Decoding Bernanke

In recent policy choices, U.S. central bank chief, Fed chief Bernanke has steered the ship for private appropriation in the contradiction between socialized production and private appropriation Marxists speak of.

Talk is that banks have stopped lending or that at least sectors of bank lending are contracting. For most people, banking is not production especially since it seems money creation comes out of thin air. However, if we grant some kind of overall social impact on production to banking, then we can see that some of Bernanke’s recent pronouncements have not had increasing lending directly in mind while other Bernanke actions purport to show the government directly involved in lending.

It’s not that Bernanke told the bankers to spend their money on fox hunts.

Rather, Bernanke seeks to boost the kind of confidence that helps in the stock market. He stresses that the Fed itself has solid books,(1) because Fed assets are not wrapped up in complicated long-term actual business.

His next move was  to take “non-traditional measures,” such as putting a “floor” on the interest rate for idle funds. Usually one thinks of the Fed as a place for bankers to go borrow some money and regulate money. Now the Fed says it is a place to soak up money and pay interest.

On the one hand, the Fed appears to want more loans, with work to loosen requirements and getting involved in creating more money. Creating a floor for excess funds sitting around does the opposite: it tells bankers they do not have to “invest or die.” So some of these recent Bernanke comments are not aimed at the overall social problem of lending.

Bernanke said February 18: “The Fed’s lending activities have indeed resulted in a large increase in the reserves held by banks and thus in the narrowest definition of the money supply, the monetary base.1 However, banks are choosing to leave the great bulk of their excess reserves idle, in most cases on deposit with the Fed.”(2)

It’s the follow up remarks that are interesting: “Importantly, the management of the Federal Reserve’s balance sheet and the conduct of monetary policy in the future will be made easier by the recent congressional action to give the Fed the authority to pay interest on bank reserves. Because banks should be unwilling to lend reserves at a rate lower than they can receive from the Fed, the interest rate the Fed pays on bank reserves should help to set a floor on the overnight interest rate.”(2)

True, this gives the Fed another interest-rate setting power, so it could be seen as a pure power grab. What is Bernanke really addressing here? This is not a message that banks need to find something to do with their reserves. It’s a message that the Fed is going to compete for those reserves and stuff bank balance sheets. This might impress the stock market and “animal spirits” —  in other words psychology related to paper. Can throwing around large numbers connected to paper change the real world connected to long-term loans? Is it true that capitalism is doing something even when it is doing nothing?

Bernanke also alludes to measures to coordinate international banking in defense of the dollar’s stability in his February 18 speech. He says the Fed has authorized 14 foreign central banks to loan out dollars, ostensibly for the purpose of reducing interbank lending rates. “Here foreign banks, since our banks won’t do anything about it, maybe you will?” Another interpretation would be that the Fed seeks also to influence exchange rates more directly. By re-interpreting exchange rates as a problem of liquidity in a given currency, the central banks throw themselves behind currency exchange stability.

It all amounts to “we care, and we won’t let you (the capitalist world) go under even if we have to look like socialists in the meantime.” There is much to see “under the hood” right now. The oppressed nations are liable to cut through the paper vodoo.

The Keynesians sell us a story of the capitalist world needing regulation and a backstop in case of panic — thus a mixed economy. We at MIM see the crisis rooted in the imperialist country role of realizing surplus-value. That role is vulnerable to class struggle, and hence, there is nothing saying one half of the U.$. economy could not be quickly lopped off. It’s not a psychological panic, but a real class struggle involving real limits on what the U.$. and similar economies can do.

The national bourgeoisie has exerted itself slightly in class struggle. In China, Mao came to power in the midst of struggles by the national bourgeoisie against foreign occupiers. Although socialism lasted a generation, Mao levelled the international playing field and the national bourgeoisie then had a comeback. The restoration of capitalism in China tells the national bourgeoisie not to fear struggling too hard and ending up in socialism, because capitalism can come back after the playing field levels out. Stability is for those who have it good already.



See for criticism of the Fed and Keynesians that nonetheless admits a huge crisis.



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