Mar 16, 2020
For 11 years, Wall Street was gripped by a speculative frenzy. Stock prices quadrupled. But, starting in late February, the bottom fell out. In a short 17 days, stocks lost almost 20% of their value. Wall Street was engulfed in panic.
The speculation and the collapse were both spawned by debt—debt run up by government and by private industry, debt that is clogging up the markets today.
Government accumulated its debt to pay for gifts to the capitalist class. Part of it came from the corporate tax cut Trump signed in 2017. In just one year, 2018, corporations had an extra 200 billion dollars passed back to them. The federal government also increased corporate subsidies and other handouts, worth hundreds of billions of dollars more in that same year. And all of this on top of the usual money siphoned off from government to the capitalist class. This is how government added one trillion dollars more to its already enormous debt in 2018.
Companies took government money and poured it into the bank accounts of their big stockholders, handing out bigger dividends and buying back stock at inflated prices. Some of the biggest Wall Street banking houses were the beneficiaries, not to mention some of the biggest speculators.
At the same time, the Federal Reserve was opening ever wider the flood gates of credit that it offers to banks and other financial companies. It lowered to almost zero percent the rates it charged big banks. All of this nearly-free, floating money funneled into the speculation pipeline, driving up prices on corporate stock, on real estate, and on any other kind of debt that could be traded. It was a bonanza—prices just kept going up, and up, and up.
But all of this represented debt, loans that had to be paid someday.
You know what happens if you run up your credit card balance, higher and higher and higher—eventually, the bill comes due.
On Thursday, March 12, it looked as though the bill might be coming due for Wall Street. So- called “investors” who owed money to other “investors” were having trouble paying off their debts. Some of them began dumping every asset they owned—not only stock, but also gold and government bonds—trying to get their hands on money to pay off debt. Suddenly, no one wanted to buy even these “safe assets.” The stock markets seemed to freeze up.
This is roughly how the collapse of 2007–08 started.
Whether March 12 initiated the collapse of 2020 remains to be seen.
On March 13, after the Federal Reserve threw a trillion and a half dollars at the big banks, the market recovered—a little. But the carnage is hardly over. There will be more ups and downs. There were in 2008 before the whole market went into a tail-spin that it took over five years to recover from.
In any case, one thing is sure: a financial crash more devastating than the last one remains in our future if the capitalists are left in place, allowed to make decisions for all of humanity, based on their all-consuming chase after profit.