Democratic policymakers have rushed to defend Biden’s $ 1.9 billion stimulus package following a comment piece published last Friday. Washington Post by U.S. finance secretary in the Clinton administration and economic policy advisor to Obama, Lawrence Summers. In the article, Summers raised concerns that the stimulus measures could boost inflation.
Summers has previously warned of secular stagnation, a term first coined in the 1930s to account for continued decay, low growth and slow investment. In the last week Washington Post reported, it began by showing support for the Biden program.
“His desire, his rejection of hard orthodoxy and his commitment to reducing economic inequality are all commendable,” he wrote. He agreed with the “general consensus” that it would have been better if the Obama administration had put forward a larger stimulus package in early 2009.
But bold steps “must be accompanied by careful consideration of risks and how they can be mitigated,” he said.
Summers warned that there was a chance that “macroeconomic stimulus on a scale closer to World War II levels than normal recession rates will put inflationary pressures of a kind we have not seen in a generation, with consequences for dollar value and financial stability . ”
The second concern was that if the stimulus package is adopted, Congress will have committed 15 per cent of GDP, leaving no room for public investment “in everything from pre-school education to renewable energy. ”
The response from Biden White House was immediate. In a briefing by reporters on Friday, Jared Bernstein, a member of Biden’s Council of Economic Advisers, said Summers was “very wrong” in his suggestion that the administration embrace the risks of inflation.
He said, “Janet Yellen is our finance secretary, all right? She knows something about the dangers of inflation and has pursued that economic issue forever. ”
He said the administration considered it important to “hit back hard,” and there was “complete consensus” on the size of the incentive package.
Yellen then went into the cradle. She said she was concerned about “every risk to the economy,” but that the “most significant risk” failed to address the economic impact of the pandemic on workers.
She acknowledged that inflation was a “risk we need to consider,” but said: “I have spent many years studying inflation and worrying about inflation. And I can tell you that we have the tools to deal with that threat if it comes to fruition. ”
Other comments from the wider Democratic milieu have been vitriolic. Writing in The American perspective, “Left” economist Robert Kuttner said he had advised in an earlier piece that Summers should be kept away from Biden ‘s administration and “mercifully agreed Team Biden.” ”
He said the Washington Post An article reaffirmed the point, saying “it has also proved once again that it is a true SOB. ”
The Nation was submitted Tuesday with an article titled “Larry Summers is Worth Neglecting,” a replica of his rejections in Democratic circles. The author said it was a “strong fact” that Biden was the first Democratic president in nearly 40 years without hiring his services.
However, the Nation They noted that Democrats were still in power that honored Summers, and warned that his “warning could be contagious. ”He announced a report with Politico He said: “Everyone in the West Wing reads Larry Summers op-ed circulated among the winners of liberal policy. Why? Summers have put down on paper what many liberal winners have been whistling about for weeks. President Biden’s incentive bill may be too big. ”
The significance of the controversy can only be understood when it is placed in the context of the unprecedented success of speculation in U.S. financial markets and fears that the bubble could burst, causing a crisis on a much larger scale. wider and deeper than 2008-2009.
Markets continue to be at record levels, spurred by trillion-dollar inflows from the Federal Reserve and the expectation that even more money will be provided to replace the government-issued Financial bonds out to fund their incentive measures.
Every day takes a new turn in a profiteering orgy. On Monday, in what could be described as profiteering on steroids, Elon Musk, the head of Tesla which was highly profitable, announced that it was costing $ 1.5 billion to buy the crypto currency bitcoin, and to he was considering using it as a method of payment.
The news pushed the price of bitcoin up 15 percent to $ 44,000, followed by another walk yesterday that saw the price rise to nearly $ 50,000, bringing the overall rise from its March low to 1,150 s. hundred.
Tesla’s move into bitcoin is the result of previous profiteering. As the Financial Times note, the investment was “a recycling of billions of dollars that Musk could raise from stock market investors behind Tesla’s successful share prices,” compared to the situation two years ago when he was “breaking with breaking” and was “pouring money.”
There is no question that emergency relief measures are needed to alleviate the catastrophic economic situation facing hundreds of millions of workers and to fund the distribution of vaccines against the coronavirus.
As the COVID-19 death toll continues to rise, economic conditions worsen and anger in the working class escalates, Democrats recognize that failure to take any measures will have far-reaching political consequences. start.
But Summers warns that economic instability, especially in the financial markets, will result from the steps being taken to try to create political stability.
Rising inflation will drive demand for higher wages and an increase in class struggle, which could collapse in the Wall Street bubble.
At the same time, the rise in the supply of government bonds, lowering their price and raising the interest rate, or yield (price and yield have an unstable relationship), threatens to fall out of the bubble speculative, responsible above all else. on rates remaining at low levels.
Since the stimulus package was announced, there has been an upward movement in the long-term interest rate bonds of the Treasury, the market for which the financial system is based. The 10-year bond rate has risen from 0.92 percent at the beginning of the year to 1.16 percent, and the 30-year rate has risen from 1.65 percent to 1.97 percent, last April, bonds were 10-year trading with a yield of just 0.51 percent.
As a result of the sharp rise in debt across the economy, it would only take a small increase in rates to start a crisis. An increase of one percentage point today is estimated to have the same effect as an increase of three or four percentage points 20 years ago.
As the Sydney Morning Herald Economist Stephen Bartholomeusz’s column said: “With the ‘debt trap’ the US is entering, with federal debt already more than 100 per cent of US GDP and rising rapidly… even a small movement [in interest rates] it could lead to a recession and even another financial crisis. ” The debt trap created was so great that trying to escape it could be “something worse than the 2008 experience.”
The controversy over the op-ed Summers confirms that there is no way out of the economic and social crisis that triggered the pandemic within the framework of the economic and financial system of capitalism.
The solution lies not in the endless printing of money, as the “left” Democrats would prefer. Whatever relief is needed is short-term and minimal it may only provide the conditions for a financial crisis.
The only viable and reasonable solution is in the fight for a socialist program, in which the vast resources of the economy, created by the labor of the working class, are taken out of the hands of the financial oligarchy and used to meet human needs–economic, social and health–rather than the requirements of the profit system.