It must have been a strange performance at the University of Rhode Island Oct. 28. Federal Reserve chair Alan Greenspan not only delivered a grim, downbeat assessment of the capitalist economy, but he also criticized the bankers.
And for good measure he included the bank regulators. Greenspan said both were responsible for exacerbating what he called the "credit crunch."
The chairperson of the Federal Reserve Board rarely makes public appearances. Most of them are at Congressional hearings. The spectacle of the Federal Reserve chair actually criticizing the bankers was really extraordinary.
Why was this played so low key in the capitalist press, confined mostly to the financial pages?
The Federal Reserve chair is often referred to as the second most important government official after the president. He — there has never been a woman — is charged with the responsibility of managing and supervising the U.S. banking and credit system.
Alan Greenspan projects an unassuming personality. Historically the head of the Federal Reserve has appeared to be a hardline, tight-fisted money manager who occasionally bickers with the president or Congress. Both generally demand easier credit terms, that is, lower interest rates.
This is all public posturing. Actually, they decide privately on matters of great significance for millions upon millions of workers. And there is no appeal.
The Federal Reserve chair, like his colleagues on the board, is appointed, not elected. This group is chosen from a very, very small portion of the population, mostly bankers themselves. Few ordinary workers know who the members of the board are. Even most in the middle class only know the name of the chairperson.
The board's activities are secret, except in times of great and overwhelming economic crisis or financial panic. Even then it is rare for public officials, particularly members of Congress, to level criticism at the Federal Reserve.
Criticism from bankers is even rarer. However, their demands are frequently aired to the board in no uncertain terms. The chairman is their man.
The text of Greenspan's Oct. 28 speech was not made available. He reportedly spoke merely from notes. So newspapers could pick out whatever choice segment they felt was most important. But the Wall Street Journal, New York Times, and most other newspapers did make it clear that he criticized the bankers. And the crux of the criticism was that they are responsible for the credit crunch.
What does that mean?
It means, according to Greenspan, that the banks are holding back granting "easier credit terms." The banks should be "more aggressive" in their lending practices, he said, so credit would be more easily available to businesses and consumers.
Greenspan, a Reagan appointee, is considered a hardliner, a tightfisted banking official. It's astonishing that he would take such a posture. There must be a solid basis for it.
In big business and high finance, accidental factors or slips of the tongue are easily rectified. But this was apparently well thought out in advance.
So what's the cause of this truly extraordinary performance? It lies deep in the financial situation of the banks themselves. No, not the savings and loans — the biggest commercial banks, including such giants as Citicorp, Chemical and Manufacturers Hanover and dozens of others, the cream of the crop of U.S. finance capital.
The new banking crisis should not be confused with the savings and loan crisis. The Bush administration happily solved that one by expending $500 billion and passing the bill on to the working class.
This is played in the capitalist press as though the $500 billion has already been expended. But this bailout, this huge giveaway — really an unarmed robbery of the people — has not yet reached down to the population as a whole.
Over the weekend of Oct. 26-27 these capitalist newspapers covered the developing banking crisis: the New York Times, the Washington Post, the Boston Globe, the San Francisco Chronicle, the Los Angeles Times and others.
Their objective isn't to lay the groundwork for an attack against the banks. It's to prepare public opinion to accept a bailout that no politician wants to even mention yet. They especially don't want to talk about it in light of the U.S. deficit's astronomical proportions.
Greenspan criticized the banks for their lack of aggressiveness in making lending more available. But it must have fallen flat, if anyone took it seriously at all. Their response to any call for easier credit terms for business and consumers is that they are overloaded with nonperforming — that is, bad — loans as it is. They have to tighten up for sheer survival.
If easier credit terms are to be made available, the bankers answer, the Federal Reserve should make them available to the bankers. The Federal Reserve, after all, is the central bank. It acts as a bankers' bank: member banks use their reserve accounts much as individuals use their checking accounts.
In other words, all the banks deposit their reserve requirements in and borrow money from the Federal Reserve.
For easier credit terms to be made available, the bankers say to Greenspan, it must start with the Federal Reserve. But the Federal Reserve has already reduced interest rates 10 times since the capitalist crisis is said to have started back some time in 1990.
It should be noted that when the Federal Reserve reduces interest rates for bankers, the banks aren't obligated to then reduce their own interest rates for ordinary consumers.
If reducing interest rates is not a solution, then there remains only the ultimate one — a bailout by the federal government. But with a presidential election only a year away, no capitalist politician wants to even raise the question.
So what Greenspan was doing in his speech, in a roundabout way, was to say what the bankers are saying: a bailout by the federal government is the proper remedy.
He was publicly admitting how profound the economic crisis is. It has not by any means reached a stable recovery phase.
Greenspan, along with most of his colleagues among bourgeois economists and academics, holds to the theory that every economic crisis contains the seeds of its own recovery. It is a comforting thought for capitalists — at least those who survive the crisis.
But to those on the edge, the seeds of a real recovery must be planted by the capitalist state. And those on the edge include some of the biggest banks in the U.S. — like Citicorp, which used to be the most powerful in the world and now has given way to the Japanese banks.
The capitalist state must intervene where ordinary, so-called spontaneous forces prove themselves incapable of correcting the crisis. The prosperity of the 1980s — for big business, multinational corporations and giants in all fields of capitalist endeavor — was obtained through a ruthless drive against the living standards of the workers. It was a most intense anti-labor offensive and it is still in progress. But it won't get the capitalist government's attention until a mass resurgence of the working class and the oppressed really takes hold and demands it.
The banking crisis is sure to lead not to an attack against the banks, but an attempt to unload the burden of the crisis on the backs of the working class and the oppressed masses.
The government announced an increase in the Gross National Product on Oct. 29, the day after Greenspan's talk. It is a fair assumption that Greenspan knew about it since most of the GNP report's data were based on Federal Reserve statistical sources. For many years the Federal Reserve has indexed industrial production. Since that's the GNP's main component it can be assumed that Greenspan knew the character of the Oct. 29 GNP report.
All the more revealing, then, is his gloomy assessment of the capitalist economy.
It's possible that the increase in the Gross National Product may only reflect a hurried attempt to liquidate overgrown inventories. If seen over a protracted period, the increase may turn out to be no more than a blip. A great many ruling class expectations are based on the assumption that the masses will let the bosses unload the bank crisis on their backs.
But this is precisely the kind of assumption in which the ruling class has been historically mistaken. It did not anticipate the resurgence of the labor movement in this country following the great economic crisis that began with the stock market crash of October 1929. The entire Roosevelt package of reforms that came much later was, on the contrary, based on anticipating a labor movement upsurge and attempting to rein it in.
If the picture Greenspan painted was gloomy, as all the capitalist newspapers admit, then why did the stock market surge at news of it? The Dow Jones Industrials climbed 40.70 points to 3045.62 on Oct. 28.
The stock market is supposed to go up in response to economic growth, recovery. So why did it rise in the face of Greenspan's gloomy picture of the economy?
Contradictory and inconsistent with the character of the report though this may seem, it is really quite in accord with the laws governing the capitalist economy. Capital always, even if only for a moment, flows to where the profit is highest.
If industry and commerce are lagging, turning downward, the stock market offers the quickest, best investment. It offers an escape from industrial stagnation. At the same time stock market speculation can rise to dizzying heights.
Shades of 1929! The stock market reaches its highest point precisely when industrial production is declining.
At present the capitalist press itself is full of news of layoffs, cutbacks, bankruptcies and consolidations. It all adds up to an ever smaller workforce — the bourgeoisie's own terminology — creating more and more unemployed and driving the working class's purchasing power ever lower.
Nonetheless, every capitalist crisis sows the seeds of its own recovery? In reality this tautological formula explains nothing.
Long before Marx came on the scene, classical bourgeois economists noted this phenomenon. As a world phenomenon, it came on the scene as early as 1825. Engels described it in his "Socialism, Utopian and Scientific":
"Little by little the pace [of recovery] quickens. It becomes a trot. The industrial trot breaks into a canter, the canter in turns grows into a headlong gallop of a perfect steeplechase of industry, commercial credit and speculation, which finally after breakneck leaps ends where it began in the ditch of a crisis."
In that paragraph Engels described the external features of the process of every capitalist crisis sowing the seeds of its own recovery. But Engels turned it right side up: Every recovery carries the seeds of its own destruction.
However, this is merely the external aspect. Further on, Engels described something the capitalist economists would choose to ignore if they could: precisely the process of this transformation. For it is none other than the process of capitalist production.
This was Marx's great contribution. He didn't only describe a well-known common external phenomenon. He demonstrated the inner springs of its development.
Marx showed that at the root of this process lies the exploitation of the working class by the capitalist class. The source of capitalist profit lies in paying the workers a mere fraction of what they produce. The capitalist class garners and appropriates the lion's share. This maintains them as the ruling class.
This endows them with the "right" to amass huge fortunes, to play politics and indeed play the role of financier, the patron saint of the arts, sciences or sports, to fund great charitable institutions and even play humanitarian. It's all on the basis of expropriating the unpaid labor of the working class.
Greenspan's talk was avidly awaited by his audience for a signal as to where to put their money or how to borrow it. But he was careful to avoid the one big topic that could profoundly influence the capitalist economic cycle of development — how to move aggressively on the international arena.
At the time he was talking, the G7, the seven most powerful imperialist countries, were meeting or had just ended their deliberations, held in Bangkok. Why of all places there?
One reason might have been to reduce media coverage. More likely, it was time to hold one of these secret conferences in Asia. But that could conceivably mean holding it in Japan at a time when Japan is doing better even though serious cracks in its economy are appearing.
Holding the conference in Tokyo would again demonstrate the economic power of Japanese finance capital as against Wall Street.
The current economic crisis has all the characteristic features of a prolonged, protracted crisis. It is growing more severe, notwithstanding some limited upward movement here and there. It shows an unmistakable kinship to the early 1930s, with the great capitalist crisis, which in reality was a breakdown of the capitalist system that extended over 10 years — 1929 to 1939.
Of course, one cannot make an a priori conclusion about a repeat performance of the 1929-1939 experience.
The U.S. was only rescued from it, as were other capitalist countries, by diverting the economic crisis into an imperialist war. Under present circumstances such opportunities are not easily available.
One thing that differentiates the current position of U.S. finance capital is that in the early 1930s the U.S. was the principal creditor nation in the world. That is absolutely incontestable. France, Italy, Germany, Great Britain — all were indebted to the U.S.
The big problem for the European imperialist powers was how to pay their war debts to the U.S., incurred as a result of World War I. The pages of the capitalist financial press were filled with news of all sorts of maneuvers and negotiations to extend the payments or find ways and means to cancel them as a rescue operation for the European capitalists.
Today the U.S.'s situation is vastly different.
The U.S. is a debtor nation. Third World countries' debts loom large. They are an element in the U.S. banking crisis. But this has to be seen in the perspective of the hundreds of billions of dollars the U.S. has borrowed from foreign countries by selling U.S. certificates of indebtedness — bonds — abroad.
The huge sums of money that fueled the Pentagon war machine came in part from U.S. treasury sales paying high interest rates in capitalist countries and Third World countries throughout the 1980s. The Reagan-Bush years are predominantly years of unprecedented anti-labor offensive. This development, together with the huge indebtedness the U.S. has incurred abroad, created the ruling class's prosperity. The fortunes of the existing financial and industrial dynasties were enhanced and new ones spawned — all based on exploiting the working class abroad and at home.
All the so-called restructuring invariably included not only vast layoffs but even vaster outsourcing in Third World countries, and most particularly by exploiting women workers. It is therefore a narrow and truncated view of the economic crisis to only take into account its domestic ramifications.
Playing the role of creditor in the oppressed countries on the one hand, and on the other hand being a debtor worldwide, especially to the capitalist countries of Europe and Japan, puts U.S. finance capital in an ever more precarious situation.
U.S. finance capital's post-war panacea of artificially stimulating the capitalist economy by conducting "local wars" like in Korea and Vietnam has run its course. The intervention in Iraq was the last straw in applying an artificial stimulant to a declining capitalist economy. It was supposed to be the big push that would accelerate the economy, a stimulant for economic growth.
It turned out, as should be obvious now to all, to be a depressant. It's now clear that the intervention in Iraq slowed down rather than stepped up the capitalist economy. The Bush administration and the ruling class it represents hoped the collapse of the USSR and Eastern Europe would quickly offer great opportunity for the kind of economic and financial penetration that could rapidly bring about the super-profits that only a vast country like the USSR with its many, many resources could offer.
But here again, rather than a window of opportunity as they would describe it, the evidence thus far presents the spectacle of a quagmire — not at all a California or Alaska type of gold rush.
It is impossible to gain real insight into this specific phase of the capitalist crisis without considering the many international political problems. Most important, the U.S. acts as the principal oppressor at home while at the same time it is the principal oppressor abroad.
Last updated: 19 February 2018