Dec 7, 2009
The following article is taken from a presentation made at a Spark public meeting in Detroit on November 8, 2009.
Over the last two years, the U.S. and the world have gone through the longest, broadest and most severe depression since the “Great” Depression. At times, the plunge was so severe, key economic indicators – world trade, world industrial production, stock prices – were falling as fast as or faster than they did at the start of the last Great Depression in 1929-30. And capacity utilization in industry in the United States fell to its lowest level since the 1930s. Nearly every industry and region in the country was dragged down.
This latest depression has left the economy in a shambles. Official unemployment more than doubled within a year. The unemployment rate in construction hit 20%, and in manufacturing it hit close to 15%. Not able to find jobs, the number of long-term unemployed swelled to numbers not seen since the government began keeping statistics, more than 75 years ago.
Starting about six months ago, government officials and the news media began talking up some kind of recovery. First it was “green shoots,” as though the economy was thawing out and spring was arriving after a long, hard winter. Pretty soon the stock market began to take off, a sign, we were told, that the rest of the economy would soon follow. Meanwhile, the broader economic decline was supposed to be “bottoming out.” The housing market was supposed to have found a bottom. Production was supposed to be almost ready to turn around.
In late October, the government reported that GDP, the broadest official measure of the economy, had increased by 3.5%. In other words, the economy was supposedly expanding – finally. Of course, in November, the government revised that figure down to 2.6, with two more revisions to come.
The Obama administration has claimed credit for this supposed “success.” It certainly had pulled out all the stops (and then some), following in the footsteps of the Bush administration. The U.S. government literally showered and drowned big business with taxpayer money, more than 14 trillion dollars total – an amount comparable to the value of all the goods and services produced in the United States in one year’s time.
Taxpayer money was directly injected into banks and other financial companies. The government also purchased bad corporate debts, insured other debts and lent big companies, especially the banks, tax payer money interest-free. Under the economic stimulus, the government handed out very profitable contracts to big construction and other companies.
The entire government bailout – under both Bush and Obama – was aimed at rescuing corporate profits. Companies, which at the beginning of the year had appeared to be at death’s door, suddenly appeared to have revived. Their profits, executive salaries and bonuses increased wildly. It was a bailout of the capitalist class.
But the rest of the economy continued to plunge.
Government officials claimed they were optimistic because job cuts were slowing. Starting in July, they said, the number of job cuts had slowed to “only” about 250,000 job cuts per month, from close to 700,000 job cuts starting in October 2008. That was the supposed “improvement.” But the reality is that job losses still average more than the per month rate of 150,000 during the last recession. The depths of unemployment were even worse than the statistics indicated. Just to absorb the growth in the workforce, the economy would have to CREATE more than 125,000 jobs a month. And this doesn’t count the 8.2 million jobs that have been destroyed since December 2007.
The housing crisis, which was the initial detonator of the financial crash, continues unabated. Over the last three months, there were close to one million foreclosures, a five% increase from the previous three months and an increase of nearly 23% from the same quarter in 2008. One in every 136 U.S. housing units received a foreclosure filing in just the last three months. Many of these foreclosures are now being driven by the mushrooming unemployment and wage cuts. The foreclosure crisis, in turn, throws more houses onto the market, driving down new construction, eliminating a major provider of jobs in ordinary periods.
Finally, investment in new plants and equipment, itself a major part of the productive economy and source of jobs, has practically ground to a halt. Capitalists see no reason to invest in production when more profit can be made elsewhere.
In their never-ending drive to increase their profits, the capitalists have been cutting labor costs faster than the recession cuts into their profits – and this only prolongs the crisis. Pushing many fewer people to do more work, business has squeezed out an astounding 10% increase in productivity over the past year. At the same time, companies continue to cut wages and benefits in a multitude of ways, grabbing every penny in profit they can.
With the capitalists demanding more bailouts and profit stimulus, the government continues to squeeze more money from other parts of its budget, starting with social programs, education and health care. The government is cutting up the social safety net at exactly the point when millions and millions more people need it. Deficits at every level of the government, federal, state and local, have been caused by the enormous gifts given to the capitalist class.
The combined attacks of the capitalist class and their government have been reducing consumption by the vast majority of people, which in turn reduces production and distribution, which in turn leads to more layoffs, a vicious cycle that worsens with each new attack.
Profits are heaped on more profits, even as the crisis of the rest of the economy gets worse.
The capitalists have returned to doing what they had done before the crash, taking their profits to gamble on riskier and riskier speculative schemes – along with the money the government handed to them. The capitalists are trying to buy anything they can get their hands on: stocks, real estate, gold, copper, government bonds, junk bonds, absolutely anything. The mad rush to buy up resources pushed up their prices.
The capitalists invested the money they got from the government not just in the U.S., but all over the world. The Fed’s almost zero-interest rates made the money they borrowed to invest practically free. And since the U.S. dollar was dropping, speculators got an extra boost in profit margins. Suddenly, they had the possibility of doubling their money within a matter of months.
Speculators drove up the price of gold by almost 50% this year, a record high. They drove up copper prices by about 50% in the past year, and the price of crude oil by 78%. Speculators are jumping from one currency to another in order to enhance or super charge their profits.
This speculation grew so rapidly and with such force that both the World Bank and International Monetary Fund have been warning of dangerous financial bubbles in real-estate, stock and currency markets. A prominent mainstream economist, Nouriel Roubini, warned in the Financial Times in early November, “one day this bubble will burst, leading to the biggest financial bust ever.” Roubini was one of the few economists to have warned about the dangers of the last crash several years before it happened.
The government bailout did not get rid of all the bad debts. It only shifted them from the big banks or big companies to the government. Since every other major government has been doing the same thing as the U.S., bailing out their own capitalists with massive amounts of taxpayer money, they have all begun to run such dangerously high deficits that they risk a credit crisis. The speculators themselves recognize this, as they try to hedge their bets on various currencies. If and when any major government suddenly defaults on its debt, this could set off a much worse financial panic than the one that froze up financial markets after the fall of Lehman Brothers last year.
There is an enormous need for more production and investment for basic necessities, the infrastructure, social services, etc. There is a growing need for those things in this country and all over the world. But the capitalists would rather speculate with their money, or else even hoard it. The Wall Street Journal recently published a survey of the 500 biggest companies in the country that showed corporations are hoarding more cash than ever before, close to one trillion dollars. This hoard has grown substantially in just the last year, despite the economic depression.
In other words, the very policies by which the capitalists protect their own interests makes the crisis worse, threatening catastrophe for everyone. A system like this needs to be uprooted and replaced.