The Spark

the Voice of
The Communist League of Revolutionary Workers–Internationalist

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

The Federal Reserve, Stock Market Chaos, Cryptocurrency Crash

May 23, 2022

The slow-motion crash in stock prices that started about six months ago has begun to speed up. By mid-May, all the major U.S. stock market indexes had fallen for seven weeks in a row, the longest losing streak since 1980. This has created some spectacular losses. Some formerly high-flying individual stocks, such as Netflix and Peloton, are now down about seventy percent.

Other speculative markets, especially cryptocurrency assets, such as Bitcoin and Coinbase, have seen even bigger losses. Ever since big money got in on the cryptocurrency game—including famous billionaires, like Elon Musk, and some of the biggest Wall Street banks—a great deal of expensively produced advertisements, such as the “Don’t Miss Out on Crypto” ad, which featured Larry David and ran during the Super Bowl, have been hyping these highly speculative and risky financial instruments to the general public as a “sure thing.” But over the last two months, the total value of this “sure thing” has lost over a trillion dollars. Bitcoin, the biggest and oldest of the cryptocurrencies, is now worth only half what it was worth two months before.

Easy Money and the Financial “Boom”

The reason the news media, economists and public officials have given for this sudden drop in the stock market and other speculative markets, like cryptocurrencies, has been a shift in policies of the U.S. Federal Reserve.

Ever since 2008, that is, the last major financial crisis, the Federal Reserve had kept interest rates on its loans to the biggest financial institutions at near zero. In other words, the Federal Reserve had been practically giving money away for free to the biggest banks.

At first, the justification of this “easy money” policy was that it was the only way to restore confidence in the financial system and keep it from crashing. But what started out as a supposed emergency measure to forestall economic disaster has continued, almost without interruption, up until 2022. Every time the Federal Reserve even hinted that it would simply slow down lending the big banks money at near zero interest rates—stock prices began to tumble, threatening a new financial crash. So, the Federal Reserve relented and boosted its lending still more.

In fact, the entire financial system, all the banks and various other financial companies, had become addicted to continual injections of practically free money from the Federal Reserve, just like drug addicts need ever more drugs just to stay “well.”

Of course, all the promises of how Federal Reserve policies would benefit everyone by encouraging the banks to make loans to businesses that would, in turn, boost production and investment and create jobs—all those promises—were complete lies. The banks and other big financial institutions channeled most of that free money into various speculative ventures, including the stock market, the bond markets, real estate markets and various commodity markets, from oil and gold to wheat and other grains. With all that “easy money” floating around, it was inevitable that “new and innovative” speculative instruments, such as cryptocurrencies, were invented—as a kind of “flavor of the month” for speculators out to make a quick million or even a quick few billion dollars.

That flood of money drove up prices on all those speculative markets, starting with the stock market and real estate. The news media and economists hyped what they called the stock market “boom,” the real estate “boom” and the cryptocurrency “boom,” like somehow it was a good thing. In reality, those rising prices were nothing but inflation in the financial sector of the economy. That is, the so-called financial booms were not a sign of economic health, but a sign of economic sickness. It was a sign of just how sick this capitalist economy really is.

Growing Economic Chaos

It was only a matter of time before that inflation in the financial sector would spill over into a general inflation of all prices, the every-day prices that ordinary people pay for the things they need to survive, such as food, lodging, transportation, health care, etc.

The fact that those prices are now rising at rates not seen in 40 years has forced the Federal Reserve’s hand. In order to try to reduce the rate of inflation, it has started to slow the flood of money into the financial system and gradually increase the interest rates it charges the banks for lending money. This is what has set off the slow-motion financial crash we are now witnessing, with all of its wild swings up and down of speculative prices.

Federal Reserve officials promise that they will bring about a “soft landing,” that is, there won’t be either another recession or a complete financial collapse. But so far there has just been financial and economic chaos—which shows that the Federal Reserve is in control of nothing. And no matter what happens in the near term, all this is a sign of just how fragile, as well as completely irrational, the capitalist economy has become.

For instead of using the wealth created by the working class to build up the economy and produce the things that people need, increasing amounts of that wealth are simply being funneled into the financial sector, in order to increase speculation, that is, gambling. All so that a tiny minority can get ever richer, create more multi-millionaires and billionaires—even as everything rots around us, and the economic system threatens to crash over and over again, leading to catastrophic unemployment and crashing living standards for the working masses.