Governments around the world must obey the dictates of finance capital, as transmitted through the bond markets that trade their debts, and mount an attack on the working class through deep cuts in spending on vital social services.
That is the message delivered at the International Monetary Fund Fiscal Monitor Report issued this week at its semi-annual meeting in Washington.
Of course, the directive did not express itself in such direct language. It was written in the characteristic style of such reports and with the aim of trying to obscure their essential class content. But it is clear nonetheless, as the financial press acknowledged.
the financial times summed up the report as follows: “Governments must put more weight into keeping their finances in shape, or risk undermining the confidence of bond market investors who buy their debt, the IMF warned.”
He noted that the decision was a reversal of the IMF’s earlier position when it called on governments to spend more in response to the economic devastation wrought by the COVID-19 pandemic. The change is the result of the high interest rate regime imposed by the US Federal Reserve and other central banks.
It was not so much a “warning” as a directive, as the report’s foreword, written by Vitor Gaspar, the IMF’s head of fiscal policy, explains.
“In the context of high inflation, high debt, rising interest rates and heightened uncertainty, consistency between monetary and fiscal policy is paramount. In most countries, this means keeping the budget on its adjustment course,” he said.
In other words, the government cannot provide a stimulus when central banks raise interest rates with the aim of inducing an economic contraction, and even a recession, to squash the rising wage movement of the working class in response to inflation. . In this class war, the two arms of the capitalist state must follow a unified strategy.
If they deviate, there will be big consequences as Gaspar made clear.
“With inflation elevated and financial conditions tightening, policymakers should prioritize macroeconomic and financial stability above all else,” he wrote.
“This is especially relevant as recent developments in bond markets show increased market sensitivity to deteriorating (or bad) fundamentals. That raised the possibility of more disruptive fiscal crises around the world.”
While Gaspar was not specific, he was referring to the financial crisis in Britain in response to the Truss Tory government’s September 23 mini-budget that promised £45 billion in tax cuts for corporations and the super-rich.
Sterling fell to record lows against the US dollar, falling almost to parity at one point, and the price of long-term Treasury bonds, called gilts, tumbled, rapidly pushing up their yields. (The two are moving in opposite directions.) The crisis, which is by no means resolved, threatened to drive pension funds into insolvency.
The financial markets’ backlash wasn’t because they objected to even more money being poured on corporations and the wealthy, but because the tax cuts weren’t funded. That is, they were not financed by radical cuts in public spending, designed to further impoverish the working class.
The crisis was a directive from finance capital to the UK government and to governments around the world, as alluded to in Gaspar’s comments on the “sensitivity” of the bond market: keep up the attacks on the working class or there will be financial chaos.
The message has been received and understood. In Britain, the Truss government has drawn up a blacklist of spending cuts on vital services that have already been cut to the core.
Those attacks will now continue under whatever government comes to power, be it a reformed Tory government, following yesterday’s sacking of Chancellor Kwasi Kwarteng, with Truss ready to fall on his sword or be killed in another internal party coup, or by a Labor government under Keir Starmer.
In Australia, where the Labor government is preparing a budget to be cut on October 25, Treasurer Jim Chalmers has continually spoken of the worsening global economic and financial situation and the lessons of the British experience. He has cited three key areas where public spending has allegedly skyrocketed: health care, care for the elderly and the disability insurance scheme.
For both the UK and Australia, as with other governments, military spending will increase in line with the drive towards World War III.
The IMF report made it clear that employment support measures, introduced to a limited degree due to the pandemic, cannot continue in response to economic contraction and recession.
“Public guarantees and employment support schemes lead to market distortions which, if left unchecked, could hamper economic growth,” he said.
Gaspar was more explicit in his prologue.
“Faced with a changing landscape,” he wrote, “policymakers must remain nimble so they can respond to the unexpected. Prolonged commitments are nothing more than a claim to certainty and can quickly become unaffordable.”
Staying “agile” means that governments must be prepared to respond immediately to the dictates of financial markets and remove basic services that have come to be seen as part of the necessary social infrastructure. In the new economic and financial environment these “long-term commitments” are a thing of the past.
While the task of governments is to satisfy the demands of their financial masters, this also means ensuring that the class struggle is suppressed because there is no greater danger than that represented by an independent movement of the working class.
The first paragraph of the report’s executive summary took aim at this problem, noting that “households are struggling with high food and energy prices, increasing the risk of social unrest.”
It then lays out how this should be dealt with. While governments seek to blame Russia for inflation, analysis, for example in the recent report of the United Nations Conference on Trade and Development, makes it clear that a major factor is commodity speculation by hedge funds and profit speculation by large corporations. However, not a hair on his head should be touched.
“In the face of long-lasting supply shocks and broad-based inflation,” the IMF report said, “attempts to limit price increases through price controls, subsidies, or tax cuts will be costly for the budget and ultimately instance, ineffective.”
Governments, he said, should “allow prices to adjust and provide targeted temporary cash transfers to the most vulnerable”.
In other words, just as the policy on COVID-19 was “let it go,” this same doctrine must apply to inflation. The food and energy giants, among others, must be allowed to continue making super-profits, while doling out temporary and wholly inadequate amounts of cash to try to prevent a social explosion.
As the working class engages in the battles now unfolding, it is necessary to delve into the political economy of what is involved.
In the world of finance, it seems that money can simply beget more money. But, ultimately, the vast profits accumulated in this sphere are extracted from the working class. Financial capital is not an independent source of wealth. It is fictitious capital, that is, a claim on the total mass of surplus value extracted from the working class under capitalist production, which it appropriates.
Finance capital has two fundamental interests: to increase the flow of surplus value by forcing down wages and increasing exploitation; and reduce social spending, which is ultimately a deduction from the surplus pool available for appropriation. Both processes are now running.
The first became visible with the start of the pandemic. The fear in ruling financial circles was that significant public health measures to eliminate the virus would negatively impact the flow of capital gains on which they rest.
This was the basis of the “open” and “let it rip” agenda. Nothing—certainly no measure to prevent death and disease—must be allowed to stop the flow of surplus value into the coffers of finance capital.
This drive to increase exploitation has intensified as central banks seek to crush wage struggles of the working class. These were triggered by inflation resulting from the refusal of capitalist governments to act to eliminate the virus even though that was eminently possible.
Now, to sustain the growing mass of fictitious capital created by the injection of trillions of dollars into the financial system by central banks over the course of the pandemic, not only must wages be further repressed, but efforts must be made to an all-out attack on social spending. .
In the field of finance, the ruling class and its spokesmen weave a web of illusions. And so it is in politics. The great illusion is that through the vote and parliamentary democracy the working class, the mass of the people, exercises control over the functioning of society.
But the value of any crisis, as has been pointed out on many occasions, is that it lays bare the true social and political relations. The bond market and the financial crisis have revealed, as the IMF report states, where the real power lies. Parliamentary democracy is a screen for the dictatorship of finance capital.
These lessons must become the basis of the political struggle of the working class. He is faced with the task of taking power into his own hands.
This requires workers to build rank-and-file committees, independent of the unions that have acted to repress the working class, as an immediate response to the class war unleashed by finance capital. Its establishment is a vital step towards establishing a workers’ government to end the dictatorship of capitalist profit and finance and reorganize the economy on socialist foundations. That requires building the revolutionary party in the working class to lead this fight.