The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

A New Financial Market Panic

Oct 28, 2019

On September 16, there was a crisis in the U.S. market in which companies and banks make very short-term loans to each other. That financial market, called the Repo Market, seized up and interest rates spiked, as companies and banks stopped making loans to each other. If this crisis had continued, several banks and big companies might have had to file for bankruptcy because they could not have met their obligations.

But the U.S. Federal Reserve stepped in and made loans when private companies and banks didn’t. The U.S. Federal Reserve has been lending about 50 billion dollars in very short-term loans to big companies and banks ever since.

The market for very short-term loans is enormous, worth over a trillion dollars every day in this country. Many important banks, financial companies, and big corporations heavily depend on this market to finance their ongoing operations.

This was the first time that the Federal Reserve carried out this kind of intervention in the market for short-term loans since the financial crisis of 2008. At that time, banks and big companies stopped lending to each other because they were afraid that they wouldn’t get their money back. They only started lending to each other again after the Federal Reserve and the U.S. Treasury stepped in with trillions of dollars of guarantees.

This time around, the Federal Reserve interventions ended the financial panic. But for how long? Big corporations have taken on a record amount of debt since the last financial crisis. They have done this in order to increase payouts to their biggest stockholders in the capitalist class, as well as to buy and sell each other and increase their speculative bets in financial markets.

In the long term, as these companies continue to stuff themselves to the gills with more debt and speculate ever more, it could very well detonate a new crisis anyway.

This shows just how barbaric capitalist society really is. The working class creates so much wealth that we could satisfy the needs of everyone on the planet. But because the economy is controlled by a tiny minority of capitalists for their own enrichment, that wealth is used to speculate and gamble with, leading to ever-worse crises that the working masses pay for in every way.