The Irrationality of the System Has Been Fully Revealed – Leo Panitch

https://vimeo.com/417670127 The Federal Reserve's finger in the dike won’t contain the economic storm; we need to think through the steps of achieving democratic central planning and public ownership. Leo Panitch on theAnalysis.news podcast with Paul Jay. Transcript Paul JayThank you. So you’ve written about the role of the U.S. Treasury and Fed as what you call the manager of global capitalism, and you’ve questioned whether it could continue to play this role in a crisis during a Trump administration. So what’s your assessment so far? Leo Panitch Well, one has to say that since the middle of March. The Fed has been remarkably successful as the world’s central bank in preventing a complete seizing up of the global financial system. So what has effectively has happened then? I’m not sure it’s right to call it a deepening depression or to make the comparisons with war so many people are doing, because essentially what has happened is that the world states have shut down production.  This isn’t something that was triggered by financial collapse or very low growth rates. This after all this triggered by a terrible pandemic, the kind we have not seen in a century, and the world economy was essentially shut down. And in so far as financial markets began to see, that was about to happen, especially in the United States, they began seizing up. And what the Fed did, remarkably, was to start doing things it had never done before, which was to buy commercial paper, that is these short term bonds that corporations issue in order to balance out their cash flows, pay them back over 30 days or 90 days.  And it started buying not only mortgages, as it did in 2008, but also municipal bonds, of which the US has the largest bond market anywhere, with the world’s banks buying United States municipal bonds. And the Fed has always refused to do that because it would mean profligacy on the part of local governments which don’t have much tax base. So this is a way of disciplining them. And that’s why New York went bankrupt in 1976 because the Fed wouldn’t buy its bonds. The Fed is even buying junk bonds. It’s buying corporate bonds that have below B rating. And all these things are not just being done in the United States: on top of all of that, it has reinvigorated the Swap relationships with the leading advanced capitalist state central banks and is providing them with dollars. And what this proves, again, is that even under the incompetence and confusion and mendacity of a Trump presidency, when the world economy shudders, when all capitalists fear about the value of their property, they pile into the American dollar, and above all, into the American Treasury bill as the core bond of the American state. And that’s because they know that the American government is, above all, dedicated to protecting property around the world.  So it is quite remarkable how Fed has overseen some six trillion dollars in liquidity being poured into the world’s financial system, and how this has managed to stabilize it. In March, it looked like there would be a global stock market collapse, now even the stock markets have revived. Now, that said, the Treasury remains run by an effective idiot, who is nothing like Robert Rubin in the 1990s or Larry Summers or Tim Geithner under Obama. The Treasury still has not replaced many of the key offices that the Trump administration should have filled when it fired the more progressive, quote-unquote, Obama appointees. As we know, the State Department has been bereft of so much of its competence, speaking simply, on the American state’s own terms.  And in the case of the Fed,