Inflation and recession: Roots in Imperialism – Part 2

Monopolies: Sharks in the water

Gas and oil export by the U.S. are pushing prices and profits up. |

By Chris Fry

This article is a continuation from Part 1. which discussed the recent wave of inflation that has hit workers and the oppressed communities with devastatingly high prices. It also discussed the Federal Reserve’s plan to “stop inflation” by sharply raising interest rates, which threatens to add the specter of a recession, adding spikes in interest rates and an explosion of layoffs to the current inflation crisis.

On June 22, Federal Reserve Chairman Jerome Powell appeared before the Senate Banking Committee. Senator Warren asked Powell:

Warren asked Powell if Fed rate increases will lower gas prices, which have hit record highs this month.

“I would not think so,” Powell said.

Warren asked if grocery prices will go down because of the Fed’s war on inflation. 

“I wouldn’t say so, no,” Powell said.

Obviously, this bankers’ banker is not the slightest bit interested in the rapid decline in the standard of living of the working class. But his drastic policy is designed to please somebody. So, we must explore why we face this current spike in prices as well as an impending recession.

Gasoline prices, oil exports, sanctions, and Biden’s imperialist proxy war

In March of 2021, NPR published an article with a startling headline: “Hold That Drill: Why Wall Street Wants Energy Companies To Pump Less Oil, Not More”. This headline proves two things: 1) the oil monopolies control the amount of oil extracted, not “supply and demand”, and 2) finance capital dictates the production by the oil monopolies to maximize its profits.

The article goes on to say:

Oil prices have risen sharply over the last few months. Normally, that’s a recipe for a drilling frenzy from U.S. oil producers. But something strange is happening, or rather, not happening.

“U.S. producers are actually being restrained at the moment,” says Helima Croft, global head of commodities strategy at RBC Capital Markets. “They are trying to be disciplined.”

Oil companies are under a lot of pressure to keep their production down. And the call is coming from inside the house: it’s oil investors who are pushing for companies to pump less oil.

That was last year, before the U.S. engaged itself in a proxy war with the Russian Federation, with a new top goal to expand into new lucrative oil markets, such as Europe. Instead of lowering prices to “honestly” compete with Russian oil, the Biden administration chose to provoke a conflict between Russia and the U.S. installed Ukrainian regime. A June 22 article by Columbia Professor Shang-Jin Wei in the newsletter Project Syndicate points out that:

The US is facing neither an oil production shortage nor a sudden explosion in demand. Instead, the rising energy prices since late February have coincided with a massive increase in US petroleum exports. Calculated from US government data, US net petroleum exports in May 2022 totaled 3.9 million barrels a day, representing a whopping 45% increase over the same month last year. The increase in US dollar revenue is even greater given the 76% increase in the prices over the same period.

These exports, particularly to the countries in the European Union, are designed to capture a huge portion of the oil market for the U.S., and to gain domination over its own capitalist “partners” as well as the Russian capitalist government. That way, Big Oil can make piles of cash from the working class in both Europe and the U.S., all the while blaming the whole thing on the Putin regime.

However, this strategy is being partly stymied by the refusal by India and the People’s Republic of China to abide by Biden’s sanctions. And the spike in fuel prices is arousing growing discontent both here and abroad. On June 22, the corporate magazine Barron’s published an article titled “High Gas Prices and Recession Appear to Be the Cost of Defending Democracy”. Workers and oppressed are more and more finding this explanation imperialist hogwash.

Here is how a June 25 CNN article describes Biden’s problem as he makes a visit to Europe:

Yet big questions loom over the talks in Germany and Spain, most importantly whether the united western response to the conflict [in Ukraine] can be sustained — particularly as leaders face the threat of a global recession and growing anger at home over rising prices for gas, food and other goods.

The looming economic crisis has caused serious political problems for many of the leaders, Biden included. That has led to new conversations, and some fractures, among allies over how to bring the war in Ukraine to an end, even as it appears poised to slog onward.

Federal Reserve, monopolies, and the corporate “zombie apocalypse”

So, if the Federal Reserve chief admits that their record setting hikes in the interest rates will not cut the price at the pump nor food on the table, why are they doing it? This is the question that the corporate media fails to ask, because it obviously is of no benefit to the workers and oppressed. For an answer, we should go to that revolutionary thinker and leader, Vladimir Lenin, who in 1916 wrote a pamphlet titled: “Imperialism, the Highest Stage of Capitalism”.

Lenin describes how capitalism transformed itself from a predominantly competitive form until, around the beginning of the 20th Century, it came to be dominated by industrial and financial monopolies.

“The great revolution commenced with the crash of 1873, or rather, the depression which followed it and which, with hardly discernible interruptions in the early eighties, and the unusually violent, but short-lived boom around about 1889, marks twenty-two years of European [and U.S.] economic history …  During the short boom of 1889-90, the system of cartels was widely resorted to in order to take advantage of favorable business conditions. An ill-considered policy drove prices up still more rapidly and still higher than would have been the case if there had been no cartels, and nearly all these cartels perished ingloriously in the smash. Another five-year period of bad trade and low prices followed, but a new spirit reigned in industry; the depression was no longer regarded as something to be taken for granted: it was regarded as nothing more than a pause before another boom.

Production becomes social, but appropriation remains private. The social means of production remain the private property of a few. The general framework of formally recognised free competition remains, and the yoke of a few monopolists on the rest of the population becomes a hundred times heavier, more burdensome and intolerable.

Lenin goes on to describe when and how monopolies emerged:

Crises of every kind—economic crises most frequently, but not only these—in their turn increase very considerably the tendency towards concentration and towards monopoly. In this connection, the following reflections of [German economist] Jeidels on the significance of the crisis of 1900, which, as we have already seen, marked the turning-point in the history of modern monopoly, are exceedingly instructive:

“Side by side with the gigantic plants in the basic industries, the crisis of 1900 still found many plants organized on lines that today would be considered obsolete, the ‘pure’ (non-combined) plants, which were brought into being at the height of the industrial boom. The fall in prices and the falling off in demand put these ‘pure’ enterprises in a precarious position, which did not affect the gigantic combined enterprises at all or only affected them for a very short time. As a consequence of this the crisis of 1900 resulted in a far greater concentration of industry than the crisis of 1873…”

Bringing us up to the present day, we find that even before the COVID pandemic, we discover the emergence and growth of what are called “zombie corporations”. These are companies whose operations do not generate enough profit to sustain their existence, so they kept going by borrowing money from the banks and bond sales to investors at the extremely low interest rates that the Federal Reserve implemented after the Great Recession and intensified with the onset of the pandemic.

Now finance capital has declared this period of low rates over. The Federal Reserve is deliberately imposing an economic recession by this massive rate hike. This is how a May 31 Bloomberg article puts it:

They are America’s corporate zombies, companies that aren’t earning enough to cover their interest expenses, let alone turn a profit. From meme-stock favorite AMC Entertainment Holdings Inc. to household names such as American Airlines Group Inc. and Carnival Corp., their ranks have swelled in recent years, comprising roughly a fifth of the country’s 3,000 largest publicly traded companies…

[T]these zombies have gorged on some $1 trillion since the onset of the pandemic, bringing their total debt load to $1.36 trillion, more than double the $500 billion that zombie companies owed at the height of the financial crisis.

Now, some say, their time may be running short.

Firms that could once count on virtually unfettered access to the bond and loan markets to stay afloat are being turned away as investors girding for a recession close the spigot to all but the most creditworthy issuers. The fortunate few that can still find willing lenders face significantly higher borrowing costs as the Federal Reserve raises interest rates to tame inflation of more than 8%. With surging input costs poised to eat away at earnings, it’s left a broad swath of corporate America with little margin for error.

The end result could be a prolonged stretch of bankruptcies unlike any in recent memory.

This is a global issue, not restricted to just the U.S.

When a zombie company goes bankrupt, its assets are turned over to its creditors. Banking and industrial monopolies can feast on the zombie corporate “remains”. But common stockholders like IRAs, 401-K programs and pension funds get nothing, and the bankrupt company workers, numbering some 2.2 million, are thrown out on the street, enough to throw the country and the world into a depression.

To finance capital owners, to the billionaire class, all of this is a good thing. It promises them more power and domination. It motivates them to strengthen their forces of reaction and repression, to wage imperialist war, to suppress any resistance. But to the workers and oppressed, it spells disaster, a new crisis, and a new need for organized militant struggle.

Part 1: Capitalist Solution to inflation: recession

Part 3 – Oil Prices and the Bank(ers’) Robbery

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