What’s war got to do with it?

Is inflation creeping up and stagnation setting in? Alan Greenspan, chair of the Federal Reserve Board, says no. This Wall Street master of manipulation and double talk calls this just another “soft patch.”

He claims the FRB can fine-tune the economy by a “measured” increase in the interest rate and prevent it from falling into that nightmare. Not likely.

The board’s Federal Open Market Committee (FOMC), which controls monetary policies, has decided to raise interest rates to 3 percent—the eighth raise since last June. But Greenspan committed a cardinal sin. He removed from the committee’s announcement a phrase saying “longer-term inflation expectations remain well contained”—and then restored it four hours later. This sowed confusion and doubt about the intentions of the FOMC in dealing with inflation and a slowdown in the economy.

When the sentence was removed, Wall Street, corporate America and their investors believed the FOMC was signaling that inflation was out of control, prices would spike, and interest rates would go sky high, sending government and corporate borrowing costs through the roof. Wall Street and bond market investors scrambled to adjust, many selling off their holdings.

Inflation is the bond market’s worst enemy. Untold losses resulted—until four hours later, when Greenspan and company restored this phrase. The roiling markets were calmed and the investors who trade and speculate in government bonds and Treasury notes were reassured.

This 180-degree turn was no slip of the lip. The indisputable fact is that inflation is here to stay. It has put down roots during the current cycle of U.S. monopoly capitalism due, in part, to the mountainous U.S. debt. The Treasury Department has flooded global currency markets with cheap dollars to pay its bills. The growing current trade and budget deficits are bankrolled by Asian and European central banks and private investors, with grave consequences for the global markets.

In a trade and currency war now brewing, triggered by the Bush administration, bitter competition will intensify among the imperialists and with the developing countries—China, India and Brazil, for example—for market hegemony.

Monopoly and the military

The inflation is being blamed on a spike in oil prices, but that is only a symptom of economic malaise. The cause lies deep in monopoly capitalism. The centralization of the means of production in fewer hands—the banking and corporate mega-merger frenzyaccelerated price inflation.

The five largest mega-merger oil companies control 48 percent of domestic oil production, 50 percent of domestic refining and 62 percent of the retail gasoline market. They have driven the price of a barrel of oil to over $50, raking in record-setting profits. General inflation grows directly out of the unchecked price hikes of the monopolies.

U.S. military spending is also a major cause of price inflation. The military does not bid in an open market. Prices are rigged by the military-industrial complex and myriads of subcontractors. The recent $82-billion supplemental increase for the wars in Iraq and Afghanistan, added to the $419.3-billion military appropriation for fiscal 2006, will equal the combined military budgets of the rest of the world.

The hundreds of billions already appropriated for the Iraq and Afghanistan wars and endless occupations has raised inflation and accelerated the tendency toward capitalist stagnation.

Military expenditures are positive to the economy only when imperialist adventures are successful—when they can conquer vast territories with an abundance of raw materials such as oil and sources of cheap labor, providing an avenue for the disposal of capitalist surplus production. Otherwise, they act as a depressant and lead to stagnation of the capitalist economy.

Inflation and stagnation

The Commerce Department reports that the Gross Domestic Product in the first quarter rose at the “most sluggish” pace in two years. The GDP is the broadest barometer of an economy’s health, measuring the value of goods and services. Capital-goods orders, excluding aircraft and defense products, fell 4.7 percent in March, the biggest decline since Sep tember 2002. Consumer spending, which accounts for two thirds of the GDP, fell to 3.5 percent in the first quarter of 2005, down from 4.2 percent in the preceding quarter.

In the troubled manufacturing industries, both General Motors and Ford, which have plants all over the world, have been reduced to junk bond rating by Standard & Poor’s.

IBM, one of the world’s largest technology companies, announced it would lay off between 10,000 and 13,000 workers, primarily in Britain, France, Germany and Italy. The decision by the world-wide computer giant is a harbinger of global stagnation within the 12-nation euro zone. Recently, IBM sold its entire personal computer division to Lenova, a Chinese technology company.

A sputtering technology

Is the drop in productivity causing stagnation? The scientific-technological revolution, which has been behind the expansion of the capitalist economy, is lacking venture capital. It has been the driving force in the growth of productivity. Research and development (R&D), particularly in the physical sciences and engineering, was the foundation of this growth. It spawned the transistor, fiber optics, integrated circuits, wireless communication, lasers and the internet, among others.

These technologies came out of many decades of research. Now, as a percentage of the GDP, federal investment in physical science research is half what it was in 1970.

Today, spending on U.S. productivity is losing momentum. In China, by contrast, R&D expenditures rose 350 percent between 1991 and 2001; in South Korea, they rose by 220 percent. India, Brazil and several other Latin American countries whose economies are expanding are spending more on R&D.

To spur production and growth, the U.S. is relying more on labor-intensive, service-oriented, low-paid industries where women and nationally oppressed workers are doubly exploited. This is no substitute for technological development. Structural change in the capitalist economy will only add to the stagnation.

There is just so much exploitation that can be squeezed out of low-wage workers before they will resist and fight back. The creation of 274,000 jobs in April and a modest wage increase of 5 cents an hour are far short of what the working population needs to survive in an inflationary cycle and creeping stagnation.

Employment rose in the service-oriented sectors of the economy last month. There were more jobs in construction companies; restaurants, bars, and coffee shops; health care; telephone companies; and movies and television production. But higher-paid manufacturing jobs were “down another 6,000 workers in April.” And “the average time that the unemployed spent in their search ticked up to 19.6 weeks from 19.5 in March.” (New York Times, May 7)

The job statistics are not impressive or sustainable. Despite the abundance of goods and services, many are beyond the incomes of the majority of workers, the oppressed and the poor.

Increasing interest rates and monopoly prices together with humongous expenditures for the military and endless wars of plunder and profit will lead to a deepening crisis in the capitalist economy.

In the cities, where the workers and the oppressed are concentrated, borrowing costs on money needed to pay down budget deficits will increase, diverting critical funds from people’s needs to the super-rich banks and financial institutions. The budget crisis has torn apart the network of entitlements. Problems with housing, health care, education and layoffs, plus a projected $10-billion cut in Medicaid, are plaguing the workers, especially people of color and the poor.

A group of Black trade unionists from the Million Worker March Movement has called on organizers to come to a conference in Detroit on May 14-15 to strategize over this nationwide urban crisis. MWMM is a coalition that unites unions, community groups and anti-war activists.

It’s protest time. It’s marching time.