Let's ask the last obvious question about inflation: what do you do about it?
Since it has happened over and over again, since capitalist economies are beset by the
defects they have that impose inflation on us from time to time like the business cycle,
like the boom/bust crisis sequence over and over again, what can you do?
Well, the standard response, which is all we have seen to this moment here in the United States,
is to get the central bank (what we here call the Federal Reserve) to cut back on the money
in circulation and to raise interest rates. And indeed, the Federal Reserve has announced that
it is doing both of those things and plans to do a good bit more of it across this year 2022.
Now, what's the idea here? The idea is simple. It's whether or not the idea is realistic.
That's the issue. Here's the simple idea: if you pull money out of the economy (and that's
what the Federal reserve can do, reduce the amount of money) it means there's less money
available to buy the higher priced goods. And the hope is that the employer class,
the ones who set prices, won't be so quick to raise their prices because they will be
aware that there's less and less money out there around to pay the higher prices. That's the hope,
and raising interest rates? Same simple idea. If it's more expensive to borrow money,
the idea is many business people will borrow less and spend less, and that's a signal to producers.
Don't raise up the price because people are already in the mood of spending less,
and if you raise the price, they may not spend on you. That's the idea. It's a very gentle
approach to induce the one percent who set prices not to raise them as much as they did
before, but here are the problems as always. First problem and I could tell you many but
I'm going to tell you just a couple to give you the idea. The first problem is the stock market.
Many of you have asked how the stock market figures in all of this. Well, here we go.
Over the last 20 years, the Federal Reserve pumped huge amounts of money
into our economy and lowered interest rates to zero and sometimes below zero.
Historically unprecedented moves in peace time. Why? Because the Federal Reserve was terrified
that the economic crashes I mentioned earlier 2000, 2008, and 2020
could if they continued in the stock market crash the whole economy and give us the kind
of 10-year depression we had back in the 1930s. To prevent that, they flooded the economy with
lots of new money and lent it to people at next to no interest rate. So, of course what happened?
That money could have could have gone into what it should have gone into:
producing goods and services. Businesses that produce goods and services could have borrowed all
that money at those low attractive interest rates and produced goods and services and made a profit.
But they didn't do that. Why not? Because our economy is now so unequal that the mass of the
American people can't afford to buy much more. They are already spending everything they've got,
and they're already indebted [and] borrowed up to their eyeballs: mortgage debt, car debt,
credit card debt, student debt. It's too much. So, there's no point for companies borrowing
all this money to produce more goods because the American people can't afford it and the
rest of the world buys things from China instead. So, where did all the money go?
Answer: stock market. People who play the market borrowed the money (banks,
insurance companies, stock brokerages, equity funds, all of them). They borrowed the money,
and they poured it into the stock market. So, over the last 20 years, we've had a stock market boom.
The inflation that didn't come in the world of goods and services
did come in the stock market. And the rich people of America, they're the ones who own the stocks
most of them. 10 percent richest people own 80 percent of the stocks. They made out like bandits.
For them, it's all about recovery. For them, our economy is doing great. For the mass of people who
have little or no stocks, it isn't. They wonder who the economy is that presidents Trump and Biden
were babbling about. The money went into the stock market, but here's the problem. If you
raise interest rates like they say they're going to do and if you pull money out of the economy
which is what they say they're going to do, then the whole thing holding the stock market up is
going not to be there. And that is why in the first two months of this year as all of this
is taking shape, the stock market stopped going up and became very unstable one day to the next,
up and down as people are trying to figure out what's going to happen here. Very fragile economy.
And one of the effects of the inflation in the stock market is to make it very dangerous for the
Federal Reserve. It has to stop the inflation because of all the reasons I just gave you,
but it doesn't dare cut the money and raise the interest rates because one of the things that
will immediately happen is to really whack the stock market. And that whacks the rich people, and
they're the ones that fund the political system we all live in. Wow. If you raise interest rates,
you make car payments more expensive. You make your monthly credit card bill more expensive.
Corporations who've been borrowing money like there's no tomorrow for 20 years, solving every
problem they have by getting that massive amount of money at zero interest rate into their hands.
Because borrowing from the Federal Reserve was the quickest, easiest, cheapest way for
every corporation to solve whatever problem it had. So, they're in debt up to here. And if
interest rates go up, their expenses to cover that debt at the higher interest- they can't
do it. And here's the irony of ironies for many companies as they pay off their old debts
and do what we call roll over to they pay off the old debt, they immediately borrow the money back
because they need that money to function. When they borrow it back, they have to pay the new
higher interest rate, not the old one that they are finished with. That old bond that they were
able to buy, to borrow at a low interest rate, they got to pay more now. How are they going to
pay off higher interest costs? Here's what some of them will think: raise the price.
Use the extra money we can get from raising the price to pay the extra interest.
But in other words, the effort to stop the inflation by raising interest rates
will have the perverse opposite effect of raising the inflation it was meant to stop.
The inflation also had other effects. Senator
Manchin from West Virginia was able to defeat the Build Back Better program of Mr. Biden
by making the argument, 'If the government borrows tons of money to pay for the Build Back Better
then that's going to add spending to the economy and in an inflation, that makes the
inflation worse. Because when there's more spending, companies will feel that...' Wow.
We lost the Build Back Better in part because the inflation enabled that argument to be made.
How interesting, and of course, if interest rates go up, people won't be able to afford
buying a home. It's already priced out of the range of millions of young people in America.
You know what this situation is? And this is a very important point
for me to get across. This is a situation in which capitalism has come
to a dead end, or to be more precise, to two dead ends. It can go this way or that way,
but if it continues with the inflation, well I've tried to lay out for you the enormous
dangers that work there. But if it tries to stop the inflation with conventional monetary policy,
wow. That leads to all the problems I just talked to. It's a dead end. It's damned if it does,
it's damned if it doesn't. It will be in trouble if it goes one way. It'll be in trouble if it goes
the other. Any solution to these dead ends of modern capitalism have problems associated with
them. Is there perhaps a historic meaning to a society that produces dead ends for itself,
that produces an inflation and produces a solution that is really touch and go
as to whether or not it might be worse than the inflation itself? It can't tolerate the inflation.
It threatens it's existence. And it can't tolerate the conventional solution, and it can't tolerate
thinking about the unconventional solution. It doesn't know what to do or where to go. Yes,
I know some of you think that's the way it always is, and there's some truth to that.
But I do want to submit to you for your thought, your consideration that we have come
to points in the capitalist economic system, especially here in the west (North America,
western Europe, Japan) that literally are policy dead ends. The conditions are unsustainable.
The inequality, the crashes, the unpreparedness for the public health,
the money policy, that kind of spinning out of control. The solution looks as bad as the problem
we're desperate to solve. I think these are signs of an empire and an economic system coming however
slowly and however back and forth and hesitant the steps are, to an end. I didn't think that before,
but it's the only sense I can make out of the accumulation of problems and the accumulation of
dead ends when it comes to trying to think about how to get out of them.