The Class Dynamics of the Fed’s Recession Program
On Thursday, the Commerce Department announced that the US economy had contracted for the second straight quarter, pushing it into a “technical recession”.
Along with the economic contraction comes a series of layoffs that threatens to become a torrent as the economy slows further. This month, more than 30,000 layoffs took place in the technology sector alone. Last week Ford announced 8,000 layoffs, heralding yet another bloodbath in the auto industry.
Amidst the whirlwind of economic data, it is always necessary to understand that these numbers are the abstract expression of underlying social and class forces, that “the economy” is not some kind of machine, but is based on defined social relations and operates through them. . This is especially necessary when considering the latest economic data.
A debate has now erupted in media and financial commentator circles over whether or not this “technical recession” – defined as two consecutive quarters of economic contraction – is real.
The key question here is not a question of definitions, but what are the essential class interests at work, especially with regard to the policies of the US Federal Reserve, the main financial institution of the capitalist state.
Fed policies are still framed in various forms of jargon that disguise the real agenda through a series of mystifications aimed at making it appear that the central bank somehow stands above class interests, regulating economic life in the interest of the population.
Amid the flurry of words, the essence of the current situation is this: the central bank, guardian of the interests of business and financial capital, has set out to bring about a sharp downturn and, if necessary, a major economic contraction. The aim is to suppress working class wage demands under conditions where inflation has reached its highest level in four decades.
This onslaught is being led by the mechanism of higher interest rates, which are being raised at the fastest pace in decades under the banner of fighting inflation. But interest hikes won’t lower gasoline prices or unravel supply chains. The aim is to cause an economic contraction so that wage demands are suppressed.
The current policy agenda echoes that of Fed Chairman Paul Volcker in the 1980s, when interest rates soared to record highs, sparking the deepest recession since the Great Depression. Current Fed Chairman Jerome Powell has expressed his admiration for Volcker on numerous occasions, making it clear that he is more than ready to follow the same path.
Former US Treasury Secretary Lawrence Summers has insisted that containing inflation means inducing higher levels of unemployment for five years or a 10% unemployment rate for at least one year.
As with all other economic issues and statistics, inflation is rooted in the class structure of society, a historical examination of which reveals the origins of the current American and global spiral.
The 2008 global financial crisis, triggered by the more than two decades of growing financial speculation that preceded it, led to the largest corporate and financial bailout in history. The US government handed out hundreds of billions of dollars in bailouts and the Fed launched the policy of “quantitative easing” – pumping money into the financial system so that the speculation on Wall Street that had precipitated the crisis can continue.
And continue he did. After hitting a low in March 2009, the stock market had a spectacular bull run. But it was based on a continuous supply of cheap money from the Fed.
In March 2020, as the COVID-19 pandemic hit, Wall Street and financial markets collapsed on fears that imposing necessary public health safety measures would affect the flow of profits extracted from the working class. and the stock market bubble would collapse.
Two key policies resulted. Under the banner of “the cure cannot be worse than the disease,” the necessary policy of eliminating COVID-19 has been rejected in the United States and by governments around the world. At the same time, trillions of additional dollars were pumped into the financial system. In the United States, the Fed doubled its holdings of financial assets from $4 trillion to $8 trillion virtually overnight, at one point spending $1 million per second.
These are the origins of the global inflationary spiral. The refusal to undertake a global policy of eliminating COVID-19 due to its potential impact on stock markets has had major consequences for the real economy, as the spread of COVID-19 has led to a chain crisis. supply.
The monetary system has been expanded by central banks, leading to even more asset speculation in 2020 and 2021. Another factor is the never-ending increase in military spending as billions are funneled into war. by proxy against Russia in Ukraine.
In their drive to raise interest rates, Fed Chairman Jerome Powell and other central bankers continually refer to what they call the “tight labor market,” in which demand must be balanced with supply.
In conditions where deaths inflicted by COVID-19, ongoing infections and the growing impact of Long COVID have driven millions out of the workforce, the only way to push through the increased supply of labor above demand is the taxation of unemployment.
And this process is already underway following the interest rate hikes initiated by the Fed so far. The auto industry has indicated that new hiring has stalled and layoffs are expected to follow. In high-tech interest-sensitive sectors, layoffs have already begun and more are to come.
Faced with daily reductions in their standard of living resulting from the highest inflation in more than four decades, workers are being forced into a struggle for the necessary wage increases. But as they are drawn into this fight, workers need to understand what is at stake in order to better fight the battle at hand.
Workers are not only in conflict with individual employers, but are engaged in a political struggle in which the union bureaucracy functions as the primary enforcer of the demands of the capitalist state and its agencies.
Moreover, the fight for wage increases, necessary as it is, is a fight against the effects of much deeper problems. An examination of the economic history of the past period shows that every step taken by the ruling class to deal with an economic crisis inevitably led to its eruption in a new and more malignant form.
Thus, the “solution” to the 2008 financial crisis created the conditions under which, in 2020, sound scientific measures to deal with COVID-19 were rejected, lest their implementation lead to a collapse of the financial market. But the ensuing “letting it go” policy has now led to an inflationary spiral that the major agencies of finance capital are determined to “resolve” by making the working class pay, if necessary through mass unemployment.
This means that from the struggle against the effects of the ongoing economic collapse, the working class must develop a strategy that attacks the underlying cause of the crisis, and this means the struggle for a socialist perspective. to end profit and replace it with socialism, a superior form of social and economic organization.