In the News June 20
Economic Matters of Concern
The Ruling Elite Are Deliberately Provoking a Recession
Working people must stay the hand of those in control and change the direction of the economy
The media of the ruling elite talk openly of provoking a recession to “tame inflation.” To this end the private banks comprising the U.S. Federal Reserve System directed its Open Market Committee to raise interest rates 75 basis points or .75 per cent and declare more increases are soon coming. The increase is the largest single interest rate hike since 1994. It means that the private banks themselves will borrow short-term money to cover their own overnight deficits in a higher range of 1.5 and 1.75 interest, said to be rising to 3.4 per cent by the end of the year. All other interest rates for mortgages, credit cards, lines of credit etc. likewise move higher.
The private banks comprising the state-organized U.S. Federal Reserve immediately revised their predictions of economic growth or GDP for the U.S. in 2022 down from 2.8 per cent to 1.7 per cent with a possible decline of the economy into negative growth and recession looming larger.
Under imperialism and private control of the socialized economy, the private banks are the main instrument in controlling the money supply. When they issue a loan, the money involved is essentially new money. More borrowing means more money in circulation and less borrowing means fewer dollars in circulation.
An interest rate hike will slow borrowing and economic activity because the price of money to buy instruments of production and means of consumption becomes more expensive. However, the ruling elite are caught in the contradiction that by slowing the economy down to the point of a recession they are restricting the amount of production of goods and services compared with the money in circulation. The relation between the amount of money in circulation and production of goods and services remains uneven with still too much money chasing too few goods and services. This continues to cheapen money causing price inflation but now within a dreaded recession. This scenario looms as a serious danger for the well-being of the people and society.
The imperialist ruling elite are caught within the narrow confines of their private interests. They are incapable of finding a solution to the problem of the money supply or any other problem because viable solutions involve a weakening of their private control, wealth and power and go against their narrow aim of maximum profit for themselves.
All other state-organized central banks within the U.S.-led financial system including Canada and England are also raising interest rates to slow their economies. For the working class a slowing economy means unemployment for many on top of the higher prices they must pay for goods and services resulting in a serious deterioration of their living conditions and the social conditions generally.
The pressure on the ruling elite to raise interest rates is found in the surging price inflation in the U.S. reaching an annual overall rise of 8.6 per cent in May. The U.S. government price survey reveals the very real hardship price inflation is causing working people. General and particular wage and salary increases at this point are nowhere near high enough to stem deterioration in the people’s standard of living resulting in a broad assault of the ruling elite on the social conditions and health of society.
The imperialists profit from the situation but realize from past crises that the worsening conditions can awaken the working people to the necessity for a change in the direction of the economy. They have mobilized their cartel political parties and mass media to spread false ideological beliefs and diversions to stop people from mobilizing and organizing to bring in the new.
Caught in a Contradiction the Ruling Elite Refuse to Address
The ruling elite of the rich declare they are deliberately causing a slowdown in the economy as a means to deal with the problem of price inflation. This starkly reveals their impotence in solving economic and other problems, which arise from the fundamental contradiction between the socialized forces of production and the private ownership of the economy by increasingly larger and more powerful competing and warring monopolies and cartels and coalitions of oligopolies.
The socialized productive forces need cooperation to function without crises, including the problem of the relation between the money supply and production of goods and services. This means in the conditions of the modern economy the people in charge and control of the large enterprises and sectors must be the working people themselves who have the well-being of the whole and the people and Mother Earth as their aim and not the singular private interests of particular enterprises or cartels of the rich for maximum profit for themselves. The working class must step forward and become the active social force to bring in the necessary new relations of production.
The contradiction between the aim of the imperialists for maximum profit to serve their narrow private interests and the aim of the working people to serve the needs of the economy as a whole and well-being of the people and Mother Earth arises from the outmoded private ownership and control of the modern now socialized economy. The conflict of aims reflects the root contradiction in the economy between its socialized productive forces requiring broad general control of the working people for the benefit of all, and the private ownership and control of those socialized productive forces by a few to serve their narrow private interests. The problem to resolve is which social force is in control economically and politically, the working class or imperialists.
The situation demands working people assert their aim and broad public interest both in the immediate condition and in organizing to build the new. The goods and services they produce in the immediate condition must go towards satisfying their own claims on the economy and the well-being of the parts and the whole which comprise the society. The new can be ushered in and problems solved if the working people themselves become more active in demanding their rights and claims and in preparing the subjective conditions to take control of all the major parts of the economy and the political affairs of the country and changing the direction of the modern economy towards resolving its fundamental contradiction.
Those who produce the social value in the economy must not accept the impunity of the ruling elite in causing problems and distress for them while falsely asserting they are solving problems. The people must control all those things that affect their lives including the most important – the economic and political affairs of the country.
The current merry-go-round of the ruling elite leaping from problem to problem while ignoring the root cause of economic crises must end with working people demanding what belongs to them by right and preparing the subjective conditions to bring in the new. It can be done! It must be done! Let’s do it through organization and determination to win!
1. Lending among the federal reserve banks and other big financial institutions (the overnight lending at the interest rate set by Federal Reserve) froze during the 2008 economic crisis because of all the bad loans they were holding, mainly the bundled bonds containing thousands of mortgages, auto and other troubled sub-prime loans. The bundled bonds are a place big companies park money they do not need for a short time earning them some interest.
Most lending in 2008 ground to a halt because the banks and others did not trust one another in their capacity to pay off new loans. The government stepped in to assume or write off the bad loans held by many big institutions, not just financial enterprises but auto monopolies and others.
Of the monopolies in serious distress, only Lehman Brothers and a few others went bankrupt. Down the chain of loans everyone else who could not pay their debts or collect outstanding loans went bankrupt including many real estate developers, construction companies, car dealerships and others holding bad loans, along with countless individuals who could not service the loans they had taken out.
Demand for means of production and consumption dried up for several years and unemployment soared. Once solvent because of state intervention (called quantitative easing), the big banks began lending to each other again and companies restarted buying bonds.
The prolonged period of low interest rates that came out of the crisis fueled stock market buying as companies and rich individuals could borrow cheaply to buy stocks, sending the stock markets soaring until this year. The extensive borrowing with low interest rates with much of it not going into productive forces has meant a gross oversupply of money in the economies of those in the U.S.-led imperialist system of states. This cheapens the money overall causing price inflation.
The situation is not that complex. The problem stems from those in control and ownership who have the means and the aim to strive desperately to become richer. They could care less about the economy or the people. They care about their enterprises, their holdings, their stocks and bonds and piles of money. As long as they are making more and more money – who cares… at least until the next crisis explodes.
2. For U.S. Department of Labor Consumer Price Index — May 2022 click here.
Workers’ Forum, posted June 20, 2022.