‘One day after George W Bush asserted that the ‘fundamentals’ of the US economy are strong, the Dow Jones stock index plummeted by 387, for its second worst drop this year, when our nation’s subprime mortgage disaster spread to Europe, where banks fear they can’t accurately value these sinking loans’, said the AFL-CIO trade union federation.
The AFL-CIO noted that last week, a top Chinese academic ‘wrote an op-ed essentially warning that if China is forced to boost the value of its yuan, China could call in a good chunk of the $407 billion in loans this country owes China’.
The US union federation continued: ‘Now, the US Federal Reserve has joined European banks in scrambling to pump money into our respective economies.
‘Europeans are pushing $130 billion into their financial systems and the Fed added an extra $25 billion in temporary reserves to the US banking system.
‘Credit crunch fears have spread to Asia, where the Bank of Japan added $8.5 billion to the financial system. The Reserve Bank of Australia also lent the most in more than three years, $4.2 billion.
‘Back in China, the academic, He Fan, noted that China has accumulated “a large sum of US dollars” and that its holdings contribute “a great deal to maintaining the position of the US dollar as an international currency.”
‘According to The Washington Post: “If the yuan’s exchange-rate against the dollar does not remain stable, he said, China could be forced to take strong action.”
‘China has $1.33 trillion in foreign-exchange reserves, with $407 billion in US Treasuries, the second-largest holder after Japan.
‘A substantial sell-off of the reserves could spark a recession in the US economy, which is already experiencing a housing slump, financial analysts said.
‘And it gets worse. Today comes word that China’s trade surplus soared 67 per cent in July from a year ago, to its second-highest monthly level on record.
‘July’s surplus totalled $24.4 billion, the Chinese customs agency reported. That beat every previous month except June’s all-time high of $26.9 billion.
‘China’s continually skyrocketing trade surplus means the US trade deficit is on course to be even worse than last year, when it reached a whopping $233 billion.’
The AFL-CIO complains: ‘The US trade deficit with China between 1997 and 2006 has displaced production that could have supported some 2.2 million US jobs, according to the research group the Economic Policy Institute (EPI).
‘Most of these jobs (1.8 million) have been lost since China entered the World Trade Organisation (WTO) in 2001.
‘AFL-CIO, domestic manufacturers and many economic experts maintain that one key reason the US trade deficit with China is so high is because China deliberately undervalues its currency, the yuan, to keep the value artificially low so it can boost exports and discourage imports – running up the US trade deficit and costing good American jobs.
‘An AFL-CIO report shows China’s fixed currency rate artificially lowers the price of its goods by 40 per cent, effectively subsidising China’s exports and putting US companies at a competitive disadvantage.
‘Days before yesterday’s concerns about our credit market spread overseas, a blog writer on The Agonist predicted the global spread of the subprime mess: “The shock waves emanating from the subprime mortgage earthquake are now spreading around the financial world.
‘ “The collateral damage is being unveiled so quickly that it is difficult keeping up with all the collapsed hedge funds, injured banks, and defaulting mortgage brokers.
‘ “It is difficult to make sense of all of this, partly because financial reporting in today’s business publications is almost non-existent.” ’
The AFL-CIO added: ‘Reporters usually repeat what is in some company’s press release, and only a few with experience and investigative instincts can really go below the surface and make sense of things.
‘To be fair to the reporters, this crisis is a bit different, because the hedge fund industry is deliberately and obstinately opaque.
‘Hedge funds reveal little about what they own or how much they borrow.
‘That iron curtain of information about hedge fund exposures is making this crisis much worse.
‘The denial in US financial markets (and the mainstream media) over the extent of the mortgage crisis, which is rapidly spreading from the subprime market to less risky loans, and the refusal of the Bush administration to acknowledge the trade crisis with China, parallel Bush’s claims about a strong economy.
‘Parallel, that is, in the sense of parallel universe.
‘The economy is strong – for the rich. In Bush World, that’s all that counts.’
The union federation added: ‘Writing on TPM Café this week, EPI economist Jared Bernstein sums it up nicely: “The sad part about this is that most working people haven’t gotten squat out of this productivity-rich, wage-poor economic cycle.
‘ “Since 2000, the economy’s productivity is up 21 per cent, while the real earnings of the median worker are up only a couple of per cent.
‘ “It’s no secret that the lion’s share of the growth has gone to those highly-placed top of the income scale, but what if these developments bringing down the financial markets and slowing overall growth persist or even deepen?
‘ “Is this as good as it gets for working families in the 2000s? Do we pass out T-shirts that say ‘I helped boost productivity in the 2000s and all I got was a 2 per cent pay hike?’ ” ’
AFL-CIO continued: ‘After the July jobs report came out last week, which showed a weak growth of 50,000 jobs and an increase in the unemployment rate from 4.5 per cent to 4.6 per cent, Dean Baker, co-director of the Centre for Economic and Policy Research wrote that “on the whole, the July report shows a picture of an economy that is slowing down”.’
The union federation stressed: ‘Job growth is not fast enough to keep pace with the growth of the workforce and this is leading to declining employment rates among prime age workers and modest increases in unemployment.’
The collapse of American capital has come as an enormous shock to the reformist trade union leaders who have not saved a single job.
Instead they have sold jobs for redundancy pay, made huge concessions on wages and health insurance in a desperate attempt to keep companies like GM afloat, and blamed the Chinese for America’s ills.
The working class however will fight for its jobs and future.
This means a return to occupations, mass strikes and going forward with a programme of nationalisation of bankrupt industries.
To take the struggle forward demands the trade unions breaking with the Democrats and building a Labour Party as the independent political leadership of the working class.
This will contest presidential and other elections and campaign for a national health service, free education, and decent housing and jobs for all.
American socialists must urgently form a section of the Trotskyist International Committee of the Fourth International to lead this historic struggle to victory.