US: The Federal Reserve's dilemma

In our analysis of Bernankes speech, we stressed that the shift in policy emphasis represented an attempt to orchestrate a controlled recession, leading to a moderate rise in unemployment and a steady lowering of real wages. This process would in turn boost the profits of US corporations, guaranteeing a certain baseline level of returns to carry through the de-leveraging of financial firms and the write-downs of hundreds of billions of dollars in financial assets. The Fed aimed to oversee a controlled purge of infected assets, financed by a recessionary assault on the working class.

But the best-laid plans often go awry, and in the weeks that passed from Bernankes speech to the June 25 policy decision the conditions facing US finance capital have taken a tremendous turn for the worse. From late March through May, there was a certain recovery in the financial markets. Stock prices started to creep back up, banks succeeded in reducing the ratio of borrowings to assets by receiving significant infusions of capital, in many cases from abroad. The recovery reached its peak around mid-May, after which stocks began to slump rapidly. Last month ended with stock indexes registering their worst June since the Great Depression.