The $700 billion bailout—euphemistically called the Troubled Asset Relief Program—to save the biggest banks at the onset of the economic crisis is widely known and reviled. Since it began in 2010, the subsequent “quantitative easing” program of the Federal Reserve has expanded the financial giants’ reserve accounts at the Fed by nearly $3 trillion. A majority of market speculators and political pundits expected the Fed to announce that it would begin to slowly phase out this program—the much anticipated “taper”—at its Sept. 18 Federal Open Market Committee meeting. Instead, the Fed surprised investors by deciding to leave QE at its current level.
Quantitative easing can be summarized like this: The recovery from the “Great Recession” of 2008-09 stumbled badly, so the Federal Reserve decided to give a boost to the housing and auto industries by putting downward pressure on long-term interest rates, including mortgage rates. To accomplish this, the Fed began buying Treasury bonds and mortgage-backed securities on the open market. Now in the program’s third phase, the Fed has been buying $85 billion of bonds—$45 billion in U.S. Treasury bonds and $40 billion in mortgages-backed securities—from financial entities every month.
The Federal Reserve is the institution tasked with manipulating interest rates to achieve relative price stability, on one hand, and prevent “excessive”—that is, politically destabilizing—unemployment, on the other. The Fed pays for its huge purchases of bonds by in effect printing money, simply crediting banks’ reserve accounts at the Fed when paying for its purchases.
The Fed hopes that by putting downward pressure on interest rates when the economy is stagnating, housing and auto sales will take off, which in turn will speed up the economic recovery overall. A few right-wing economists oppose quantitative easing because they think it will lead to high inflation. Although this potential exists, the deflationary pressures resulting from the “Great Recession” and the reluctance of the banks to resume high-risk lending has—so far—staved off such an outcome.
U.S. capitalism still stagnant
The tapering of QE was supposed to indicate that the U.S. economy was entering the final stage of its recovery, when the need for direct stimulus from the capitalist state would no longer be needed to sustain growth. The surprise decision to postpone the taper indicates that the recovery—which many workers have yet to see—is in fact still very fragile.
Even though the U.S. government has given banks and large corporations trillions of dollars of assistance in the form of loans and purchases of securities and ownership stakes—much of which could otherwise have gone to fund education, health care or a jobs program—capitalists are still not confident that they can sell at a profit all the commodities they can produce. Undistributed profits—the amount of cash corporations are sitting on—have increased almost 40 fold since the end of 2008. Corporate cash now adds up to 15 percent of the size of the entire U.S. economy.
Based on the absurd logic of profit, capitalism periodically descends into recession when industry produces more commodities than the market can absorb. Economic crises eventually re-stabilize the system by causing large parts of the body of global capital to be amputated, destroying enough productive capacity and debt to allow it to expand again, only to inevitably return to a new crisis later. The huge levels of debt and overcapacity that persist in the world economy today show that this process is far from complete.
Despite the lack of new investment, corporate profits have hit record highs, now at 12 percent of GDP before taxes. In March, the stock market as measured by the Dow Jones Industrial Average surpassed its pre-recession high point and continued higher.
At the same time, indicators of the health of the productive sector of the economy have lagged. For example, the U.S. economy added 169,000 jobs last month and 104,000 the month before, while it needs to add more than that just to keep up with the increase in population. When it announced that there would be no taper, the Fed also lowered its estimate for this year’s GDP growth from between 2 and 2.6 percent to between 1.8 and 2.4 percent and next year’s from between 3.3 and 3.6 percent to between 2.2 and 3.3 percent.
The Federal Reserve’s decision to delay phasing out its quantitative easing program is an admission that the highly touted “recovery” continues to flounder despite regular infusions of cash from the Federal Reserve.
Money for banks, not for human needs
Investors celebrated the decision of the 12-member FOMC, pushing the stock market to an all-time high. Some, like financial giants UBS and Credit Suisse, echoed by a senior editor at Fortune magazine, were upset that the surprise decision undermined “forward guidance”—another creative euphemism that refers to the Federal Reserve’s practice of telling finance capitalists what they intend to do before they do it—an additional “tool” it uses to manipulate interest rates. However, the fawning consensus after the announcement was that Fed Chairman Ben Bernanke is nothing short of a hero.
Poor and working people, on the other hand, have no reason to celebrate. The day before the Fed’s surprise decision, the Census Bureau announced that the number of people living in poverty hit a new record—some 15 percent of the population—and even this outrageously high rate is calculated using the absurdly low threshold of an annual income of $23,492 for a family of four. While widespread misery is a growing and inescapable feature of the capitalist system, the Great Recession has made the suffering especially intense.
Quantitative easing allows the big banks to keep making money while workers suffer. Socialists believe that the banks should be placed under the people’s control and the money they loan to the government for financing wars, the military-industrial complex and mass incarceration used instead to meet human needs.
The policies of the banks and the Federal Reserve—which the banks actually own—not only harm poor and working people in the United States, they devastate our sisters and brothers around the world. As the currency of the dominant imperialist power, the U.S. dollar serves as the world’s reserve currency. Rising U.S. interest rates sparked by widespread expectation that quantitative easing would be tapered led to a sharp fall in the value of many currencies in the so-called “emerging” countries, like Brazil, Turkey, India and South Africa. Rising U.S. rates attracted money from these countries leading to price rises in terms of the devalued currencies that made it even more difficult for poor and working people in those countries to access the goods and services needed for survival.
From one blow to the next
The U.S. domestic political situation also factored into the decision to not cut back QE. The statement issued by Bernanke cited the fact that “fiscal policy is restraining economic growth” as one of the reasons for delaying the taper. Fiscal policy, essentially budgeting, is the responsibility of Congress—Bernanke was making a veiled reference to the impending threat of a government shutdown and a breach of the debt ceiling.
At the onset of the economic crisis, the ruling class needed the Tea Party. The emergence of a right-wing populist mass movement took the pressure off of the ruling class at a critical moment. Tea Party leaders use racist, sexist, homophobic and anti-union scapegoating to divert anger that might otherwise have been directed at the capitalist system while scaring many well-intentioned progressive people into the arms of the Democratic Party.
But empowering such a dogmatic and unpredictable—and oftentimes seemingly idiotic—political force comes with significant risk. The Republican congressional delegation now contains a large section of Tea Party politicians and those who have been pulled into their orbit. This faction, which has the allegiance of a major part of the Republican Party base and the backing of large industrial capitalists like the Koch brothers, presents a major challenge to the old-guard leadership.
Tea Party politicians and organizations are now demanding that the House of Representatives refuse to pass a budget or raise the “debt ceiling”—the maximum amount of money the government is allowed to borrow—unless the Affordable Care Act, also known as “Obamacare,” is effectively repealed. The potential consequences of this strategy are a government shutdown and default, along with new turmoil in the world’s financial markets. Ruling-class politicians, including House Speaker John Boehner, know that this would likely have serious political and economic consequences, but their state is becoming more and more dysfunctional. A continued high level of QE could help mitigate the economic effects of political deadlock.
Although the extreme right-wing is the most aggressive, attacks on the working class are a bipartisan affair. From Ben Bernanke to the Tea Party, the vicious assaults on our rights by all the enemies of poor and working people can only be defeated when they are confronted with determined struggle and organization.
