Gold, oil & Picasso soar as dollar tumbles

Fasten your seat belts! The U.S. economy is on a rocky road.

Gold is skyrocketing. It broke new ground in early May when it reached $700 an ounce, a 25-year high, up from $250 in 2001. Gold is the universal measure of value in capitalist property relations. Accepted by everyone and refused by none, it is a port in the storm of spiraling inflation.

In an article titled “Finding Comfort (and New Friends) in Gold,” the May 7 New York Times reported, “Investment banks like J.P. Morgan and Goldman Sachs are putting out bullish research notes ... and the trading desks of investment banks have been piling into the market, especially in the last week.”

The article, referring to gold investor and enthusiast James E. Sinclair, noted that the surging price of gold “is sending out clear signals that take him back to the 1970s, when inflation, a weak dollar and an oil spike driven by turmoil in the Middle East propelled gold to a high of $875 an ounce, or more than $1,800 in current dollars after adjusting for inflation.” And it led to the economic crisis of 1979-1982.

Sinclair explains: “Gold is a barometer of the common stock of a country, and right now gold is sniffing out weakness in the management of the United States as a business. ... Iran is becoming a nuclear power. The chairman of the Federal Reserve is on a puppet string controlled by the White House, and there is no such thing as a strong-dollar policy when the dollar is heading south.”

The nervousness of investors over inflation was also reflected in the highest price ever paid for a painting: $95 million for Picasso’s “Dora Marr with Cat.”

Speculation and debt

The huge accumulation of dollars has debased and devalued the currency as floods of paper money chase too few goods and services. Speculation is rampant as derivatives and hedge funds pour excess dollars into the world markets. It’s casino capitalism and there is no end in sight. The U.S. national debt is growing toward $9 trillion, while interest paid by the government to Wall Street banks and financial investors already comes to over $200 billion this fiscal year.

In the recent period there has been an enormous expansion of credit, debt and speculation. The housing bubble is about to burst. The stock market has been booming and there is a spate of corporate and banking mergers.

The capitalist economy is overloaded with IOUs, much related to Pentagon spending on the quagmires in Iraq and Afghanistan that seems to have no limits. Lavish no-bid contracts for domestic projects feed the same military-industrial complex, including for contractors plundering the Gulf Coast. The deficit in this year’s federal budget comes to over $300 billion. Besides this, the 2006 U.S. trade deficit is over $260 billion and rising. The price of oil hovers around $70 a barrel and is spiking.

Is the economy entering a period of stagflation that will add to the woes of the U.S. imperialist military superpower? The Federal Reserve Board, under new chairperson Ben Bernanke—a former economic adviser to President George W. Bush—raised short-term interest rates again on May 10 for the 16th consecutive time since June 2004. Their hope: that raising the rate to 5 percent would shore up the dollar and reassure Wall Street that inflation is under control. Instead, the dollar immediately dropped to a one-year low against the euro. It also fell to its lowest point since September against the Japanese yen.

Continually raising interest rates slows down the economy, as borrowing and debt become more expensive. The Labor Department has reported a gain of only 138,000 jobs in April, far short of the 200,000 predicted and below what is needed to keep up with new workers entering the job market. The department also revised its earlier estimates of job growth in February and March, subtracting 36,000 jobs. Weak job reports along with strong productivity growth show that the exploitation of the laboring masses has intensified.

Inflation lowers the living standards of the workers and the oppressed. Wages lag far behind the rising prices of food, energy, housing, health care and other necessities, driving them deeper into debt. At the same time, they are forced to work even harder. In the first quarter of the year, employers squeezed 3.2 percent more output on an annualized basis from each hour of work, compared to the previous quarter.

This translates into overproduction and bitter competition in the global market. The U.S. manufacturing sector is losing ground and has shrunk dramatically. The industrial work force has been cut by hundreds of thousands—as exemplified by General Motors, Ford and DaimlerChrysler.

According to the March 15 Wall Street Journal, “The number of factories in the U.S. shrank last year to 336,000, down 10 percent from its 1997 peak, part of a steady decline that shows no sign of reversing. Yet it isn’t the shuttering of old plants that is the problem. It is the lack of new ones. ... This shift in industrial demographics is stirring concern about the long-term health of U.S. manufacturing. New factories not only create jobs, they also use cutting-edge technology, making them crucial to the nation’s competitiveness. They are also vital to U.S. defense industries, with many of the most-advanced components and electronics made at newer facilities.”

Wall Street investors and speculators have been pouring their excess profits into a booming stock market. It’s at its highest level since January 2000, the month in which the market bubble burst, leading to the 2001 crash.

In “Socialism: Utopian and Scientific,” Frederick Engels, a co-thinker of Karl Marx, explains this capitalist phenomenon. “The financial crisis comes at the very height of the capitalist cycle. The collapse of the market brings about the period of stagnation.”