IMF report reveals the dictatorship of finance capital
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 by drastically reducing spending on vital social services.
This is the message delivered by the International Monetary Fund Financial Monitor Report released this week at its biannual meeting in Washington.
Of course, the directive was not written in such harsh language. It was written in the characteristic style of these reports and was intended to attempt to obscure their essential class content. But it is nevertheless clear, as recognized by the financial press.
The FinancialTimes summed up the report as follows: “Governments must place more emphasis on keeping their finances in good shape, or risk undermining the confidence of bond market investors buying their debt, the IMF warned.
He noted that the decision was a reversal of the IMF’s previous stance when it called on governments to spend more in response to the economic devastation wrought by the COVID-19 pandemic. This change is the result of the high interest rate regime imposed by the US Fed and other central banks.
This was not so much a “warning” as a directive, as indicated in the foreword to the report, written by Vitor Gaspar, head of fiscal policy at the IMF.
“In an environment of high inflation, high debt, rising interest rates and high uncertainty, consistency between monetary and fiscal policy is paramount. In most countries, that means keeping the budget on its tightening path,” he said.
In other words, the government cannot provide stimulus when central banks raise interest rates in an effort to induce economic contraction, or even recession, to crush the growing movement of working-class wages into response to inflation. In this class war, the two branches of the capitalist state must pursue a unified strategy.
If they stray there will be major consequences as Gaspar made clear.
“With inflation high and financing conditions tightening, policymakers should prioritize macroeconomic and financial stability above all else,” he wrote.
“This is particularly relevant as recent developments in bond markets show heightened market sensitivity to deteriorating (or bad) fundamentals. This has raised the prospect of more disruptive fiscal crises across the globe.
Although 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 which promised £45billion in tax cuts for businesses and the super-rich.
The pound fell to record lows against the US dollar, falling almost to parity at one point, and the price of long-term Treasuries, known as gilts, plunged, sending their yields rapidly higher. (The two are moving in opposite directions.) The crisis, which is by no means resolved, threatened to push pension funds into insolvency.
The financial markets’ backlash was not because they objected to more money being poured into corporations and the wealthy, but because the tax cuts were not being funded. In other words, they were not financed by sweeping cuts in public spending, aimed at further impoverishing the working class.
The crisis was a directive from finance capital to the British government and to governments around the world, as noted in Gaspar’s remarks about the “sensitivity” of the bond market – continue the attacks on the working class or financial chaos will result.
The message has been received and understood. In Britain, the Truss government has blacklisted spending cuts in vital services that have already been rolled back.
These attacks will now continue under any government that comes to power, whether it is a reshuffled Conservative government, after yesterday’s dismissal of Chancellor Kwasi Kwarteng with Truss ready to fall on his sword or to be eliminated in another internal coup, or by a Labor government under Keir Starmer.
In Australia, where the Labor government is preparing a budget to be tabled on October 25, Treasurer Jim Chalmers has repeatedly spoken of the deterioration in the global economic and financial situation and the lessons of the British experience. He cited three key areas where public spending has supposedly skyrocketed, health care, care for the elderly and the disability insurance system.
In the cases of the United Kingdom and Australia, as with other governments, military spending will be increased in line with the march towards World War III.
The IMF report made it clear that job support measures, introduced to a limited extent due to the pandemic, cannot be sustained in response to economic contraction and recession.
“State guarantees and job support programs lead to market distortions which, if left unchecked, could hamper economic growth,” he said.
Gaspar was more explicit in his preface.
“Faced with a changing landscape,” he wrote, “decision makers must remain nimble to be able to respond to the unexpected. Long commitments are only a semblance of certainty and can quickly become unaffordable.
Remaining “agile” means that governments must be ready to immediately respond to the dictates of financial markets and cut short basic services that are now considered part of necessary social infrastructure. In the new economic and financial environment, such “long-term commitments” are a thing of the past.
If the task of governments is to meet the demands of their financial masters, it also means ensuring that the class struggle is suppressed because there is no greater danger than that posed by an independent movement of the class. factory Girl.
The first paragraph of the report’s executive summary highlighted this problem by noting that “households are grappling with high food and energy prices, which increase the risk of social unrest.”
He then explained how it should be handled. As governments seek to blame Russia for inflation, analysis, for example in the recent report of the United Nations Conference on Trade and Development, clearly shows that a major factor is commodity speculation. by hedge funds and the exploitation of profits by big business. However, not a hair on their head should be touched.
“In the face of long-lasting supply shocks and widespread inflation,” the IMF report says, “attempts to limit price increases through price controls, subsidies, or tax cuts will be costly for the budget. and ultimately ineffective”.
Governments, he said, should “allow prices to adjust and provide temporary targeted cash transfers to the most vulnerable”.
In other words, just as the policy on COVID-19 was to “let it go”, this same doctrine must be applied to inflation. The food and energy giants, among others, must be able to continue to make super profits, while totally insufficient and temporary sums of money are distributed in an attempt 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 appears that money is simply capable of generating more money. But in the end, the immense profits accumulated in this field are extracted from the working class. Finance capital is not an independent source of wealth. It appropriates fictitious capital, that is to say a claim on the total mass of surplus value extracted from the working class within the framework of capitalist production.
Finance capital has two fundamental interests: to increase the flow of surplus value by lowering wages and increasing exploitation; and the reduction of social spending which, in the final analysis, is a deduction from the surplus pool available for appropriation. These two processes are now at work.
The first was made visible with the onset of the pandemic. The fear in ruling financial circles was that meaningful public health measures to stamp out the virus would negatively impact the flow of surplus value on which they are based.
This was the basis of the ‘open’ and ‘drop’ agenda. Nothing – and certainly not measures to prevent death and disease – should 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 working class wage struggles. These were triggered by the inflation resulting from the refusal of capitalist governments to act to eliminate the virus when it was entirely possible.
Now, to sustain the increased mass of fictitious capital created by the injection of trillions of dollars into the financial system by central banks during the pandemic, not only must wages be further suppressed, but a widespread assault on social spending .
In the realm of finance, the ruling class and its spokespersons are weaving a web of illusions. And so it is in politics. The great illusion is that through voting and parliamentary democracy, the working class, the mass of the people, exercises control over the management of society.
But the value of any crisis, as has been repeatedly said, is that it lays bare the real social and political relationships. The bond market and the financial crisis have revealed, as the IMF report indicates, 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 create rank-and-file committees, independent of the unions that have acted to repress the working class, in immediate response to the class war unleashed by finance capital. Their establishment is a vital step towards establishing a workers’ government to end the dictatorship of profit and capitalist finance and reorganize the economy on socialist bases. This requires the building of the revolutionary party in the working class to lead this struggle.