------------------------- Via Workers World News Service Reprinted from the July 15, 2004 issue of Workers World newspaper -------------------------
IS THIS SUPERPOWER HEADED FOR A BUST?
By Milt Neidenberg
Is the slot machine, roulette-wheel fever that has gripped millions of investors coming to an end?
Following the decision by the Federal Reserve Board (FRB) to raise interest rates to 1.25 percent, how will Wall Street and corporate America, brimming with profits, respond? And what does all this mean to the multinational workforce and the oppressed communities? As the outlook for an era of cheap money disappears, will the capitalist economic boom of the last two to three years turn into stagnation? Historically, such a stage has been called stagflation, a phase in the capitalist cycle leading to a bust.
Within days of the Fed's announcement, a July 6 Wall Street Journal article tried to answer some of these questions. Headlined "Climbing Interest Rates and Dwindling Demand Raise Worries on Street," the article said: "Wal-Mart Stores last week lowered its sales expectations for June, as did Target. On Thursday, U.S. auto makers reported huge declines in U.S. car sales for June."
And this, so important for workers: "Hourly wages for many workers fell behind inflation in five of the last six months through May." This confirmed the fact that, even before the FRB rate increase, inflation had gotten a foothold. Factory orders fell for the last two months, both nondefense and defense.
The job market outlook is troublesome and murky. Only a measly 112,000 new jobs were created in June, far below what is needed to sustain a growing labor market. "U.S. Job Growth for June Shows Steep Slowdown," was the headline of an article in the July 3 New York Times. The average workweek fell to 33.6 hours in June. "Casting the broadest pall over the state of the economic recovery, the total index of weekly hours worked in the private sector--which as a measure of all the hours worked by all the workers employed, provides a good gauge of the overall state of the economy--fell to 99.6 in June from 100.2 in May."
The multinational workforce and oppressed nationalities are poorer and more exploited. "Last month 8.2 million people remained unemployed and almost 22 percent of all jobless workers have been without work for 27 weeks or more." (USA Today, June 4) Household income has dropped and mortgages, credit card and other debts are higher than ever.
An unprecedented increase in productivity through speedup, privatizations, restructuring, outsourcing and technological innovations has forced workers into lower-paying jobs or into the streets, particularly people of color. The shift in the industrial workforce among the largest firms is the cause of the downturn that has depressed wages. Three years ago, Wal-Mart with 1.4 million workers displaced Gen eral Motors as the largest U.S. employer. General Motors, where the workers are unionized, pays an assembler more than three times the earnings of a non-union worker at Wal-Mart. (Labor Research Association, June 24) And that doesn't include health benefits, which are inaccessible to Wal-Mart employees.
HAPPY DAYS ARE HERE AGAIN?
How do Wall Street, the double-talking FRB chairperson Alan Greenspan, and the Bush administration view the unfolding crisis? The Wall Street Journal selected 55 optimistic analysts from Wall Street, hoping to allay the anxieties of millions of investors. Dianne Swonk, chief economist at Bank One Corp., spoke for the cheerleading group and summed up their rosy forecasts of better times ahead: "Record profits, record cash flow, top-line revenue growth and order backlogs. You can't ask for more." (Wall Street Journal, July 1)
Greenspan sang the same tune. "The evidence accumulated ... indicates that output is continuing to expand at a solid pace and labor market conditions have improved. ... with underlying inflation still expected to be relatively low." And the Bush administration chimed in: "As the economy grows and jobs are created ... I think it's always expected that a rate increase would be part of that strengthening in the economy." (New York Times, July 1) Greenspan and the FRB are supposed to be above partisan politics and independent of Wall Street, but his remarks were an effort to calm the roiling waters, calculated to favor the Bush administration in this election year.
It is true that once upon a time happy days prevailed. The banks and other finan cial institutions had a field day for the last four years, when the discount rate charged banks by the Fed was 1 percent, the lowest in 45 years. A 2004 World Wealth Report, compiled by Merrill Lynch, reported that the "number of millionaires in the U.S. was up 14 percent." A spokesperson for the FRB said that "the nation's wealthiest 1 percent owned about $2.3 trillion in stocks." (Wall Street Journal, June 15) The report didn't include how many millionaires became billionaires.
The concentrated paper wealth at the top--$2.3 trillion--is only the tip of the iceberg. If you add investments in government securities, real estate, commodities markets and speculative trading in hedge funds, the total is indefinable. In the global foreign exchange markets alone, $1.2 trillion changes hands daily. Cheap, accessible paper money saturated the global markets as well as the U.S.
A SUPERPOWER BURIED IN DEBT
There wasn't a borrower, including the government, that didn't have their hands out, sending the debt soaring to unprecedented levels. Bush even stole the equity in the Social Security Trust Fund, leaving tons of IOU's in its place. This obscene accumulation of paper wealth is leading to a capitalist crisis that has forced the FRB and Alan Greenspan to begin to tighten up credit. It's too little, too late.
The U.S. National Debt Clock is ticking away. As of July 1, the outstanding public debt was $7 trillion, $218 billion, $337 million and thousands in change. The debt is growing at a rate of $1.58 billion per day. The government can't pay its bills. It is running a hefty budget deficit of $144.9 billion, equal to 5.1 percent of the Gross Domestic Product (GDP) for the 2004 first quarter, thanks in part to the billions in tax cuts bestowed on the 1 percenters. Congress has imposed a debt limit of $6.4 trillion, but that is far short of the actual $7 trillion debt. Treasury Secretary John Snow should recommend to the Bush administration that it declare the government in bankruptcy--or at least in default.
The rising deficit in the U.S. current account has serious implications in the global markets. This broad measure of trade in goods and services, plus certain financial transfers, is of great concern to other governments that hold this huge dollar debt in their central banks. International investors, currency traders and others involved in the $1.2 trillion a day global foreign exchange markets are also troubled. The U.S. balance of trade continues to run billions of dollars in the red, in spite of a cheap dollar that should favor exports. Will foreign investors continue to fund this huge debt through purchase of U.S. stocks and bonds, bank loans or some other forms of lending?
Inflation has now taken hold. Oil prices hover around $40 a barrel and prices for food and other necessities are rising. There are too many dollars chasing too few goods and services in spite of a spike in productivity. Workers can't buy back the products they produce, as overproduction gluts the markets. Two-thirds of the GDP is determined by consumer spending.
IS ANOTHER RECESSION ON THE WAY?
Historically, easy money booms usually lead to busts. The Iraq quagmire is a significant factor in this possibility. The expenditure of almost $200 billion for this imperialist adventure--and more is planned--is drawing on resources during this crisis of deficit spending. Wall Street is aware that the Iraq investments are not paying off in oil revenue or cheap labor. The $400-billion military budget for the next fiscal year will aggravate the debt crisis. Economists are predicting a $3.4- trillion budget deficit over the next decade, no matter who wins the election.
There is a growing split in the ruling class, a section of which is convinced the Bush administration is taking the U.S. superpower down the wrong road. Among the multinational workers and oppressed nationalities, there is a growing consensus to end the occupation and get the troops out immediately. Polls are confirming the sentiment, reflecting a desperate need for decent jobs, health care, education and housing. One poll taken in May shows only 29 percent rated the economy as good.
The poll confirms that the state of the economy has become unacceptable to a majority of workers.
The class struggle is sharpening and will continue to do so in the coming months and years. Strikes and mobilizations are too numerous to mention. There is a convergence of growing opposition to the endless imperialist wars and the war here at home on the multinational workers, the oppressed and the poor.
This is not an issue of Republican versus Democrat. Kerry at most has proposed a raise in the minimum wage from $5.15 to $7 over the next two years, and his position on Iraq is to get in deeper.
Both candidates represent a no-win situation for the workers and oppressed--and this is getting clearer to them by the hour. An independent, classwide struggle from the only class in society that produces the wealth and provides the services is breaking out. It can only change life for the better.
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