Financial Turmoil: A Worsening Economic Crisis
On February 28th, even though he acknowledged the risk of an economic slowdown, President George W. Bush declared, "I don't think we're headed for a recession...I believe that our economy has got the fundamentals in place for us...to grow and continue growing, more robustly than we're growing now. So we're still for a strong dollar." Two weeks later, on March 14th, the President reaffirmed his optimistic outlook before a meeting of economists in New York City, where he expressed confidence in the "resilient" American economy. He did this on the very day that the Federal Reserve and JP Morgan Chase were forced to collaborate on an emergency bailout plan for Bear Stearns, the Wall Street investment bank, after it suffered a run on the bank reminiscent of the Great Depression; and crude oil prices hit a record high $111 per gallon, despite the fact that supply far exceeds demand; and the government announced that mortgage foreclosures rose 60 percent in February; and the dollar hit a record low against the Euro. Bush's denial of reality notwithstanding, it is clear that appearance of prosperity that accompanied the housing boom and real estate economic bubble of the last few years has given way to a full-blown economic catastrophe in the world's largest and strongest economy, thus putting the economic crisis in the forefront of the international situation
In the article about the economy in the last issue of Internationalism we warned that the "worst is still to come. The ink was barely dry before that prediction was confirmed. Ever since the first signs that the housing boom was coming to an end at the beginning of 2007 the bourgeois economists have been playing at setting the odds of a recession in US economy. At the start of this year the field was still quite open, stretching from the ‘pessimists' who thought that a recession had already started in December, to the ‘optimists' who were still expecting a miracle that would avoid it. In the middle, placing a safer bet, were the uncommitted experts saying that the economy "could literally go either way." Things have gone so bad so fast in the last two months that there is not more room for optimism or ‘centrism'; the consensus is now that the good times have come to an end. In other words the American economy is now in recession or, at best, on the brink of one.
However this recognition of American capitalism's troubles has little value for understanding the real state of the system. The official bourgeois definition of a recession is two consecutive quarters of negative economic growth. A slightly better definition used by the National Bureau of Economic Research mentions a significant, protracted decline in activity that cuts across the economy, affecting measures like income, employment, retail sales and industrial production. On the basis of these definitions the bourgeoisie can't officially designate a recession until one has been going on for a while and often until the worst of it is already behind. Thus according to some estimates one will have to wait until late this year to know if there is a recession, or, the date of its beginning. All this controversy over the onset of the recession is largely beside the point, and only hides the catastrophic state of American capitalism. The current economic slump has nothing to do with an "normal business cycle" as the bourgeois pundits insist, but on the contrary is a manifestation of the convulsions of the permanent economic crisis of decadent capitalism.
American capitalism, and capitalism worldwide for that matter, has dealt with the return of the open crisis for four decades with systematic state capitalist monetary and fiscal policies that have led to the accumulation of so many absurdities that there is a real threat of economic catastrophe. As we pointed out in Internationalism 145, the real estate bubble that gave the semblance of an expanding economy for the past five years was based on easy and speculation, which have now shaken the entire capitalist system.
The Bankruptcy of Free Market Ideology
The American bourgeoisie endlessly proclaims the virtues of free market capitalism. But the present crisis exposes this claim as empty ideological posturing. An economy left to function according to the laws of the market has no place in today's capitalism, dominated by omnipresent state intervention. The last thing the capitalists would dream of today is to permit market forces to settle the current problems. There's no hesitation to call upon the Federal Reserve to manipulate interest rates, for the government to bailout Bear Stearns and other mortgage lenders, and to authorize an economic stimulus package. The bourgeoisie is implementing precisely the same easy money and cheap credit policies to prop up the economy that they have always relied upon.. The Federal Reserve has cut its interest rate benchmark 6 times since September.
For their part the White House and Congress have moved quickly as well, passing a so-called ‘economic stimulus package", in essence approving rebates for families and tax breaks for businesses and passing legislation geared towards easing the mortgage defaults epidemic and reviving the battered housing market. However given the extent of the housing and financial crisis there is even growing consideration of proposals for a massive bailout by the State of the whole housing debacle, the price tag of which would make the huge 124.6 billions bailout by the State of the Saving and loans collapse in 1990 look insignificant.
So far this traditional government medicine to jolt the economy has failed to produce any positive results. On the contrary it seems to be aggravating the illness that is trying to cure. Despite the Fed moves to easy the credit crunch, stabilize the financial sector and revive the mortgage market, credit is in short supply and expensive, the Wall Street rollercoaster ride continues unabated with wild swings and an overall downward tendency and rising mortgages rates are not helping to alleviate the housing slump. Furthermore the Fed's policy of cheap money is contributing to the decline of the dollar, every week hitting new lows against the Euro and other currencies and driving up prices of key commodities like oil. The rising prices for energy, food and other commodities at the same time of a sharply slowed down economic activity are fueling fears among the bourgeois "experts" about the prospect of a period of "stagflation" for the American economy. In any case as things are already today the rising inflation is already squeezing up consumption of people in fix income obliging the working class and other sectors of the population to tighten up their belts.
The working class
The March 7 announcement by the Labor Department that 63 000 jobs were lost nationwide during the month of February sent jitters around the bourgeois world. Surely not because of concerns for the lot of laid-off workers, but because this sharp decline in employment confirmed the economists' worst nightmares of a worsening crisis. It was the second consecutive decline in employment and the third straight drop for the private sector. However in a kind of sick joke at the expense of unemployed workers, the overall rate of unemployment declined down from 4.9 to 4.8 percent. How is this possible? The reason is nothing but a clever statistical trick used by the bourgeoisie to underreport the number of unemployed. For the government you are only unemployed if you are out of job, have actively looked for one in the last month and are ready to work at the moment of the survey. Thus the official unemployment rate significantly understates the jobs crisis. It ignores millions of Americans who, both have lost their jobs and given up on finding new ones, or who want to join the workforce but are too discouraged to try to do so because the job situation remains so bleak or simply are not willing to work for half the wage rate that they had in their recent lost job. If these "discouraged" workers were included, the unemployment rate would be significantly higher. Furthermore, the official unemployment rate does not take into account the quality of the employment. It puts part-time and full-time jobs on the same footing, and does not include millions of underemployed workers who want and seek full time employment but have had to settle for part-time work. And since 1983, it includes around two million men and women "employed" by the US military as soldiers and sailors as part of the workforce. This artificially dilutes unemployment, especially as compared to the pre-1983 when it was calculated based on the civilian workforce only.
The present economic slump is bringing an avalanche of lay-offs across all sectors of the economy, but one has to say that the now defunct housing boom was never a paradise for the working class. Income, pensions, health care, working conditions, all continued to deteriorate even while the housing market was booming. This undeniable fact led some economists to point out that this was a ‘jobless' and ‘wageless' recovery. But even this recognition understates the gravity of the situation. The reality is that the working class' working and living conditions have continued to deteriorate for the last 4 decades of open economic crisis, expansions and busts notwithstanding. As this crisis worsens during the present economic slump there is nothing in store for the working class but more misery as the bourgeoisie tries to make it bear the impact of its economic difficulties. For the working class the aggravation of the economic crisis is bringing more misery as it deals with the attacks that the bourgeoisie is launching to try to make it bear the impact of its economic difficulties. -- ES 3/23/2008