevailed in February 2020 just before COVID-19 hit with full force. However, the capitalists’ complaints about the “labor shortage” are having their effect on government policy in the U.S., at both the federal and state levels.

Republican state governments have already ended the expanded unemployment benefits, while the Democrat-run government of California has announced that people must now give evidence that they are actively seeking employment or lose benefits. This occurs even as COVID-19 cases are once again rising, especially among the unvaccinated or partially vaccinated. In September, the extended unemployment benefits are scheduled to run out entirely. There is virtually no chance in light of the alleged “labor shortage” being trumpeted by the media that the extra benefits will be extended.

Nor is there much chance in light of the “labor shortage” of any more stimulus checks. The mailing out of additional stimulus checks would encourage workers to hold out for wages and working conditions higher than the bosses are offering. The capitalists are therefore using their control over both the Democrats and the Republicans to make sure there are no more stimulus checks.

In addition, the U.S. Treasury is nearing the end of the rundown of its checking account at the New York Fed. As the account balance shrinks, either U.S. government borrowing will have to rise once again, which will renew upward pressure on interest rates, or government spending will have to fall, or some combination of the above. This means that U.S. fiscal policy will be a great deal less expansionary beginning in the second half of 2021 and beyond than it was in the first half of the year.

The drift back to the fiscal austerity typical of post-Volcker shock neo-liberalism almost certainly means that the rate of economic growth and with it the rise in employment will soon be slowing down.

The Federal Reserve’s Open Market Committee Meets

On June 16, the U.S. Federal Reserve’s Open Market Committee concluded its two-day meeting and announced its decisions. The FOMC consists of the seven members of the Board of Governors, the head of the Federal Reserve Bank of New York, and (on a rotating basis) the heads of four of the 11 other Federal Reserve Banks that make up the Federal Reserve System. The four Federal Reserve Bank presidents serve one-year terms.

The only concrete decision announced was a rise in the interest rate Federal Reserve Banks pay on the deposits commercial banks keep with them, from 0.10% to 0.15% per year. This represents a very slight “tightening move.” However, as is usually the case, more attention was paid to the tone of the FOMC report than on any concrete decisions made.

Speculators in the gold market, commodities markets, bond market, and stock market hang on every phrase of Federal Reserve statements. The general reaction was that the FOMC indicated that it would move to “tighten” its stance sooner than had been expected. As a result, the price of stocks fell while the U.S. dollar rose sharply against gold.

The Fed’s leadership is nervous about the dollar’s recent weakness against gold and a surge in primary commodity as well as wholesale and consumer prices. Though the FOMC repeated its belief that the current surge in inflation will soon taper off, it no longer seems so sure. As I explained last month, Fed leaders cannot ignore the very real danger that dollar weakness and rising inflation could signal a return to “stagflation” over the next several years and the sharp rise in interest rates and deep recession that inevitably follow.

The Federal Reserve System’s leaders hope to guide the U.S. and world capitalist economies onto a path of a sustained rise in the global industrial cycle, which would normally be expected to last about nine years. They hope that the cyclical upturn will be stronger than the one that followed the Great Recession. But they have to reckon with the very real danger that the current apparent upturn in the worldwide industrial cycle will abort if the Fed allows the dollar to plunge against gold causing inflation and interest rates to rise.

This would make a deep global recession with soaring unemployment inevitable, perhaps before the end of Biden’s four-year term. Far worse from the viewpoint of U.S. imperialism, it would endanger the dollar system, which forms the foundation of the U.S. global empire.

Ultimately, the decisions of the Federal Reserve and its Open Market Committee are constrained by the economic laws that govern the circulation of money. This is why Pichit Likitkijsomboon’s article in Monthly Review critiquing what he calls the “anti-quantity theory of money” takes on special importance. Before we continue our examination of his critique, let’s take a brief look at the current economic situation.

Analyzing Currency Circulation

On May 20, a ceasefire was announced between the Hamas-led government of Gaza and Israel. The truce followed an 11-day pounding of Gaza’s 2 million-plus residents by Israeli bombers and rockets. Residents of Gaza, described as the world’s largest open-air prison, are not allowed to leave. According to Gaza’s Ministry of Health, total deaths among Gaza residents — or perhaps we should say inmates — were at least 248. Of these, 39 were women and 66 were children. An additional 1,910 people were wounded. According to UN officials as a result of the Israeli assault, 800,000 people in Gaza do not have access to clean water. All of this is amid the COVID-19 pandemic, which has swept through Gaza as it has through the rest of the world.

According to the Israeli government, Israeli casualties from rockets fired from Gaza include 12 deaths, of which two were children. Israel is well supplied by the United States with bombers and highly accurate computer-guided missiles, while Gaza residents have only highly inaccurate missiles that can only be shot in the general direction of their targets. In addition, most of the Gazan missiles have been shot down by the Israeli military using the U.S.-provided Iron Dome anti-missile system. As a result, physical damage done to Israel by Gazan missiles has been minimal.

The accuracy of the U.S.-provided bombs and missiles is illustrated by the destruction of a Gaza high-rise that housed both the Al Jazeera news agency and the U.S.-based Associated Press. The Israeli government gave journalists minutes to leave claiming that the building was being used by Hamas, the elected governing party in Gaza. However, AP claimed there was no evidence that Hamas used the building.

What is true is that the high-rise provided an excellent view of Gaza and therefore of the toll the Israeli assault was taking on the besieged city. Perhaps the Israelis were more concerned about Al Jazeera than they were about AP. Still, the attack on the building was a clear attack by the Israeli government on journalists and freedom of the press.

AP was therefore forced to protest. However, the next day AP under right-wing pressure fired an American journalist, Emily Wilder, for pro-Palestinian tweets when she was a college student as if that is a crime. Wilder was active as a college student in the Jewish Voice for Peace and so happens to be Jewish.

She is not alone in the American Jewish community. Increasingly, younger Jews have come to oppose the actions of the Israeli government, which claims to represent all Jews, including those who do not live or wish to live in Israel, but not its Arab citizens. Most of the American Jewish community opposed the administration of Donald Trump, not least because Trump’s racist demagoguery was reminiscent of the ideology that eventually led to the Third Reich in Germany. Indeed, extreme antisemitism is widespread among Trump’s supporters.

This did not prevent Trump from claiming that he was the most pro-Israel president ever. He pointed to his decision to move the U.S. embassy from Tel-Aviv to Jerusalem. The former president when speaking to Jewish-American organizations repeatedly described Israeli Prime Minister Benjamin Netanyahu as “your prime minister,” which drew protests even from docile (to American imperialism) pro-Zionist Jewish organizations. This did not prevent these same organizations from coming out once again in support of the latest Israeli war against the Palestinian people.

Netanyahu and most of the Israeli population, in contrast, strongly supported Trump. The racist rhetoric of the former — and possible future — U.S. president was music to their ears. The latest crisis broke out when the Israeli government moved to evict some four Palestinian families from their East Jerusalem neighborhood of Sheikh Jarrah to make room for Jewish settlers in the historically Arab area. The Zionist propaganda machine claimed that this was a routine eviction case involving the fact that the Arab residents had not paid rent for 39 years to Jewish landlords who the Zionists claim had owned the apartments since the 1870s.

Putting monopoly super-profits over human lives

The 2020 recession was more than the usual cyclical downturn. There were, however, signs a cyclical recession was developing before the COVID-19 pandemic hit with full force in March 2020. Industrial production in most countries had already ceased to rise. The U.S. Federal Reserve System had already initiated an “easing” cycle in an attempt to contain the incipient downturn. That was the situation when it became impossible to deny that the COVID pandemic was rapidly spreading in the United States and around the world.

As the reality of the deadly global pandemic became widely known, the travel, hotel and hospitality industries came to a grinding halt. Many other industries were devastated. As people were forced to hunker down across the globe, both the production of surplus value and its realization were sharply curtailed. As sales of commodities plummeted, the velocity of circulation of the currency dropped drastically. This meant that a given quantity of currency generated far less monetarily effective demand than it would under normal recession conditions.

Eager to get both the production of surplus value and its realization back to normal, capitalist politicians, most notoriously former President Donald Trump, pushed for “reopening” the economy. Trump originally set a target of Easter 2020 for the reopening! So began a cycle of premature “re-openings,” followed by rising COVID cases, hospitalizations, and deaths to new highs leading to renewed, if ever more limited, shutdowns.

Among the countries that dealt with the pandemic the worst was the world’s richest country, the United States. In no other country in the world does the capitalist class have more unbridled power. Business pushed for the fastest reopening possible so that normal profit-making could resume. President Trump was more than willing to oblige since he had planned to pitch his reelection campaign around the theme that the U.S. was experiencing “the greatest economy ever.” Democrats and Republicans competed with one another on who could reopen their state and local economies fastest. As a result, the total number of official U.S. COVID-19 deaths now approaches 600,000. Worldwide, more than 3 million people and rising have died.

Brianna Griffith, writing in the online socialist publication Liberation News, reported: “India, South Africa and 80 other countries proposed a temporary waiver of the Trade-Related Aspects of International Property agreement on patents. The proposal was blocked in February by the United States, European Union, United Kingdom, Japan, and Australia. It is also opposed by the U.S. Chamber of Commerce, Pfizer, BioNTech, Moderna and Johnson & Johnson — key beneficiaries that stand to profit immensely from global suffering.”

So far, the Biden administration, just like its notorious predecessor, prefers to safeguard the monopoly super-profits of big pharmaceutical companies holding the patents on the lifesaving vaccines. The result is that less vaccine is being produced than would be the case without the state-enforced monopolistic profit protection for “Big Pharma,” and the vaccines being produced are selling at prices far above their prices of production.

The greater the price of a vaccine relative to its price of production, the harder it is for governments to find the money to purchase it and the greater the number of preventable deaths and serious illnesses. Naturally, the people of the most exploited countries and classes in the world are hit the hardest. (3 ) Therefore, safeguarding the patents of the drug companies begun under Trump and continuing under Biden is not just a policy of putting profits over people but rather putting super-profits above human lives.