International Socialism Project

The major economies are exhibiting signs of stagflation. That means interest rates could stay high, while economic growth goes missing. That is a recipe for an eventual crash in financial markets.

It’s common for people to think about the price of eggs or gasoline when they think about inflation. But aside from prices for commodities like these, which do fluctuate with “supply and demand,” there are the long-term price increases of commodities and services that are essential to everyday life.

Changes in business investment have always been an indicator of future growth in output and employment – not vice versa, as Keynesians argue.  And in Q3, business investment came to a standstill.  In previous quarters it was investment in new structures (offices, manufacturing plants etc) that kept business investment contributing about 1% pt to quarterly growth.  But in Q3 that has evaporated.

Economic headlines present a confusing jumble of news. Commentators speak of avoiding a recession, while interest rates and food prices remain high. There are plenty of Help Wanted signs yet many people are not feeling particularly flush. What’s really going on? The purpose of this article is to examine the current US economic situation.

First Republic is the third bank to fail after the Silicon Valley Bank (SVB) and Signature.  In total, $47bn in bank assets have disappeared into smoke, the losses being taken in part by the shareholders and holders of the bonds in these banks.  But there has also been a cost to public funds.

Real GDP contracted in the second quarter of this year by a 0.9% annualised rate (or by 0.2% quarter over quarter). That meant the US economy had contracted for two successive quarters, and so ‘technically’ (by that definition) was in a recession.

“The apparently unquenchable thirst for profits of big pharmaceutical companies, like Pfizer, is fueling an unprecedented human rights crisis.”

The costs and consequences of America’s twenty-first-century wars have by now been well-documented — a staggering $8 trillion in expenditures and more than 380,000 civilian deaths, as calculated by Brown University’s Costs of War project.

The underlying relative decline in US manufacturing and even services competitiveness with first Europe, then Japan and East Asia and now China, has gradually worn away the strength of the US dollar against other currencies as the supply of dollars outstrips demand internationally.

Monetarist theory has been proven wrong because it starts from the wrong hypothesis: that money supply drives prices of goods and services.  But the opposite is the case: it is changes in prices and output that drives money supply.

What this little story of GameStop shows is that company and personal pension funds run by the ‘smart people’ are really a rip-off for working people. What is needed are state funded pensions not subject to the volatility of the financial game.

As we await the result of the US presidential election, here are some facts about the US economy within a world context.