Over the past year, the global financial system, and especially Wall Street, has suffered from speculative mania unprecedented in economic history. Therefore, two questions immediately arise: how did we come to this and what are the consequences?
In March 2020, as the COVID-19 pandemic began to take its toll and workers began insane strikes and strikes, demanding sanitary measures to protect their lives and the lives of their families, financial markets plummeted.
Wall Street feared that any effective public health measures to contain the spread of the pandemic could lead to a collapse in overpriced financial assets, especially stocks, which rose from trillions of dollars injected into the financial system by the Federal Reserve government. (Fed) and other central banks after the 2008 crash.
The US government and the Federal Reserve have once again rushed to the aid of Wall Street. The Trump administration orchestrated multi-billion dollar corporate aid under the CARES Act, while the Federal Reserve stepped in to provide multi-billion dollar support to the financial sector, including, for the first time, stock purchases.
Since then, based on this ongoing $ 4 trillion intervention, with the Federal Reserve continuing to buy more than $ 1.4 trillion in financial assets a year, the world has witnessed an unprecedented orgy of financial speculation.
Wall Street’s major stock index, the S&P 500, is up about 88 percent from its March 2020 low, hitting multiple highs throughout the year. The margin debt used to fund stock speculation has hit an all-time high. And the yields on higher-risk bonds for the lowest-rated companies on the brink of default fell to historic lows.
But the most egregious expression of this speculation has been the boom in the cryptocurrency market. The most famous cryptocurrency, Bitcoin, has surged 600 percent over the past year. It rose from $ 7,000 to $ 54,000, peaking at $ 65,000 in the middle of last month.
Coinbase, a cryptocurrency exchange, launched on Wall Street last month, which saw the company’s market value rise to $ 85 billion from $ 8 billion in 2018, surpassing the valuation of some of the world’s top banks. the NASDAQ stock exchange on which it was launched.
However, in recent days, even the level of bitcoin speculation has been overshadowed by another cryptocurrency, Dogecoin.
Created in 2013 as a joke. Although Bitcoin proponents insist that it has some intrinsic value because it can be used to organize financial transactions without the intervention of a bank or other third party through a large system. Blockchain ledger, no such insurance is provided for dogecoin.
While it doesn’t have any value, Dogecoin’s price is up 11,000 percent this year alone. Its market value reached $ 87 billion this week, up from $ 315 million a year earlier. And when the cryptocurrency is growing rapidly, speculators start looking for the next big deal.
The Dogecoin phenomenon is not an isolated event. It seems to be an expression of what could be described as a new way of operating in the world of speculation: the more useless a putative asset, the higher its price.
A small sandwich shop in Paulsboro, New Jersey, with a turnover of just $ 13,976, hit the financial news after reporting that its parent company, Hometown International, reached a $ 100 million market valuation last month. Its two main shareholders are Duke and Vanderbilt Universities.
Dogecoin’s growth is also indicative of high-level intervention by hedge funds and other financial institutions looking to take advantage of its price action.
Then there is the case of non-fungible tokens (NFT). It could be an art image, a sports photo, or even a tweet – the very first tweet posted by Twitter founder Jack Dorsey was sold as an NFT for $ 2.9 million – which is stored in the blockchain ledger. They are like collectibles that are not physically stored but digitally.
The class dynamics of this speculative orgy, fueled by an endless stream of virtually free money from the Federal Reserve, is manifested in the tremendous rise in the wealth of the world’s billionaires.
Last year, as COVID-19 brought unprecedented suffering and economic hardship to billions of people around the world, the combined fortune of the world’s billionaires grew 60 percent from $ 8 trillion to $ 13 trillion. The number of billionaires rose by 660 to 2,775, the highest growth rate and the largest number ever.
In the US, Jeff Bezos, CEO of Amazon, and Elon Musk, CEO of Tesla, hold $ 177 billion and $ 151 billion, respectively.
The speculative frenzy has spread to the economy as a whole. The prices of key industrial raw materials such as steel, timber, copper and soybeans, which fuel inflation for workers and consumers, are rising rapidly.
But the financial authorities, who created this madness with an endless stream of cheap money after the crash of 2008 and the imminent crash of March 2020, are in their own trap. They fear that any attempt to bring the situation under control, even if the taps are slightly tightened, could provoke a financial crisis.
Extreme nervousness about such a possibility emerged earlier this week when US Treasury Secretary Janet Yellen, a former director of the Federal Reserve, raised the issue that the central bank might have to tighten interest rates at any moment. Almost immediately, fearing a reaction from the market, she backed out of her remarks, saying that she did not support or forecast a rate hike.
The incident shed light on one of the most significant events in the United States, namely the overt promotion of union formation by the Biden government.
By decree last month, Biden created a “White House Task Force to Organize and Empower Workers.” The group includes Yellen, Secretary of Defense Lloyd Austin and Secretary of Homeland Security Alejandro Mallorcas. The “empowerment” of state-sponsored trade unions is led by cabinet members responsible for military operations, economic policy, and internal repression.
The government fears that the restrained anger of the working class over the pandemic and the enrichment of the financial oligarchy at the cost of hundreds of thousands of lives will be further fueled by rising inflation, leading to an outbreak of uncontrolled class struggles that will take effect. in direct conflict with the institutions of the capitalist state.
In the past, the Federal Reserve would have acted to contain such a surge by raising interest rates and causing a recession. But this path today is fraught with dangers, since even relatively small growth threatens to bring down the house of cards of financial speculation.
This is why the Biden government decided to create a state-sponsored trade union industrial police to organize the strangulation of the working class for the sake of finance capital.
The rampant speculation of the past year and the accelerated pumping of wealth to the upper levels of society in the context of death and economic destruction should give the working class an opportunity to take stock of its experiences. She lived.
There are no prospects for reforming the existing capitalist socio-economic system to meet social needs. This is just an illusion imposed by the Democrats and their ardent defenders in the organizations of the pseudo-left. The past year has shown that everything in society, including the very right to life, is subject to the insatiable demands of finance capital.
The current speculative bubble, like all others before it, is destined to burst. The financial oligarchs have already prepared their exit plans and their golden parachutes, as in the past. However, the working class has no way out. The collapse will lead to an economic catastrophe even greater than the one that has already occurred.
The only viable and realistic solution to the incurable disease that has gripped the capitalist socio-economic order is the struggle for a socialist program aimed at degenerating control of the economy and its financial system from the hands of the class. The current leader and the beginning of the economic reconstruction of society to meet social needs.
(Article published in English on May 7, 2021)