Contents "The internationalist proletarian" n.14
THE CAPITALIST ECONOMY PRESSURE COOKER
Expected announcements
Both the European Central Bank and the Federal Reserve have started to lower interest rates. The upward cycle started in the first half of 2022 (the Fed in March, the ECB in July) peaked and begins the decline in the second half of 2024 (the ECB in June, the Fed in September). The Bank of England has also lowered rates. And the Chinese central bank has also announced it. Let's observe the process that has brought them to this point.
The infamous inflation
Probably few economic notions are more widespread among the mass of the population than inflation, and even more so in the past few years in which it has been the center of media attention. The working class certainly has reason to fear inflation: the prices of all commodities rise but the price of the commodity labor power (wages) tends to lag behind. For the same reason, the bourgeoisie sympathizes with moderate or even high inflation, although the second scenario can cause suffering to enterprises which temporarily have to pay more for their constant capital (materials and means of production) without yet being able to transfer this increase to the final price (see “The Internationalist Proletarian” No.11, page 17).
Worldwide inflation trends
Let us look in the following graph prepared by the International Monetary Fund at the evolution of core inflation (seasonally adjusted annual rate). This world organ of the bourgeoisie takes as a reference 57 economies representing 78% of world GDP (in purchasing power parity) in 2023. The bands represent the 25th to 75th percentiles of the data of these economies.
It can be seen that, despite differences in the magnitude of inflation across economies, both the average curves and the dispersion bands show an analogous movement over time. This reflects the global nature of underlying inflationary pressures during this period.
The epileptic resumption of production
In previous issues we have analyzed the beginning of the supply and demand imbalances produced by “the sequential closure of a whole range of industries during the years 2020 and 2021 [that] has produced a halt or slowdown in the production itself in these sectors but also in those industries that provide the raw materials or semi-finished or auxiliary products that are needed” (“The Internationalist Proletarian” No.7, July 2021, page 8) followed by “the unsynchronized resumption of production [that] has generated an abrupt increase in the demand for these products. This demand cannot be satisfied in the short term: stocks are reduced to the minimum and the scale of production is adjusted to satisfy a continuous demand distributed over time and not to the sudden accumulation of the same volume of demand in a short time.” (“The Internationalist Proletarian” No. 7, July 2021, page 8), analyzing then the bottlenecks “produced by the convulsions of the start-up of the different productive sectors which, rather than a resumption, looks like a gigantic EPILEPTIC ATTACK of the capitalist productive organism.” (“The Internationalist Proletarian” No.7, July 2021, page 8).
We also saw the RALES and SPASMS of the capitalist commodity circulation through which “the arteries of capitalist circulation have been simultaneously collapsed and undersupplied, in the dialectic intertwining of the contradictions of capitalism that produce overcrowding and undersupply at the same time” (“The Internationalist Proletarian” No.9, April 2022, page10) and how “the saturation of circulation due to overcrowding produces shortages in another pole. And to avoid shortages, each competitor tries to monopolize as many supplies as possible, leading to a spiral that continues to reproduce overcrowding and shortages at each pole” (“The Internationalist Proletarian” No.9, April 2022, page 11).
We were able to reiterate that it was the “phenomenon, which occurred within the context of the process of reproduction and rotation of productive capital (which encompasses its production and circulation), that has motivated the rise in prices” (“The Internationalist Proletarian” No.10, September 2022, page 6), ruling out erroneous explanations of inflation based on monetary policy (“The Internationalist Proletarian” No.10, September 2022, pages 7 and 8) and analyze the evolution of supply chain tensions to show the turning point that was reflected in the fall in semiconductor sales (and corresponding increase in inventories), the price drop of multiple metals and grains, the attempts to reduce inventories in the USA (even selling at a loss) and the gradual decline in container shipping prices (“The Internationalist Proletarian” No.10, September 2022, pages 11 and 12). In “The Internationalist Proletarian” No.11 (Abril 2023, pages 16 and 17) we analyzed the gradual but consolidated disinflation of the supply chain in late 2022, in the decrease of freight rates, transit days, container unloading times, etc. as well as the increasing overcrowding of inventories, the decrease in the availability of space in US distribution warehouses and the corresponding increase in the cost of renting those warehouses. In “The Internationalist Proletarian” No.13 (March 2024, page 26), after outlining the general historical framework in which capitalism operates and to which we refer the reader, we reiterated: “It is in this context that the blockages and stoppages of capitalist production and circulation in 2020-2021 took place and were prolonged in time, as well as the subsequent epileptic resumption of world capitalist production and circulation. This electroshock applied to capitalism by the system itself allowed the economies of Western imperialism to temporarily emerge from the swamp of deflation in which they had been sinking for years”. And we also reported: “For the time being, the Fed and the ECB have put their interest rate hikes on hold and are starting to talk about interest rate cuts. The trend is there: "The latest data collected by Bank of America reflects no less than 30 interest rate cuts globally in the last three months, the most since 2020." (Expansión, 21-11-2023).” (“The Internationalist Proletarian” No.13, March 2024, page 27).
Nominal and real monetary policy
In “The Internationalist Proletarian” No.11 (April 2023, page 5) we questioned “the effect of central bank monetary policy (not to be confused with government spending on investment, subsidies and aid) on this decline in inflation” since during most of the process “rates were far from having a really restrictive effect”.
The IMF provides a useful comparison of real rates compared to nominal rates: