On Wednesday, Jan. 15, 2025, five days before Donald Trump took office, an agreement was announced for a ceasefire to take effect the following Sunday, Jan. 19. President-elect Trump sent Steve Witoff, like Trump a New York City real estate magnate, to negotiate — or rather, lay down the law — to the Netanyahu regime.
When Israeli leaders protested that it was Saturday, the Jewish Sabbath, Witoff, who is Jewish, swept these pious objections aside. He said that the Netanyahu regime would have to agree to terms established the previous May.
None of the tricks that worked under Trump’s predecessor to stop a ceasefire worked this time. It was an offer the Zionist entity could not refuse.
The boss representing U.S. imperialism had spoken. And so, the merciless bombardment of Gaza that had persisted for 15 months, with only one brief pause, was halted. Aid trucks entered the strip, and unlike when President Joe Biden was in office, Israeli mobs did not block the deliveries. (Though since this was written there are reports that Israel is indeed slowing down deliveries).
For liberals and progressives who had, to their credit, opposed the genocide, it was embarrassing, to say the least, that it was Trump — not a progressive or even a liberal Democrat — who finally stopped the genocide. Despite claims it was necessary to support Kamala Harris to halt Trump’s fascism, Harris refused to distance herself from Biden. Unlike members of the Cabinet, the vice president does not serve at the president’s pleasure, yet Harris maintained her alignment with Biden. In large part due to the genocide in Gaza, many progressives refused to vote for Harris. This led to Trump winning the popular vote against Biden, securing a plurality among those who chose to cast a ballot, falling just short of a majority.
Some Democratic-aligned liberals and progressives now argue that the ceasefire is unstable and does not solve the basic problem: the imperialist-Zionist colonization of Palestine. However, for the first time in more than a year, the people of Gaza — children, women, and men — are no longer being slaughtered in the tens, and indeed in the hundreds of thousands, if the effects of thirst, hunger, cold, and disease are included. Aid is finally flowing, though Israel is still trying it to keep it down to a trickle, and some Palestinian prisoners (or should we call them hostages?) are being released.
Whether the promised reconstruction aid to rebuild Gaza will arrive remains uncertain. For now, Gazans, bloodied but unbowed, are not defeated. Given the circumstances, this is a victory for the Palestinian people and their supporters worldwide. In contrast, Biden will live out his days in disgrace, and long after his death, his name will be invoked with horror by most of humanity.
Between Oct. 8, 2023, and Jan. 19, 2025, Democratic Party progressives often explained that the Zionist lobby had a stranglehold on politics, leaving politicians — Democrat, Republican, liberal-progressive, or conservative-reactionary — powerless to defy its dictates from their bosses in Tel Aviv and Jerusalem. It seems that the U.S. is dominated by a foreign power — Zionist Israel. Many liberals and progressives complain that politicians prioritize Israel’s interests over “America’s.” Yet Trump’s intervention stopped the slaughter. What is really going on?
First, it is a mistake to think in terms of putting the U.S. or Israel first. U.S. politicians — Democrat or Republican, Biden, Harris, Trump, or JD Vance — are all obligated by the capitalist system of class rule to put the class and commercial interests of the national capitalist class they serve first.
The leaders of the Zionist entity put the interests of their capitalist ruling class first. However, the political, military, economic, and financial relations of power between the capitalist class of the U.S. and that of Israel are unequal. The U.S. ruling class controls the purse strings, providing the Zionist entity with access to cutting-edge military technology, such as 2,000-pound bombs.
The Zionist entity is entirely at the mercy of U.S. imperialism. U.S. politicians, including Biden and Trump, serve the interests of the Zionist entity only as long as it aligns with the U.S. capitalist class’s objectives. When conflicts of interest arise, as there sometimes are, the U.S. ruling class always prevails — every time.
Different factions within the U.S. ruling class may have conflicting interests, and individual capitalists and their political representatives may disagree on how far to go in supporting or identifying with the crimes of the Zionists. Ultimately, the class and commercial interests of the U.S. ruling class shape U.S. policies toward the Zionist entity. Their only limitation is the resistance of the Palestinian people and their supporters — including a growing section of people in the U.S. (1)
A tale of two Holocausts
The English word “holocaust” originates from a Greek term meaning “burnt offering.” In ancient times, animals — sometimes humans — were burnt at temples as offerings to the god or goddess that the particular temple was dedicated to — after all even divinities have to eat!
When Hitler’s fascist government decided to exterminate all European Jews during World War II, many were killed in gas chambers and then burned in crematoriums, much like the sacrifices of ancient times. In a sense, Jews were offered up to the Nazi God or gods.
After the war, the victorious Allies, led by the United States, refused to accept many Jewish refugees. Leaving aside their collective anti-Semitism as a reason, the capitalist ruling class, especially the U.S. ruling class, was not eager to take the Jewish survivors in because many were known to hold leftist and even Communist views. Instead, they were shipped to Palestine to fight the Palestinians. This angered Muslim and Arab countries.
Historically, Jews had found refuge from Christian persecution in Muslim-majority regions. However, in the new state of Israel, Arab Jews were encouraged to abandon their language and culture. They were taught to hate Arabs much like European Jews were encouraged to forget Yiddish and instead learn the artificially revived Hebrew language that had not been a living language for more than a thousand years. (2)
Israelis are still discouraged from learning Arabic, the language of the native peoples of the region. Pitted against the Arabs, Palestinians in particular, Israelis cannot but sense they are in a historical dead end, like the South African Afrikaners under post-World War II apartheid. The once largely left-wing European Jewish population, along with the Arab Jews, like the Afrikaners before them, were transformed into the extremely reactionary, racist, and genocidal colonial settler population they are today.
For 80 years, the capitalist rulers of the U.S. and their European satellites used the horror that Hitler’s genocide naturally provokes among all normal humans to mask the real nature of the Zionist entity from the peoples of the U.S., Europe and, though with less success, the peoples of what we call the Global South.
However, younger generations, particularly in the U.S. and Europe, have begun to recognize the truth.
A new generation has increasingly turned against the crimes of the Nakba (“catastrophe” in Arabic) and the even greater crimes of the Gaza genocide — including many from the new generation of U.S. Jews. It has become increasingly difficult for imperialist politicians like Biden and Harris to hide behind the holocaust of European Jews as they carry out their own holocaust in Palestine. If Biden and Harris didn’t know this before October 7, 2023, they do now.
Is Trump the lesser evil?
Some leftists — particularly outside the U.S. — have entertained the idea that Trump is the lesser evil compared to Biden and Harris. They argue that Trump, not Biden, ordered Zionist leaders to halt their genocide. Harris, despite replacing Biden as the Democratic nominee, said, when asked whether she would’ve done anything differently than Biden, “There is not a thing that comes to mind.”
Trump had an easier time issuing the order because he bore no responsibility for the genocide that began in October 2023. The genocide was so blatant and so well-documented on social media that a massive global movement arose against it, including significant protests within the U.S. Many young Jews, drawing on Jewish traditions of social justice, spoke out. Student-led activism against the genocide faced repression, which is likely to intensify under Trump. Nevertheless, these students, along with the people of Gaza, are the moral victors.
If Trump had failed to act, he would have owned the genocide, much like Richard Nixon eventually owned the war against the people of Vietnam. Trump is smart enough not to fall into the same trap.
Zionist Aims in the Post-October 7 Period
Officially, the Zionists’ stated objective was the return of the Israeli prisoners of war taken by Hamas on Oct. 7, 2023. However, Zionist leaders care little about the Israeli prisoners. Their real aim was to kill as many Palestinians as they could get away with.
The survivors, they hoped, would be forced out of Palestine to Egypt or Central Africa. If successful, this would drive down Palestine’s Arab population by about 2.4 million, a victory in its demographic battle against the native population. The Biden-Harris administration showed in practice that it shared this aim, as does Trump though he uses different methods.
On Feb. 5, Trump proposed a plan to transfer all Palestinians out of Gaza and have the U.S. take over the territory. If Israel could also force Arab Palestinians out of the West Bank, it would establish a dominant Israeli-Jewish majority. Most estimates place the Arab population of historic Palestine as greater than the Jewish population. As in the case of South Africa, apartheid is only a stop-gap measure. In the long term, if Israel is to become a stable capitalist nation-state, even a small one, it must maintain a crushing majority, which means either extermination or forced displacement of Palestinians.
The settler population of Palestine, Jewish Israelis, surrounded by hundreds of millions of Arabs— can only pursue this aim in alliance with the U.S. imperialist world empire.
Trump, like Biden and Harris, supports this objective. He supports removing the Arab-Palestinian population to Egypt and Jordan. For their own reasons, the neocolonial regimes in those countries do not want them. Ironically, like the Jewish population after World War II, Palestinians lean toward radical and left-wing views. Even if Trump succeeds in forcing Egypt and Jordan to take the Palestinians, he will run into the resistance of Palestinians in Gaza, the West Bank, other parts of Palestine, and the diaspora, as well as other Arab peoples, Muslims, and the peoples of the world.
Considering the current worldwide relationship of forces, the ceasefire is a victory but is far from the end of the struggle for freedom. As the struggle continues, the Palestinian people need our solidarity more than ever.
Imperialism with annexations
In the days of V.I.Lenin, the Russian revolutionary leader and author of the Marxist classic “Imperialism, the Highest Stage of Capitalism” in 1916, some reduced imperialism to an annexation policy. However, following Lenin’s theory, imperialism is understood to be the monopoly phase of capitalism, the phase where the centralization of capital has reached the point where commodity production has been undermined but still reigns.
Historically, monopoly capitalism or imperialism represents the transitional stage between capitalism based on free, not perfect, competition and the planned communist economy of the future. As under free competition, the capitalist state may or may not pursue a policy of annexation.
The first three-quarters of the 19th century was dominated by industrial capitalism (also called the phase of free competition that replaced mercantilism). British industry held an absolute competitive advantage based on the superior productivity of human labor of British industry. This was due to the mechanization of industry powered by steam. The British government could best improve the position of its industry through free trade while avoiding the expenses of the formal seizure of territories, with some exceptions. For example, it didn’t give up its control over India and, during the Opium War, seized Hong Kong.
By the fourth quarter of the century, Britain was losing its monopoly on global industrial production. It began to seize colonies, especially in Africa. France joined in seizing African territory. Japan seized Taiwan in 1895 and Korea in 1910. Germany joined the game but lagged and ended up with relatively few colonies. At the same time, the United States seized Spanish colonies in the Caribbean and West Pacific, including Puerto Rico, Cuba, and the Philippines.
Today, Puerto Rico is a Commonwealth of the United States. Puerto Ricans are U.S. citizens but have no representatives in Congress and cannot vote in presidential elections. A few years later, Cuba received formal independence, but the Platte Amendment allowed the U.S. to interfere in its affairs. While the Platte Amendment was repealed in the 1930s, Cuba did not win real independence until the victorious Cuban Revolution in 1959. The U.S. also seized Hawaii. Despite this, the U.S. colonial empire was limited compared to the British and French empires.
Earlier in the 19th century, the U.S., originally made up of of thirteen European colonies, was in the business of pursuing a policy of annexation. During what is known as the War of 1812 in the U.S. — part of the world war that followed the French Revolution — attempted but failed to seize Canada from Britain. It did buy Louisiana from Napoleonic France. It was a much larger territory than the present-day state. In the 1840s, the U.S. fought a war with Mexico. It annexed territories that had been part of Mexico, including the present-day states of California, Nevada, Utah, New Mexico, Arizona, and parts of Colorado, Wyoming, Kansas, and Oklahoma.
In 1867, the U.S. purchased Alaska from Russia, seized the Philippines in the Spanish-American War in 1898, and annexed Hawaii that same year. After World War II, the U.S. gave the Philippines formal independence while integrating Alaska and Hawaii as states.
When the U.S. seized territory, it organized it as a colony. Sometimes, the white colonists asked that their territories be admitted as states and other times, they created an independent republic and then applied for admission as a U.S. state.
By the eve of World War I, the U.S. had 48 states across the North American continent, between Canada to the north and Mexico to the south. After that, as U.S. industry became dominant due to its superior labor productivity, the drive to formally seize new territories slowed down. When World War II ended in 1945, industry and agriculture enjoyed a global monopoly of productivity.
Europe and Japan were in ruins, and Chinese industry was pretty much a rounding error as far as the world market was concerned. Because of this monopoly, the U.S. felt no need to establish a larger formal empire. In this respect, it resembled Britain during the first three-quarters of the 19th century. The colonies of European nations, including India, were given formal independence, making it easier for U.S. capital to dominate their economies. The expenses of maintaining a formal empire were avoided. But times have changed.
President Trump has said he will “take back” the Panama Canal, which was formally transferred to Panama under the Carter administration in the 1970s. In 1903, the U.S. created Panama by separating it from Columbia to build the canal.
Now, claiming that China is somehow dominating the canal, Trump refuses to rule out the use of force. U.S. bullying of small Latin American countries is hardly new, though it has generally avoided doing so in such a brutally crude way in recent decades. In 1989, President George H.W. Bush staged a full-scale invasion of Panama on the pretext of arresting its president, Manuel Noriega, as a common criminal for drug trafficking.
To further insult Latin Americans, Trump announced he was changing the name of the Gulf of Mexico to the Gulf of America. He didn’t stop there. In addition as an insult to Native Americans, he changed the name of the highest mountain on the North American continent, the magnificent 6,190 meters tall (20,194 feet) Mt. Denali, meaning “the high one,” back to its colonial name: Mt. McKinley. President William McKinley waged the imperialist war against Spain, the 1898 Spanish-American war, seized Puerto Rico, Cuba, and the Philippines, as well as imposing high tariffs. It’s long been a contradiction that the highest mountain in North America was named for McKinley, who even capitalist historians consider a mediocre president.
These name changes are designed to appeal to the racist bigotry of his MAGA base. But more may be involved. He demanded the Kingdom of Denmark sell the Danish colony of Greenland, the world’s largest island, to the U.S. As with the case of Panama, Trump did not rule out the use of force if Denmark doesn’t agree to sell for whatever price the administration is willing to pay. Trump also declared that Canada should be annexed to the United States. While he did not threaten the use of force in this pursuit, he indicated that he would use economic warfare if the invitation to become a U.S. state were refused. In a letter to Canadian Prime Minister Trudeau, Trump addressed him as governor, as though he were the governor of a U.S. state.
According to Wikipedia, Greenland is primarily populated by the Inuit native people, 89.51%, with a smaller part made up of European settlers and their descendants, mainly from Denmark, 7.5%.
Greenland is rich in mineral wealth, including rare earths, graphite metals like niobium, and the platinum group metals molybdenum, tantalum, and titanium. In addition, due to global heating, the glaciers covering most of the country are rapidly melting, which the Trump administration is doing everything it can to accelerate with its “drill baby drill” approach. The mineral wealth hidden underneath will become increasingly available in the coming years.
In the early days of World War II, before the U.S. formally entered the conflict, as Nazi Germany prepared to overrun Denmark (they did after only a few hours of fighting) — the Roosevelt administration moved to seize the island militarily. In 1946, the U.S. offered to purchase Greenland for $100,000,000.
Under the post-war conditions of U.S. industrial, agricultural, and financial dominance, the U.S. did not press the issue, though it built military bases on the island without permission. Now, with reduced relative industrial and agricultural strength in the world economy, the current U.S. administration is demanding that Denmark sell Greenland to the U.S., regardless of the will of its inhabitants.
Trump’s plan includes making Greenland a part of the U.S., perhaps attached to Alaska. Significantly, there is no legal way for a state to leave the United States within the U.S. Constitution, unlike the example of the constitution of the former Soviet Union. This would lock in Greenland’s annexation permanently.
Greenlanders do not want to join the U.S.
Wikipedia writes, “Virtually no Greenlanders want to join the United States, with 6% in favor and 85% against, according to a January 2025 poll. Europe’s leaders have stated their intention to defend Greenland and the borders of the Kingdom of Denmark, an EU country and founding NATO member. In January 2025, Denmark announced it would boost Arctic defense by spending an additional $2 billion ‘to improve capabilities for surveillance and maintaining sovereignty in the region.’
Germany and France have warned Trump over his threats. French Foreign Minister Jean-Noël Barrot said, ‘There is obviously no question that the European Union would let other nations of the world attack its sovereign borders.’ France has considered sending EU troops to Greenland to defend its borders against hostile foreign threats.’ ”
What are Europeans going to do in light of current military realities? In theory, they could invoke Article 5 of NATO, which says an attack on one NATO country is an attack against all of them. But what if the country threatening to attack is the most powerful NATO member, the United States of America, which has bossed all the other members around throughout NATO’s history? I suspect they will not get very far.
Though Trump has not threatened military action against Canada yet, he has indicated he will exert economic pressure. Unlike Greenland, Canada gets to be its own state. But isn’t Canada already thoroughly dominated by the United States?
Like Greenland, much of Canada is an arctic country. Under rapid global heating conditions, the Arctic is warming more rapidly than the rest of the planet. The Trump administration plans to accelerate that process by increasing the production of fossil fuels.
If Canada were to become the 51st state, it would lose the ability to levy tariffs or other trade restrictions or issue its own currency. The Bank of Canada could become owned by one of the Federal Reserve Banks of New York City, Minneapolis, or San Francisco. If annexation terms were generous, perhaps it would become a thirteenth Federal Reserve Bank.
Whatever the case, the U.S. dollar would circulate throughout North America as legal tender north of the Mexican border. If the future trade balance between the two favored Canada due to a rise in demand for raw materials and other Canadian commodities, there would be reduced downward pressure on the exchange rate between the U.S. dollar and other currencies.
In a time when the continuance of the U.S. dollar’s role as the world reserve currency is under discussion in part due to the gross abuse of the dollar’s international role in its conflict with Russia over Ukraine, if Canada becomes the 51st state, it would be a major gain for U.S. imperialism. Trump has made it perfectly clear, to use a favorite expression of Richard Nixon’s, that it is determined to preserve the role of the U.S. dollar as the world’s reserve currency by all means at its disposal.
Is Trump making empty threats to appeal to the extreme chauvinism of his base? If true, it is bad enough. But is there more to it?
Are we approaching a new stage of the imperialist world economy where the United States is under pressure to annex territories outright in a kind of 21st-century parallel to what happened in the final part of the 19th century as Great Britain’s overwhelming industrial domination waned?
Is the Trump administration moving toward creating a larger USA as a kind of inner empire to prolong its less formal domination of the rest of the world?
Remember that the formal British empire reached its geographical height not during the era of Britain’s economic domination but only after World War I.
Well, I am running out of time and space. I will have more to say as we observe the evolution of the second Trump administration over the coming months.
In any case, we must oppose all proposed annexations whether of the Panama Canal, Greenland, or Canada, and now Gaza, particularly in light of the evidence that the peoples of these countries have no desire to become part of the United States. (3)
The price of gold
Since late 2023, the dollar price of gold has been rising, meaning that the quantity that a U.S. dollar bill represents has been progressively falling. On Friday, September 15, 2024, the dollar price of gold closed at $1945.60. On January 31, 2025, the dollar price closed at $2809.30.
The rising dollar price of gold was a signal not to lower the target for federal funds; it was a signal to raise it. But, the Federal Reserve was determined to avoid recession. The idea was that if the Fed moved to reduce its target before a recession could take hold, the economy would experience a soft landing. But at that point, things began to go wrong.
On September 14, 2024, the yield on ten-year government bonds was 3.65%. On January 11, 2025, the yield was 4.78%. This rapid rise provoked a crisis in the bond market that momentarily halted a further rise in long-term interest.
As soon as the market slightly stabilized, the rise in the dollar gold price resumed. As dollar gold prices and long-term interest continued to climb, the Federal Reserve began to get cold feet.
On January 29, the Federal Open Market Committee announced it would not make any more cuts. We have been seeing waves of rising dollar gold prices, followed by rising long-term interest despite and perhaps because of the Federal Reserve’s attempts to drive down interest rates, followed by renewed rises in the dollar price of gold. We will go back to the end of the 20th century when the global capitalist economy was going through a similar process to see how this is likely to end. (4)
A tale of two crises
Since 1825, capitalist economies have been marked by periodic crises of generalized overproduction. These crises are characterized by a rush into hard cash, which marks the climax of the crisis. At their core, these crises reflect the difficulty of transforming commodities into the money form during a crisis. When too many non-money commodities are produced relative to the money commodity, the circulation of commodities (the convertibility of non-money commodities into money) is undermined. This inability to convert goods into money is the essence of capitalist crises of generalized overproduction.
It is essential to understand what capitalism is not. Capitalism is not a system of production for human needs or to produce use values in the form of material wealth. While it may appear that way at times, its true purpose is not the production of surplus value itself. Surplus value embodied in unsold commodities does not represent profit. Instead, capitalism is fundamentally a system aimed at producing profit without limit.
This means it seeks to produce ever-increasing amounts of surplus value — unpaid labor performed by the working class — but only to the extent that the unpaid labor can be transformed into money. And we know that money must be a commodity before it can serve as money. Profit is measured in terms of the use value of the money commodity.
Capitalism can, therefore, be described as a system focused on producing more exchange value. Classical political economy did not distinguish between value and exchange value but merely distinguished between exchange value and use value. A commodity’s exchange value is measured in terms of another commodity’s use value. When one or a few commodities emerge as universal equivalents — commodities whose use value measures the value of all others — exchange value takes on the monetary value of all non-money commodities.
Behind exchange value, which in a developed commodity-money economy means value measured in terms of the use value of the money commodity, lurks the essence of value itself.
While exchange value is measured in terms of another commodity’s use value, the value of a commodity is measured by the amount of socially necessary labor required to produce it. This includes both direct and indirect labor measured in units of time. Marx referred to this as “abstract labor,” which is distinct from specific forms of concrete labor that produce particular use values. Exchange value is the form of value (the “value form”), while value is the essence behind the form. As Marx expressed it, money is the independent value form of commodities.
To fully understand surplus value and its relationship to profit — something modern bourgeois political economy is eager to conceal — it is necessary to understand how unpaid labor underpins capitalist profits. Even if workers receive wages equivalent to the full value of their labor power, surplus value remains unpaid labor extracted by capitalists.
Surplus value, profit, and crises
Understanding the relationship between surplus value and profit is also necessary for understanding the nature of capitalist crises. The form that the extra demand for money that develops during a particular crisis can vary. This is best illustrated by comparing the crisis of 1979-1982 with the crisis of 2008.
In the lead-up to the 1979–82 crisis, the U.S. government, the Federal Reserve, and other capitalist countries conducted an unprecedented experiment: they severed all legal links between central bank-issued legal tender paper money and the quantity of gold in their vaults or in the world. Central banks could create unlimited amounts of money and purchasing power.
It wouldn’t overcome the limit on money’s ability to purchase commodities set by their total quantity, as every child knows. But it would ensure that every commodity that meets a human need is bought — one that can’t find a buyer because it doesn’t satisfy some human need is not a commodity at all. If non-commodity money were possible, the convergence of surplus value into profit would be assured. Surplus value would then already, in effect, be profit.
This would mean, among other things, the abolition of overproduction crises. For reasons we’ve examined throughout this blog, non-commodity money — money that is neither physically made from the money commodity, such as gold coins, nor money that represents the money commodity in circulation — is impossible under any commodity-money economy, including its most highly developed form, where labor power becomes a commodity — capitalism.
The result of this grand experiment was that during the 1979-82 crisis, the demand for money took the form of a demand for gold. The Federal Reserve, not to speak of lesser central banks, could flood the commercial banking system with freshly created paper money, especially once they were relieved of the responsibility of exchanging the currency with freshly created gold.
As a commodity, gold requires human labor for its production — not only the labor involved in mining and refining it but also the labor needed to manufacture the machinery and generate the electricity used in these processes. Unlike legal tender paper money issued by central banks, the supply of gold cannot be rapidly expanded to meet surging demand, such as the extraordinary demand seen in 1979–1980. The only way to check this abnormal demand was to limit the creation of legal tender money so the rate(s) of interest would rise enough to kill the abnormal demand for gold. This became known as the Volcker Shock. The necessity of the Volcker Shock showed the failure of efforts to de-monetize gold — which never had any chance to succeed from the start.
The Federal Reserve and other central banks have resisted limiting the creation of legal tender money in an attempt to avoid a deep recession, as they have again since late 2023. In 1979, as a result of these policies, the demand for gold reached heights never seen before or since. This led to what can be described as currency depreciation inflation and caused interest rates, as denominated in the leading capitalist currency, the dollar, to rise to levels never seen before.
A prolonged period of high interest rates, though it finally killed the abnormal demand for gold, caused major long-term damage to the U.S. economy. The Federal Reserve learned that it could not hold down interest rates simply by using its legal freedom to create currency not backed by gold in whatever quantity that proves necessary to hold down interest rates. Attempts to do so ended in even higher interest rates and even greater long-term damage to the economy.
We have to keep this in mind when analyzing the Federal Reserve’s reaction to the next major crisis, that of 2007-08. Had the Fed reacted as it did in the 1970s, the result would have been another inflation surge followed by a prolonged period of high interest rates. Instead, the Fed avoided accelerating the rate at which it created new dollars until the Lehman Brothers crash generated a sharp increase in demand for dollars as the means of payment. Only then did the Fed move to double the quantity of dollars in the Reserve.
Right-wing bourgeois economists of the Milton Friedman type, basing themselves on the quantity theory of money, assumed that such a sharp increase in dollars created by the Federal Reserve (capitalist economists call it the monetary base) would cause inflation to surge. They were wrong. When the banking crisis intensified with the Lehman Brothers collapse, the break in the chain of payments and consequent rush into dollars led to a liquidation of inventories, a collapse of capital spending, and massive layoffs, leading to a sharp rise in unemployment.
This shift marked a shift by the capitalists from expanding their real capital to rebuilding their balance sheets. Businesses and capitalist society as a whole shifted from accumulating real capital to accumulating money capital. This meant businesses increased their quantity of cash, bank checking accounts, and short-term U.S. Treasury securities holdings relative to non-monetary assets.
On the scale of global capitalist society (which can be called its consolidated balance sheet), it means an increase in gold measured in some unit of weight relative to all non-money commodities measured in the sum of their price tags also calculated in terms of weights of gold.
The asset side of this consolidated balance sheet has essentially two entries: actual gold (available to function as money) and all other forms of wealth(measured in terms of an imaginary quantity of gold). Restoring this balance requires expanding actual gold relative to imaginary gold. This is achieved by reducing inventories (commodity capital), scrapping a portion of fixed capital (no longer yielding a profit calculated in gold terms even if its value is written down to zero), and a slowdown in the creation of new real capital (production of new machinery, factories, and the means of subsistence). Falling commodity prices calculated in gold terms further reduce the quantity of imaginary gold represented by the prices of non-money commodities.
At the same time, gold production accelerates. The combination of depressed non-monetary commodity production and accelerated production of actual gold rebuilds the consolidated balance sheet of global capitalist society. This rebuilding makes it possible for individual businesses to restore their own balance sheets.
It might seem that this rebuilding was made possible by a central bank shift from tight money and high interest rates to easy money and low interest rates. In reality, central banks have little control over the rebuilding process. The crisis and post-crisis stagnation that follows make it possible to rebuild them.
By mid-2009, enough excess production had been liquidated to stabilize the economy. Gold production, which had been declining from 2001 to 2008, began to rise again. However, there were aftershocks, such as the European sovereign debt crisis of 2010, particularly in Greece, which went through an economic crisis combined with a political and social crisis. Additionally, the upswing that followed the 2007-2009 worldwide economic crisis was slow, especially considering the severity of the preceding crisis.
A full-scale banking collapse, such as the full-scale run on the banks in 1931-33 and earlier 19th-century crises and in 1907, would have led to sharper liquidation of overproduction and gone further. While this could have caused even greater unemployment than in 1933, it would have led to a far more powerful upswing.
While after 1979-80, dollar gold prices drifted down, after 2008, they drifted upward. Dollar gold prices didn’t rise as quickly as they did in the 1970s or, for that matter, leading up to the crisis of 2007-09. This encouraged the Federal Reserve to attempt several times to launch what they call quantitative easing, trying to accelerate a weak recovery.
The Fed usually operates by changing its target for the federal funds rate. Quantitative easing involves the Federal Reserve purchasing long-term bonds (and even private securities such as mortgage-backed securities) with dollars it created. When the Fed purchases long-term securities, it approaches a situation where the Treasury prints dollars.
This is considered a financially reckless operation, especially in the absence of gold or the gold exchange standard. If the Treasury is allowed to directly issue paper money, the value of the currency is undermined. It’s one thing to do this during an acute crisis like the one we experienced in the weeks following the September 15, 2008, Lehmann Brothers failure, and quite another to repeat it once the crisis has passed.
Here, we have a sharp contrast with the situation that followed the 1979-82 crisis and that of 2007-09. In the post-crisis that followed 1979-82, while the dollar price of gold fluctuated, the trend was down. The dollar never fully recovered the gold value it lost during the 1970s. However, by the end of the 1990s, the gold value the dollar lost during the 1979-82 crisis had recovered, and the dollar price of gold fell below $300 an ounce. Following the 2007-09 crisis, though the gold dollar price fluctuated, the tendency was up between 2009 and 2020. Unlike the period that followed the 1979-82 crisis, the dollar lost gold value, but at a much slower rate than it did between 1970 and 1980.
Before the 2007-09 crisis, the dollar gold price remained below $1,000 an ounce. Since then, it has never been below that. On Oct. 2, 2009, with the crisis subsiding, the dollar gold price was $1003.20. On Jan. 4, 2020, just before the COVID shutdown, the dollar gold price had risen to $1555.20. Unlike during the 1970s, the rise of the dollar gold price was moderate. Despite repeated episodes of quantitative easing, the rate of inflation didn’t explode, and the interest rate on ten-year bonds was a low 1.7880%. This itself is quite a refutation of the quantity theory of money.
Instead, the large quantity of new dollars that the Federal Reserve piled up in the commercial banking system caused the interest rate to fall. This was possible because the rate of increase in the production of non-money commodities was among the lowest on record, while gold production rose steadily.
Throughout this period, the consolidated balance of capitalist society was being rebuilt. Overproduction developed slowly because it is the overproduction of non-money commodities relative to the money commodity. As balance sheets were being rebuilt, instead of booms and crises, we had years of sluggish growth and a historically low rate of job creation.
The years after the 2007-09 crisis are a refutation of the quantity theory of money. Quantity of money supporters predicted the Federal Reserve policies (repeated episodes of quantitative easing) should have led to spurts of accelerated economic growth ending in runaway inflation. This didn’t happen. Instead, the velocity of circulation declined as dollars piled up idle in the commercial banking system. It is just as well for Milton Friedman that he died in 2006 before economic developments disproved in practice his monetarist theories.
The crisis of 2020
Not all economic crises are those of overproduction. Long before there were general relative crises of overproduction, human societies experienced economic crises. Unlike our purely capitalist crises of general overproduction, these earlier ones were caused by wars, crop failures, famines, and epidemics.
Capitalism is by no means immune from these types of crises. To be sure, the significant increase in labor productivity has made famines less likely in highly developed capitalist countries. War is another matter. If anything like World War III ever occurs, with the danger steadily increasing in recent years, the resulting economic crisis would likely represent a collapse of civilization. Global warming is increasing the chances of a devastating economic crisis in the coming years that won’t be due to general relative commodity overproduction.
When COVID-19 broke out as a result of the mutation of coronaviruses, it was so pathogenic to humans and other mammals that a drop in the size of the working-class population that produces surplus value seemed possible. This would produce a crisis in surplus value production, as opposed to the realization of surplus value that has already been produced.
Successful surplus value production does not guarantee that it will be realized in terms of the use value of the money commodity. However, if surplus value is not produced, there is a guarantee that there will be no profit.
By March 2020, as it became clear that COVID had arrived in the United States, capitalist governments panicked and launched the lockdowns they hoped would stamp out the pandemic within a matter of weeks. This time, we were lucky in the sense that though it took many lives, including those of producers and potential producers of surplus value, thanks to modern medical science, vaccines were developed that slowed down the pandemic enough to avoid the worst.
Capitalism cannot afford to shut down the production of surplus value for long.
The shutdowns lasted long enough to impact the evolution of the industrial cycle. There were indications that after ten years of upswing in the industrial cycle, even though a weak one, a new recession was approaching as the economic growth, particularly business capital spending, was accelerating. If a recession had occurred, capitalism might have stabilized for another decade.
The sudden reduction in commodity production brought about by the shutdowns threatened a major credit crisis. Modern credit crises can arise when commodity overproduction makes it impossible for capitalists who have produced but not yet sold commodities to pay debts, as in 2008. However, if no commodities are produced, this also causes a credit crisis.
Credit crises can be caused by commodity overproduction or underproduction. When the COVID crisis broke out, the Federal Reserve reacted as though it were an ordinary overproduction crisis. In another episode of quantitative easing it flooded the commercial banking system with newly created dollars. This easing staved off a credit crisis at that time, but it came at the price of an accelerating surge in prices caused by underproduction.
Unlike currency devaluation, inflation underproduction caused prices to rise in both dollar and gold terms. As soon as the COVID shutdowns were relaxed and then abandoned, this led to a speculative inventory boom, leading to a rise in capital spending. The COVID underproduction crisis stimulated a surge in overproduction, exceeding anything seen in quite a while. A new crisis would have followed if it had been allowed to continue. The Federal Reserve had to raise its federal funds target to check it before it got completely out of hand.
The Federal Reserve made a series of mistakes measured by the needs of the capitalist ruling class. Eager to reduce unemployment to normal levels after it had been higher than that seen in the crises of 1979-82 and 2007-09, the Fed waited too long to raise the funds rates. When it finally did, it hoped to avoid a recession.
The aim was to reduce the rate of economic and employment growth to what the Fed viewed as capitalistically sustainable levels. Starting in September 2024, the Fed began reducing its Fed Funds Rate target.
Look at the history of the federal funds rate since the crisis of 2007-09. In 2005, the target for the federal funds rate stood at 1%. As overproduction developed — helped along by a decline in global gold production — a series of short steps raised it to 5.25%. It stayed there for about two years and then fell to nearly 0% by January 2010 as the economy shifted from the phase where capitalists accelerated the accumulation of real capital to a phase where they rebuilt balance sheets. It remained there for seven years.
We know that everything remaining equal, a rise in interest rates lowers the demand for gold, while a fall increases it. Without profound economic stagnation, an interest rate anywhere near zero would send gold demand soaring. The combination of a slow increase in world commodity production combined with an upswing of gold production caused gold demand to fall at a given interest rate. The total quantity of gold was increasing faster than demand.
Like in the 1930s, interest rates fell to low levels and stayed there. Low interest rates are not caused by an abundance of capital relative to human needs for the use values of the commodities that capital produces, as capitalist economists say, but by an abundance of money capital in the form of gold relative to real capital.
While stagnation can extend for years beyond the crisis itself, it cannot last forever.
First, the stocks of overproduced commodity capital are eventually sold off at prices below their value (or prices of production). It takes longer to overcome the overproduction of fixed capital that took place before the last crisis — over-investment. But eventually, fixed capital wears out or becomes obsolete. It has to be replaced and expanded, kicking off what the economists call the accelerator effect.
Capital flows out of the gold-producing industry and into the production of real capital. Over a period of years, the relationship between money capital and real capital shifts toward a shortage of money capital relative to real capital, which is reflected in the rise of the rates of interest.
On the eve of the COVID pandemic this process caused the federal funds rate to rise from near zero to 2.5%. Overproduction resumed but did not develop to the point of recession, let alone a major crisis.
Then came the COVID shutdown crisis of 2020. This was not a crisis of overproduction. The cuts in commodity production reduced their quantity on the market. However, production cuts in non-money commodities and even in gold do not reduce the quantity of gold. Most of the gold that has been produced since before the start of capitalist production proper still exists.
So, the reduction of production shifted the relationship between gold and all other commodities measured in terms of their price tags in favor of actual gold, compared to the imaginary gold represented by the price tags of commodities. This created the conditions for the federal funds rate to fall back to near zero. As the shutdowns ended in 2020 and 2021 and overproduction came roaring back, this drove the federal funds back up to 5.25% in July 2023.
A sharp but limited recession might have stabilized the world capitalist economy for the rest of the 2020s or even into the 2030s. However, the Federal Reserve thought it could avoid a recession altogether or perhaps hoped to prevent Trump’s return to the White House.
World capitalist economy destabilized
Whatever the Federal Reserve thought it was doing, its recent actions appear to have destabilized the global economy. Its decision to halt interest rate hikes at 5.25% and then begin cutting rates in late 2024 may one day be regarded as one of its biggest errors. This analysis does not come from the viewpoint of the working class but rather from examining the inner contradictions of the capitalist system.
Throughout this blog, we have seen that the widespread view among economists and the lay public that the Federal Reserve sets interest rates is false. What sets interest rates is the supply and demand for gold. This supply and demand are determined by the relationship between the quantity of non-money commodities priced in terms of imaginary gold and the actual amount of physical gold measured in terms of their price tags, representing imaginary gold and the actual quantity of gold in the world.
The demand for gold also reflects capitalists’ confidence in the central banking system. When confidence is low, demand for gold rises, leading to higher interest rates — a lesson from the 1970s. Progressives, who generally support capitalism (or at least do not challenge it) but oppose its consequences, such as periodic crises with mass unemployment, low wages, poverty, and ultimately war, often push for lower interest rates, whether or not it makes sense from the point of view of the needs of the capitalist economy.
Progressives — and the kind of Marxism that reflects the views of progressives — refuse to recognize the real nature and objective economic limits and crises of capitalist society.
Most readers likely do not focus on what policies best serve the interests of capitalist exploitation. However, understanding the policies that our class enemy—and the Federal Reserve that represents it—pursues requires understanding the economic realities faced by our class enemy. During crises like the one in 2008, central banks can temporarily flood the commercial banking system with newly created paper money, which will lower interest rates—without the paper money depreciation immediately triggering currency depreciation inflation followed by even higher interest rates.
The more profound the crisis, the more and longer the central bank system can do this. Once the crisis and its stagnation aftermath have passed, the ability of the central bank to create additional money not backed by gold disappears.
To the extent that Federal Reserve leaders fail to understand these laws — after all, they generally don’t study Marxism or are unlikely to understand if they do — chances increase that they’ll make significant mistakes.
Considering this, after the 2008 crisis, the Fed created more and more dollars, aiming to launch a new period of economic prosperity. However, it didn’t want to accept that the capitalist stagnation that followed the crisis played a necessary role in the long-term development of capitalism. To a great degree, the persistence of stagnation down to the COVID shutdown of 2020 frustrated and surprised the Fed. It seemed that its leaders concluded that the Fed could have been bolder in creating more new dollars than they had been after 2008.
The 2020 crisis involved a combination of the forces that brought every post-capitalist stagnation to an end, combined with the shock of the COVID shutdown, an event without parallel in the history of capitalism. As the shutdowns eased and ended, industrial capitalists were forced to rebuild their inventories, which were depleted by shutdowns, and quickly moved to rebuild their staffs. The sudden increase in demand for the commodity labor created the most favorable conditions for labor unions in decades.
Government bond market crisis
We can picture total commodity production as two piles of gold. One is physical gold, which is made up of metal measured in some unit of weight. The other pile is made up of non-money commodities made up of all other commodities except gold. We measure this pile in terms not of their actual use values like our gold pile but of their price tags. The price tags are measured not in arbitrary currency units such as dollars, euros, pounds, yuan, etc., but in gold measured in terms of some unit of weight.
The pile of commodities representing every commodity but gold, representing all the wealth of the world produced by commodity-producing human labor — as opposed to wealth produced by nature — is also measured in some unit of weight of gold. Unlike the first pile of physical gold, the second pile is made up of imaginary gold. Here, we see money’s (gold) role as money of account.
The first pile, physical gold, is smaller than the second pile, products of all value-producing labor except labor used to produce gold. The first and second piles of real and imaginary gold maintain a proportion to each other. The proportions can and do change over time as capitalism learns to economize on money by accelerating the velocity of currency circulation and developing clearinghouses where payments offset one another.
This dramatically reduces the need for money as a means of payment, one of the banking system’s most important roles. However, the first pile, physical gold, cannot drop to zero. One piece of money cannot make two payments at the same time, and the velocity of circulation cannot increase without limit.
To simplify, I will assume that the two piles have to maintain a fixed relationship over time. Since capitalism is characterized not by simple but by expanded reproduction, the size of both piles increases over time. According to our assumptions, this means that as capitalist society exploits more workers, it must, in terms of percentages, increase the quantity of labor it employs, producing additional gold at the same rate as it increases the number of employees, producing additional commodities.
If capitalist society does this, it avoids either a general commodity shortage relative to the money commodity or a general overproduction of non-money commodities relative to the money commodity.
For example, let’s assume the pile of physical gold must be 5% of all commodities while 95% is made of commodities consisting of imaginary gold. Since, on average, the pile of the prices of commodities will be in proportion to the total quantity of labor society must use to produce them, this implies that society must employ 5% of its total labor in producing gold and 95% in producing non-money commodities.
If, for some reason, capitalist society uses 3% of its total labor producing gold (measured in some unit of time) and 97% of its total labor to produce non-money commodities, we have a situation of general relative overproduction of non-money commodities relative to the money commodity. This is an underproduction of gold.
In a money economy, the fact that value relations of production are actually labor relations is hidden behind money relationships. Closer to the surface of bourgeois society, it appears that in gold terms, the sum total of golden commodity prices is too high relative to the actual quantity of gold. If commodity prices in gold terms are above the value of commodities, this increases the ratio of the total prices in gold terms of non-money commodities relative to the amount of physical gold in existence.
This is frequently seen after a war economy, for example, just before the deflationary recession of 1920-21. Generally, while the prices of non-money commodities rise above their values (and prices of production), the increase in the quantity of commodities measured in their individual use values is more important relative to gold’s use value.
As overproduction develops, a series of typical signs appear. As the production of non-money commodities increases faster than the production of the money commodity, money becomes tight.
Credit increasingly replaces money in circulation, allowing the boom to continue for a while; however, it will continue at the price of increasing overproduction and the eventual crisis ending the boom.
As money becomes relatively scarce relative to non-money commodities, interest rates rise. Remember that the rate(s) of interest equalizes the supply and demand for the money commodity — gold. As money becomes tight, interest has to rise to prevent currency depreciation relative to gold.
Let’s look at the current economic situation as Trump takes office for a second time. The Federal Reserve is attempting to continue a cutting cycle. The cutting cycle succeeds if this coincides with an economic recession that liquidates overproduction. From the viewpoint of vulgar economists and capitalist journalists who explain economic developments to the public, it is the Fed that lowers interest rates, when in reality, it is the recession itself that lowers values.
If overproduction has not developed, the Fed can achieve a mild recession, also known as a soft landing. This postpones a more severe recession until overproduction develops, which is when it is needed to clear the overproduction. The economic slowdown in 1994 is one example of such a soft landing.
The Federal Reserve, backed by the media, claims to have pulled off a 1994-style soft landing. If they have, it just means a recession has been postponed for a few years. This is good news for Trump, but the movements of dollar gold prices and interest rates indicate otherwise.
If the Fed tries to continue its cutting cycle (and it’s already backing down on this) to force down the interest rate on government bonds and other long-term rates, it risks setting off a new surge in dollar gold prices – and we are beginning to see this. In other words, it risks a new inflation-breeding depreciation of the dollar against gold and higher interest in the near future. If the Fed refrains from doing this, it risks a recession sooner rather than later, which will be bad news for the second Trump administration.
To be continued
(1) In response to the liberal-progressive claim that politicians are putting the interests of Israel over those of the U.S., the Zionists and their apologists say this sounds a lot like classical anti-Semitism. The belief that Jews dominate the world is a key part of anti-Semitic ideology. It would be a mistake to believe that these liberals-progressives are anti-Semites. On the contrary, they oppose anti-Semitism. But it seems the Zionist lobby is all-powerful. The Zionist entity calls itself “Israel,” and it is a fact that for thousands of years (a long time in terms of written human history), the Jewish people have been called Israel. The Palestinians need all the help they can get, including from liberals-progressives who, whatever their faults, oppose the Gaza genocide.
The U.S. Zionist lobby is powerful and has destroyed the career of more than one politician who has voiced even mild objections to U.S. support of the Zionist entity.
The appearance of an all-powerful Zionist lobby, therefore, is keeping alive and helping to revive anti-Semitism today. In reality, Zionists have always collaborated with anti-Semites, including Adolf Hitler himself. Now, with their tireless support for all the crimes of their entity in Palestine, the Zionists are, more than ever, consciously or unconsciously, working toward a full-scale revival of anti-Semitism. (back)
(2) The language we call Hebrew, which died out around 2,500 years ago, was actually widely used in the Levant, not just by the ancient Israelites. It was replaced by two closely related Semitic languages, Aramaic, after about 500 BCE and with the rise of Islam in the 7th century, by Arabic. Yiddish, based mainly on German, was widely used among European Jews, and it developed after the Reformation when German-speaking Jews were driven into Eastern Europe. Yiddish uses the so-called Hebrew alphabet, first used by Aramaic, which replaced an earlier Hebrew alphabet called paleo-Hebrew. Except for its Aramaic alphabet and a few words, Yiddish is not a Semitic language at all. It’s an Indo-European language like German, English, and the Romance languages. (back)
(3) If Canada or Greenland were to become states or parts of states, an important question would be what would happen to their healthcare systems. In both cases, the healthcare systems are superior to Obamacare or anything the Trump Republicans would like to replace it with. In addition to the national question that these threatened annexations raise, the basic human right to health care will fuel the people of these countries’ opposition to any attempt by the U.S. to annex them. (back)
(4) If you follow the financial pages you occasionally read, the dollar has been strong. The confusion of whether it is strong or weak arises depending on what exchange rate you look at to measure the dollar’s strength. The dollar’s exchange rate has been strong against other currencies. The dollar’s exchange rate with gold, the money commodity, has been weak, with dollar gold prices at or near record levels. Under the present dollar-dominated international monetary system, the most important exchange rate is the dollar price of gold.
Capitalist currencies have been slipping against the dollar as central banks around the world have cut their target interest rates faster than the Federal Reserve. They hope that they will be able to revive economic growth and avoid a politically destabilizing recession by cutting interest rates even faster than the Federal Reserve. They are, in effect, betting on the Fed being able to push down the federal funds rate without triggering a move out of the dollar into gold — which, unfortunately for them, is already happening. A move into gold causes inflation to accelerate and drives interest rates higher across the globe.
If the current move into gold accelerates inflation, interest rates will rise, and a deep global recession will follow soon after. The depreciation of these other currencies against the dollar is on top of dollar inflation against the money commodity. There is no strong currency in the world; currencies merely show different degrees of weakness against gold, with the dollar just a little stronger than other currencies. (back)
A Critique of Crisis Theory 