There is something looming on the horizon. The warning signs of the coming crash, crisis, and prolonged depression are flashing bright, even as speculative bubbles grow bigger by the day. The U.S. ruling class has shown itself to be incapable of resolving the ever-growing supply chain backlog—at least in the short to medium term—and many banks and financial analysts are now forecasting coming major inflation and a significant economic downturn. Reading through the lines of the predictions of bourgeois economists it is clear that the ruling class is growing very worried indeed.
The fundamental reason for this crisis is the overproduction inherent to the capitalist mode of production.1 Since the Dot-Com bubble and subsequent crash the U.S. economy has been mired in stagnation. While the government manipulates basic economic statistics to mask this reality, simply going back to the older methods they used for calculating inflation and GDP growth shows that the U.S. has had negative real growth most years since the year 2000.2 Of course, even within such a protracted period of stagnation, there are ebbs and flows, economic ups and downs of a relative degree, but localized growth in sector or another does not contradict the overall trend.
Even with negative real growth, the U.S. ruling class has so far been able to stave off a major economic collapse akin to the Great Depression. However, the methods that they have used—primarily money printing, austerity, taxing the masses more and more, deficit spending, and promoting massive debt creation—have only kicked the can down the road, so to speak. These measures not only fail to address the underlying problems which create crises in the first place, they actually deepen the structural issues with the U.S. economy and, in so doing, set the stage for a more severe economic crash in the future.
Combined with the current supply chain crisis—itself a result of the anarchy of capitalist production—we are rapidly approaching a major economic crisis, despite the ongoing bailouts and recent passage of Biden’s Infrastructure bill. Now, with interest rates3 at zero percent and trillions of dollars being printed every year and handed to the banks, there is little more the ruling class can do to stave off the crisis. The ruling class will doubtless try everything they can to contain this, but with the threat of prolonged inflation battering at the door, they are in a bind from which they cannot escape. The coming crash will provide major openings for Maoists to build up the working class movement in the U.S. and around the world, provided that we seize the time.
In order to understand the present situation, it is helpful to provide a brief overview of some economic and financial developments in the past few decades.
In the 1990s there were a series of changes to the regulatory framework in the U.S. banking system which culminated in the repeal of the Glass-Steagall Act. This allowed investment banks to use commercial deposits from individuals' bank accounts (such as savings or checking accounts) as capital to carry out various speculative ventures and thereby opened the door to rapid consolidation and concentration of capital in the banking system. In the wake of Dot-Com crash, the U.S. ruling class cut interest rates significantly, a move aimed at preventing widespread failures in the banking system. This provided new lines of cheap credit to the banks from the Federal Reserve. This combination of slashed interest rates and more consolidated financial institutions helped to fuel the massive speculative bubble in housing which popped in 2008, nearly taking the world’s economy down with it. To avert a global economic depression, the government colluded with other countries around the world to engage in an unprecedented series of bank bailouts, interest rate cuts, and money printing. This included the Emergency Economic Stabilization Act of 2008, a $700 billion tax payer funded bank bailout in the U.S.; Maiden Lane I, II, and III in which the Federal Reserve helped a few of the big banks buy their failing counterparts by taking the toxic assets off their hands with printed money; lending to the banks at negative real interest rates;4 three rounds of quantitative easing5 in the U.S. alone; and much more. All of this staved off the immediate threat of an economic free fall, in which a cascading series of defaults would have torpedoed production around the world.
However, these policies did not address the underlying issue of overproduction which has been plaguing the U.S. and global economy for some decades now. And printing money and providing free credit to the big banks has serious economic consequences. In effect, doing so is a form of borrowing from the future. Inevitably, the debt has to be paid off, and the money printing leads to inflation. From 2007 to 2020 global debt has increased from $57 trillion to $281 trillion, an increase in the ratio of debt to GDP from 98% to 356%.
In September 2019, before the Coronavirus Pandemic, the Federal Reserve provided a $400 billion bailout to the big banks because of the deteriorating economic situation and a crisis in the inter-bank lending market known as the repurchase and sale market. At the start of the pandemic the U.S. ruling class was faced with another crash of the stock market and a potential cascading wave of defaults in major banks and corporations. To stave this off they passed a massive $2.2 trillion bailout, by far the largest in the history of the world. Altogether in 2020 the Federal Reserve provided around $10 trillion in bailouts to the big banks. This money printing spree saw the Federal Reserve increase the dollar supply by over 20% in one year. Quantitative Easing continues to this day to the tune of around $120 billion per month, with nominal interest rates still at 0%.6
Needless to say, this is not sustainable. It has fueled an even larger speculative bubble. However, due to the underlying crisis of overproduction, it is not very profitable to invest in expanding production in most industries. Markets for most consumer goods are saturated. So this, in conjunction with money printing and extremely easy credit, has led capitalists to pour money into startups and companies which are not profitable and may never become profitable.7 The degree of speculation at present is perhaps best exemplified by comparing the market capitalization (number of outstanding shares times the price of each share) of Tesla to the other automakers. In late October, 2021, Tesla’s market capitalization reached $1.01 trillion. This was more than that of the next ten most valuable automakers combined, despite the fact that the company was projected to deliver less than one million cars globally in 2021, compared with more than seventy-five million for all other auto manufacturers combined. At the time that Tesla reached this peak, its price to earnings (PE) ratio reached 332. Generally PE ratios of between 10-30 are considered favorable for investing; the higher the ratio the more expensive a company is relative to its revenue.
While Tesla is particularly absurd, it is not so unique; many other big startup companies such as Uber and Lyft are not profitable, and admit in their own Securities and Exchange Commission (SEC) filings that they may never become profitable. Yet the flow of speculative money into these companies has kept them afloat for years. It is important to reiterate that this is a result of the ongoing crisis of overproduction—which makes investment in expanding production generally less profitable except in a few sectors—and the extremely easy credit which central banks around the world have been providing to the big banks, who in turn pass this on to other major corporations.8 This money has to go somewhere, and has flowed into speculative ventures like Tesla and Uber, as well as into hot housing markets in numerous cities around the world.9
The U.S. ruling class is now growing more and more worried about the dangers of inflation and the related supply chain crisis, which continues to worsen by the day with no end in sight. Treasury Secretary, and former Chair of the Federal Reserve, Janet Yellen has repeatedly raised concerns about deficit spending.10 In a recent speech Biden finally acknowledged the issues with inflation;11 prior to that point his administration had toed the line that inflation was just transitory. For example, in a TV appearance on CNN, White House Press Secretary Jen Psaki had downplayed concerns over inflation saying that inflation was actually a good thing because it supposedly was just driven by increased demand and people getting back to work. In her deflection of criticism over inflation she stated, “The fact is the unemployment rate is about half what it was a year ago. So a year ago, people were in their homes. Ten percent of people were unemployed. Gas prices were low because nobody was driving. People weren’t buying goods because they didn’t have jobs. Now more people have jobs. More people are buying goods. That’s increasing the demand. That’s a good thing.”
To fight off potential runaway inflation, which is currently being driven primarily by currency debasement, deficit spending (and the related stimulus checks), and the supply chain bottleneck, not by an increase in consumption, the Federal Reserve is planning to taper asset purchases and raise interest rates in the next year or so, but has been cautious about doing so because of concerns about triggering a market crash. It is a very unstable situation when, in order to prevent a crash, the central bank has to purchase $120 billion of securities from the banks each month (as part of its Quantitative Easing program) and lend to them at negative real interest rates.
This fragile and unstable equilibrium is now increasingly being disrupted by the supply chain crisis, which continues to intensify day by day. A series of factors have left global supply chains incredibly vulnerable. Decades of offshoring production to weaken the U.S. labor movement and engage in international labor arbitrage—facilitated in part by various free trade agreements—have left the U.S. economy extremely dependent on global supply chains for basic goods. The shift to “just in time”12 delivery has seen most companies work to reduce their warehousing of goods as much as possible, and the construction of megaports has routed much of global trade through a very small number of choke points. What’s more, even in normal times, these megaports generally operate very slowly, with truck drivers often waiting days to pick up a single container.
The current bottleneck at the Port of Los Angeles is indicative of the global issues. As of early November, 2021 there were around 540,000 containers on the 93 vessels waiting in the harbor. Each day 18,000 containers are loaded into the port from these ships, but in September 29,000 new containers arrived each day on average.13 Despite promises from the port and the Biden administration that the port would be able to clear the backlog, things only continue to get worse. The only “solution” to this crisis they have been able to come up with is to have container ships wait forty miles offshore in a new queuing system so that they technically don’t count as waiting at the port.14 While this has helped to shift the media focus off the traffic jam at the ports, it has done nothing to alleviate the logjam.15
A trend towards consolidation and monopolization of the shipping industry has also played a significant role in the present crisis. The top eight freight liner companies now control 81% of global shipping capacity, 83% of all new containers are produced by just three Chinese companies, and five companies control 82% of the world’s leasing capacity.16 These companies are all benefiting tremendously from the current crisis, and have a real incentive to keep prices high.
Shortages of key goods such as microprocessors have already massively disrupted production in numerous industries across the U.S. and around the world.17 As these shortages intensify, inflation for producers of key goods has surpassed 20% year-over-year, with consumers likely to see similar price shocks in the near future.18 The present shortages are spreading across a whole series of essential goods and causing growing outrage.
What’s more, in the U.S. and many other countries, most retail businesses typically operate at a loss for the first three quarters of the year, and only turn a profit yearly because of a massive spike in consumption during the holiday season. However, with key shortages of goods across the board, many companies were not able to sell nearly enough to become profitable for the year. This, combined with skyrocketing inflation, could push many companies into bankruptcy. Given the massive amount of debt and high leverage ratios in the economy as a whole, a huge number of companies and financial institutions will be exposed to the danger of a rolling series of bankruptcies. In such a situation, the state may look to intervene as it did in 2008 and 2020 with a series of new bailouts and more money printing, but this strategy will only exacerbate the existing inflationary crisis. And with many banks already predicting serious inflation will continue in the U.S. within the next few years, a massive bailout of the whole economy could potentially send things spiraling out of control.
This looming crisis provides a major opening to expose to the masses of people the rotten and decadent nature of the capitalist system and the bourgeois state. With their purchasing power rapidly eroding and shortages of key commodities across the board, mass outrage will grow; however this will not automatically lead to growing class consciousness. In fact, it can easily be co-opted into support for various forms of U.S. chauvinism and fascist politics. The ruling class has already been aggressively pursuing new repressive measures in the name of fighting domestic terrorism and white supremacy, which will certainly be used to repress mass protests and movements during this crisis. This will provide further openings to expose the antagonism between the masses and the state. That being said, the dangers of mass popular support for a shift to a fascist form of bourgeois class rule does not just come from white supremacist groups and related forces. Right now a series of liberals are lining up to support the new War on Domestic Terror and a massive expansion of the power of the state to suppress dissent in the name of “fighting fascism.” This is related to a significant shift in the opinions of Democratic Party voters, who have in the last three years come to view government and corporate censorship and repression in much more favorable terms.19
With this looming crisis, there is a need for Maoists to dare to think and dare to act. Ready made formulas and sloganeering are of little use in the face of the seismic shifts beginning to develop both domestically and internationally. In fact, they are worse than useless, they confuse and mislead the people obfuscating the basic reality and the ways in which things are changing before our very eyes. In order to understanding the shifting terrain beneath our feet there is a need to proactively identify new contradictions emerging within the society, both among the masses and within the ruling class. In order to build up the proletarian revolutionary movement, communists must seize the time and work tirelessly to develop genuine mass organizations under communist leadership and take key steps towards developing a Maoist Party. It is necessary to deepen our links with the masses, craft clear exposures of the outrages of bourgeois society, and clarify the need for socialist revolution. We hope that other organizations and individuals who see the basis for MLM politics will reach out and link up. There is an urgent need to share experiences, discuss and debate political line strategy and tactics, and work together to advance the proletarian revolution in the U.S.
Unless Maoists provide leadership to mass struggles and work to systematically expose the nature of the bourgeois state, spontaneous protests will be repressed, co-opted, and fizzle out, just as the George Floyd protests did. During a major crisis and years-long depression such a vacuum of proletarian leadership will allow the ruling class to draw a significant section of the masses towards fascist politics.
We must dare to struggle and dare to win, or the openings provided by the coming crisis will be lost.
This is overproduction relative to what the masses can consume given their exploitation under the system of wage labor. For more on crises of overproduction see the series of entries on the subject in The Dictionary of Revolutionary Marxism: http://www.massline.org/Dictionary/O.htm#overproduction ↩︎
While the economic statistics of bourgeois governments should always be viewed with skepticism and analyzed critically, in the last half century the U.S. ruling class has taken the manipulation and fabrication of this data to new levels. According to the formula that the government used before 1980, inflation right now is over 15%, compared with the official number of 7%. Similar discrepancies exist for GDP growth, unemployment, and more. For more on the changes that have occurred in the last few decades in calculating inflation see the comments made by John Williams (an economist who is critical of the extreme dishonesty and blatant manipulation of data which is now ubiquitous in the U.S. government) on his website Shadow Stats: http://www.shadowstats.com/article/no-438-public-comment-on-inflation-measurement ↩︎
Interest rates in this sense refers to the rate at which the U.S. Central Bank, the Federal Reserve, lends to the Big Banks known as the Primary Dealers – a few dozen multinational financial institutions like Bank of America, Deutsche Bank, Goldman Sachs, Wells Fargo, J.P. Morgan, and so on. This sets the floor for interest rates across the economy as these banks in turn lend to other institutions at slightly above this rate to make profit off the difference in interest rates. ↩︎
When the Federal Reserve lends to banks at negative real interest rates, the money still has to be paid back. However, the value of repayment is less than that of the original loan. They may borrow $100 million today and pay back $100 million in a year, but that $100 million repayment will be worth less because of inflation. ↩︎
Quantitative Easing is the name for a program in which a central bank like the Federal Reserve prints money and uses it to buy assets such as Mortgage-Backed Securities, Government Bonds, Corporate Debt, or even stocks from the big banks. While the official justification for this is to prevent liquidity issues, it actually amounts to a massive transfer of wealth to the big banks, and also creates tens of billions of dollars a month in demand in troubled asset markets to prop them up via money printing. In reality the various rounds of Quantitative Easing undertaken by the Fed and other central banks have been aimed at preventing the inevitable solvency crisis from consuming the major financial institutions around the world.
It is interesting to note that while it is illegal for the Federal Reserve to directly lend to the U.S. government (e.g. directly purchase U.S. government debt from the U.S. Treasury which issues this debt), a significant portion of the money that the Fed lends to the banks is used by them to purchase U.S. government debt. In this situation, the banks basically function as intermediaries, allowing for a degree of debt-monetization by the Federal Reserve, and are compensated based on the difference in interest rates (e.g. they borrow at 0% from the Fed and lend the same money to the government at 2%, thus yielding a 2% profit a year). What’s more, with Quantitative Easing, the Federal Reserve then goes on to buy tens of billions of dollars of U.S. government debt back from the banks, at slightly above market rates, nominally to “stimulate demand” and provide the banks with liquidity. This functionally leads to the Federal Reserve “monetizing the U.S. government’s debt”, known less euphemistically as printing money to pay for the deficit. This inevitably leads to the inflation that we are only beginning to see today. As of August, 2021 the Federal reserve owned 18% of the outstanding U.S. government debt, around double the 9% or so that it usually owned before the 2008 crisis. https://wolfstreet.com/2021/08/17/who-bought-the-5-trillion-piled-on-top-of-the-monstrous-us-national-debt-in-15-months/ ↩︎
In recent weeks and months the U.S. ruling class has grown very concerned about runaway inflation domestically and internationally. To combat this, the Fed has indicated that it will begin tapering its Quantitative Easing program and tightening monetary policy via a series of interest rate hikes. While most among the U.S. ruling class have acknowledged that this is necessary, there is great concern that this will trigger a major economic crash in the next few months. ↩︎
For example, see this New York Times article, which notes that in 2021, U.S. startups raised $330 billion in funding nearly double the record $167 billion they raised in 2020. https://www.nytimes.com/2022/01/19/technology/tech-startup-funding.html The recent craze around cryptocurrencies and NFTs is part of the same speculative fervor. ↩︎
It’s worth noting that most central banks around the world are pursuing a zero-interest rate policy (ZIRP) meaning that they lend to the big banks at zero or near zero percent interest. This is the nominal rate, but when inflation is taken into account, this is actually a negative interest rate policy, meaning in real terms (i.e. when adjusted for inflation) the central banks are paying the big banks to borrow money from them. For example, with the current inflation rates if a bank borrowed $100 million from the Fed for a year, it would only have to pay back $93 million in a year when adjusted for inflation, in addition to having been able to use that money in various profit-making schemes for the whole year. Since this money is created by the Fed, this amounts to diluting the money supply, which transfers wealth from the people to the big banks in a hidden fashion. The dilution of the money supply tends to increase the value of stocks and other financial assets faster than it devalues the currency. So it benefits the wealthy, while harming those who own few or no financial assets. Since the creation of the Federal Reserve in 1913, it has been charged with maintaining a stable inflation level, basically ensuring that there is a continued dilution of the purchasing power of the dollar, without having it spiral out of control. ↩︎
The housing boom in the suburbs and in the cities (the latter especially post-2008) is also tied to the need for banks to create AAA-rated securities which can be used as a collateral in the inter-bank lending markets (the repo markets in particular) without having to take a “haircut,” the industry term for receiving a loan for less than the value of the security offered as collateral. This means that a bank using these as collateral can receive 100% of the net present value of the security as a loan. This allows for theoretically infinite leverage in these markets. For more on these dynamics in the inter-bank lending markets and how increasing “haircuts” on previously AAA-rated mortgage-backed securities triggered a bank run in these markets in 2008, see Gary Gorton and Andrew Metrick’s famous article “Haircuts”: https://files.stlouisfed.org/files/htdocs/publications/review/10/11/Gorton.pdf
The same basic conditions which allowed for the bank run by banks in 2008 continue to exist in the inter-bank lending markets today. The overall fragility in the economy as a whole, and the speculative markets in particular, has only intensified since 2008 with the massive amount of debt creation around the world. Real estate speculation in the inner-cities has helped to fuel this bubble, as trillions of dollars of new asset-backed securities (including rent-backed securities) have been created based on the assumption of perpetually rising property values (the very same assumption baked into the models about mortgage-backed securities prior to the 2008 crisis) and related future revenues to be generated by new luxury developments in newly gentrified neighborhoods as well as already wealthy ones. But in the coming economic downturn these fever dreams of unlimited speculative riches will shatter upon the hard reality of the objective laws of the capitalist system. In this crisis, many city neighborhoods currently slated for gentrification will be abandoned by capital investment, left to rot much as they were during the crack era. ↩︎
https://prospect.org/economy/janet-yellen-deficit-preoccupation-could-bring-down-biden-agenda/ ↩︎
https://www.cnn.com/2021/12/10/economy/consumer-price-inflation-november/index.html ↩︎
The basic idea of “just in time” delivery is to reduce warehousing costs and increase the rate of capital turnover. In this logistical paradigm, many retail companies place an order with their manufacturer only once consumers have ordered the good from them but otherwise keeping very little or no inventory in stock. Although this does reduce warehousing costs, it also creates extreme vulnerabilities to supply-chain shocks as firms have very little margin of error. In the case of large scale logistical disruptions, as we see right now, companies cannot fall back on warehouse stock to meet consumer demand and are at risk of quickly going bankrupt. ↩︎
https://www.visualcapitalist.com/visualizing-congestion-at-americas-busiest-port/ ↩︎
https://www.freightwaves.com/news/california-pileup-still-piling-up-but-out-of-sight-over-horizon ↩︎
“Solutions” such as these betray the underlying impotence of the U.S. ruling class: their fundamental inability to extricate themselves from the crises which are slowly engulfing them. The capitalists as a class always have limited subjective freedom, confined as they are by the objective laws of the capitalist system, but seventy-plus years as the most powerful empire in the world have bred decadence and corruption to new heights within the U.S. state and ruling class as a whole. Still, a dying beast is the most dangerous, and while not yet dying as a class, the capitalists who run this country are certainly on the decline. They will struggle ruthlessly to maintain their standing and power domestically and internationally, even if they are increasingly unable to resolve key contradictions like shipping logjams. Hence the importance of remembering Mao’s emphasis that imperialists have a dual aspect; they are both paper tigers and real tigers. ↩︎
https://www.freightwaves.com/news/shippings-extreme-consolidation-could-prolong-supply-chain-pain ↩︎
The overall reliance on production in China and other countries around the world has the U.S. ruling class worried for a variety of reasons. It is a major risk to produce so many essential goods in China, which is their main imperialist rival. Some within the U.S. ruling class have been trying to address this issue through shifting production to India, Mexico, and Vietnam (as well as other countries) while simultaneously pushing for increased investment in production within the U.S. However, the contradictions among the U.S. ruling class have made this difficult, especially because in the last seven decades or so there has been a proliferation of regulatory changes and loopholes which give free reign to individual U.S. capitalists to do as they please with their capital abroad, even if their investments and business ventures negatively impact the ruling class as a whole.
In this sense problems getting corporations to shift their production out of China reflect long-standing challenges for the U.S. state. Even the huge tariffs imposed by Trump, and continued under Biden, have been unable to really resolve this issue. These basic difficulties in making such a shift show the deeply moribund nature of the U.S. ruling class: on the one hand they are aware that China is their major strategic competitor and biggest rival imperialist power, and on the other hand, they are unable to get their ducks in a row, so to speak, and break their dependence on production in China.
One example of these dynamics was covered by a recent Wall Street Journal investigation which documented the present inability of the U.S. state to curb U.S. capitalists' and companies' investment in Chinese production of semi-conductors. These investments have been key to China closing the gap with the U.S. in production of this crucial technology. https://www.wsj.com/articles/u-s-firms-aid-chinas-bid-for-chip-dominance-despite-security-concerns-11636718400 ↩︎
https://wolfstreet.com/2021/11/09/further-up-the-producer-price-pipeline-inflation-rages-at-over-20-heading-for-consumers/ ↩︎
For example, see this video by journalist Glenn Greenwald, analyzing the shifting sentiments among Democratic Party voters: https://rumble.com/vnwyhz-the-mountain-of-data-showing-how-authoritarian-democrats-have-become.html The changes in the last few years alone are quite striking. For example, in 2018, 37% of Republican voters and 40% of Democrat voters supported U.S. government censorship online, whereas in 2021 only 28% of Republican voters and 65% of Democratic voters did. Similarly, as Greenwald notes in his video, while favorable views of the FBI have declined among Republican voters (from 71% in 2010 to 55% in 2021) they have increased among Democrat voters (from 68% in 2010 to 78% in 2021). These shifts indicate a rapid groundswell in support for the U.S. state among liberals, and have provided the Biden administration with a mandate to carry out a series of increasingly fascist policies, such as their War on Domestic Terror.
All of this is also tied up in the ruling class fear-mongering over Covid. Many within the Democratic Party base have become convinced that everyone who has some questions or objections to state measures around Covid (e.g. mask and vaccine mandates, lockdowns, censorship, etc.) is a Trump supporter—despite the fact that Trump has called the vaccine the greatest accomplishment of his presidency and repeatedly told people to get vaccinated—and in turn that every Trump supporter is a fascist. This analysis—reinforced by the mutterings of cable news personalities and algorithmically promoted 280 character “hot takes” on Twitter—has helped to fuel popular support for a whole series of new repressive policies by the ruling class. For example, a recent poll found that 59% of Democratic voters would favor a government policy requiring that citizens remain confined to their homes at all times, except for emergencies, if they refuse to get a COVID-19 vaccine, and that 45% of Democrats would favor governments requiring citizens to temporarily live in designated facilities or locations if they refuse to get a COVID-19 vaccine. https://www.rasmussenreports.com/public_content/politics/partner_surveys/jan_2022/covid_19_democratic_voters_support_harsh_measures_against_unvaccinated
Many within the Democratic Party base fail to grapple with the real popular anger at the ham-handedness of the U.S. state’s Covid policies. They also ignore the unstable nature of Trump’s popular base. For example, Trump won the largest percentage of the Black and Mexican-American vote of any Republican candidate in past half-century. A comparison of voting patterns in the 2016 and 2020 Presidential elections in New York City shows that Trump did better in almost every neighborhood of poor and oppressed people.
Many of these people, as well as large sections of the white working-class who voted for Trump, are not consolidated to supporting his politics. Nor are they white supremacists or fascists, although Trump did enjoy support of both these groups (although some fascists such as Richard Spencer endorsed Biden). Rather, these dynamics reflect the growing disillusionment of the masses with the Democratic Party, and popular outrage against many of the repressive and poorly implemented measures taken in the name of stopping the spread of Covid. ↩︎