Originally Posted by
IMPress Polly
We have all doubtless noticed the recent increase in stock market volatility that's developed over the last couple weeks, which saw U.S. stocks enter full correction mode this last week and international stocks generally fare even worse. No one knows whether this is a sign of impending recession (as stock markets are not per se the real economy so much as wealthier people betting on what will happen next in the real economy), but investors do have real reason to worry about that possibility. Why? Because the much-touted economic recovery from the Great Recession that we have seen finally begin to reach real working people and the poor over the last few years has been built more on the superficial foundation of debt than on actual production.
At the root of Wall Street's worries are concerns that the Federal Reserve will soon raise interest rates to combat inflation. The reason investors find that prospect as worrying as they do is because they know that 12% of American corporations are what they call "zombie" companies, meaning that they cannot cover their interest payments as things are and any sudden rise in interest rates would send them into bankruptcy. Were interest rates to rapidly move about 3%, the economic impact would be far-reaching. This concentrates the reality that the so-called economic recovery that we have seen over the last decade, in reality, has been fueled by cheap credit and that its continuation is entirely dependent on the continuation of that regime. Revisit the interest rates of 2008 and 2008 will happen all over again. That's just how "sound the fundamentals" of the economy actually are; so sound that they cannot withstand an interest rate hike from the Federal Reserve. The same principal applies globally. In the past decade, the overall ratio of global debt to economic output has increased by some 40%. It is, in other words, a debt-fueled recovery globally, not just here in this country.
What's more sinister than this though are the reasons why the Federal Reserve is expected to soon raise interest rates. The particular impetus for the recent stock market volatility, you see, has been an influx of positive news for workers: a new report last week finding that jobs are being created at a faster-than-expected pace and another report this week finding that worker's wages have are rising a bit faster than previously expected. Why would this be bad news? It winds up being bad news because of the warped logic that the capitalist system is built upon. You see, the purpose of federal interest rate hikes is, in essence, to combat the economic impact of higher payouts to workers. The terrifying prospect of workers becoming too powerful -- gaining too much leverage in pay and benefit negotiations with their employers -- is what bourgeois economists refer to as "the economy overheating", and when the economy "overheats" you have to do something about that, lest fundamental class relations begin to break down and workers start to forgot who the boss is. Wall Street fears that such a point has now been reached in our class relations. Workers are getting out of control with their demands upon their employers. They're forgetting who the boss is and that has to be forcibly stopped with a curbing of the money supply. (Or, to use their conveniently-ethereal jargon about all this, "the Fed may soon move to combat inflation by raising interest rates".) And that curbing of the money supply, in turn, could send 12% of American companies into bankruptcy, touching off another recession, so strong a foundation does our economy currently rest on.
Of course, there is also the real possibility that the Federal Reserve will raise interest rates by only a small amount in the near future, thus avoiding the worst possible impacts highlighted above. It is impossible to tell just how much "correction" the Fed will deem necessary. But if we do enter a new recession at some point this year, what I have highlighted here will be its basis for occurring. This basis highlights the irrational nature of the capitalist system; the illogic of basing a global economy on production for exchange instead of production for use. The alternative is the creation of a democratically-organized socialist system driven by the planning of production and distribution by producers and consumers themselves in place of the existing profit-driven system. Such an economy would have a real, material foundation and no motive to combat improvements in the living standards of working people.
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