August 3, 2026
On June 17, a Memorandum of Understanding (MOU) was signed by U.S. President Donald Trump and Iranian President Masoud Pezeshkian. It contained 14 points that the U.S. media have considered favorable to Iran. These included reopening the Strait of Hormuz with no tolls for the next sixty days, with Iran retaining military control of the strait; extending the ongoing ceasefire for sixty days; ending the U.S. naval blockade of Iranian ports; and releasing Iran’s funds that had been frozen (stolen) by the U.S. The Zionist entity was also supposed to end its latest war against Lebanon, among other things. An MOU is far from a peace treaty, and though it did not end the war, together with the ceasefire it seemed to put the attacks on ice for the time being, at least as far as the military side of things was concerned.
The Trump administration began the war on Feb. 28 with the murder of Iran’s Supreme Leader, 86-year-old Ali Khamenei, along with his daughter, son-in-law and 14-month-old granddaughter. This goes beyond normal warfare — it is simple murder. It created widespread outrage in Iran, throughout the Muslim world and beyond, as it should. Khamenei’s funeral, held between July 3 and 9, also went far beyond the norm. His body was moved through Iranian and Iraqi cities before being buried in the Imam Reza shrine in the Iranian city of Mashhad.
In Tehran alone, 10 million to 14 million mourners attended, perhaps the largest such gathering in history. The pro-imperialist movement in Iran that had tried to build demonstrations against the government by taking advantage of the effects of the U.S. economic war against Iran, including currency manipulation, has crumbled to nothing as many participants have realized their mistake.
When Trump started the war, it seemed that he was thinking of something like the 2011 U.S. war against the North African country of Libya, waged by the Barack Obama administration. During the so-called “Arab Spring,” a pro-imperialist movement in Libya, made up of members of merchant families who exported and imported commodities — a classic pro-imperialist comprador bourgeoisie — posed as the democratic opposition to the Qaddafi government. (1)
Obama’s Democratic administration launched a bombing war in direct support of the rebels in Libya. Libya could not possibly match the overwhelming military power of the U.S. The bombing shifted the balance of forces in the rebels’ favor, and they captured and murdered Qaddafi. The Libyan pro-imperialist comprador movement was racist. After its victory, chattel slavery reappeared, as people who had come from sub-Saharan Africa to work in Libya were seized and sold in slave markets. Libya, which had made economic progress under Qaddafi, sank into chaos from which it has yet to emerge.
In 2024, Syria fell to pro-imperialist rebels. Then, in early 2026, a new wave of pro-imperialist demonstrations broke out in Iran. This movement claimed to oppose restrictions on women’s dress imposed by the clergy-led government. This same “democratic” movement is indifferent to the struggle of the Palestinian people, men and women, against Zionist genocide. Instead, it wants to establish relations with Israel. These pro-imperialists draw most of their support from the upper middle class and sections of the Iranian capitalist class. The working class and the lower sections of the petty bourgeoisie support the government. To counteract the pro-imperialist movement, which the imperialist media falsely portrayed as representing all the people, government supporters organized counterdemonstrations against attempts by U.S. imperialism and its Israeli colony to reestablish domination over Iran.
Israeli regime leaders have openly agitated for war against Iran for about forty years. It is possible that Netanyahu personally convinced Trump that Iran was ripe for destruction, as Libya was in 2011 and Syria in 2024. Whether or not Netanyahu played any role, the actual decision to attack was Trump’s, and only he had the power to make it. Whether he was convinced by Netanyahu, anybody else or simply by his own stupidity, Trump apparently believed that Iran was ripe for destruction. In any event, Israel directly participated in the dirty war against Iran. The treacherous attack on February 28, which murdered the Supreme Leader and his family, helped galvanize the Iranian people to rally behind the surviving leaders. The pro-imperialist movement within the country, far from taking power or launching a new wave of demonstrations, has almost collapsed. This is the opposite of what Trump tried to accomplish or expected.
The Israeli Mossad and the CIA are no doubt doing all they can to assist the pro-imperialist movement, as we assume they did in Libya and Syria—after all, this is part of their job description. An argument often heard from sections of the left trying to justify their support for these reactionary movements is that the intelligence agencies of the imperialist states cannot simply get people into the streets on command. This is true.
These movements’ material base lies in the desire of the upper middle class, backed by comprador sectors of the capitalist class proper, to gain access to cheap consumer goods on the world market that are unavailable in their home countries. Imperialists set the stage for pro-imperialist movements in countries in their crosshairs by waging economic war against the targeted country. These wars include, but are not limited to, trade embargoes, the seizure of foreign exchange and gold reserves, and the driving down of the currency’s exchange rate to create economic discontent that is then blamed on anti-imperialist forces within the targeted country.
The CIA, Mossad and other “intelligence” agencies, working through corrupt politicians, then organize street demonstrations. They raise democratic-sounding demands that, in and of themselves, seem reasonable. The demands are tailored to the specific situation and local conditions. In Iran, these include the right of women to wear Western styles rather than traditional Islamic dress if they so choose. What could be more democratic and reasonable than that? The imperialist media then hail the “pro-democracy” movement. The movement raises no anti-imperialist demands but instead supports U.S. imperialism as it tries to pass itself off as a force for “democracy” against “dictatorship.”
As mentioned above, sectors of the “left” simply do not understand the importance of the struggle against imperialism in general, and especially against the imperialism of their own particular country. Here I want to address people in the U.S. in particular. A special situation prevails today. Since the dawn of the 20th century, and especially since 1945, U.S. imperialism has been the strongest imperialism in the world. The social pressure exerted by imperialism, backed by the power of money, bears down with particular intensity on people in the U.S. who, in increasing numbers, are coming to oppose aspects of imperialism. This pro-imperialist pressure is not simply a matter of bribery, though bribery is by no means absent.
It is also a matter of psychology and of people’s desire to do the right thing. In the case of Iran, for example, we have been bombarded since the 1979 Iranian Revolution with stories of “evil mullahs” and “the ayatollah.” The media are full of articles about how “the mullahs” force women to wear restrictive dress and deny them all human rights. When pro-imperialist demonstrations occur — invariably called “pro-democracy” demonstrations in the imperialist media — participants are portrayed as heroic fighters for women’s rights and democracy against the brutal dictatorship of the Islamic government.
Sections of the left proclaim that we should oppose U.S. imperialism but should not be indifferent to the struggle for “democracy” in countries that find themselves in opposition to imperialism. For example, shouldn’t we support women’s rights and democracy in all countries? It sounds good. If you look closely at the Iranian “pro-democracy” movement, however, you find that these “democrats” seem quite indifferent, even hostile, to the struggle against genocide in Palestine. The best you get from them is the claim that the situation in Gaza is simply not their concern. Instead, you find an eagerness to establish relations with Israel. How could the democratic movement in Iran be so indifferent to the struggle against the genocide in Palestine? The truth is that it isn’t a democratic movement. The so-called “pro-democracy” movement fails the Palestinian test—big time.
You know what a movement is worth in any country in the world by its stand on U.S. imperialism and the struggle against it. To put it crudely, any movement that claims to be for democracy but refuses to support the concrete movements against U.S. imperialism is a fraud.
There have been times in history when one imperialist country would give some aid to anti-imperialist forces in the colonies or semicolonies of its imperialist rivals. An example was the aid the U.S. gave to Chiang Kai-shek’s China in its struggle against Japan. Japan, for its part, championed the independence movement in India against Britain. Imperialists do this to advance their own imperialism at the expense of their imperialist rivals. After World War II, and especially after the Suez War of 1956, the U.S.-NATO empire has had no interest in aiding any anti-imperialist movement.
War, debt and the government bond market
On May 22, 2026, Kevin Warsh (1970–) assumed office as chair of the Federal Reserve Board of Governors. His first challenge is how to deal with the threatening financial crisis, whose immediate cause is the war on Iran. Like all wars, this one costs money — a lot of money. Where does the money come from? Under the U.S. system, war is the domain of the federal government, which raises money in two ways. One is through taxes; the other is through borrowing. Modern Money Theory, which has become trendy on the left, claims that raising money is no problem as long as the government can pay its debts in the currency it creates, and there is no shortage of physical resources. As we have shown throughout this blog, this view is radically false.
Under the capitalist mode of production, even if a government has all the physical and human resources needed to fight a war, it cannot do so if it lacks the money needed to put those resources, including potential soldiers, into motion. (2) As we have explained throughout this blog, money is not just another name for wealth, as is often assumed; it must exist as a separate commodity. If there is not enough of that commodity, major difficulties arise when it comes to waging war.
At the time of World War I, money was in short supply. The difficulties of financing the war led to soaring interest rates and massive inflation, breeding currency devaluations. The victorious imperialist countries, especially France, attempted to squeeze all the money they could out of defeated Germany to escape their own financial problems. This culminated in the great financial and economic collapse of 1929–33 that swept through the entire capitalist world. Before these problems led to the Depression, they played no small role in the 1917 Russian Revolution that brought the Russian working class, led by the Bolshevik Party, to power, creating the first true working-class government allied with the poor peasantry in world history. (3) On the other side of the coin, they led to the fascist dictatorship of Adolf Hitler in Germany, followed by the explosion of U.S. imperialism and militarism. The U.S. world empire was born. This occurred at the cost of tens of millions of human lives. (4)
While World War I intensified all the economic contradictions of capitalism, its consequences solved the problem of the worldwide monetary shortage and replaced it with a worldwide monetary glut. This glut, caused by the Depression, led after 1945 to a wave of capitalist prosperity that made it possible for the U.S. empire to stabilize the capitalist system again, temporarily. Had the U.S. empire failed to stabilize the capitalist system, we would likely be living under socialism today. Swings between money gluts and famines are central to the capitalist industrial cycle and have political and military consequences.
On July 23, CNN published an online article by John Towfighi reporting alarming trends in the government bond market since Trump launched the war on Iran. The yield on the 10-year Treasury note rose four basis points that Thursday, to 4.71 percent, its highest since January 2025. Before the war began at the end of February, it had dipped below 4 percent. Towfighi points to rising oil prices, persistent inflation fears and shifting expectations about the Federal Reserve’s next move: investors are demanding a higher yield to compensate for the risk that inflation eats into their return. Brent crude hit $100 a barrel the same day.
This is true as far as it goes, but it is not the whole story. At any given time, there is only so much money relative to the demand for it. Sometimes — for example, immediately before World War II, as a result of the Great Depression — there was a large amount of idle money in the capitalist world, especially in the United States, relative to demand. This made financing World War II easy. Interest rates on government bonds did not rise during the war, even though large government deficits were needed to finance it. There was more pressure on real resources that required wartime rationing, even for the wealthy, but raising the money needed to finance the war was not a serious problem. Even Germany, so money-poor after World War I, was able to finance its losing war almost to the end. Britain and its empire, which faced massive financial problems during World War II, were bailed out by the U.S., though on terms designed to dismantle the British Empire and prepare the way for the U.S. empire. The U.S. was swimming in money, as shown by the fact that interest rates remained at Depression-era lows. Despite high wartime inflation, and though interest rates on government bonds rose after the war, interest rates remained low for many years.
Interest rates on U.S. government bonds have huge effects throughout the world economy. It is not simply a matter of how much interest the federal government has to pay on its debt, which now approaches $40 trillion.
Servicing that debt now costs about $1 trillion a year — more than the Pentagon’s budget, more than Medicare, second only to Social Security among items in the federal budget. Nineteen cents of every dollar the government collects in revenue goes to bondholders before a penny is spent on anything else. And the bill is growing: through the first nine months of the current fiscal year, interest payments ran more than 10 percent above the same period a year earlier.
When money is tight, government borrowing squeezes other borrowers and pushes up rates as a consequence.
For example, the 10-year yield helps set borrowing costs throughout the economy, including the 30-year mortgage. Towfighi reports that the average 30-year fixed rate reached 6.58 percent that week, the highest in nearly a year. Rates are back to those just prior to the 2008 Great Recession after dropping to around 3.5% from 2012 to 2016.
His account stops there. But we can follow the chain out. If these trends continue, rising mortgage rates will reduce housing starts, leading to layoffs in the lumber industry and other industries producing the commodities needed to build houses. Construction workers will find it harder to find jobs. Declining housing starts are a classic sign of a developing recession.
Financial markets can be volatile from day to day, but the trend is clear.
Who is Kevin Warsh, and what can he do about the threatening developments in the government bond market? The new Fed chair has degrees in public policy and law, not economics. A Republican, he was nominated by Trump to chair the Federal Reserve Board of Governors. Warsh got his bachelor’s degree in public policy at Stanford and a Juris Doctor degree from Harvard. Having no degree in economics is no real disadvantage when it comes to running the Federal Reserve, which, under the dollar-denominated international monetary system, is the de facto central bank for the entire world. The kind of economics taught at Stanford and Harvard — neoclassical economics — has little to do with how the capitalist economy operates in the real world. Warsh is not without experience in this regard.
The new Fed chief has a background in investment banking, having served as a vice president and executive director with the Morgan Stanley banking house. This investment bank was once part of the J. Pierpont Morgan banking empire. It was spun off from the old J.P. Morgan Bank when the New Deal, in reaction to the 1931–1933 banking crisis, separated investment banking from commercial banking. (This forced separation was later repealed under Bill Clinton.) At Morgan Stanley, Warsh specialized in mergers and acquisitions — that is, in the centralization of capital. This is the field in which the original J.P. Morgan (1837–1913) specialized when, at the end of the 19th century and the dawn of the 20th, he assembled many of the corporate monopolies that dominate U.S. monopoly capitalism.
In addition to this experience, Warsh held important positions in the George W. Bush (Bush 2) administration. Most importantly, in 2006, President Bush appointed him as a governor of the Federal Reserve Board. He was a top aide to then-Fed Chair Ben Bernanke during the 2008 crisis. Warsh fell out with Bernanke after the crisis when, in 2011, he opposed Bernanke’s plan to have the Fed purchase $600 billion worth of securities as part of a “quantitative easing” policy aimed at accelerating the anemic economic upswing that followed the crisis. Warsh resigned from the Board of Governors and later served as a lecturer at the Stanford Graduate School of Business and, according to Wikipedia, as a member of several large corporate boards of directors. Throughout his career, Warsh has held important roles in the highest councils of finance capital.
As explained in previous posts, Trump attacked Warsh’s Republican predecessor, Jay Powell, for keeping interest rates “too high.” To what extent this reflected his real views or was merely political demagoguery remains an open question. What is not in doubt is that, like Trump, Warsh is a representative of capital in general and of finance capital in particular.
Is Warsh inclined to keep the economy running “hot” to prop up Trump’s now-limited popularity with his MAGA base? Trump is widely hated by a majority of the U.S. population, as well as throughout the rest of the world. Under the amended Constitution, he is limited to two four-year terms. Unless he stages a coup and tears up the Constitution, he cannot run for president again. It is unlikely that he will be interested in running for any lesser office, especially now that he is 80 years old. The mentally unstable president would be upset if the Republicans lose big in the midterm elections scheduled for this November — now, as this is being written on July 26, 2026, only months away. He would see it as a personal refutation of his leadership, marking his administration a failure from the standpoint of the capitalist class. In the upcoming November elections, all seats in the House of Representatives and one-third of the seats in the Senate are up for election.
If Democrats win control of the House, as they are widely expected to do, they could block any further Trump-proposed legislation, if they were so inclined. They could also pass a legislative program of their own through the House, again assuming they wanted to. However, to enact it over a Trump veto, they would need a two-thirds majority in both the House and the Senate.
If Democrats sweep the midterms, the chances increase that Trump could face impeachment in the House and conviction in the Senate. The House has already impeached Trump twice. While a simple majority is enough for impeachment—the equivalent of an indictment, but not a conviction, in a criminal trial—he cannot be removed from office unless at least two-thirds of the senators present vote to convict. Therefore, for Trump to be removed from office following impeachment, a considerable part of the Republican Party would have to join the Democrats in voting to convict him.
In U.S. history, Andrew Johnson, who became president after the assassination of Abraham Lincoln in April 1865, was the first president to be impeached. Even by the standards applied to white men at the time, Johnson was an extreme racist and an opponent of Radical Reconstruction. (5) Radical Republicans succeeded in impeaching him in the House in February 1868, when just over a year remained in his term, but fell one vote short of convicting him in the Senate. For many years, this was the only case of a president being impeached, and it appeared that it might never happen again.
During the Watergate scandal of the 1970s, the possible impeachment of then-President Nixon was raised. The scandal centered on a burglary carried out by Republican operatives linked to Nixon at Democratic campaign headquarters in the Watergate complex in Washington, D.C. The Republican campaign was looking for damaging information on Democratic candidate George McGovern to help reelect Nixon in 1972. For over a year, Nixon’s impeachment in the House was held at bay by the claim that there was no actual proof that Nixon knew anything about the burglary or the subsequent cover-up. Instead, responsibility was placed on his lieutenants, such as his “law and order” attorney general, John Mitchell. (6)
In August 1974, revelations from conversations secretly recorded by the Nixon White House established beyond any doubt that Nixon had not only known about the cover-up from the beginning but had organized it. It remains unresolved whether he actually knew about the burglary in advance. The revelations made it impossible for Nixon to remain in office.
Once his organization of the cover-up had been established beyond doubt, key Republican senators, including Barry Goldwater, the far-right senator from Arizona who had run against Lyndon Johnson in 1964, finally withdrew their support for Nixon and visited him in the White House. They told him that he faced certain impeachment in the House and conviction in the Senate by the required two-thirds vote, with Democrats and Republicans alike voting against him. The drive to remove him was bipartisan, and Nixon simply could not survive.
Nixon had only two choices. Under the Constitution, he could face certain impeachment and conviction and be removed from office, or he could resign the presidency. Nixon chose the latter, resigning before the House could formally impeach him. To date, Nixon remains the only president ever to resign from office. Andrew Johnson was impeached but not convicted, and he served out the remainder of what would have been Lincoln’s second term.
That situation changed in December 1998. Clinton engaged in sexual relations with the young White House intern Monica Lewinsky. Lewinsky came to believe that Clinton might divorce his wife after leaving office and perhaps marry her. His wife, Hillary Clinton, later ran for president in 2016 and won the popular vote but lost in the Electoral College to Donald Trump.
President Clinton’s conduct was not only personally disgusting but also illustrated how powerful men can coerce employees under their authority into having sex with them. It seems that Republicans did not think they could actually remove Clinton from office but hoped to discredit him before the electorate. Clinton was acquitted in the Senate, and his popularity climbed in the polls as the public reacted to what was viewed as Republican hypocrisy and cynicism. Republicans did not even pretend to champion the rights of women. As a result, Bill Clinton joined Andrew Johnson as one of only two presidents who had been impeached up to that time.
Then Trump joined their ranks, as House Democrats impeached him twice during his first term. The first impeachment came in December 2019, when he postponed the shipment of military equipment to Ukraine in an attempt to force the Zelensky government to investigate the business activities in Ukraine of Hunter Biden, the son of former Democratic Vice President Joseph Biden, who was then seen as the most likely 2020 Democratic presidential nominee. This was the most reactionary basis for impeachment, since it emphasized the Democrats’ support for the Ukrainian Euromaidan coup government. In fact, this government was installed under a Democratic administration, not a Republican one, and its installation led to the current war.
Basically, Democrats charged that the suspension of aid was an attempt to embarrass former Vice President Joseph Biden over his son Hunter Biden’s business activities in Ukraine. The impeachment remained highly partisan, and there was never any serious chance that Trump would be convicted and removed from office. For a presidential impeachment to have any real chance of success under the two-party Democratic-Republican system, it has to be bipartisan.
The second impeachment was more serious. Trump was defeated in both the popular vote and the Electoral College in the 2020 election. He refused to concede, and on January 6, 2021, a pro-Trump mob attempted to disperse — and briefly succeeded in dispersing — the normally ceremonial session of Congress that formally certified the Electoral College’s election of a new president, Biden in this case. This mob action, clearly encouraged by Trump, was without precedent in U.S. history. Ultimately, the effort failed, a shaken Congress reconvened, and Biden’s election was certified.
In its wake, Democrats and many Republicans were ready to impeach Trump in the House, convict him in the Senate and remove him from office. At that point, he had only two weeks left to serve, with his term ending at noon Washington time on January 20. More importantly, if Trump had been convicted, the Senate could also have barred him for life from holding “any Office of honor, Trust or Profit under the United States.”
Removal seemed little more than a technicality, since Trump would be out of the White House within a matter of days in any case. Though a majority of senators, including seven Republicans, later voted to convict him, the vote fell short of the required two-thirds majority. At the time, the failure to convict and disqualify him may have seemed almost academic after what amounted to an attempted coup against the Constitution: surely he would never be elected president again. Yet four years later, due in no small measure to Biden’s support for Israel’s genocide in Gaza—which earned him the nickname “Genocide Joe” — Trump was elected president again.
Whatever the outcome of the coming November election, a third attempt to remove Trump can succeed only if it enjoys considerable support from Republicans. The chance of this happening increases if his popularity declines among his far-right MAGA supporters. What would be most likely to cause such a decline is a military disaster in the war on Iran involving massive U.S. casualties, soaring inflation or unemployment, or some combination of the three.
This is where Kevin Warsh comes in. As chair of the Federal Reserve, Warsh has little direct power when it comes to war. In theory, the Fed could choose not to finance the war by refusing to purchase Treasuries on the open market, though there is little chance of this happening. Even in the extremely unlikely event that Warsh considered it, there is no reason to think he opposes the war; his powers in this regard are limited. Though he chairs the Federal Open Market Committee, he has only one of twelve votes and no veto power. He does not enjoy the kind of autocratic power over his domain that the Constitution gives the president over the executive branch. In addition, the president can remove a member of the Federal Reserve Board for “cause,” though whether refusing to finance an ongoing war would constitute cause is not specified. After all, the Constitution does not mention the Federal Reserve, while giving the president broad authority over foreign policy.
The chair of the Federal Open Market Committee has one vote. He would have to bring at least six other members along with him to block the financing of an ongoing war. If finance capital decides that the war is not financially viable, it will work through private, for-profit institutions and the government bond market to make its opinion known by dumping government bonds, the dollar or both. (7) Any opinions Warsh might express on this subject would be expressed behind closed doors.
Another legal means of removing Trump from presidential power before his term expires is the 25th Amendment to the Constitution. This amendment grew out of the assassination of President John F. Kennedy on November 22, 1963. Kennedy died quickly from catastrophic brain damage. But what if the assassin’s bullet had taken a slightly different path, inflicting severe damage but not killing him? This would have created a major crisis of leadership for U.S. imperialism, so a procedure was developed and adopted as a constitutional amendment.
The 25th Amendment was designed to address the possibility of presidential incapacity due to illness or injury while in office. It was not designed to remove a president for political reasons, though the distinction can become blurred if the incapacity results from genuine or alleged mental illness. It can be argued that Trump’s decision to launch military operations against Iran was irrational, that it reflected mental illness and that he is unable to carry out his presidential duties and responsibilities as head of the U.S.-NATO empire.
The 25th Amendment can be adapted to remove a president from power for what are basically political reasons, but it was not really designed for that purpose. Under Section 4, the process requires the vice president — in this case, J.D. Vance — and a majority of the Cabinet to declare that the president is unable to discharge the powers and duties of his office. However, the president can dismiss Cabinet secretaries, just as a boss can fire employees. There are easier legal means of getting rid of Trump than invoking the 25th Amendment. If Republicans do poorly in this fall’s election, the chances of removing him through legal means will increase. There are legal and illegal means of getting him out of office. If Trump should die for any reason, there will inevitably be rumors that he was poisoned or otherwise killed. Little purpose is served by speculating here about something I know nothing about.
Trump and the Republicans have tried to pass the so-called SAVE America Act, a bill aimed against universal suffrage, a key foundation of bourgeois democracy. The bill takes the policies Republicans use to limit voter turnout in local and state elections and makes them nationwide. These include, but are not limited to, requiring voters to show photo identification before being allowed to vote and requiring proof of citizenship. Trump is trying to drive through this undemocratic piece of legislation, posting on his social media platform: “The SAVE AMERICA ACT, which everyone is asking for, paired with the full funding of our Great Department of War, can be passed very quickly, ensuring that the United States of America stays FREE for Generations to come.” Trump hopes that by tying the attack on universal suffrage to funding for the Department of War, the legislation can be rammed through. After all, while democracy, including universal suffrage, is great, it does not hold a candle to “our Great Department of War” and Trump’s remaining in office at least until the end of his current term.
Here is where Kevin Warsh comes in again, as the administration has good reason to fear that a full-scale recession or inflation would be very costly to it.
The threat of recession or worse is attributed entirely to the war on Iran. Certainly, the disruption of oil production and trade threatens massive economic consequences. Before the war, more than one-quarter of the world’s seaborne oil trade passed through the Strait of Hormuz. In addition, the bombing of much of the Persian Gulf region’s infrastructure threatens to reduce oil production, perhaps for years after the war ends. This threatens to increase commodity prices in dollar as well as gold terms, reducing the ability of people across the globe to purchase commodities whose production and distribution depend on energy. The threat of recession involves not only the production and distribution of oil and petroleum-based products but also commodity overproduction relative to the money commodity, gold. For example, there was no disruption of oil production and refining to explain the crisis of 2008 or, for that matter, the crisis that began in 1929. Whoever you blame for the war — the Iranian leadership (I do not hold this view; quite the contrary), Donald Trump (closer to the truth, but not the whole story), Benjamin Netanyahu, Israel and the alleged Israeli control of the U.S. government (I do not hold this view either), “the Jews,” the violent wing of Islam, Islam or Muslims as a whole (though I am no champion of organized religion, I hold none of these views) — none of these is solely responsible for the threat of economic crisis.
Despite my disagreements with these theories, which are popular today, some, in my opinion, contain an element of truth. Different political tendencies on the right and left focus on their preferred targets. The mainstream right blames Iran, the Iranian government’s leadership or Islam — that is completely false. The “left” blames Trump and Netanyahu. That is certainly true, though we have to remember that it is Trump, not Netanyahu, who has the ultimate power. Others attempt to bring the right and left together by blaming the Zionists, Israel and the Zionist lobby — none of which is innocent — while falsely alleging that Israel or the Zionist lobby controls the U.S. government, thereby absolving U.S. imperialism entirely: “Poor, poor U.S. imperialism—what can it do if it is under the control of Israel and the Zionist lobby?”
It has been 18 years since the last major cyclical crisis of 2008. The world capitalist economy has been able to go so long without a major crisis partly because the government-imposed shutdowns in response to the COVID-19 pandemic had some of the same effects as a cyclical crisis. Other factors were also involved. These include the severity of the 2008 crisis itself, followed by perhaps the weakest recovery on record. This allowed the global capitalist economy to build up a considerable amount of idle money capital in the form of increased gold production stimulated by the 2008 crisis. Fearing that continued slow growth—with the brief exception of the period immediately after the shutdowns—is leading to growing political instability, and desperate to see a return to normal capitalist economic growth, the government has followed a policy of running the economy “hot.”
This means that the federal government runs large deficits to stimulate demand, while the Federal Reserve is supposed to provide the money needed to keep the bond market from collapsing—which, as we saw above, it now threatens to do. This is where Kevin Warsh comes in again. Policies designed to run the economy “hot” can work only as long as there are enough reserves in the commercial banking system to allow the government to run deficits without causing bond prices to plunge or, in other words, without causing too large a rise in the interest rate the government must pay on its ever-growing debt. In turn, the Federal Reserve can provide the necessary bank reserves as long as the dollar price of gold — actually not a price but rather the exchange rate between gold money and the dollar — does not increase too much. Through February 28, 2026, the dollar’s exchange rate against gold money had been falling sharply, with gold’s dollar price rising above $5,000. The outbreak of the war on Iran created a panicky demand for dollars as a means of payment, since most global debts are still denominated in dollars, bringing the price of gold back down.
If the pressure on the government bond market continues — and the renewal of the war has increased the chance that it will — the Fed can allow government bond prices to decline, making it more expensive for the Treasury to service the debt in the years ahead. We can assume that Warsh and his Federal Open Market Committee colleagues are aware of the risk that flooding the money market with newly created dollars would increase the demand for gold, causing the dollar’s exchange rate against gold to collapse—or, if you prefer, causing the dollar price of gold to rise again, as it had before February 28, 2026. This would set off a worldwide surge in the dollar prices of commodities, independent of the direct disruptions to world trade and production caused by the war itself.
Progressives see a threat of economic disaster stemming from the war and its impact on the prices of oil, fertilizer and food. This is true as far as it goes. In reality, the threat of economic crisis lies in the contradictions within the capitalist system itself, not just in the direct effects of the war. The war itself is, in the last analysis, a product of the contradictions of capitalism that make economic crises inevitable. Even if a peace treaty brings the war to a close — we seem far from this as these lines are written on July 26, 2026 — economic crises will remain inevitable as long as capitalism exists.
There are many other types of crises that affect capitalist society, including war crises like the current one, the dangerous Russo-Ukraine war and other wars now raging. These flow from the inevitable economic crises of generalized relative commodity overproduction that affect capitalism at periodic intervals. Capitalism creates these global economic crises at periodic intervals because it increases commodity production faster than it can expand the markets for those commodities. As a result, individual capitalists, as well as capitalist nation-states, are engaged in a life-or-death struggle for access to available markets and to the cheap raw materials needed to produce commodities at the lowest possible cost prices.
Who will be blamed for the next crisis?
When the next economic recession arrives, it is now almost inevitable that the war on Iran and the head of the Federal Reserve will be blamed. When the 2008 crisis hit, former Federal Reserve head Alan Greenspan and, to some extent, then-Federal Reserve chief Ben Bernanke were blamed. Bernanke had assumed office only two years earlier. Most of the preparatory period preceding the crisis had occurred under Greenspan, who chaired the Federal Reserve from 1987 to 2006. If an economic crisis breaks out in the next few months or years, former chair Jerome Powell will be blamed, along with the war on Iran, as well as Warsh. Bearing the blame for economic crises is part of the job description of the Fed chief.
It would be wrong to say that the Federal Reserve leadership has no influence on the course of the industrial cycle and its economic crises. Marx himself noted that bad central bank policies can cause economic stagnation. We have seen in this blog that bad banking legislation, such as the Bank (of England) Act of 1844, certainly made economic crises worse than the economic contradictions of capitalism required them to be.
Warsh’s job, besides serving as a scapegoat for the next economic crisis, is to minimize that crisis and maximize the rate of economic growth that declining capitalism is still capable of generating, insofar as either is under the control of the Federal Reserve.
The power and limits of the Federal Reserve
As its name implies, the Federal Reserve’s primary job is to manage the reserves of the commercial banking system. Reserves are the money commercial banks use to redeem deposits in bank accounts. Nowadays, even petty purchases are made not with government-issued legal-tender coins or bills but through electronic payments that transfer — and, in the case of credit cards, create — (imaginary) deposits within the commercial banking system. The deposits are legal promises to pay their owners, on demand, a sum of money in legal-tender coins and bills payable to the bearer. Because of this, the banking system must maintain a certain quantity of physical coins and bills on hand to redeem these deposits on demand — even if, under normal conditions, far fewer of them are needed than in the past. Herein lurks a massive danger.
If the banking system as a whole comes up short when these payments are demanded, unpleasant consequences follow. This is truer than ever because so many payments and purchases are now settled without any legal-tender currency at all. Purchases that were settled with bills and coins in the years leading up to the Great Depression, such as a morning coffee, are now, for the most part, settled by debit and credit cards. If this system were suddenly to collapse because too many depositors demanded cash payment at the same time, the resulting paralysis of the banking and broader financial system would have disastrous consequences. Years of economic depression and massive unemployment would follow even after the immediate acute phase of the crisis, potentially worse than the Great Depression of the 1930s.
There is another danger the Federal Reserve must avoid. If it creates too much cash, that cash loses purchasing power and might become worthless. It is not legal-tender currency that ultimately forms the foundation of the credit system under capitalism, but gold itself. This is an economic law that capitalism cannot escape. Under the current dollar-based international monetary system, a collapse of the dollar’s ability to serve as a means of circulating commodities and settling debts worldwide would destroy the entire international capitalist monetary and credit system. The dollar is the main reserve held by the central banks of countries other than the U.S. as backing for their local currencies, even if its role is beginning to erode. These central banks keep the greater part of their reserves in dollar-denominated Treasury bills. When the dollar is “scarce” relative to demand, as it is during an economic or war crisis like the one we see today, the amount of national currency that other central banks can create is limited.
If central banks run low on dollars, the exchange rate of their currencies against the dollar comes under strong downward pressure. If their currencies fall sharply against the dollar, local capitalists indebted in dollars will suddenly need more local currency to purchase the dollars required to pay their debts. Since wages are paid in local currencies, real wages — including those calculated in dollars and gold — fall. This is fine as far as local capitalists are concerned—they are under pressure from competition to pay wages as close to zero as possible.
These days, we hear a lot about the petrodollar because the price of oil is quoted in dollars and mostly paid in dollars. The Chinese yuan is beginning to make some inroads here, but the dollar still overwhelmingly dominates. This is not true only of oil; it is true of all internationally traded commodities. This means that if a non-U.S. central bank allows its currency to fall against the dollar, all else remaining equal, the ability of the country’s inhabitants to purchase internationally traded goods, as well as locally produced commodities, will decline.
When the U.S. dollar itself falls against gold and loses purchasing power, it drags down the purchasing power of other currencies. If we think in terms of prices measured by the use value of gold, a devaluation of the dollar represents a price cut for U.S. commodities. Other countries are under pressure to match these price cuts by devaluing their currencies against gold as well. Under the current dollar-dominated system, when the dollar falls against gold, it sets off inflation around the world.
Whenever a national currency like the dollar is used by other central banks to prop up their own currencies, the currency so used is called a “reserve currency.” When a crisis breaks out, one consequence is the development of a massive demand for the reserve currency, as occurs during a crisis of overproduction. Suddenly, the steady flow of payments coming due is thrown into question. Capitalist creditors suddenly call in their loans, fearing that they will not be able to collect later. These movements are then magnified by speculation. These phenomena are not confined to crises of overproduction but can arise from anything that threatens the smooth flow of payments.
One example is a threatened or actual war crisis. This has significant consequences for the country whose currency serves as the main instrument of international payments. For example, if the country whose currency functions as the main reserve currency starts a war in a strategic part of the globe, the crisis threatens the flow of payments by creating an unusual demand for that currency to finance the war. This is no minor power. No wonder Trump threatens other countries that are looking for alternatives to the dollar for purchasing commodities and making international payments.
We have seen this during the current U.S. war on Iran. Just before the war broke out in February, the dollar price of gold was above $5,000, a level higher than ever before. Remember, the reciprocal of gold’s dollar price measures the quantity of gold that one dollar represents. When gold was $35 an ounce, one dollar represented 1/35 of an ounce of gold. When gold was $350 an ounce, one dollar represented only 1/350 of an ounce, one-tenth the amount it represented when the price was $35. When the price reached $3,500, the dollar represented only as much gold as a penny did when gold was $35 an ounce. No wonder the U.S. Treasury halted production of pennies for general circulation in November 2025. At $5,000 an ounce, the dollar represents still less real money.
It takes time for these lower gold values of the dollar to be reflected in prices, but, in obedience to the law of value, they eventually are. This is why fast-rising gold prices are so inflationary. The prices of commodities in gold terms are not fixed. As easily accessible gold mines are exhausted, all else remaining equal, direct prices and production prices calculated in gold terms will decline. Direct prices express labor values, while production prices modify them through the equalization of profit rates. If market commodity prices in gold terms fall relative to their production prices, which over time govern market prices, the rise in market prices expressed in paper currencies will be less than it would be if direct prices and production prices remained unchanged.
Whether we realize it or not, direct prices can be measured only as the rate of exchange between a particular commodity and the use value of the other commodity that serves as money. We quote a price in some unit of paper money, presupposing that, at a particular moment, this unit of money represents a definite quantity of the use value of the money commodity.
What is true of direct prices and production prices is also true of market prices. When we measure a market price, we are comparing the value of a definite commodity with a given use value to a definite quantity of the use value of the money commodity.
When it comes to production prices, the price around which market prices fluctuate can be calculated only in terms of the use value of the money commodity—that is, weights of gold. The reason is that capitals in all branches of production, including the branch that produces the money commodity, are driven by the pressure of competition to make equal rates of profit in equal periods of time.
This has important consequences. Whenever market prices as a whole are above production prices, the branch producing the money material makes lower profits than other branches. This causes capital to flow out of the money-material-producing branch and into other branches, causing the money-producing branch to lag behind the growth of other branches of commodity production. If prices continue rising above the production price of money, that branch of production declines.
If commodity market prices fall below production prices, gold production becomes more profitable than the production of most other commodities. Since capital moves toward industries that make more than the average rate of profit, gold production increases faster than the production of other commodities. The Federal Reserve, with other central banks acting as its satellites, can then produce more dollars without those dollars depreciating. Warsh’s Federal Open Market Committee can then push down the target for the federal funds rate without setting off an inflationary storm.
Among other things, this makes it easier for the Treasury and the ministries of finance of other capitalist countries to run larger budget deficits before placing unbearable upward pressure on interest rates. All else remaining equal, increased government deficit spending causes interest rates to rise. But things are never equal. If you look at the history of interest rates, when recession arrives, deficit spending rises, but interest rates, including those on government bonds, fall. This encourages recovery from recession. All recessions, including the one from 1929 to 1933, end sooner or later. The ability of governments to wage war through deficit financing also increases. Recessions, while they do not mechanically cause wars, greatly increase their likelihood.
This means that, in the wake of a recession, central banks find that they can produce more paper money without its depreciating against gold. From the standpoint of the central banks, this means that the world’s central bank, the Federal Reserve, can set lower federal funds rate targets without triggering a rise in the dollar price of gold. At some point, this triggers an economic boom that drives up market prices as measured in the use value of the money commodity, and the cycle repeats.
When market prices rise above commodity production prices, gold production contracts, and the Federal Reserve is pressured to raise its federal funds rate target. Even if no attention is paid to the dollar price of gold, its rise increases dollar-denominated commodity prices. Sooner or later, there will be no alternative but to react to the rise in the dollar price of gold, especially if it accelerates. This is how the law of value of commodities in the long run keeps real prices in line with labor values and production prices. As always, when we talk about the relationship of prices to labor values, or to the somewhat transformed direct prices called prices of production, we mean prices measured in terms of the use value of the money commodity — some unit of weight of gold.
With prices expressed in inconvertible paper dollars, their numerical level can rise without any fixed nominal limit. This is not true of commodity prices expressed in actual weights of gold. The farther a price expressed in a given weight of gold moves out of line with its production price — whether in the case of a particular commodity or of prices as a whole — the stronger the forces set in motion to pull prices back into line with production prices. The farther market prices diverge from the underlying production prices, and the longer they remain above or below those production prices, the stronger the reaction that pushes them back toward production prices.
Central bank policies
These are the pressures that Warsh will have to deal with, just as his predecessors did. At the height of the classical gold standard, between the 1870s and 1914, central banks and government treasuries had to keep the exchange rate of their currencies—whether the pound, dollar, franc, mark or another currency—steady against gold. They made no attempt to stabilize prices generally in terms of their own currencies, nor did they attempt to target the level of unemployment.
The classical gold standard coincided with the rise of neoclassical and Austrian economics, both of which claim that the natural state of a capitalist economy is “full employment.” Departures from full employment were blamed on labor unions that, according to these bourgeois economists, pushed wages above the value of the marginal product that the labor of many potential workers would produce. Otherwise, “involuntary unemployment” was attributed to short-term shocks. In the latter case, no particular action was needed beyond having the central bank lower its (re)discount rate. Anything more would merely tend to push wages above the value of the marginal product, leading to long-term involuntary unemployment.
This was all before the high unemployment that emerged in Britain after World War I and spread throughout the capitalist world after 1929. The 1930s brought unprecedented unemployment crises throughout the capitalist world, even as the achievements of the Soviet planned economy pointed to the real solution to unemployment. To stave off socialist revolution, the capitalist class promised to follow policies generally associated with the work of the British economist John Maynard Keynes that would achieve permanent “full employment.”
After World War II, and explicitly under a 1977 amendment to the Federal Reserve Act, the Federal Reserve was required to pursue “maximum” employment and “stable” prices. Present-day macroeconomics claims there is a choice between the two. The Keynes-inspired theories that dominated capitalist economics after World War II claim that the closer the economy comes to full employment, the faster prices rise, while the lower the rate of inflation—or the more the price level falls—the higher the unemployment rate.
Central banking doctrine claims that you cannot prevent inflation when you get too close to full employment, and that you cannot avoid high unemployment if you insist on stable—or, God forbid, falling—costs of living. The appropriate course is to aim for a reasonable unemployment rate, perhaps as high as 3.5 or even 4 percent, as calculated by the Labor Department. “Stable” prices mean 2 percent inflation, and if the Fed achieves this, economists and public policy experts consider it to be doing a great job. The problem? The relationship between unemployment and inflation is far from stable.
These are the coordinates within which Warsh will be forced to operate, as his predecessors were. If gold money — real money — is abundant, the Fed can set low federal funds rate targets. Businesses, as well as consumers, can borrow at relatively low interest rates. This causes demand to rise and, through the multiplier and accelerator effects, leads to an economic boom.
It also means that governments, including the central government, can borrow more money—that is, run deficits—before a growing money shortage drives up interest rates on government notes and bonds, as well as on state and local government, commercial, industrial and personal loans. As we have explained throughout this blog, when the economy is deeply depressed, idle money builds up in the commercial banking system.
This has consequences for war financing. At a time when money is abundant, it is easier for governments to finance and wage war than when money is scarce. A good historical example is the Vietnam War era of the late 1960s and early 1970s. Decades of prosperity had transformed the money glut created by the Great Depression — which had made financing World War II so easy — into a period of growing monetary stringency. The commercial banking system was no longer flooded with idle reserves but was instead operating with a low level of reserves backing a mass of deposit liabilities.
Modern monetary theory economists insist that “modern money” is created not by the gold-mining and refining industry but by the state — the government proper or, as is the case today, the central banking system. It is claimed that modern money is backed not by gold but by all commodities, with gold being only one commodity among many and not an important one at that. The only limit on the creation of state money, as long as the state can create the currency used to pay its debts, is believed to be the ability of capitalist industry and agriculture to physically produce the use values that back the money. This is the wisdom of modern monetary theory, currently popular among non-Marxist progressives. If unemployment is high because of lagging effective monetary demand, this is attributed either to policy choices made by the leadership of the Federal Reserve or to the federal government’s decision to follow austerity policies.
Modern monetary theory holds that if war creates a need for additional money, all the federal government has to do is print the money needed. The only limit is that the physical use values required to run a modern economy must actually be available. Federal Reserve notes cannot replace oil as a source of energy, nor can hungry people eat Federal Reserve notes. If this were true, Warsh’s new job would be much easier. Indeed, the greatest danger facing Warsh and the rest of the Fed leadership would be that they could be replaced by a computer.
From the non-Marxist viewpoint, if Fed policy keeps “money tight” or the federal government follows “austerity policies,” it is necessary to support progressive candidates within the Democratic Party and defeat Republican candidates whenever possible. If the influence of conservatives can be reduced or, ideally, eliminated altogether, while that of liberals and progressives is increased, the government will be able to pursue full-employment policies.
If unemployment and periods of recession or economic stagnation persist, they are due to the wrongheaded views of conservative policymakers, whether in the Federal Reserve, Congress or, of course, the executive branch. Wars like the current war on Iran need not be financially ruinous unless they create physical shortages of oil and other key commodities, though we might oppose them on moral grounds.
If money must be a commodity whose quantity relative to other commodities is regulated not by the central bank or the government but by the law of value, that is a different story. The ability of class struggle and elections to win reforms runs up against limits set by economic laws, the central one being the law of value that governs the capitalist economy. Ultimately, alternating periods of “easy” and “tight” money are needed to keep market prices in the vicinity of prices that directly reflect labor values as modified by the equalization of the rate of profit — that is, prices of production. Periods of easy money increase the chances of winning reforms, though those reforms have limits set by the reality of the capitalist mode of production. Such periods contain their own dangers because they make financing war much easier. While there is no fatal inevitability that war will occur during a period of easy money, such a period makes war more likely. The history of the 1930s illustrates this point. The greatest era of reform in U.S. history was the New Deal of the 1930s, but it was no accident that this period of “peaceful reform” ended with World War II, the second-bloodiest war in U.S. history after the slaveholders’ rebellion.
Trump did not reappoint Fed chair Jay Powell on the grounds that he was not lowering interest rates far enough. Polls suggest that Republicans could take a beating in this November’s elections, though the unpopularity of the Democrats may limit Republican losses. Trump and the Republicans desperately want to avoid either a recession or an inflationary surge before the election. We know that if the Federal Reserve tries to create money “out of thin air” faster than the quantity of real money, gold, increases, the dollar will depreciate against gold. This will cause the dollar price of gold to rise and inflation to accelerate. In turn, accelerating inflation causes interest rates to rise. If the Fed, whether headed by Jay Powell, Kevin Warsh or anybody else, tries to lower the federal funds rate when conditions do not favor it, the result will be accelerating inflation leading to higher interest rates — the opposite of what it is trying to accomplish. This is what happened in the 1970s.
NOTES
(1) The comprador bourgeoisie refers to merchant capitalists. Merchant capitalists carry out the operation M-C-M′, but not M-C … P … C′-M′. They do not carry out industrial production. They import commodities into colonial or neocolonial countries where imperialist domination discourages independent industrial development. They are counterposed to industrial capitalists, who often want state protection from the competition of more developed capitalist nations. Unlike the comprador bourgeoisie, the industrial bourgeoisie, sometimes called the national bourgeoisie, can come into conflict with imperialism. (back)
(2) One horrifying exception would be a full-scale nuclear war launched by a U.S. president who “presses the button” and breaks the back of civilization. (back)
(3) In analyzing the class forces that would be involved in the coming Russian Revolution, Lenin explained that during the bourgeois revolution, the working class would ally with the peasantry as a whole to overthrow the landlords and neutralize the capitalists, who had an interest in sweeping away the remains of feudalism but also had ties to the landowners. The best that could be done would be to neutralize the liberal big bourgeoisie. The peasants, including the rich, would wholeheartedly support the bourgeois revolution, which would expand but not abolish their private property. The liberal big bourgeoisie could be neutralized, not won over. While the bourgeois revolution would overthrow private property in land, it would expand private property in capital by accelerating the development of Russian capitalism.
In a future socialist revolution, the working class would ally with the poor peasantry, who had little private property, to overthrow the capitalists and the rich peasants while neutralizing the middle peasants. The middle peasants had some private property and an interest in expanding it, but under favorable conditions—for example, with the victory of socialist revolution in the advanced capitalist countries of Europe—they could be neutralized. This was Lenin’s analysis of the coming revolution in Russia.
Lenin further assumed that after a victorious bourgeois revolution in Russia, a counterrevolution would follow in which the victorious bourgeoisie would ally with the rich peasants to overcome the future Russian republic established by the bourgeois revolution and restore the monarchy. This could be defeated only if the Russian bourgeois revolution triggered a socialist revolution in industrial Western Europe.
Lenin described the class alignment of forces that would unite the working class with the peasantry as a whole as the democratic dictatorship of the workers and peasantry. In contrast, the class alignment of forces necessary in a future Russian socialist revolution was described as the alliance of the working class with the poorest peasantry, which would neutralize the middle peasantry. Such a revolution, Lenin assumed, could only follow a victorious socialist revolution in industrial Western Europe. (back)
(4) This is nothing compared with the billions of casualties that would result from a general nuclear exchange. (back)
(5) Radical Reconstruction was pushed by a radical wing of the Republican Party and other left-wing forces that wanted to sweep away the remains of the slave system in the South. It included full rights for the former slaves, including the right of male former slaves to vote — at that time, even white women were denied that right — and, in its most extreme form, a democratic redistribution of land that would benefit both former slaves and poor whites, creating the possibility of an alliance between the two. At the other extreme stood the racist Andrew Johnson administration, which was determined to preserve as much of the slave system as possible, with only the formal legal institution of chattel slavery abolished.
The northern capitalists, who based themselves on the exploitation of wage labor rather than slave labor, had a vital interest in keeping the southern states within the Union to hold the vast U.S. market together. They had no interest in achieving full bourgeois-democratic equality between Black and white people or in defeating racist ideology among the working class. The northern capitalists did not support the removal of Andrew Johnson from office and ended Reconstruction entirely in 1877. The Jim Crow apartheid system rose on the ruins of slavery. The South could have served as an anchor of democracy in the wake of the overthrow of the slave system. Instead, with the betrayal and defeat of Radical Reconstruction, it was transformed into the anchor of reaction that it remains to this day. (back)
(6) It remains an open question whether Nixon knew of and approved the plan for the Watergate burglary in advance. (back)
(7) Liz Truss served as prime minister of Britain for just 49 days before resigning in October 2022, the shortest tenure in the country’s history. Elected leader of the then-ruling Tory Party in September 2022 and styling herself as a second Margaret Thatcher, she introduced a budget featuring massive tax cuts that, by undermining government revenue, she hoped would lead to massive cuts in social spending. This is the program of the Republican Party in the United States and normally what the ruling capitalist class desires, but these were different times.
Unfortunately for Truss, her time in office coincided with a massive tightening cycle by the Federal Reserve, which was determined to slow the post-COVID shutdown boom before the overproduction associated with it got completely out of hand and ended in a crash. At the same time, the Bank of England was raising interest rates to slow inflation and preparing to sell government bonds. Truss’s tax cuts increased the government’s expected borrowing needs just as money was tightening and the Bank of England was preparing to reduce its own bond holdings. British government bond prices collapsed, and forced selling by pension funds magnified the crisis. Britain’s “Old Lady,” the Bank of England, announced that it would support the bond market for only a couple of weeks. Most of the budget was quickly withdrawn, and Truss was forced to step down.
In the U.S., it would not be as easy for finance capital to remove a sitting president as it was in Britain, where the party with a majority in the House of Commons can replace a sitting prime minister at any time. Just as this was being written, it happened again: the unpopular British prime minister Sir Keir Starmer was dumped by the governing Labour Party in favor of the current — for the moment — prime minister, Andy Burnham. In the event of a collapse in market demand for government bonds, a collapse in the dollar’s exchange rate against other currencies or gold, or both, the president and both Democrats and Republicans in Congress would have to withdraw any budget to which Wall Street objected and submit to the dictates of the Wall Street banks. (back)