18 April 2019
Nick Beams
The repeated calls by
President Donald Trump for the US Federal Reserve loosen its monetary policy
and provide a further boost to the stock market expose the economic and political
reality behind the mask of official ideology.
In his latest remarks,
contained in a tweet last Sunday, Trump said the Dow Jones Industrial Average
would be 5,000 or even 10,000 points above its present near-record level if the
Fed had not tightened interest rates last year. He demanded that the central
bank resume the program of “quantitative easing,” under which it poured
trillions into the financial markets in the wake of the 2008 finance crash.
For more than three decades
the stock market has served as the primary financial mechanism through which
the American ruling class has carried out an unprecedented redistribution of
wealth from the working population to the rich. Under Democratic as well as
Republican administrations, the Dow has risen 17-fold since 1985 on the basis
of a relentless assault on workers’ jobs and wages and cuts in education,
health care and other social services.
Under Obama, the Dow rose more
than 250 percent. Under Trump, it has risen a further 32 percent.
The official refrain has been
the lie that “there is no money” for schools, health care, housing or pensions,
while unlimited sums have been squandered to pay for more yachts, private
islands and Manhattan penthouses for the modern-day aristocrats, along with new
and more deadly conventional and nuclear weapons to prepare a new military
Armageddon.
Wealth and income inequality
have reached record levels, consolidating the rule of the financial oligarchy
over every aspect of American social and political life.
Trump is simply declaring
openly what the Fed has been doing throughout this period, behind the official
pretence of “neutrality” and “independence”—and demanding that it do more of
it.
If there are objections to
Trump’s comments from the New York Times and other key sections of
the political and media establishment, on the grounds that they infringe on the
Fed’s “independence,” it is not because of any disagreement with the
fundamental direction of his policies. They are concerned that Trump is seeking
to transform the US central bank from the instrument of the ruling class as a
whole into that of his own faction. But Trump’s factional opponents within the
ruling elite base themselves on the same forms of financial parasitism as those
sections for whom the real estate swindler-turned president speaks.
The legal mandate of the Fed
is to adjust monetary policy so as to ensure stable prices and maximum
employment, irrespective of the ups and downs of the stock market. But the Fed
has been directly tailoring its policies to prop up the financial markets since
the stock market plunge of October 1987, when Wall Street fell more than 22
percent in a single day and the then-Fed Chairman Alan Greenspan announced that
the financial spigots were open.
This led to what became known
as the Greenspan put: That when the markets began to falter, the Fed would be
ready to step in to boost them with the provision of cheap money. Greenspan did
make one attempt to curb what he termed “irrational exuberance” in 1996, but
such was the adverse reaction from the financial elites that it was never again
attempted.
From then on, the official
mantra was that it was impossible to tell if a financial bubble was in
formation and the markets had to be given their head, with the Fed intervening
to support them when their speculative activities gave rise to a crisis.
This program was intensified
after the financial crash of 2008, when the government doled out hundreds of
billions of dollars to bail out the banks and the Fed initiated its policy of
quantitative easing, providing trillions of dollars of ultra-cheap money to
ensure that the speculative binge continued and expanded.
At the same time, it was
insisted that corporate taxes had to be continually reduced. This has now
resulted in a situation where, as a recent analysis revealed, 60 US
corporations, appropriating billions of dollars in profits, paid no tax in
2018, with some receiving a tax refund.
Trump’s latest intervention is
accompanied by the claim that the US economy is powering ahead and could grow
even faster if only the Fed stopped holding it back. But rather than indicating
strength, Trump’s ultimatums express a deepening crisis and fear that the
financial house of cards will collapse unless still more money is pumped into
the system.
Claims of the underlying
strength of the US economy are belied by basic facts. The present interest rate
of between 2.25 percent and 2.5 percent is one of the lowest in economic
history, but the Trump administration wants it cut by at least 0.5 percent.
The stock market, bloated by
financial speculation, is like a drug addict who demands more as his underlying
health continues to deteriorate. When the US financial markets neared bear
market territory earlier this year and Wall Street demanded that the Fed halt
its policy of incremental rate increases, the Fed snapped into line and
Chairman Jerome Powell announced it would abandon its efforts to “normalize”
interest rates, leading to the latest rally, which has pushed the Dow to within
a few points of its record high.
At the end of 2017, Trump
claimed that the trillions of dollars handed out in corporate tax cuts would
cause the economy to roar ahead with expanded investment and the provision of
well-paying jobs. This lie has been exposed as the vast bulk of the money the
tax cuts provided has gone for share buybacks and other parasitic means of
pumping more money into the coffers of the rich.
Now the global economy, upon
which the US economy is dependent notwithstanding Trump’s claims of the success
of his “America First” program, is experiencing a significant slowdown after a
brief upturn in 2017.
In its latest economic
outlook, the International Monetary Fund cut its forecast for global growth,
warning that 70 percent of the world economy was undergoing deceleration, a
phenomenon concentrated in the advanced economies, including the US. Those
warnings have been underscored by the announcement on Wednesday by the German
government that it was halving its forecast for economic growth in 2019 to just
0.5 percent.
The Trump administration is
frightened by the prospect of a recession, or even a significant slowdown in
the economy, fueling the growing wave of strikes and protests and transforming
it into a social explosion, not only in the so-called rust belt areas that
voted for his presidency, but across the country.
These fears extend beyond the
White House. In a recent essay, the head of the hedge fund Bridgewater
Associates, the multibillionaire Ray Dalio, warned that when there is a “very
big gap” in the economic conditions of people, a downturn can lead to conflict
and “revolutions of one sort or another.”
With interest rates already at
historic lows, Dalio said he was “worried what the next economic downturn will
be like, especially as central banks have limited ability to reverse it.”
It is above all the fear
within the ruling elite of growing socialist sentiment in the working class
that underlies both Trump’s self-proclaimed war against socialism and the
bipartisan attack by the ruling elite on democratic rights.
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