Continuing economic slowdown shows an irrational system at work

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R have displayed heightened fears of a continued eports on the economy’s health in recent weeks slide into depression (labeled in the media a “doubledip recession.”) Naturally, mainstream commentators on these events put them down to greed, inadequate policy, unfair competition, etc. But in fact they illustrated the inescapable contradictions of an irrational system that inevitably produces such catastrophes.

On July 15, AP reported that manufacturing activity was slowing after having helped drive the early stages of the alleged recovery. Factory output fell in June for the sharpest monthly drop in a year. At the same time, prices remained stagnant, moving a normally “hawkish” Fed official (i.e. one who likes to hike interest rates to cut inflation in order to benefit investors) to warn of the growing risk that deflation would reinforce the downward slide. Retail sales have been slowing since April, and are expected to remain slow through the back-to-school and Christmas seasons.

Like other mainstream accounts of the slowdown, AP stressed the mutually-reinforcing interaction of negative economic indicators: declining consumer confidence leads to slower sales, which slow production, which means no hiring, which means less money for consumers to spend, and on and on.

The bad news culminated in late-July announcements that in the second quarter GDP rose only 2.4%, with universal predictions that the rest of the year would be equally slow if not slower—rates woefully inadequate to bring young newcomers to the job market, much less re-employ the millions who lost their jobs. What’s more, new figures showed that for all of 2009 the economy contracted by 2.6%, compared to the previously estimated 2.4% decline.

Once again, the housing sector was a key source of concern. Home sales are deteriorating, inventories piling up and builders scaling back construction plans. The Wall Street Journal noted housing’s place in the vicious circle: “While the housing downturn dragged the economy into a recession nearly three years ago, now it is the economy that is pulling down housing. Without sustained job growth, the housing market likely won’t improve. That in turn will ricochet across manufacturing, retail and other trades heavily dependent on home building and consumer spending.”

Singing the same tune, the Washington Post quoted economist Robert Johnson: “We’re right on the cusp between simply decelerating and actually falling into a double dip. We have households still trying to be cautious and improve their savings, and if they cut back further, it will create a feedback loop that drives us back down.” (The Post and other media also admitted that the slightly brighter first-quarter results had largely been based on businesses restocking inventories, which had fallen further and faster than consumer spending—and those inventories are now restocked and will provide no further stimulus.)

Another manifestation of the system’s irrationality is a revived bond market, which is dancing its way toward a cliff and threatening to drag the world’s economies down with it. The Wall Street Journal reported, “Over the next two years, banks around the world must come up with trillions of dollars to cover recent short-term borrowing. The IMF and other agencies overseeing banks worry that the need to find cash for that refinancing will leave businesses and consumers without access to credit to finance purchases… “The financing crunch has its origins in a worldwide trend for banks to borrow money for shorter periods— a practice which contributed to the near-collapse of the world financial system in late 2008 when short-term financing dried up. Government guarantees extended in response to the crisis also inadvertently encouraged short-term lending. … One way banks have avoided paying off the newly-acquired debt is by reducing their lending and their need for new financing—which is exactly what some economists feared.”

Yet as they waltz us toward the abyss, bond issuers and their corporate borrowers are reveling in the short-term gains available. The July 12 New York Times reported that “the global corporate-bond boom is gathering steam as companies rush to take advantage of some of the lowest borrowing costs in history.

“This month has been the busiest July on record for sales by U.S. companies with junk-credit ratings. Asia’s debt market is on pace for a record year, and European companies are also raising money apace.”

The reason for this rush into bonds? “The Federal Reserve has short-term interest rates near zero, investors are leery of stocks, and the economic outlook is too sluggish to spark a robust stock boom but not so bad that it causes companies to default.”

Many companies are simply borrowing to refinance old debt and leaving what’s left on their balance sheets, bracing for the possibility of fresh crises or leaner growth ahead. “They’re not looking to invest or to take on assets to try and build their business,” said Justin D’Ercole of Barclays Capital. In sum, months of Fed policy designed to reinvigorate the economy is simply fueling short-term bond returns for lack of profitable investment opportunities—all the while setting up a catastrophic puncturing of the bond bubble.

Media astonishment at the lack of investment of growing stashes of cash grew last month. Thus the Washington Post on July 15 noted that “nonfinancial companies are sitting on $1.8 trillion in cash, roughly one-quarter more than at the beginning of the recession … leading many to wonder: If corporations are sitting on so much money, why aren’t they hiring more workers?” Nearly 60% of chief financial officers said in a survey they won’t bring their employment back to pre-recession levels until 2012 or later—despite Left) Wall St. brokers react to stock market’s dive last May. Many in ruling-class financial circles have strong doubts that the economy can soon recover. predicting a 12% rise in earnings and a 9% boost in capital spending over the next year.

And even more tax breaks won’t make an impact, said the head of River Twice Research: “CEOs don’t like taking risks. … There’s not a whole lot that you could do to entice companies to hire. You could cut taxes, but they’re not going to hire just because they have the extra cash, because they already have the extra cash.” This is actually part of a trend going back decades: between 1980 and 2006, the average cash-to-assets ratio for U.S. industrial firms more than doubled.

Robert Reich, secretary of labor under Clinton, noted that while “big businesses have recovered almost 90% of what they lost” since the bubble burst, what investment is happening is in labor-saving technologies. Ford, for instance, reported a $2.6 billion secondquarter profit, and is more than two-thirds of the way to equaling its record 1999 profits. But due to laborsaving technologies, Ford now has half as many employees as a decade ago.

Such a “commitment to keeping capacity in check” keeps investors happy. In fact, says Reich, Wall Street is advising investors “to sell the stocks of companies that talk openly of expanding capacity.” Despite stagnant consumer spending, “business spending on equipment and software continued to surge, increasing by 21.9% in the second quarter, compared with a 20.4% rise in the first three months.

Such investment in equipment for heightened productivity so as to make the same profits with fewer workers is a traditional tool for increasing or restoring the rate of profit, whether in business cycles, in repressions or in depressions. But the rate at which productivity must be increased to dig the economy out of a depression must be on a scale only found in a new technological revolution, which is nowhere on the horizon. The exception to this is if such productivity leaps are combined with other savage attacks on workers—wars, slashing social programs, restricting workers’ rights—all of which look increasingly likely.

While profits soar and jobs continue to disappear, Obama’s response is to ask Big Business what else he can do to ease their lives. The Wall Street Journal reported that he asked business leaders “to identify specific regulations that they believe are obstacles to job-creating private investment.” The heads of the Business Roundtable and Chamber of Commerce praised Obama’s overtures as “constructive,” while insisting he move quicker to translate them into policy.

They need have no fears on that score. “We’re trying to incentivize and bring private capital in from the sidelines,” said White House economic adviser Jared Bernstein. “Ultimately, it’s the purview of the private sector to create the job growth that’s going to lift us.”

The same dilemma of short-term profiteering heightening long-term systemic instability is being played out in world trade. In an article headlined, “World economic recovery driven by global imbalances,” the Washington Post reported, “The downturn that began two years ago was supposed to shake up the global economy … ending an era in which Americans consumed too much and saved and exported too little. But the recovery is being driven by a return to the very global imbalances that were a major cause of the crisis. Americans’ savings rates have fallen over the past year, imports are rising faster than exports, and countries around the world are again turning to Americans to be the consumers of last resort.

“That’s partly because countries around the world view those old ways, while dangerous over the long term, as the quickest option to power out of the deep economic decline. … World leaders trying to grapple with these issues face a clash between what is best for the world economy in the long run and the immediate interests of their respective countries. The risk: that the seeds of the next crisis are already in the ground.”

This fall workers will have several opportunities to mobilize in the face of this crisis—the Aug. 28 antiracist rally and the Oct. 2 march for jobs, peace, and justice in Washington, D.C., and in the early October nationwide antiwar actions. While formulating demands that meet our needs (and not what union officials tell us their Democratic “friends” will accept), we also need to begin a discussion about how fighting for those needs fits into the longer-term struggle to get rid of a system so hopelessly mired in the contradictions outlined here. n

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... Afghanistan (continued from page 1: “WikiLeaks confirms U.S. disaster in Afghanistan”) ing between NATO troops and militants, Richard A. Oppel Jr. and Taimoor Shah report. Maj. Michael Johnson, a spokesman for ISAF, said that an assessment team was in the area investigating the incident. If confirmed, the incident would be the worst civilian casualty toll since a NATO airstrike in Kunduz called in by German forces in September 2009.”

German planes bombed oil tankers in Kunduz that had been highjacked and swarmed over by local people seeking fuel. Many victims were torn to pieces. So, it is saying something if the press is comparing the Helmand bombing to Kunduz!

Then on July 30, following Friday prayers in Kabul, a car carrying U.S. mercenaries collided with a car carrying six Afghan civilians, four of whom were killed. The British Guardian reported July 31: “The Afghan capital is on high alert after rioting sparked by the death of four civilians when a US embassy vehicle crashed into their car. There are fears of a repeat of the city-wide riots that struck Kabul in 2006. Police fired shots into the air in a bid to disperse an angry mob that torched two embassy vehicles and threw stones at police and Nato soldiers who rushed to the scene near the centre of Kabul’s diplomatic quarter.”

It was U.S. mercenaries from Dyncorps who were involved in the July 30 Kabul crash. These mercenaries are more hated by the local people than the U.S. troops, who at least have some discipline and some accountability. In fact, the Kabul incident was reminiscent of the mass lynching of Blackwater mercenaries in Falluja that led to the most brutal repressive operation conducted by U.S. forces in Iraq.

A report in the Aug. 1 Washington Post, quoting an eyewitness to the event, indicated that the feeling of the people in Kabul was similar to that of the crowd in Falluja: “‘We poor people are not just here to be killed,’ said an elderly woman named Rabia ... ‘If the police hadn’t taken the Americans away, the people would have torn them to pieces. If I had the chance to do that, I would do the same thing.’”

The Post quoted a participant in an Aug. 1 protest special Saturday, July 24, box-lunch session alto counter the government’s broadside attacks on civil liberties and to express the antiwar movement’s active solidarity with the Arab and Muslim communities. The victims of the government’s post-9/11 “anti-terrorism” raids, mass incarcerations, and “pre-emptive persecutions” were properly seen as key components of the new antiwar movement.

Leaders of Project Salam (Support and Legal Advocacy for Muslims), a national organization formed to defend Arab and Muslim victims of government persecution and a co-sponsor of the conference, were joined by representatives of CAIR (Council on American Islamic Relations), as well as friends and family members of Arab and Muslim political prisoners who have been incarcerated under false charges. This critical issue was prominently featured throughout the event—from plenary sessions and workshops to the one-mile march that concluded the conference.

Conference participants were joined by local Muslim community activists in a display of solidarity that began at the Crowne Plaza Hotel conference site and proceeded to a brief rally at the New York State Capitol Building. From there the march continued along a route through Black and Muslim communities and concluded at the Masjid-As Salaam (House of Peace) march: “‘Many times NATO troops and these cars have killed our innocent people. They never care whether we are Afghans or animals,’ said Samia, a 26-year-old activist from Kabul who took part in the demonstration.

“Samia said she did not want the Taliban to return to power in Afghanistan, but that NATO has only aggravated the situation over the past decade and fed a parasitic and dependent Afghan government.”

These very recent incidents confirm the picture given in the documents disclosed by WikiLeaks that the occupation forces have been killing a lot of innocent civilians and thereby fueling a growing hatred among the population. They make even more damning the WikiLeaks documents evidence that the occupation forces have been deliberately covering up the civilian casualties.

One of the most damaging revelations in the WikiLeaks documents is the extent of the covert war that U.S. special forces are waging in Afghanistan and Pakistan, essentially a program of assassination and kidnapping. This aspect was especially noted in commentary by the German newsweekly, Der Spiegel, one of the three journals to which the documents were sent.

(Left) Socialist Action members joined UNAC’s antiwar and antiracist march in Albany, N.Y., July 25.

mosque, where two years ago an FBI raid seized two Muslim worshippers without any evidence of wrongdoing. Typical of the times, the government, citing “national security” concerns, found no incriminating evidence and has to this day refused to specify charges against these alleged terrorists.

The mosque’s imam welcomed the demonstrators to a rally, where the daughter of one of the Albany detainees as well as a family member of the similarly detained Fort Dix Five from the Philadelphia area recounted their terrifying experiences at the hands of government witch hunters. Ralph Poynter, husband of imprisoned civil-liberties attorney Lynne Stewart and leader of her defense committee, and Code Pink’s Medea Benjamin also addressed the crowd of some 250 conference and community activists.

The luncheon session at the UNAC conference also featured talks by representatives of the defense committees of innocent political prisoners Mumia Abu-Jamal and Lynne Stewart as well as Guantanamo detainee representative and Center for Constitutional Rights attorney, Pardiss Kebriaei. Ralph Poynter read a powerful statement to the conference from Lynne Stewart, whose original 28-month sentence on frame-up charges of “conspiracy to aid and abet terrorism” was a week earlier increased in a vindictive Federal District Court re-sentencing hearing to 10 years in prison.

This writer, speaking as the West Coast coordinator of the Lynne Stewart Defense Committee and as a national co-coordinator of the National Assembly, announced that the National Assembly had decided to retain the imprisoned Stewart on its Administrative Committee despite her 10-year jail sentence. Also featured was a pre-recorded antiwar address to the conference from Mumia Abu-Jamal, on death row in Pennsylvania. Chants of “Free Mumia!” and “Free Lynne Stewart!” rocked the jam-packed rally. n Rodrigo Abd / AP (Left) U.S. soldier inspects body of man killed July 28 by U.S. forces, who said he was a Taliban member. Local people protested he was a farmer.

The revelations were embarrassing to the German government, since Der Spiegel noted that a German elite unit had developed a special alliance with an elite U.S. unit specializing in such activities. This murder campaign is in flagrant violation of national and international laws. And in general, European states are more sensitive to violations of international law, since they recognize the authority of the World Court, which the U.S. does not.

However, The New York Times reported July 31: “Faced with that reality [the failure of its proclaimed strategy to ‘win the allegiance’ of the Afghan people], and the pressure of a self-imposed deadline to begin withdrawing troops by July 2011, the Obama administration is starting to count more heavily on the strategy of hunting down insurgents.”

That is, the answer of the administration to the failure of its policies is to increase assassinations. But this can only lead to deepening the hatred of the local peoples for foreign forces who murder their compatriots with impunity.

One theme in the leaked documents most commented on in the big-business press has been support of the Taliban by the Pakistani secret service and by one or another agency of Iran.

Pakistani press and politicians have denounced claims that elements of their secret service are implicated with the Taliban by noting that Pakistani armed forces have been waging a war against radical Islamists in their own country. They also point out that Pakistan has had to pay great costs in terms of the lives of soldiers, material expenses for the war, and the mass displacement of population in territories where the Pakistani Taliban has held sway.

It is true that that the Pakistani Taliban overreached by taking control of the Swat valley, an area not so far from the political center of the country, which provoked a major military response from the Pakistani military. Pakistan’s critics in the West do not deny this but argue that the Pakistani authorities are still either playing a double game or else do not totally control their secret services—which have been playing the card of Islamist fanaticism for decades.

However, what the Western critics, in particular the American ones, fail to consider is that Pakistan has its own interests in Afghanistan and they do not coincide entirely with the American ones. The documents confirm assessments that the U.S. is losing the war in Afghanistan, and at some point Pakistan is likely to have to come to some accommodation with a Taliban regime in all or part of the country.

The Pushtun nationality, on which the Taliban is based, overlaps into Pakistan and constitutes an important component of the Pakistani population. In the past, sentiment for a united and independent Pushtunistan, embracing both the Pushtun population in Afghanistan and Pakistan, has been a serious threat to the Pakistani state. The Pakistani authorities undoubtedly prefer Islamism to Pushtun nationalism and would tend to use the former as a counterweight against the latter. And that would mean offering some support to the Taliban in Afghanistan.

It is also evident, and hardly surprising, that the U.S. war in Afghanistan is very unpopular in Pakistan. And the Pakistan government’s alliance with the U.S. and complicity with their covert and illegal war against the Taliban inside the Pakistani borders is correspondingly hated. In these circumstances, it would hardly be surprising if the Taliban got some sort of support from parts of the political-military structure in Pakistan.

The leaked documents also allege Iranian support for the Taliban. If there is truth to that claim, Iran is playing a double game as complicated as the one attributed to Pakistan. The Taliban and allied Islamist groups in Pakistan have a record of attacking the Shiite sect, on which the Iranian regime is based, including atrocious bombings of Shiite mosques and neighborhoods. And Iran allows the U.S. to move logistical support for its forces through Iranian territory.

But again, Iran has its own interests in its home area, which conflict in many respects with those of the United States. It is not impossible that Iran’s government or Revolutionary Guards might offer some token of Islamic solidarity to the Taliban, especially when powerful political forces in the United States are threatening a war against Iran. The U.S. is obviously trying to negotiate with the Iranians to maintain their de facto support against the Taliban.

An important reason for U.S. authorities to minimize or cover up a double game played by Iran and Pakistan could be that this would be an indication of the possibilities for an expanding regional war that could far (continued on page 9, in “Memoirs by two socialist leaders of the 1960s-70s”)

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Luke Thomas

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6 Socialist Action august 2010 Working people need to begin to discuss the long-term struggle to replace this hopeless economic system.