[This article, and the article which follows it, were texts written for the annual conference of the Spark group - a Trotskyist organisation in the US, with whom Workers' Fight has an informal fraternal relationship]
Last year we talked about a new financial crisis that had broken out. A year ago, last March, the Silicon Valley Bank and a couple of other big banks had failed. Big depositors had withdrawn their money and closed their accounts. There was a panic. People lined up to take thei from these banks, and those banks went into a death spiral.
The question was whether these bank failures would detonate a chain reaction. No one knew which bank would be hit next by big withdrawals, and more banks were scrambling for cash to cover withdrawals.
This panic did not come out of nowhere. In reality, the entire vanking system was completely underwater, bankrupt, kaput. The bonds and other financial securities that these banks held in reserve were worth much less than just a year before. Huge speculative shifts in financial markets had greatly reduced their face value. If any bank, in order to raise cash was forced to sell its financial make securities that it held, it would lose a lot of money very quickly and it wouldn't be able to stay in business.
Then the Federal Reserve stepped in. It announced that it was introducing an emergency lending program for the entire banking system. It began lending banks as much money as they needed without verifying the real value of what the banks handed them as collateral. What a sweetheart deal! Just try borrowing money from a bank using collateral that is worth much less than the loan. They would laugh you right out of the bank, unless of course you were Donald Trump! But that's what the Fed presented to the banks.
Suddenly, like magic, no banks appeared to be short of cash, this help to reassure big depositors. The bank panic receded, and it soon became a dim memory.
But the story did not end there. The Fed continued the emergency lending program to the banks, lending the banks money at a low rate. It then added a profitable twist. It allowed the banks to redeposit the money that the Fed lent them into a separate interest-bearing account with the Fed. The Fed pays a higher interest rate on the deposits than it charges for the loans. That is certainly something no bank does for its customers. The Fed turned the emergency lending program into a program that provides guaranteed profits to the banks free of charge.
I raise this example because it shows how the capitalists use the government to bail them out of a crisis of their own system and even how the banking system itself gained profits from the bailout.
But that doesn't mean the underlying crisis is over by any means. It is just taking different forms. Here in the US, for example, there has been a worsening crisis in commercial real estate. Over the last couple of years, there have been very high vacancy rates in office buildings, shopping malls, retail stores, and this has caused big losses. And when I say big, I'm talking trillions of dollars. And these losses also pose big threats to the banking system and the entire economy. This is how the Wall Street Journal described the crisis in an article from last September entitled "Real Estate Doom Loop Threatens America's Banks": "With the commercial real-estate market now in meltdown, trillions of dollars in loans and investments are a looming threat for the banking industry and potentially the broader economy. Banks'exposure is even bigger than commonly reported. The banks are in danger of setting off a doom-loop scenario where losses on the loans trigger banks to cut lending, which leads to further drops in property prices and yet more losses".
A few months ago, on 60 Minutes, Fed Chairman Jerome Powell was asked about the commercial real estate crisis and how it could affect the stability of the banking system. He gave a kind of plain vanilla answer so as not to call attention to its gravity. But obviously, the Fed and the US government stand ready to bail out the banks and other financial companies if things threaten to spiral out of control.
It's what they have done over and over again for the last 50 years. For 50 years, the capitalist economy has been mired in crisis, a crisis that has ground down the economic and social conditions of the working masses. But there has been no catastrophic collapse, like the collapse that was triggered by the stock market crash of 1929. And that is because every time a collapse began, there was a government bailout. And these bailouts have gotten bigger and bigger. Back in 1992, an entire part of the banking system, called the savings and loans banks, collapsed completely. The bailout cost $150 billion. That was considered huge at the time. But, even taking inflation into account, which might mean that it finally cost a half a trillion dollars, that is relatively small compared to the tens of trillions of dollars that the bailouts from the 2007-08 crisis, or more recently, during the pandemic shutdown cost.
That money is not for free. The federal government has gone into mountains and mountains of debt to pay for the bailouts. Of course, that is in addition to all the debt that they take on to pay for all the other ways they support the profits of the capitalist class.
To have an idea of how quickly that debt has grown, consider that the federal debt did not hit a trillion dollars until the end of 1981. Today, it is more than $34 trillion. And you know who is responsible for paying that debt? We are. The working population. As Karl Marx wrote, "The only part of the so-called national wealth that actually enters into the collective possession of modern peoples is their national debt". You may not own a house. You may not own a car. But the one thing you definitely own is the national debt.
Every year, ithe US government, that is, our tax money, pays interest on that debt. This year, just the interest payments on that debt come to over $870 billion. That's more than the official defence budget. Think about that for a second. The US spends more on the military than the next 15 countries combined, including China, Russia, England, France, Japan, Germany, etc. So, interest payments are even bigger than that.
And that's every year. The Congressional Budget Office estimates that over the next ten years the US taxpayer will have to pay 12 trillion dollars on interest payments on the debt, which includes financing to fund military spending. Just interest payments. Again, for comparison's sake, $12 trillion is equal to what the entire US government debt was in 2009. What this means is that the interest on the debt is swallowing up the rest of the federal budget, just like the "vigorish" owed by a gambler to a loan shark swallows up everything, or just like the interest rates and balloon payments on subprime mortgages exploded 15 years ago.
What does this mean for the future? All I can say is that it will be the working population that will bear the consequences. At the very least it means big cuts not just in social programs, but in social Security and Medicare, and a greater decline in living standards, But more than that, it means further economic and financial collapses on a much higher level.
So, bailouts are not a panacea, a cure for capitalist crises. All they do is put a complete collapse off to a later date - at which point - it will be even worse.
There is no escape or way of getting out of crises under capitalism. Crises are an integral and necessary part of how capitalism works. Under the domination of the capitalist class, there is no plan, no coordination. It's a free-for-all, chaos, the law of the jungle. So, without a plan, without coordination, the only way that capitalism has to regulate itself is through crises, that is, periodic massive destruction of consumer goods, means of production, and debts.
These crises are a product of how capitalism operates. Under Capitalism, the productive forces expand much faster than markets can absorb what is produced. One reason for that is that the capitalists are in competition with each other to reduce what they pay their workforce in their drive to increase their profits. By driving down what they pay their workforce, they also limit and restrict their own markets to sell consumer goods. So, periods of expansion inevitably lead to crises of overproduction. As Marx wrote in the Communist Manifesto, in earlier societies the idea of overproduction would have been a complete absurdity. That is because people just produced what they needed. But under capitalism, periodically, factories churn out too many goods for people to buy. It isn't that the people don't need those goods. They don't have the money to pay for them. And there are too many factories and companies producing those goods.
So, under capitalism it all has to be destroyed. Of course, all that destruction is a truly barbaric and wasteful way of regulating the economy. All the natural resources, all the labour that went into the production of those goods are destroyed. So, while unsold goods, food shoes, cars, pile up, a lot of people die from hunger and homelessness, These crises inevitably drive the capitalists and their governments to carry out wars against each other that produce even more death and destruction.
It's crazy, but there is no way around it under capitalism, The boom-and-bust cycle will be a part of capitalism for as long as capitalism exists.
But there are big differences between crises in its earlier period and the way they are now. In the earlier, more dynamic period of capitalism, when capitalism was spreading out over the earth and conquering new markets, crises took place more or less on a regular basis, every eight to ten years. The crises were part of the expansion. The depressions were shallower, and the periods of expansion were longer and more profound.
But capitalism's development also destroyed the engine of capitalism's dynamism. For as it monopolies, financial Ak iy Fain more concentrated. This led to the rise and domination of this latest period have b an Imperialism. As capitalism became senile and rotten, the crises of the latest period have become more irregular, but also chronic.
The last biggest crisis that went to its logical conclusion was the Great Depression, almost a century ago. It was the wort capitalist economic crisis in history. The great depression led to the horrors of fascism and mass extermination of World War II, as well as the development and dropping of the atomic bomb. All that destruction and death laid the basis of an economic recovery. But it lasted only about two decades, and it was based mainly on military spending and reconstruction from World War II and the Depression and it was only concentrated in a few countries. And in those countries only parts of the working class saw their standard of living rise. In this country, auto workers made wage and benefit gains that were at levels of the middle class. But of those working in auto, only one in nine made it to get a retirement pension.
None of these gains were long lasting. By the late 1960s, as reconstruction was being completed, the economy lapsed back into crises of chronic overproduction.
Since the 1970s, there have been numerous recessions. But they were all interrupted by government bailouts. So, they did not perform their regulatory function. They did not destroy the huge overhang of debt and speculation. Yes, if there had not been a bailout, the crisis would have certainly set off another Great Depression. But what prevented that, the government bailouts, only added to the problem. They helped nurture and grow this gargantuan overhang of debt and speculation that has increasingly weighed on and smothered the economy. It is one reason why the economic recoveries that followed these recessions have been small and superficial. It is also the reason society is plagued by this gigantic growth of inequality, unemployment and underemployment, and war, living side by side with the growth of the most fabulous wealth. And more terrible crises are in the cards. You even hear it on the news. The threat of a Third World War is being discussed like it is the most normal thing in the world. It is a way of conditioning people to accept a truly barbaric future. All that is the mark of capitalism in its death throes.
As Marx wrote in the Communist Manifesto, during each economic crisis capitalism itself is put on trial.
And that's exactly why time and time again the working class hasn't accepted being beaten down to dust, and they revolted. But the one thing that was missing from those revolts that would power away from the capitalist class was a party, that is, something realtively small. But because that wasn't done, building a party is a task that is still in front of us.
29 March 2024