By Chris Fry
The editorial board of the New York Times, the flagship mouthpiece of the U.S. ruling class or at least a substantial portion of it, published an editorial on March 11 titled “Who Benefits From Confrontation With China?” This piece comes one day after the announcement of a China-brokered major agreement between the Kingdom of Saudi Arabia and the Islamic Republic of Iran. It also comes one day after the bank run and subsequent collapse of the Silicon Valley Bank (SVB), the second largest bank failure in U.S. history and the first to occur since the Great Recession.
While the editorial only mentioned in passing the Mideast agreement, it did chastise the Biden administration’s and Congress’s current posture towards the People’s Republic of China.
The Biden administration’s continuation of Trump-era restrictions on trade with China, and its imposition of a host of new restrictions, is also a dubious strategy…
The confrontational turn also makes it harder for the United States and China to cooperate on addressing climate change and on other issues where national interests could plausibly align…
National security considerations can provide a legitimate rationale for limiting some types of trade with China. But it can also provide a legitimizing vocabulary for protectionist measures that are not in the interest of Americans.
Of course, all of this criticism is strictly from the big business point of view, expressing disappointment with the Biden China policy in protecting their interests, namely profits. But it does show a developing schism in the ruling class over these simultaneous defeats – one diplomatic, the other financial.
China sponsors agreement between Saudi Arabia and Iran
On March 10 came the surprise announcement of a major deal between the Saudi Kingdom and the Islamic Republic of Iran. The two countries agreed to reopen embassies in both capitals, closed since 2016 when Saudi Arabia executed a Shiite cleric. The New York Times March 10 article announcing the deal, titled “Saudi Arabia and Iran Agree to Restore Ties, in Talks Hosted by China,” reported that the two countries: “confirmed their ‘respect for the sovereignty of states and noninterference in their internal affairs’ They said this in a joint statement published by the official Saudi Press Agency. Iran’s state news media also announced the deal.”
The two countries also agreed to renew a lapsed “security pact”, which had been imposed to end Saudi Arabia’s bombing of the beleaguered country of Yemen as well as the blockade of its ports, which was preventing relief supplies from reaching the starving residents. The agreement also raises the possibility of an end to the internecine conflicts in Syria and Lebanon.
One of the big losers in the deal is the Zionist state of Israel, where the Netanyahu regime hoped to reach a U.S. sponsored agreement with Saudi Arabia, which would pave the way for an Israeli bombing campaign of Iran’s nuclear facilities.
Of course, with the current brutally repressive regime in Israel, that danger remains. But this agreement does at least reduce the threat of Arab countries’ tacit approval of such an attack.
Since the Biden administration heaped such disdain on the Chinese peace proposals to end the U.S. proxy war in Ukraine, this agreement, right in the middle of a previously U.S. dominated region, marks a dramatic diplomatic victory for China for all the world to see. As Wang Yi, China’s most senior official said on Friday:
“This is a victory for the dialogue, a victory for peace, and is major positive news for the world which is currently so turbulent and restive, and it sends a clear signal.”
This agreement is a sharp blow to U.S. imperialism’s drive to maintain its global hegemony. And it strengthens China’s peace initiatives around the world, particularly with Taiwan, a heavy blow to the U.S. war makers.
Bank failure means U.S. finance capital is vulnerable.
In his 1916 work, “Imperialism, the Highest Stage of Capitalism”, Vladimir Lenin states that at a certain point in the history of capitalism: “…under the general conditions of commodity production and private property, the ‘business operations’ of capitalist monopolies inevitably lead to the domination of a financial oligarchy” – the banks.
And no bank is more central to the U.S. “financial oligarchy” than the Federal Reserve Bank, currently headed by Jerome Powell. The fortunes of U.S. imperialism lie largely in its hands.
Since March of 2022, Powell has gone on an interest rate hike rampage, raising rates by nearly 5 percentage points. He clearly did this to blunt the surging struggle by workers for higher wages and union representation, anathema to the giant corporations and banks running the economy. While inflation remains high because it is caused by monopoly price gouging, not higher wages, Powell’s plan has spectacularly backfired.
On March 10, after many large corporate depositors withdrew their funds in a panic, the Silicon Valley Bank (SVB), with around $209 billion in reported assets, failed and was put in receivership under the Federal Deposit Insurance Corporation. Since deposits of up to only $250,000 are insured, 90 percent of deposits are uninsured. This is the biggest bank failure since the Washington Mutual failure in 2008 and is the second largest bank failure in the country’s history.
Since many companies have their accounts in SVB, their workers may not receive their paychecks in the coming weeks. The San Diego Union Tribune reported that:
It was called Silicon Valley Bank, but its collapse is causing shockwaves around the world.
From winemakers in California to startups across the Atlantic Ocean, companies are scrambling to figure out how to manage their finances after their bank suddenly shut down Friday. The meltdown means distress not only for businesses but also for all their workers whose paychecks may get tied up in the chaos.
The rapid steep Fed rate hikes made the low interest bonds held in reserve by SVB virtually worthless. When the bank tried to sell some of its assets to make new loans, companies and hedge funds withdrew their money, causing a massive $42 billion drain on the bank in one day.
And this won’t stop at SVB. The “contagion” is already spreading. As Invesco’s Brian Levitt told Market Insider:
“Silicon Valley Bank and First Republic have emerged as the first cases of banks with business models and balance sheets that are ill-prepared for a rising interest rate environment and the ever-growing risk of a recession.
“Investors, smelling blood, then turn their attention to the next bank exposed to interest rate risk and specific credit risk, and then the next. First Republic Bank, which has significant exposure to the coastal real estate markets appears to be next on the list.”
This banking crisis could crack the capitalist system wide open. Combined with the success by the People’s Republic of China to achieve peace through negotiations despite the menacing military and economic moves by Washington, some in the ruling class and their political and military minions may see war as their only alternative to maintain their imperialist hegemony and foundering capitalist system.
After a massive military budget increase in 2023, the new Biden budget for 2024 topped that by nearly $70 billion. Soon the war budget will reach $1 trillion a year.
As the economic crisis unfolds for the workers and oppressed communities here, we must strive to make it clear to our class that war is not a solution for any of us. The only solution is the unified class struggle combined with our international solidarity with the socialist countries, the oppressed nations and the international working class.
Only then can we finally put this rotting imperialist system in the dumpster where it belongs, and replace it with socialism, with public ownership of productive property and scientific planning, so that each person’s needs are met and war is only a nightmare of the past.
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