Masters of the financial universe lift US interest rates and inflict their crisis

by Max O.

The US Federal Reserve recently raised by a quarter percentage point the interest banks charge each other. This generally expected rate rise had been clamoured for by 'sages' in the financial media who argued the need for the Federal Reserve to protect monetary credibility by raising the federal funds rate.

Why has this interest rate rise occurred after years of near zero interest rates in the US which was ostensibly to stimulate the productive economy? Because the machinations of the financial system threatens its own very existence!

Banks excess reserves of money capital

Normally the purpose of a rise in interest rates is to halt demand for credit and control inflation. Presently the US banking system has no need to borrow for it has in excess of $2.42 trillion in reserves.

Avariciously investors, searching for new ways to achieve high returns after the fiasco of the subprime mortgage bubble, have been using cheap credit to invest in the corporate and junk bond market rather than investing in the productive economy. US junk bond market more than doubled the volume of issuance in the years before the Global Financial Crisis (GFC), and in 2013 reached a record of $361 billion.

However the decline in the productive economy - drop in sales of manufactured goods, fall off in trade and crash in prices for gas, metals and oil - is now threatening to undermine the US bond market and destabilise the whole financial and banking system.

Recently the growing crisis in the US high-yield but high-risk junk bond market erupted and saw the closing down of three energy junk bond funds - Lucidus Capital Partners, Stone Lion Capital and Third Avenue. Their closure was caused by the collapse in oil prices below $40 a barrel and an avalanche of clients calling in their bond investments that finance houses could not honour, which caused a fire-sale in the $1.3 trillion junk bond market.

When the US Federal Reserve reduced interest rates close to zero and forced down long-term rates it increased enormously the junk bond business; which are bonds issued by finance houses with high levels of debt and low credit ratings and therefore a high risk market.

Looking around for emerging countries to exploit

Whilst the US had near zero interest rates bond funds using cheap credit reached all over the world to find high yield assets to invest in. Investors were buying securities backed commodities and sovereign debt bonds from Asia-Pacific and South American markets.

Now investors have lost faith in betting on high risk financial assets achieving high dividends in these markets, which are full of insecurity and trepidation. The capitalist world started to shudder when in August this year the Shanghai stock market steeply dived and losses in stock markets around globe reached hundreds of billions of dollars.

Seven years after the bankruptcies of the GFC days, this crisis continues with more casualties occurring from one geographical region to another, from one business sector to another. The emerging (developing) countries of the Asia Pacific region who depend on the export of commodities for their income are now facing a serious brake on their economies.

Money comes home to the masters of the financial universe

And now investment money is coming home to the wallets of Wall Street moguls, its real masters. They have decided it is more secure to place their money in US Treasury bonds for the moment.

Despite the colossal public debt, investors have faith that US will not declare bankruptcy for now. If this ever happened the US would loose its dominate status as a reserve currency, and weaken Washington's political hegemony of the globe.

Even though other currencies like the Chinese yuan have expanded their influence, faith in the US dollar has not weakened since the GFC crisis of 2008. Consequently there has been a fall of the emerging countries stock markets and exchange rates.

The International Monetary Fund (IMF) asked the US to not increase its federal funds rate until 2016 or later, to forestall the increasing global financial panic.

So now this money will be assembled and employed to create acquisitions and mergers of US enterprises, as opposed to massively increase production and reduce unemployment. US finance houses and banks have increased their levels of money capital through mainly speculative ventures in the stock market and less to supplying credit to small and medium business.

The rise in the federal funds rate will have a negative effect on small banks. When these small banks become fully loaned up, by lending to businesses and consumers in their community, and are in need of extra reserves to meet their reserve conditions, they will have to borrow from a larger bank with excess reserves.

Therefore the interest rate rise results in the smaller banks paying more for their loans to the big banks. Consequently the Federal Reserve favours the mega-banks who have mega reserves and predatorily exploit the small banks, businesses and consumers.

Central banks have differences but not over exploiting workers

In contrast to the US plans of steadily raising the cost of credit, Europe and Japan are organising to commence an aggressive boost to their of credit programs. There is no consensus among the three strongest central banks on how monetary policies should be used to overcome the global recession.

This was evident in the Group of 20 (G20) summit, held November this year in Antalya, Turkey. Therefore the certainty that instability of the financial markets will not decrease, but will rise for some time to come.

However, agreement was found among the G20 principal looters of the world to increase and hone their exploitation of their respective working classes via ever improving structural reforms. Although reforms to regulate financial activities of hedge funds and corporate tax evasion are slow to amount to anything and lack any real bite.

The money capital paradises that the masters (whether it be in Berlin, Brussels, London, Paris, Tokyo, or New York) of the financial universe operate are presently secure and their rules unassailable. The central banks, such as the Federal Reserve, rapacious policies actually subsidize the expansion of speculative and parasitic financial activities of hedge funds and derivatives.

The administration of near to free credit to investors produced boon profits and another transfer of wealth from the bottom to the extreme top, and has created another new debt and credit crisis that threatens to again cause the collapse of the capitalist financial system.

Millions of Disappearing White Collar Worker Jobs

Ned K.

Australian-born and New York-based venture capitalist Jeremy Philips does not have much of a "Christmas cheer” message this year. He is a key investor in Wealthfront, the world's largest automated investment service which already has $2.1 billion in client assets.

"It is inevitable that trillions of dollars will be managed algorithmically," he is quoted as saying in an interview with the Australian Financial Review.

What this means is that robot financial advisers will replace human financial advisers with a predicted loss world wide of 25 million currently well paid jobs. Phillips is not worried about the loss of 25 million financial services jobs. Why not? He says the 25 million will dwarf the millions of factory jobs being replaced by robots and automation already.

Marx expained that one of the historical roles of capitalism was to revolutionise the means of production. The next wave of the impact of technology on people's lives under capitalism has already commenced.

Under socialism, technological advances will be introduced in a way to benefit the people. One way is to balance technological advance with a reduced number of working hours on full pay for the people.

Under capitalism, capitalists have in recent times made more use of part-time and casual workforces, but on miserable wages. The advances in robotics in the financial services industry are estimated to increase productivity by 45-55 per cent according to the McKinsey Global Institute.

What all this means for the anti-imperialist struggle at this point in time is that millions of white collar financial services will be drawn in to the struggle to defend living standards Many will organise to maintain a reasonable standard of living.

Morrison’s “Summer Holiday”: no fun times ahead

Nick G.

In the wake of delivering the Mid-Year Economic and Fiscal Outlook (MYEFO) statement, Treasurer Scott Morrison took the unusual step of channelling Cliff Richards singing “Summer Holiday”.

Defending cuts to people’s services and a blow-out in the Budget deficit to $41 billion, Morrison casually likened Government economic policy to taking the kids on a relaxing holiday:

“It’s like going off on that summer holiday: you get in the car; you know where you’re going; you don’t put the passengers at risk; you get to your destination safely. Of course there will be people chiming in from the back seat like my kids always do, saying, ‘Are we there yet? Are we there yet?’ Well, we are going to get there and we’re going to get there with everybody on board.”

So, at some point in time far, far away, the Government will return the Budget to surplus.  In the meantime, sit back and enjoy the ride!

A holiday for the rich, but not for the people

But how can Australians on modest incomes, or the many who are actually poor, enjoy the next four years in which $704 million will be taken back from alleged welfare cheats; $595 cut from health workforce programs; $472 million from aged care; and $441 million from child care?

And then there’s the $639 million cut in subsidies for pathology and diagnostic imaging.

The subsidies were introduced by Labor as an incentive to increase the number of patients bulk-billed for blood tests, radiation therapy, MRI scans and the like – all costly, but essential measures for ensuring the health of the community.

Fraud – political and otherwise

These services are currently provided by private companies. Two of the largest, who dominate the field, are Sonic Healthcare and Primary Health Care. There are probably another ten or so companies operating in this area.

The federal government, probably with some justification, has argued that the subsidies had not really increased the rate of bulk-billing and hinted that pathology companies had instead diverted the subsidies to offset other costs and to boost profit margins. Primary Health Care chief executive Peter Gregg seemed not to bother denying that this may have occurred, saying “The government has a responsibility to run the country, we have a responsibility to look after our shareholders…”

If this diversion of funds has happened then it requires police investigation as a matter of fraud.  Certainly if similar accusations had been made against a union there would have been media-centered police raids, seizure of records, and home arrests of chief executives.

But we are dealing with class justice here, so there has been none of that.

The web of shareholder influence

Indeed, there is a lot at stake for a government that upsets the pathology duopoly. The major shareholders for both companies are the same: JP Morgan Nominees, HSBC Custody Nominees, National Nominees, and Citicorp Nominees.  Just coincidentally, the same nominee companies (holding and managing the share portfolios of private investors) are the four biggest shareholders in the privatised Medibank (though which the rebates are paid to the pathology companies), and in the Big Four Australian banks.

Incestuous? No – monopoly capitalism!

So what is likely to happen while we are taken for a ride by Treasurer Morrison?

Harm and death for the people

According to the Royal College of Pathologists of Australia (RCPA), the cuts are “likely to have a detrimental effect on healthcare delivery in Australia and harm patients”.

RCPA President Dr Michael Harrison added that discouraging people from having blood tests and scans could lead to “delaying the effective early diagnosis of cancer leading to premature deaths; compromising the effective treatment of diabetes and chronic diseases; and threatening the services of rural pathology”.

So here we have a government policy that is likely to harm patients and could lead to premature deaths.  Isn’t “harm” and “death” the threat that comes from Muslim terrorists? Is this the level on which the government wants to operate?

We must put nationalisation on the agenda!

The argument between the pathology providers and the government over the reduction in bulk-billing incentives is simply an argument between crooks and thieves.

At every intersection along the road to summer camp there is a sign off to the left pointing to a different route.  It says “Tax the rich to provide services to the rest”.  Treasurer Morrison, however, is congenitally incapable of turning the car to the left.

As a companion article on this website points out, major corporations both local and multinational, are simply not paying any tax, whilst others are paying well below the official company tax rate (see “The rich and the rest: the ‘taxation transparency’ data”). 

There is no excuse for a couple of private pathology corporations to fraudulently receive taxpayers’ money to “look after” massive corporate shareholding companies instead of looking after the patients who should be their prime responsibility.

They should not be allowed to pass on reductions in these subsidies in the form of patient co-payments and closure of pathology offices in country locations.

The privatisation of Medibank has simply allowed the same massive corporate shareholding companies to bludge off the people and bleed profits from an essential service.

Pathology services and Medibank should be nationalised.

Only a socialised health care service can meet the social objectives of health care delivery.

Nationalise Medibank!

Nationalise pathology services!